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Home My WebLink About17- RFP Submission - Water and Wastewater Cost of Service and Rate Design StudySubmitted: August 15, 2017 HEC Project #170248 THISPAGEISINTENTIONALLYBLANKFORDOUBLEǦSIDEDPRINTING City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page i Proposal Contents Section Page 1. Basic Information and Interest 1 2. Firm Experience 2 HEC Services 2 Notable Accomplishments 6 3. Proposed Team 7 Project Team Staff 7 4. References 10 5. Work Summary 14 Approach to Scope of Services 14 Scope of Services 15 6. Work Plan and Project Schedule 19 Work Plan and Budget 19 Estimated Project Schedule 20 7. City‐Furnished Documentation 21 Attachments Attachment A – Project Team Resumes Attachment B – City of Fernley Water and Wastewater Rate Study Attachment C – Statement of Non‐Discrimination THISPAGEISINTENTIONALLYBLANKFORDOUBLEǦSIDEDPRINTING Section 1 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 1 1. Basic Information and Interest Thank you for the opportunity to submit a proposal to prepare a Water and Wastewater Utility System Cost of Service and Rate Design Study (Study) for the City of Bozeman (City). The Study will serve as an essential cornerstone in planning for the City’s water and wastewater utility operations, supporting continuation and expansion of excellent services to its customers. Hansford Economic Consulting (HEC) and its Principal, Catherine Hansford, bring more than 20 years of experience in municipal finance with specialization in the water industry. With a proven track record of completed projects and references listed herein, HEC offers the necessary skill set for successful, straightforward execution of the Study. HEC appreciates the challenge of balancing equity, feasibility, and customer acceptance goals when approaching utility rate changes. HEC will strive to help the City to operate the water and wastewater systems to meet all regulatory requirements with reasonable rates that help sustain a vibrant economy. HEC works with clients to find the best solutions for their own unique circumstances. Our office is in Truckee, CA and all work will be completed from this location. We look forward to the opportunity to discuss our proposal with the City in greater detail. All correspondence should be directed to myself, Catherine Hansford, at (530) 412‐3676 or catherine@hansfordecon.com. Sincerely, Catherine R. Hansford HANSFORD ECONOMIC CONSULTING P.O. Box 10384 Truckee, CA 96162 Section 2 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 2 2. Firm Experience HEC Services Hansford Economic Consulting (HEC) provides planning, economic, and financial services for public and private clients in the Western United States. The company, founded in 2005, is owned and managed by Catherine Hansford, an applied economist with over 20 years of experience. HEC clients include regional agencies, counties and cities, special districts, non‐profits, private entities, and homeowner associations. HEC’s services include:  Water Utilities Resource and Financial Plans  Infrastructure Networks Analysis  Agency Governance, Mergers & Organization  Economic Development & Business Impact Analysis  Public Facilities and Services Financing Plans  Fee Nexus Studies  Fiscal Impact Studies Our high‐quality work products span a breadth of land and water resource related topics that touch our human communities and environments. HEC endorses progressive and adaptive planning, understanding that plans are useful only if they are comprehensive, relevant to the specific local conditions, and lead to implementation. Why we are Best Qualified HEC works with clients to find the best solutions for their own unique circumstances by listening to and collaborating with them; this is what sets HEC apart from our competition. No two water or wastewater systems are the same. We work within the parameters of industry standards and local circumstances. Utility rates are a sensitive topic. HEC has experience beyond utility rates with strategic planning services we provide that we draw on. Our approach is especially desirable when working on sensitive community issues with a divergent customer base and/or the interests of multiple stakeholders. HEC is small and nimble with only three staff members. Our utility rate models have withstood the scrutiny of California’s rate‐setting laws, which are very rigorous for cost of service demonstration, and rate design. We have helped agencies set rates during California’s historic drought, and have on‐the‐ground experience with running water conservation programs. Water Utilities Resource and Financial Plans HEC has a long history of providing utilities resource and financial plans, including: water and wastewater demand analysis projections; income surveys; water, wastewater, recycled water, and solid waste utility rate and fee studies that meet legal requirements; and assistance with state and federal low‐interest loan and grant program applications. HEC has provided rate setting advisory services to more than 40 public agencies in the Western United States. Section 2 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 3 HEC Municipal Utilities Clients  Financial Plans  City of Ashland – Water, Transportation, Storm Drain, and Wastewater Fee Studies  City of Fernley – Water and Wastewater Rate Studies  City of St. Helena – Water and Wastewater Rate Studies  City of Live Oak – Water and Wastewater Rate Studies  City of Waterford – Water Rate Study  City of Livingston ‐ Water, Wastewater and Solid Waste Rate Studies  City of Escalon – Water and Wastewater Rate and Capacity Fee Studies  City of Turlock ‐ Water Rate and Recycled Water Pricing Studies  City of Riverbank ‐ Wastewater Rates Analysis  City of Colusa ‐ Wastewater Revenue Program  City of Newman ‐ Water and Wastewater Rate Studies  Woodbridge Sanitary District – Wastewater Rate Study  South Placer Municipal Utility District ‐ Wastewater Rates and Capacity Fees Study  Donner Summit Public Utility District ‐ Wastewater Treatment Plant Upgrade and Expansion Financing Plan and Cost of Service Study, and Water Rate Study  Truckee Meadows Water Authority – Retail and Wholesale Water Rates Study  City of Lincoln – Utilities Asset Valuation and Replacement Analysis  Washoe County ‐ Financial and Functional Analysis of Water Service to the South Truckee Meadows General Improvement District  Truckee Meadows Authority ‐ Financial Due Diligence for consolidation of water service with Washoe County  City of Carson City – Marlette Water System Merger Financial Analysis  Squaw Valley PSD – Water and Wastewater Financial Projections  Washoe County – Spanish Springs Wastewater Connection Fee Analysis  Rancho Murieta Community Services District – Security and Drainage Fees Update  City of West Sacramento – Flood In‐lieu Fee Study Update  Western Regional Water Commission – Impact of Water‐Related Fees on Development  Capital Funding  City of Williams ‐ Clean Water State Revolving Fund Loan  Donner Summit Public Utility District and Sierra Lakes County Water District ‐ State Revolving Fund Loan, USDA Financing, and CDBG Funding  San Andreas Sanitary District ‐ Clean Water State Revolving Fund Loan  Midway Heights Community Water District ‐ Drinking Water State Revolving Fund Loan  Town of Floriston – Drinking Water State Revolving Fund Loan  Sierraville Public Utility District – Financing Strategy and SRF and USDA Loan applications  Sierra County WWD #1 – SRF and USDA Loan applications and Water Rate Study  Heather Glen Community Services District ‐ USDA Income Study for Water Facility Funding  Truckee Meadows Water Authority ‐ Survey of Economic Hardship Programs for Water and Sewer in the State of Nevada Section 2 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 4  Donner Summit Public Utility District – Determination of Median Household Income for State Revolving Fund Disadvantaged Status  Resource Plans  Truckee Meadows Water Authority ‐ Water Resource and Conservation Plan  June Lake Public Utility District ‐ Water Demand Projection for the Rodeo Grounds Project  Truckee Meadows Water Authority ‐ ET Controller Pilot Study  Truckee Meadows Water Authority ‐ Residential Water Demand Study  Truckee Meadows Regional Planning Agency ‐ Status of Sanitary Sewer, Solid Waste, Flood Control, Potable Water, and Groundwater Aquifer Recharge Chapter of the Regional Plan  Truckee Meadows Water Authority – Interlocal agreements manager for water conservation  California State Parks, Tahoe Regional Planning Agency and the US Army Corps of Engineers ‐ Economic Analysis for Restoration of the Upper Truckee River  Eureka County – Economic and Financial Analysis of a Potential Diamond Valley GID for retirement of water rights in an over‐appropriated basin  Western Regional Water Commission – Financing Chapter of the Regional Water Management Plan 2017 Update Different Water and Wastewater Rate Structures Modeled Table 1 below demonstrates HEC’s experience in modeling different utility rate structures. Table 1 Different Utility Rate Structures Modeled by HEC WATER WASTEWATER Per EDU Per EDU - flow only Per Unit Per EDU - flow and strength Base Charge by Water Meter Size plus Flow Charge: Strength of Wastewater accounted for in Cost