City Council Study Session Agenda and Packet 2015 03 10

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SUBJECT: UTILITY FUNDS FINANCIAL PLAN UPDATE DATE: MARCH 10, 2015 PAGE2OF9 Based on Council direction, staff continued to work with RFC to update and refine the recommended rate increases to reflect the approved 2015 City Budget and new information and updated assumptions since the 2013 study financial model. Based on this work, the updated model now reflects increased construction costs, more accurate interest rate and issuance costs than previously assumed for proposed debt, changes in project timelines, 2013 flood related costs, and updated accounting for actual tap fee revenue and estimates of future revenue. Staff and RFC performed this financial plan update to refine the proposed rate increases and verify that the planned increases would be adequate. A memo describing the process used by RFC to complete the update is attached and the key elements of the proposed rate increases /changes are summarized below Key Elements of the Rate Change There are two key elements of the proposed rate changes. First there are increases needed to generate sufficient revenue to cover capital costs and the ongoing costs to operate and maintain the City's water, wastewater and stormwater utility systems. Second, there are changes in rate structure to more equitably distribute costs to the various users based on users' relative contribution to total system costs. Staff refers to these latter changes as "cost of service adjustments ". Table 2 shows the updated proposed rate increases needed to generate sufficient revenue, without any cost of service adjustments. This table compares the rate increases proposed in the 2013 Utility Rate Study (shown in black text) to the proposed increases reflecting current financial update (in red text, if different from what was proposed by the 2013 Rate Study). Table 2 — Overall Required Rate Increases by Utilit Rate Increases from the 2013 Utility Rate Study Compared with the current Update. or Indicates Change from the 2013 Utility Rate Study Utility Proposed Rate Revenue Increase 2015 2016 2017 2018 2019 Water 2.0% 0% 2.0% 11% 2.5% 11% 2 %0% 0% Wastewater 27.0% 8,0% 20% &%'4% &9-% 0% 0% Stormwater 30.0% . % 25.0% 12% 25.0% 1% 0.0% 0% Cost of Service Adjustments As noted above, cost of service adjustments are changes staff proposed to existing rates to more equitably distribute costs to Residential and Non - residential customers. The 2013 Cost of Service Study performed by RFC indicated the following cost of service adjustments should be made to recover from each customer category the total relative share of costs those customers impose on the utility system: CITY COUNCIL COMMUNICATION 3