Allocation: Uniform use charge Residential per unit, Commercial by flow only Different use charge by customer type Residential per unit, Commercial by account and flow Tiered use charges (uniform and different by customer type) Residential per unit, Commercial base by meter size plus flow Seasonal water charges Tiered seasonal water charges Drought surcharges Additional Charges (may be shown separately on bill)Commercial Wastewater Strength Fire suppression charges Low, medium, high Meter replacement charges By customer type or groupings of customers System rehabilitation charges Residential and Commercial by unit/account and winter avg. water use Section 2 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 5 Infrastructure Networks Analysis HEC provides comprehensive infrastructure networks analysis, including demand analysis, identification of areas with excess/constrained capacity, potential problems that arise from capacity issues, and examination of potential scenarios. Examples of projects include:  Truckee Meadows Regional Planning Agency ‐ Capacity Constraints in Regional Infrastructure Networks Report  City of Sacramento ‐ Benefit Cost Analysis for TIGER funding of the Sacramento Valley Station Improvements Agency Governance, Mergers, and Organization HEC has partnered with agencies to analyze organizational changes and strategies to better help the organization meet its goals and objectives. Structural, financial, functional, and strategic analyses are used, singularly or in combination, to provide key information to an organization’s decision makers and stakeholders. Examples of projects include:  Truckee Meadows Regional Planning Agency ‐ Regional Governance Models Report  Somersett Owners Association – Organizational Assessment Report Economic Development and Business Impact Analysis HEC has a history of assisting communities with development, redevelopment and revitalization issues. Thorough analysis of historical background and present conditions, along with an economic outlook, and potential opportunities, gives citizens and community leadership ideas regarding the economic impact of a given situation. Strategic planning can also be employed to achieve community goals. Examples of projects include:  Town of Truckee ‐ Hilltop Development Commercial Use Economic Analysis  Mono County ‐ June Lake Economic Development and Job Creation Study Public Facilities and Services Financing Plans HEC develops financing strategies for public facilities and services. Available financing options specific to an entity may include different types of bonds, or fees, or assessments. Our financing plans consider debt limits and other restrictions that may be in place for local governments. Examples of projects include:  Fresno County – Financing Plan for Friant Ranch Active Adult Community  Placer County ‐ Urban Services Plans for Placer Vineyards and Bickford Ranch Fee Nexus Studies HEC conducts studies which show the linkage between a new development and the need for affordable housing, transit, public facilities, or other community resources. The study shows the legal nexus that justifies the fees in support of the resource. Examples of projects include:  City of Sacramento – Development Impact Fees Review, Best Practices  City of West Sacramento – Affordable Housing In‐Lieu Fee Analysis Section 2 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 6 Fiscal Impact Studies HEC provides projections of the local governmental costs and revenues generated by a new development or change in policy. Changes in tax revenues, demand for services, and infrastructure costs determine whether the estimated costs incurred are balanced with an increase in revenues. Examples of projects include:  Truckee Meadows Regional Planning Agency – Fiscal Equity Analysis  City of Woodland and Yolo County – New Commercial Development Fiscal Impact Analyses HEC Notable Accomplishments  HEC was asked to provide a 3‐hour class on water rate and fee setting for the Nevada Rural Water Association. The class was held at the Truckee Meadows Community College and video‐ broadcast to colleges throughout the state of Nevada. HEC most recently provided this class in March 2017.  HEC assisted the Donner Summit Public Utility District (DSPUD) secure the first California Clean Water State Revolving Fund (CWSRF) planning loan to finance the significant planning costs associated with their wastewater treatment plant upgrade project in July 2010. Also for the for the same project, HEC helped DSPUD obtain the first refinancing of debt in the State through the California CWSRF. The completion of the project has led to the first snow making from recycled water in California at the Soda Springs Ski Resort. Snow making started January 2016.  In 2013, HEC conducted a unique analysis on the feasibility of a special district to retire water rights in the Diamond Valley Basin to rectify over‐appropriation of groundwater. The analysis was the first of its kind in the State of Nevada and has been used by the State Engineer in consideration of actions for the hydrographic basin.  In 2003, Catherine was selected as Chair of the Advisory Committee for Water Conservation for the Regional Water Planning Commission in Washoe County, Nevada. Recent Publications: “Setting and Assessing the Impact of Water‐Related Development Fees”, The Water Spot, First joint issue of the Nevada Water Environment Association and Nevada Water Resources Association, Winter 2017. Section 3 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 7 3. Proposed Team Project Team Staff HEC is a firm of three; Catherine Hansford, Principal, Elysia Ulrich, Junior Economist, and Zach Gustafson, Analyst. All staff work out of the company’s office in Truckee, CA. No sub‐consultants are necessary for the Study. Key personnel for the Study are Catherine and Zach. Catherine will serve as Project Manager, and Zach as financial analyst. Elysia will provide peer review of all deliverables. The approximate percentage of effort is Catherine (45%), Zach (45%), and Elysia (10%). Resumes for all staff are provided in Attachment A. Biographies and similar work experience is provided below. Catherine Hansford, Principal Catherine is a practitioner of financial, economic, and resource sciences. As a professional for more than 20 years, Catherine has built a reputation for creative problem solving, excellent speaking skills and written products. Catherine has worked in both the public and private sectors over the course of her career. In the public sector, Catherine worked as a senior planner for the Truckee Meadows Water Authority (TMWA), performing management analyst functions such as cost‐benefit analysis, managing interlocal agreements, performing rate and fee studies, and working with stakeholders. Catherine served as liaison/chair between TMWA and various customer groups. These included a Rate Making Review Committee and Landscape Subcommittee. Catherine served on the Advisory Committee on Conservation for the Washoe County Regional Water Planning Commission from 2001 through 2004, and as its Chair from 2003 through 2005. In the private sector, Catherine worked for Economic and Planning Systems (Sacramento office) helping clients with municipal bond sales, financing plans, special district formation, user fee studies, fiscal studies, and nexus fee studies. At ECO:LOGIC Engineering (now Stantec), Catherine specialized in water utilities public financing. Since 2005 Catherine has been the owner and principal of HEC, engaging in municipal planning and finance issues. Special Training Media Spokesperson Training with Ken Husky Orcom Water Accounts Billing Software Training Similar Work Experience (past 3 years only)  City of Ashland Water Cost of Service Study (2015)  City of Fernley Water and Wastewater Rate Study (2016)  City of St. Helena Water and Wastewater Rate Study (2017)  City of Live Oak Water and Wastewater Rate Study (2017)  City of Livingston Water and Wastewater Rate Study (2015) Section 3 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 8  City of Escalon Water and Wastewater Rate Study (2016)  City of Coos Bay Wastewater Rate Study (2017)  City of Newman Wastewater Rate Study (2017)  City of Waterford Water Rate Study (2016)  Woodbridge Sanitary District Wastewater Rate Study (2016)  Donner Summit Public Utility District Water and Wastewater Rate Study (2016)  Calpine Water Rate Study (2015) Zach Gustafson, Analyst Since joining HEC, Zach has primarily been modeling water and wastewater rates and assisting clients with applications for State and Federal funding for water and wastewater capital improvement projects. This work requires coordination with the agency, agency consultants, and funding program staff; continual monitoring of application status, advocating for the agency to keep the project(s) moving forward, and frequent meetings. Zach also provides in‐depth research and data analysis using various sources of economic information, such as the US Census. Zach earned a Bachelor of Science in Marketing at Bentley University in Boston, Massachusetts and studied International Finance, Marketing, and History at Bond University in Queensland, Australia. Similar Work Experience (past 3 years only)  City of Ashland Water, Wastewater, Storm Drain, and Transportation Rate Projections (2017)  City of Fernley Water and Wastewater Rate Study (2016)  City of St. Helena Water and Wastewater Rate Study (2017)  City of Live Oak Water and Wastewater Rate Study (2017)  City of Coos Bay Wastewater Rate Study (2017)  City of Newman Wastewater Rate Study (2017)  City of Waterford Water Rate Study (2016)  Donner Summit Public Utility District Water and Wastewater Rate Study (2016)  Calpine Water Rate Study (2015) Elysia Ulrich, Junior Economist Elysia’s responsibilities consist of legal research, information research, data aggregation, mapping, financial analysis, preparation of presentations, and client communications. She has contributed to the successful completion of many projects at HEC including: jobs to housing studies, strategic plans, agency governance studies, and fee nexus studies. Her previous work experience includes operations management and organizational performance, econometric and fundamental investment analysis, business strategy development, and operational support for a private hedge fund. Elysia earned a Master of Business Administration at Western Governors University and holds a Bachelor of Arts in Economics from the University of Nevada, Reno. Elysia is a member of the Nevada Water Resources Association. Section 3 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 9 Quality Assurance HEC will produce the Study in a timely fashion and exceed expectations in presenting the Study to the public and elected officials. The following testimonials speak to HEC’s ability to follow through on this statement. “Hansford Economic Consulting has helped take our Regional Water Plan to a higher level. Catherine’s specialized knowledge in the utility field has been invaluable in collecting and analyzing cost and financing data from various sources in our community. Her firm’s work is thorough, accurate, and well presented; it’s executed with the highest level of professionalism. I would not hesitate to highly recommend Hansford Economic Consulting to any of my colleagues.” Jim Smitherman, Program Manager Western Regional Water Commission “I had the distinct pleasure to work with Catherine Hansford for several years at the Truckee Meadows Water Authority. Catherine is a rare combination of powerful analytical skills with an extraordinary ability to assess the big picture; all wrapped together with superior communication skills presented with a sparkling personality. Catherine is definitely someone you want on your team!” Lori Williams, Former General Manager Truckee Meadows Water Authority “I was extremely impressed with Catherine Hansford and her team. We contracted with HEC to perform a water and wastewater rate study. St. Helena was significantly underfunded in both our water and wastewater enterprise funds. We knew from the onset that that upcoming rate increases would need to be significant to cover costs. We also knew that rate increases would be difficult and contentious in our community. One of Catherine’s most impressive attributes is her breadth of knowledge. Although numerous people opposed the rate increase, Catherine’s thorough review and reporting on the City’s needs and expenses helped everyone understand the need for the increase. Catherine’s knowledge, combined with her calm and professional demeanor, made her the perfect match for our community. Ultimately, City Council passed the rates in a 5-0 vote. I strongly recommend Catherine, it was truly a pleasure to work with her.” Jennifer Tuell, Water Conservation Program Manager City of St. Helena Section 4 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 10 4. References Following are four similar studies with contact reference information. Attachment B provides an example of a water and wastewater rate study completed by HEC for the City of Fernley, Nevada. City of Live Oak, CA ‐ Water and Wastewater Cost of Service and Rate Design Study Project Dates: October 2016 – October 2017 Contact: Jim Goodwin, City Manager (530) 695‐2112……………citymgr@liveoakcity.org In 2016, the City engaged HEC to prepare a water and wastewater cost of service and rate design study. There had been no increase to water rates within the last 10 years and the water fund was collecting insufficient revenues to fund the system. HEC held five study sessions with City Council on the findings of the cost of service study and recommendations for revised rate design. City Council proceeded with a new rate schedule which will be implemented October 1, 2017 barring a majority protest to the proposed rates. HEC worked with a public outreach firm to increase the likelihood of new rates being adopted. City of Ashland, OR Water Cost of Service and Rate Study, Transportation and Stormwater Fee Studies Project Dates: November 2014 – May 2016 Contact: Mike Faught, Public Works Director (541) 552‐2411…………….faughtm@ashland.or.us The City of Ashland undertook a Water Master Plan in 2012. The Master Plan identified several very large infrastructure projects necessary to maintain the existing water system and plan for future demand. The City raised rates over the following 3‐year period as a result of the Master Plan findings; however, due to a drought, water demand fell, and despite the rate increases, total rate revenue fell. The City desired not only to conduct a rate study to determine necessary increases to rates, but also to examine cost of service and equity of cost allocation among customer classes. HEC was selected through a competitive process to prepare the Water Rate Cost of Service Study in August 2014. Preliminary findings were presented in November 2014 and the City began an extensive data scrub as a result of the preliminary findings. With a solid database compiled, the Study resumed again in July 2015. In February 2016, the final report was reviewed by City Council. The final report included several recommendations for change to the water rate structure to Section 4 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 11 improve equity among customer classes and to reduce peak demands during the summer months. The new rate structure is in effect. Since completing the water rate study, HEC has completed a transportation utility fee study and a stormwater utility fee study for the City. Currently, HEC is helping the City with wastewater financial projections and helping the City with customer classifications as a new utility billing system is being implemented. City of St. Helena, CA Water and Wastewater Cost of Service and Rate Design Study Project Dates: January – November 2016 Contact: Jennifer Tuell, Project Manager (707) 968‐2635 ………jtuell@cityofsthelena.org St. Helena was facing negative fund balances by the end of the fiscal year and had several large‐ scale, State mandated capital projects to complete in the next five years for both water and wastewater systems. After selection through a competitive process, the City contracted with HEC to perform full cost of service analyses for both utility systems. HEC worked with City staff and an ad hoc committee to determine the most appropriate rate structure for both utilities based on customer characteristics of the water and wastewater systems. The City had a tiered water rate structure that needed to be vetted in light of the San Juan Capistrano decision. Projections of operating costs and a financing plan for capital improvements were developed. A projection of demand was prepared, accounting for recent drought and City water conservation efforts. A new water rate structure, with removal of tiers and the addition of drought period use charges, was adopted following the public hearing in November 2016. A new wastewater rate structure, with removal of service charges based on water meter size, was also adopted in November 2016. HEC assisted the City with implementation of the new rate structures, including working closely with City staff responsible for billing. The Mayor of St. Helena was quoted in the Napa Valley Register in December 2016 saying, “The Council formally authorized rate studies for both water systems. It selected an experienced rate consultant in Hansford Economic Consulting. Residents have spoken highly of the clarity of Ms. Hansford’s presentations.” Truckee Meadows Water Authority, NV Water Rates and Connection Charges Project Dates: Various; since 2001 Contact: Mark Foree, General Manager (775) 834‐8009…………mforee@tmwa.com Section 4 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 12 Catherine joined TMWA in 2001, just months after the organization was first formed. The organization had to immediately embark upon a series of several large rate increases for all raw and treated water customers (including retail, wholesale, interruptible and firm water supply customers), and establishment of new connection fees to ensure that growth paid for itself. As an employee, Catherine was responsible for the rate model and coordination with engineering staff to craft fees and rules that would provide sufficient funding for projected resources and infrastructure needs for the following three to five‐year period. Water rates and fees were successfully adopted. In 2010, TMWA engaged HEC to evaluate the financial exposure to TMWA from the planned merger with Washoe County Department of Water Resources. Due diligence efforts included assessing the risk of inheriting existing developer agreements with the County for water service; recommending changes to County water ordinances to provide for a smoother transition process; analysis of differing rate structures upon consolidation; and calculation of connection fees for new zones of service upon integration of the two water utility systems. The two systems merged January 2015. Current Client List Due to the nature of our business, the public clients that HEC serves changes from month to month. Please note that work for some of these clients is start and stop; we are not continually working on these projects all at once:  Pershing County, NV (completion October 2017) o Sheryl Gonzalez, (775) 883‐7333 ext. 2000  City of Coos Bay, OR (completion December 2017) o Jim Hossley, (541) 269‐8918  City of Winters, CA (completion November 2017) o Shelly Gunby, (530) 795‐4910 ext. 104  City of Williams, CA (completion December 2017) o Frank Kennedy, (530) 473‐2955  City of St. Helena, CA (completion December 2017) o April Mitts, (707) 968‐2751  San Joaquin County, CA (completion October 2017) o John Funderburg, (209) 468‐3160  City of Live Oak, CA (completion October 2017) o Jim Goodwin, (530) 695‐2112  Heather Glen Community Services District (completion September 2017) o Gerry LaBudde, (530) 906‐5181 Section 4 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 13  Spring Creek HOA (completion September 2017) o Jessie Bahr, (775) 753‐6295  City of Newman, CA (completion December 2017) o Lewis Humphries, (209) 862‐3725  Sierraville Public Utility District, CA (ongoing) o Lee Wright, (530) 550‐3111  Sierra County Waterworks District #1, CA (ongoing) o Paula Crowder, (925) 878‐1640 We do not foresee any potential conflicts with providing services to the City. Section 5 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 14 5. Work Summary Approach to Scope of Services HEC’s goal is to enable the City to make informed decisions and to increase customer understanding and knowledge of the water and wastewater systems so that financial decisions are understood, even if they are not favored. HEC’s methodology focuses on all parties paying their fair share of system costs so that one customer group is not subsidizing another. HEC will examine financial equity among current users through cost of service analyses, and cost allocation of existing and planned future assets between current and future users of the water and wastewater systems. HEC customizes rate and fee models for each client’s needs. HEC will craft multi‐year financial models in Microsoft Excel, giving the ability to test various key assumptions, such as operating reserve levels, different capital financing scenarios, and rate structures. All assumptions used in the models are clearly defined, and tables are presented in an easily understandable format. The models may include several scenarios; all scenarios will be defined and a baseline scenario will be developed, which will serve to evaluate the impact of changes to any key model assumptions. The final Excel models will be City property upon completion of the studies. All drafts remain the property of HEC. HEC will work closely with the City to communicate effectively with the customer base the reasons for rate and/or fee adjustments, including any proposed change in rate structure. As a former water utility employee, Catherine understands how critical this step is in the process of adopting revised rates and fees. HEC will:  Document the current cost of service for water and wastewater services,  Recommend any changes to rate structure as a result of the cost of service analysis, evaluating specific issues for consideration such as low‐income rates, cash in‐lieu of water rights, and other issues with input and direction from staff,  Calculate rates and fees that are projected to achieve revenue sufficiency for each utility fund, accounting for projections of costs, including: operations and maintenance (in normal and drought years), long‐term asset replacement, short‐term completion of major rehabilitation and new capital improvement projects, as well as any debt service payments,  Provide a five‐year financing plan for timely completion of planned capital improvements,  Document the cost allocation methodologies such that calculated rates adhere to legal requirements, and Section 5 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 15  Recommend rates and fees that have been vetted through a transparent, public process, and that are based on national best practices, principles, and methodologies. Recommended rates and charges strive to meet multiple objectives including reasonableness and equity among customer groups, and they must be both understandable and easy to implement. HEC will work with the City to meet its desired schedule to implement new rates. HEC’s approach throughout the project is to remain flexible to changing circumstances and/or assumptions. Utility rates and charges must be studied on a routine basis to ensure that the utilities are achieving revenue sufficiency in the most equitable fashion. Any recommended increases must be robust in determination and clearly explained to the public. HEC anticipates that fairness or equity of rates will be closely scrutinized; therefore, standard industry practices will be followed in the rate‐setting process. HEC follows best practices, in particular those documented in the American Water Works Association, M1 Manual “Principles of Water Rates, Fees, and Charges”, and the Water Environment Federation “Financing and Charges for Wastewater Systems.” Adopted practices of other utilities in the region will also be a consideration. Scope of Services The proposed scope of services to complete the studies is described in the following tasks. TASK 1: PROJECT MANAGEMENT AND ORIENTATION Task 1.1: Project Management This sub‐task includes time for the Project Manager to manage, track, and report on Study progress every month. Specifically, it entails providing direction to other staff, review of work status/progress, invoicing/determination of remaining budget, and coordination with City staff. Task 1.2: Orientation and Policy Review Orientation includes a kickoff meeting with staff and possibly a general tour of the area, including the water and wastewater facilities. Topics to be reviewed at orientation include, but are not limited to:  Capital improvement plans and schedules,  Target operating and capital funds reserve levels,  Pay as you go funding versus debt financing for capital facilities, and  Asset replacement and funding. Additionally, policy review with staff includes the key factors driving the need for rate adjustments, including regulatory requirements, water supply and water use pattern changes, City policies, legislative mandates, and so forth. Review of financial goals and policy objectives is important as they will shape the development of the financial models and recommendations of the Study. Section 5 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 16 There will be several conference call meetings with staff as the Study progresses, some of which may be conducted via screen share video conferencing (via UberConference). Task 1.3: Data Collection Data collection under this task includes collection of information by the consultant and the City. HEC will rely on the City to provide all the primary data to be used in the analysis, including customer billing data and water and wastewater asset inventories and book values. All financial data, including capital improvement costs, will be furnished by the City and all related materials pertinent to the studies shall also be provided. Other tasks that may be required of the City include provision of land use projections and growth rate assumptions. Beyond this initial data and information gathering, City staff will need to review work products and assist in scheduling meetings; however, this time is anticipated to be minimal and not interfere with typical work duties. Please see Section 7 of this proposal. TASK 2: COST OF SERVICE STUDY Task 2.1: Financial Review HEC will thoroughly review the utility funds, including revenue and cost information, for all operations maintenance, administration, general expenses, short and long‐term liabilities, as well as capital and reserve expenditures. HEC will also review operating revenues, impact fee revenues, and other City revenues. The financial review will establish the historical and current financial health of the City’s funds, generally describe components of annual revenues, and characterize expenses. Task 2.2: Revenue Requirement Projection The projected revenue requirement is the revenue necessary to fully cover all expenditures net of other operating and non‐operating revenues. The revenue requirement typically comprises operating expenses, capital improvement costs (system rehabilitation and new infrastructure), debt service, and reserve/emergency funds. Operation and maintenance expenses may be projected using historical annual percentage increases, or some other index, such as a consumer price index; projection methodology will be discussed with staff. Expense item categories, such as utility costs and labor costs, pass‐through charges, and third‐party service provider charges, will be projected independently. Under this task, HEC will summarize the water and wastewater capital improvement plans (CIPs) as provided by the City and will present a financing strategy to ensure the facilities are completed in a timely fashion, while minimizing the impact to rate payers. HEC’s Excel model will be able to evaluate the impact of funding the CIPs by priority and cash/debt funding. HEC will rely on information from the City’s engineers to allocate cost of the water and wastewater CIPs between existing and future customers. The projected revenue requirement may also include other non‐operating cost considerations, such as an operating reserve, rate stabilization fund, or additional funds to meet debt service coverage Section 5 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 17 requirements. Non‐operating revenues, such as interest revenue, tax revenues, late charges and other miscellaneous revenue sources, will be included as credits in the analysis so that the revenue requirement is not over‐estimated. Replacement of aging infrastructure will also be detailed in the revenue requirement projection. The rate model will allow for different revenue requirement scenarios from changing costs for different CIPs, service to new customers, and potential actions related to drought / water conservation initiatives. Cash flows for each utility fund will be presented to ensure sufficiency of funding, demonstrating adequate debt service coverage and reserve levels are met. Minimum reserve levels will be recommended for each utility fund. Task 2.3: Cost Classification and Customer Profiling HEC will propose and define customer user classifications. Possible classifications include, residential, commercial, industrial, institutional, mixed use, mobile home parks, fire protection, irrigation only, low income, and disadvantaged customers. Wastewater customers may be classified based on strength categories, such as low strength, medium strength, and high strength. HEC will also identify the largest users of the systems and determine if these users are being charged appropriately. Cost allocation is based on use characteristics of customers and will be determined by customer usage profiling. HEC will use historical demand and billing data as well as industry standard factors to provide customer usage profiles by customer type. The current rate schedules will be examined for alignment with current City goals and objectives and fit with customer usage patterns. Task 2.4: Cost of Service Once the projected revenue requirement is established, it is allocated to user groups based on cost classification (collection or treatment plant costs for wastewater, customer or demand costs for water) and customer usage characteristics (flow and load including Biological Oxygen Demand (BOD) and Total Suspended Solids (TSS) parameters for wastewater, and water demand patterns for average and peak usage for water). The customer usage factors are determined based on the customer profiling exercise for the water and wastewater utilities. Task 2.5: Cost of Service Report and Presentation The report will include the methodologies used, findings, and recommendations. Following edits and changes to a draft report based on feedback from the City, HEC will prepare a final report for review with the City Commission at a public meeting. TASK 3: RATE DESIGN DEVELOPMENT Task 3.1: Rate Review and Design The current rate structure will be assessed for alignment with current City goals and alternative rate structures examined. In particular, the rate design will examine alignment of fixed operating costs with base charges and variable costs with volume charges. Potential rate structures that encourage Section 5 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 18 conservation but protect the City from declining revenues during drought periods will be modeled. New and/or alternative customer classifications will be recommended if appropriate to fit with City objectives. The recommended rate structure will be determined with input from staff and stakeholders, given billing system capabilities, public understanding of utility bills, and other stakeholder concerns. Considerable time will be spent in this task evaluating the effect of potential different rate structures on developed policy objectives for water and wastewater, including operations, water conservation, the bill impacts to different customer groups, and the economic effect/hardship on low‐income households. HEC will also evaluate rates for low‐income households. Task 3.2: Rate Calculations and Bill Impact Analysis The cost of service analysis leads to a calculation of monthly user rates for water and wastewater so that the systems are adequately funded for existing and projected future costs and that the rates are based on the demand for service by each customer type. HEC incorporates price elasticity into the rate calculations. If local or regional price elasticity studies are available they will be used; otherwise, industry average elasticity factors will be used. Bill impact analysis provides an important reality check to assess customer acceptability of changes in fees. Customer bills will be compared with affordability indicators to assess the impacts of changes to the rate structure and/or rate amounts. Bill impact analysis will be completed for a minimum of three customers per classification. Task 3.3: Comparison Rates HEC will prepare a rate comparison for the City that will measure the current water and wastewater rates of the City with those charged by comparable communities. This analysis is often regarded as a useful tool when assessing the value of service provided and presenting changes in rates to stakeholders and City Commission. TASK 4: IMPLEMENTATION Task 4.1: Rate Study Report and Presentation The draft report will include the methodologies used, detailed calculations of rates, findings, and recommendations. Following edits and changes to the draft report based on feedback from the City, HEC will prepare a final report for review with the City Commission at a public meeting. Task 4.2: Implementation Assistance HEC will provide guidance and advice to City staff in implementing the rate changes. HEC has included attendance at three public hearings in this sub‐task. Section 6 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 19 6. Work Plan and Project Schedule Work Plan and Budget The total estimated cost for this project is $100,000; it is based on an estimate of cost by task as shown in Table 2. The estimated cost is preliminary; the final cost will reflect the level of effort required for the agreed to tasks. The cost estimate herein should be considered a starting point for refinement based on review of the proposal and potential modifications. Cost savings may be found in the structure (formatting / layout) of the final work products, if, for example, a technical memorandum would suffice rather than a report. This preliminary cost estimate includes up to six meetings in Bozeman. Given our distance, we think that using UberConference (screen sharing or teleconference) would be a very effective and cost‐ saving form of communication. HEC charges for services on a cost not‐to‐exceed basis; therefore, you will only be billed for the work completed up to the authorized budget amount. Invoices are issued monthly with a brief description of services performed in the period, and are due on receipt. Reimbursable expenses include any direct project expenses, such as mileage reimbursement at the current Federal reimbursement rate, flights, parking, postage or delivery charges, meals and lodging, and report printing, with no markup. Table 2 Estimated Budget Task Description Principal Jr. Economist Analyst Travel Total Hourly Billing Rates $165 $115 $100 $50 Number of meetings shown in (brackets) 1 Project Management and Orientation (1) 40 44 24 $12,200 2 Cost of Service Study (1) 72 26 78 24 $23,870 3 Rate Design Development 77 84 $21,105 4 Assist with Plan Implementation (4) 78 35 87 96 $30,395 Subtotal Staff Hours and Costs 267 61 293 144 $87,570 Estimated Reimbursable Costs $7,670 Total Estimated Cost $95,240 Contingency @ 5%$4,762 Total Estimated Cost with Contingency $100,000 Note: HEC reserves the right to move budget between tasks as necessary to complete the scope of services up to the authorized budget amount. Section 6 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 20 Estimated Project Schedule HEC has a reputation for delivering projects on schedule in a professional manner. HEC will work with the City to meet its desired schedule to implement new rates. A preliminary schedule has been prepared for the Study which results in new rates being effective July 1, 2018. This preliminary schedule is subject to change, and it is largely driven by the functionality of the raw data available for the Study. The preliminary project schedule is depicted in Figure 1. The schedule allows for two months to conduct the cost of service study, four months to conduct the rate design development, and three months to implement rates. This preliminary schedule assumes that the process goes smoothly; if revisions to the capital improvements plan(s) are required, or other items delay the draft reports, the implementation date could shift. Note, only major meetings in Bozeman depicted below. Meetings which can be held via screen share and teleconference are excluded. Figure 1 Preliminary Project Schedule Section 7 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 21 7. City‐Furnished Documentation HEC will rely on the City to provide all the primary data to be used in the analysis, including customer billing data, water and wastewater asset inventories and book values. All financial data, including capital improvement costs, will be furnished by the City and all related materials pertinent to the studies shall also be provided. Other tasks that may be required of the City include provision of land use projections and growth rate assumptions. This list represents a first cut of information that would be necessary to conduct the studies. No utility system is identical to another; therefore, as HEC starts to work on the studies, additional data needs are likely to become apparent. Existing Legal Documentation 1. Resolutions or ordinances that show the adopted user charges, system development charges, and other service charges. 2. Legal considerations identified by the City that could impact rates charged by the City. For example, memorandums of understanding or agreements with other jurisdictions and State and/or Federal agencies for water supply. Current and Projected Costs 1. Audited financial statements for each utility fund for the past five years. 2. Budget information/reports (historical and projected) that show revenue and expense line items for each fund. Include operating and capital funds. 3. Information on existing debt and leases. Key information includes the debt service schedule(s) and bond covenants detailing requirements of the utilities, such as debt service coverage requirements. Please provide Official Statements and State or Federal financing agreements. 4. Existing and planned water conservation programs and estimated program costs. 5. Detailed depreciation schedules of utility assets. 6. Breakdown of operating expenses by month for the last three fiscal years (water only). 7. Planned capital improvements and associated costs for the next five or ten years, as available. Customer Characteristics and Existing Billing Structure 1. Number of customer accounts and number of active and inactive connections by type, with explanation of how customer data is organized in the existing billing software (provide key to codes as needed). 2. Electronic file of water billing data for the past 36 months for each customer to profile water usage characteristics by customer type. The data file needs to include: Section 7 City of Bozeman Water and Wastewater Utility System Cost of Service and Rate Design Study Hansford Economic Consulting; #170248 Page 22  Name and address of customer.  Customer code (as you have it in the billing system, such as SFR for single family residential).  Meter/service size.  For multi‐family residential, number of units in a complex or building sharing a meter, and for commercial properties using a master meter, number of commercial connections associated with the meter.  If you have any compound meters, please identify them somehow.  Water consumption by month.  Specify any City customers with unique characteristics. For example, a religious place which operates 24/7 for events during February and March, which is contrary to the norm of high water use in the summer due to landscaping. Another example is a customer classified as a service station who will have high water use because the service station location includes a car wash on the same meter. System Operations Data Water 1. Monthly water production records by water source for the past five years. 2. Peak day to average day consumption ratio (this can be system‐wide but if you have it by customer type, such as single family residential or commercial, that is preferred). Wastewater 1. Records of total effluent flow to the treatment plant by month for the past three years. 2. Industrial and commercial customers BOD and TSS readings by month for the past three years. HANSFORD ECONOMIC CONSULTING Regional and Resource Economics ATTACHMENT A PROJECT TEAM RESUMES THISPAGEISINTENTIONALLYBLANKFORDOUBLEǦSIDEDPRINTING Catherine R Hansford Expertise Land Use and Infrastructure Financial Feasibility Catherine understands the process of land development. She has assessed the financial feasibility of real estate, determined potential revenue and expenditure impacts on local governments, and assisted crafting financing strategies that meet objectives and goals of both public and private parties. Water Resources Planning and Utility Rates Catherine’s passion for water resources coupled with her education and career in economics complement one another. In this era when the link between water and economic vitality becomes more evident and stressed, Catherine draws on her experience to assist with decision making for best use of scarce resources and make appropriate financial planning. Economic Development and Impact Analyses Catherine provides clients analyses of current and projected economic conditions using key social and economic indicators. She is particularly sensitive to the public process required for economic development and land reuse plans. Catherine assists public agencies to match budgets with level of service needs for public safety, transportation, and other major infrastructure anticipated to support economic development. Communications It is not simply enough to be good at your work; you have to be able to communicate with those you work for. Catherine continually strives to be an excellent communicator. She has completed media spokesperson training, as well as other courses with this goal in mind. In addition, Catherine has managed consumer outreach groups, inter-local working groups and task forces. M.S. Agricultural Economics (University of Nevada, Reno) B.S. Rural and Environmental Economics (University of Newcastle-upon-Tyne, UK) Career HEC, Principal ECO:LOGIC Engineering, Senior Economist Truckee Meadows Water Authority, Senior Water Planner Economic and Planning Systems, Senior Associate Presentations / Classes Financial Management: Understand your Cost Structure, Customer Cost-Share Responsibilities and Funding Options, Videoconference Class for the Nevada Rural Water Assn, March 2017 The Cost of Rectifying Over-Appropriation of Groundwater in Diamond Valley, 2014 Nevada Water Resources Assn Conference Rate Setting Fundamentals: Math or Art? 2013 Nevada Rural Water Assn A Misunderstood Relationship: Economic Vitality and Environmental Improvement in the Tahoe Basin, 2012 Tahoe Science Conference What is a Reasonable Water Rate? 2011 Nevada Water Resources Assn Finding Funding for Energy Efficiency Projects, 2010 California Rural Water Assn Elysia Ulrich Elysia is a Junior Economist at HEC. Her responsibilities consist of research, data aggregation, analysis, presentations, reports, and client communications. Her previous work experience includes operations management and organizational performance, econometric and fundamental investment analysis, business strategy development, and operational support for a private hedge fund. Elysia uses her passion for knowledge to gather crucial information to support sound decision‐making. Elysia’s interest in wastewater treatment issues began with a high school project examining the challenges faced by the Bear Valley Water District. The original facility design and inability to increase treatment capacity continue to have significant economic effects on the Bear Valley community today. Elysia looks forward to using her education and work experience to generate a positive impact on communities experiencing infrastructure challenges. Skills & Experience Research Elysia is a thorough fact‐finder. She finds relevant current and historical data to create an informational framework that serves as the foundation for identifying pertinent solutions. Projects Donner Summit PUD – Presentation to the State Water Board on projected rates and affordability issues City of Fernley – Sewer and water rate implementation assistance City of Live Oak – Community rate comparison compilation Spring Creek HOA – State tax distribution research and analysis M.B.A., (Western Governors University) B.A., Economics (University of Nevada, Reno) Career HEC, Junior Economist High Desert Consulting, Microenterprise Business Consultant Hot Creek Capital, L.L.C., Executive Assistant Ancora West Advisors, Intern ZachGustafson ĂĐŚŝƐĂŶŶĂůǇƐƚĂƚ,ƉƌŽǀŝĚŝŶŐƐƵƉƉŽƌƚŽŶĂǁŝĚĞ ƌĂŶŐĞŽĨƉƌŽũĞĐƚƐ͘,ŝƐƉƌŽũĞĐƚĞǆƉĞƌŝĞŶĐĞŝŶĐůƵĚĞƐĐŽƐƚ ďƵƌĚĞŶĂŶĂůǇƐŝƐ͕ĞĐŽŶŽŵŝĐŝŵƉĂĐƚĂŶĂůǇƐŝƐ͕ĨĞĂƐŝďŝůŝƚǇ ƐƚƵĚŝĞƐ͕ĂŶĚƌĂƚĞƐƚƵĚŝĞƐ͘ĂĐŚŚĂƐĂůƐŽŚĞĂĚĞĚŵĂƌŬĞƚ ƌĞƐĞĂƌĐŚĞĨĨŽƌƚƐĨŽƌƉƌŽũĞĐƚƐƚŽĐŚĞĐŬƚŚĞǀĂůŝĚŝƚǇŽĨ ĂƐƐƵŵƉƚŝŽŶƐŝŶĞĐŽŶŽŵŝĐŵŽĚĞůƐ͘dŚƌŽƵŐŚǁĞďŝŶĂƌƐ ĂŶĚĐŽŶĨĞƌĞŶĐĞƐ͕ĂĐŚĐŽŶƚŝŶƵĞƐƚŽĞĚƵĐĂƚĞŚŝŵƐĞůĨŝŶ ƚŚĞĨŝĞůĚƐŽĨĞĐŽŶŽŵŝĐƐĂŶĚĨŝŶĂŶĐĞ͘ ^ŬŝůůƐΘǆƉĞƌŝĞŶĐĞ ĂƉŝƚĂůWƌŽũĞĐƚ&ƵŶĚŝŶŐ dŚƌŽƵŐŚƐƚĂƚĞ͕ĨĞĚĞƌĂů͕ůŽĐĂů͕ĂŶĚƉƵďůŝĐͲƉƌŝǀĂƚĞ ƉĂƌƚŶĞƌƐŚŝƉƐ͕ƚŚĞƌĞĂƌĞŵĂŶǇĨƵŶĚŝŶŐƐŽƵƌĐĞƐĂǀĂŝůĂďůĞ ĨŽƌĐĂƉŝƚĂůƉƌŽũĞĐƚƐ͘ĂĐŚǁŽƌŬƐǁŝƚŚƚŚĞĐůŝĞŶƚƚŽ ĚĞƚĞƌŵŝŶĞƚŚĞŝĚĞĂůƐƚƌĂƚĞŐǇƚŽĂĐĐŽŵƉůŝƐŚĨƵŶĚŝŶŐ ŐŽĂůƐ͘ ǆĂŵƉůĞWƌŽũĞĐƚƐ ĂůƉŝŶĞʹt^Z&ĂŶĚh^ĨƵŶĚŝŶŐĂƉƉůŝĐĂƚŝŽŶƐ ^ŝĞƌƌĂǀŝůůĞʹt^Z&ĂŶĚh^ĨƵŶĚŝŶŐĂƉƉůŝĐĂƚŝŽŶƐ &ůŽƌŝƐƚŽŶʹt^Z&ĐůĂŝŵƐĨŽƌƌĞŝŵďƵƌƐĞŵĞŶƚ hƚŝůŝƚŝĞƐZĂƚĞ^ĞƚƚŝŶŐ ĂĐŚĐƌĞĂƚĞƐĨŝŶĂŶĐŝĂůŵŽĚĞůƐŝŶǆĐĞůƚŽĐĂůĐƵůĂƚĞ ǁĂƚĞƌƵƚŝůŝƚŝĞƐƌĂƚĞƐĂŶĚĨĞĞƐ͘ ǆĂŵƉůĞWƌŽũĞĐƚƐ ŝƚǇŽĨ>ŝǀĞKĂŬʹtĂƚĞƌĂŶĚ^ĞǁĞƌƌĂƚĞƐĂŶĚĨĞĞƐ ƐƚƵĚǇ ŝƚǇŽĨƐŚůĂŶĚʹtĂƚĞƌ͕tĂƐƚĞǁĂƚĞƌ͕ĂŶĚ^ƚŽƌŵǁĂƚĞƌ ĨŝŶĂŶĐŝĂůƉƌŽũĞĐƚŝŽŶƐ ŝƚǇŽĨEĞǁŵĂŶʹtĂƐƚĞǁĂƚĞƌƌĂƚĞĂŶĂůǇƐŝƐ ŝƚǇŽĨtĂƚĞƌĨŽƌĚʹtĂƚĞƌƌĂƚĞĂŶĂůǇƐŝƐ͕ĂŶĚ ŐƌŽƵŶĚǁĂƚĞƌŵĂŶĂŐĞŵĞŶƚĨƵŶĚŝŶŐŽƉƚŝŽŶƐ ͘^͕͘DĂƌŬĞƚŝŶŐ;ĞŶƚůĞǇhŶŝǀĞƌƐŝƚǇͿ ^ƚƵĚǇďƌŽĂĚ͕/ŶƚĞƌŶĂƚŝŽŶĂů&ŝŶĂŶĐĞ͕ DĂƌŬĞƚŝŶŐ͕ĂŶĚ,ŝƐƚŽƌǇ;ŽŶĚhŶŝǀĞƌƐŝƚǇ͕ YƵĞĞŶƐůĂŶĚ͕ƵƐƚƌĂůŝĂͿ Career ,͕ŶĂůǇƐƚ hƉƉĞƌWůĂǇŐƌŽƵŶĚ͕KƉĞƌĂƚŝŽŶƐDĂŶĂŐĞƌ ďďĞŶĂůů'ƌŽƵƉ͕WƵďůŝĐZĞůĂƚŝŽŶƐ/ŶƚĞƌŶ ^ǁĞƌǀĞWŽŝŶƚ͕DĂƌŬĞƚŝŶŐ/ŶƚĞƌŶ THISPAGEISINTENTIONALLYBLANKFORDOUBLEǦSIDEDPRINTING HANSFORD ECONOMIC CONSULTING Regional and Resource Economics ATTACHMENT B CITY OF FERNLEY WATER AND WASTEWATER RATE STUDY THISPAGEISINTENTIONALLYBLANKFORDOUBLEǦSIDEDPRINTING HANSFORD ECONOMIC CONSULTING City ofFernley Water and Wastewater Rate Study August 24, 2016 HECProject #150186 City of Fernley Water and Wastewater Rate Study Page i TABLE OF CONTENTS SECTION PAGE 1. Introduction 1 1.1 Purpose of Study 1 1.2 Background on the Utility Systems 1 1.3 Financial Health of the Utility Funds 2 1.4 Customer Base 6 1.5 Major Assumptions 8 1.6 Rate Structures 10 1.7 Connection Fees 11 1.8 Recommendations for the Future 11 2. Water Rate Study Summary 12 2.1 Key Findings 12 2.2 Methodology 15 2.3 New Rate Impacts 15 2.4 Connection Fee Impacts 20 3. Wastewater Rate Study Summary 22 3.1 Key Findings 22 3.2 Methodology 24 3.3 New Rate Impacts 24 3.4 Connection Fee Impacts 27 4. Combined Utilities Impact 29 4.1 Residential Impacts 29 4.2 Affordability 29 4.3 Lyon County School District Impacts 31 City of Fernley Water and Wastewater Rate Study Page ii LIST OF TABLES TABLE PAGE 1 Projected Water Charges – Scenario 1 13 2 Projected Water Rate Charges – Scenario 2 14 3 Water Connection Fee Calculation 20 4 New Water Connection Fee Schedule 21 5 Projected Wastewater Rate Schedule – Scenario 1 23 6 Projected Wastewater Rate Schedule – Scenario 2 23 7 Wastewater Connection Fee Calculation 27 8 New Wastewater Connection Fee Schedule 28 9 Affordability of Utility Costs for Residents 30 LIST OF FIGURES FIGURE PAGE 1 Historical Operating Income (Loss) for the Water Fund 3 2 Historical Operating Income (Loss) for the Wastewater Fund 3 3 Projected Water Cash Balances 5 4 Projected Wastewater Cash Balances 5 5 City Population Growth 6 6 Water System Customer Base 7 7 Water Use by Customer Category 7 8 Typical Annual Wastewater Flow by Customer Category 8 9 Components of Total Revenue Requirement 15 10 Components of Single Family Water Charges – Scenario 1 16 11 Components of Single Family Water Charges – Scenario 2 17 12 Non-Residential Monthly Water Charges – Scenario 1 18 13 Non-Residential Monthly Water Charges – Scenario 2 18 14 Average Monthly Water Charges for Large Water Users – Scenario 1 19 15 Average Monthly Water Charges for Large Water Users – Scenario 2 19 16 Components of Total Revenue Requirement 24 17 Bill Impact for Single Family Homes 25 18 Average Monthly Bill Impact for Sample Non-Residential Users 25 19 Average Monthly Bill Impact for Sample Multi-Family and Mobile Home Park Accounts 26 20 Average Monthly Bill Impact for Large Water Users 26 21 Combined Single Family Home Utility Costs 29 22 Combined Utilities Impact on Lyon County School District 31 City of Fernley Water and Wastewater Rate Study Page 1 Section 1: INTRODUCTION 1.1 PURPOSE OF STUDY The purpose of this Water and Wastewater Rate Study (Study) is to determine the level of funding required over the next five years to adequately fund the water and wastewater utility systems. The City’s mission is to first and foremost provide the residents and businesses of the City with clean, safe potable water and a reliable wastewater system that meets State and Federal regulatory requirements; second, protect and sustain economic growth, third to protect its water resources and water rights, fourth to manage and maintain the utility systems infrastructure (assets) to be fiscally responsible to current and future residents, and fifth to support public safety (primarily fire defense). The Council has specifically identified the following priorities for water:  Water management and water rights, replacement of water meters, replacement of fire hydrants, maintaining the water infrastructure, and conducting a water rate study. and the following priorities for wastewater:  Maintaining sewer infrastructure, equipment maintenance, preventative maintenance, and conducting a wastewater rate study. The Study includes two accompanying documents, ‘City of Fernley Water Rate Study Technical Memorandum’ and ‘City of Fernley Wastewater Rate Study Technical Memorandum’. These documents provide the detailed calculations for each utility rate study. 1.2 BACKGROUND ON THE UTILITY SYSTEMS The City of Fernley (City) provides water and wastewater services to the residents and businesses of the City. The City’s water system is currently supplied entirely by groundwater which is treated at the water treatment plant prior to entering the water distribution system. The City owns and operates raw water pipelines from 6 potable water wells that reach the water treatment plant via two pump stations. Treated water pipelines carry potable water from the treatment plant to customers. In total the City maintains over 242 miles of pipe. In addition, the City has one non-potable water well, 3 pressure regulating valves, 4 potable water tanks, and 1 raw water tank. The water treatment plant has a capacity of 20.0 million gallons a day. Currently 3.5 million gallons are processed on average each day. The City’s wastewater system consists of a collection system of more than 106 miles of pipe. Sewer is lifted by approximately 224 residential mini lift stations, 9 large lift stations and 19 City of Fernley Water and Wastewater Rate Study Page 2 pumps to the wastewater treatment plant. Effluent is treated at the 3.0 million gallons a day treatment plant. Total flow at the treatment plant averages 1.4 million gallons a day. Separate water and wastewater enterprise funds account for the revenues and expenses associated with each of these services. An enterprise fund is a fund that is intended to recover its costs through user fees and charges. As defined in the Nevada Revised Statutes 354.517 an enterprise fund means a fund established to account for operations: 1. Which are financed and conducted in a manner similar to the operations of private business enterprises, where the intent of the governing body is to have the expenses (including depreciation) of providing goods or services on a continuing basis to the general public, financed or recovered primarily through charges to the users; or 2. For which the governing body has decided that a periodic determination of revenues earned, expenses incurred and net income is consistent with public policy and is appropriate for capital maintenance, management control, accountability or other purposes. Enterprise funds provide the repayment capacity for, and make debt service payments on, any debt incurred for capital projects; therefore, enterprise fund bond-funded projects do not diminish the City’s general fund debt capacity. Both utility systems need constant maintenance to prolong the life of the assets. Enterprise funds need to be managed in a fiscally responsible manner so that users are paying for their current use of the system. If there is insufficient collection of money for system maintenance future users have to pay for repairs when they become critical and costs are more expensive. 1.3 FINANCIAL HEALTH OF THE UTILITY FUNDS Currently both the utility funds are financially healthy; however, this is being quickly eroded as the City continues to use available reserves for capital improvement projects (projects are funded on a pay-as-you-go basis). The water fund currently has no cash reserves for capital replacement; the wastewater funds has $7.3 million. The City calculates that cash reserves for capital replacement should be $15.4 million in the water fund and $10.1 million in the wastewater fund. Utility system costs typically increase at a greater rate than inflation and while City rates have increased in recent years they have not kept pace with the fiscal needs of the water and wastewater enterprise fund. In addition, the current rates do not collect for system rehabilitation of either system which has resulted in the City having to use reserves and delay necessary capital improvements. These are unsustainable actions that will negatively impact other City services such as parks and streets if not corrected. Figure 1 shows historical operating income (loss) for the water fund and Figure 2 shows historical operating income (loss) for the wastewater fund from fiscal year ending 2011 to fiscal year ending 2015. City of Fernley Water and Wastewater Rate Study Page 3 Figure 1 Historical Operating Income (Loss) for the Water Fund ($1,500,000) ($1,000,000) ($500,000) $0 $500,000 2011 2012 2013 2014 2015 Operating Income (Loss) Figure 2 Historical Operating Income (Loss) for the Wastewater Fund ($300,000) ($200,000) ($100,000) $0 2011 2012 2013 2014 2015 Operating Income (Loss) City of Fernley Water and Wastewater Rate Study Page 4 The financial models project the revenue requirement for each utility fund for the next five years. The revenue requirement is the amount that must be raised from rates or other charges for service net of other income such as interest, water rights lease revenue, connection fees, in lieu of water rights fees, direct materials and labor charges. The revenue requirement for the water fund is projected to increase from $11.1 million to $13.7 million over the next 5 years. The revenue requirement for the wastewater fund is projected to increase from $2.8 million to $4.0 million over the next 5 years. Excluding restricted amounts in the water fund, the water system’s cash balance of the water fund will be negative by the end of fiscal year 2017 without a rate increase. The wastewater fund cash balance will be negative by the end of fiscal year 2019 without a rate increase. Because the rate increases that are necessary are substantial there is very little saved for water asset replacement or wastewater asset replacement ($5 million each) over the next five years in the rate models. The wastewater fund financial position is in fact weakened over the next five years even with the calculated rate increases because the total cash balance does not increase even though assets are being added to the system. The reason for allowing the wastewater fund financial position to weaken is two-fold: 1) the combined impact of increased rates to customers is significant (more than a 25% increase) and 2) the wastewater fund is in a slightly stronger financial position currently than the water fund. Figure 3 shows the projected cash balances for water and Figure 4 shows the projected cash balances for wastewater through fiscal year 2021. The yellow lines show the target reserve levels for strong financial positions where the target reserve for capital replacement is reached. The purple lines show the unrestricted or undesignated balances with no rate increase. The blue lines show the projected total cash balance for the utilities. The goal over time is for the red and green lines to be as close as possible and the blue line to gradually grow toward the yellow line. These graphs demonstrate that the rate increases are essential. While the impacts will certainly be substantial for many customers, the rate studies have taken the middle ground; rates have been calculated to raise sufficient money to operate the systems and maintain/repair assets in the near-term, so that reserves are not used up for capital improvements; however, they do not build up reserves for replacement of assets in the long-term. City of Fernley Water and Wastewater Rate Study Page 5 Figure 3 Projected Water Cash Balances ($25,000,000) ($20,000,000) ($15,000,000) ($10,000,000) ($5,000,000) $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 2016 2017 2018 2019 2020 2021 Target Cash for Capital Replacement Target Unrestricted Cash Balance (1 yr operating costs) Projected Unrestricted Cash Balance (with rate increase) Projected Total Cash Balance (with rate increase) Projected Unrestricted Cash Balance (with no rate increase) Figure 4 Projected Wastewater Cash Balances ($6,000,000) ($1,000,000) $4,000,000 $9,000,000 $14,000,000 2016 2017 2018 2019 2020 2021 Target Cash for Capital Replacement Target Undesignated Cash Balance (1 yr operating costs) Projected Undesignated Cash Balance (with rate increase) Projected Total Cash Balance (with rate increase) Projected Undesignated Cash Balance (with no rate increase) City of Fernley Water and Wastewater Rate Study Page 6 1.4 CUSTOMER BASE The City services a population of approximately 19,000 and it has sustained an annual average population increase of 4.7% since 2000. Historical population growth is shown in Figure 5 below. Figure 5 City Population Growth - 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 2000 2005 2010 2015 Fernley Population Total Change from 2000 to 2015 = 9,366 Average Annual Change from 2000 to 2015 = 4.7% Average Annual Change from 2010 to 2015 = 0.5% The City serves water to about 6,700 households, and more than 280 non-residential establishments, including businesses, schools, churches, community centers, and municipal customers, as well as several irrigation-only customers. The City also has approximately 1,600 will-serve customers. The will-serve customers do not pay utility bills (service and use charges), but do pay the Water Bond Debt Fee to pay for capacity that has been reserved for them in the water system. A pie chart illustrating the customer base is shown in Figure 6. Water use by residential and non-residential customer categories is shown in Figure 7. City of Fernley Water and Wastewater Rate Study Page 7 Figure 6 Water System Customer Base Master Metered Residential 1% Single Unit Residential 77% Commercial 3% Landscape 1% Will Serve Lots 18% Figure 7 Water Use by Customer Category City of Fernley Water and Wastewater Rate Study Page 8 The City provides wastewater service to the same households, institutional uses and businesses, with the exception of those having septic systems. Figure 8 shows typical annual flow to the wastewater treatment plant by residential and non-residential customer categories. Figure 8 Typical Annual Wastewater Flow by Customer Category Residential (SF, MM-R, RV/Mob) 81% Non- Residential 19% 1.5 MAJOR ASSUMPTIONS Several major assumptions influence the scope of the report and findings herein. They are summarized here:  New growth is conservative. New development is assumed to increase at a pace of 35 units per year. This pace of growth was estimated by applying a population growth rate of 0.5% per year and dividing the resulting additional population by 2.75 persons per household, which is the Census reported number of persons per occupied housing unit in Fernley. The growth rate of 0.5% per year is from State Demographer’s (Nevada Department of Taxation) population projections for Lyon County. This growth rate is conservative. Over the past 5 years, in a period generally characterized as sluggish recovery from the Great Recession, population increased 0.5% per year. Because growth is so conservative there are costs included in both utility models incurred for future customers that will be paid for partially by existing customers. City of Fernley Water and Wastewater Rate Study Page 9  Water CIP Projects will be funded through rates, a new water meter replacement fee, in lieu of water rights fees, connection fees, and debt. In lieu of water rights fees of $2.7 million will be used to fund a portion of the cost to bring surface water to the water treatment plant. The remaining cost to bring surface water to the water treatment plant and to upgrade the plant to treat surface water, as well as construction of infiltration basin(s) for aquifer storage and recovery (ASR) is assumed to be financed by additional debt. Rates (cash) will be used for all other capital outlay needs for existing customers. Connection fees will only be used for projects that are related to new growth in the City.  Wastewater CIP Projects will be funded through rates, reserves, new debt, and a grant. A grant will fund a portion of the EWWTP sludge drying beds project. Reserves will be used to fund the AOC pond relining project at the wastewater treatment plant, and the enclosure for the headworks. For the collection system, reserves will be used for the Donner Trails lift station, Cedar street pipe replacement, and the Farm District Road force main replacement. Cash will be used for all other capital improvement projects. Connection fees will only be used for projects that are related to new growth in the City.  System rehabilitation costs are fully accounted for in the rate models. Both the water and wastewater rate models include a calculated annual cost for replacement of facilities. Facilities include existing and new facilities built in the next five years. Collection of money for system rehabilitation is immediately applied to the CIPs. System rehabilitation costs are based on depreciation schedules. Collection for system rehabilitation does not include catch-up collection of revenues for replacement of assets.  The new rate structures are assumed to be in effect January 1, 2017 and then increase every July 1 (2017, 2018, 2019, 2020, and 2021). The rate increases go into effect as soon as possible to increase cash flow, and thereafter to coincide with the City’s fiscal year.  Rate structure is modified for both water and wastewater. In an effort to allocate costs to customers as equitably as possible with available data, the rate study modifies the rate structures for both utilities as described further below and elsewhere in this report.  Meter Ratios conform to industry standards. Meter ratios are used to allocate costs collected in the service charge to customers based on their water meter size. The water meter size dictates each customer’s potential use of the water system’s total capacity. Water meter ratios are based on water flow through a water meter’s size compared to water flow through a ¾” water meter. The water meter ratios in the water rate study are American Water Works Association industry standard ratios based on the type of meters that the City uses. City of Fernley Water and Wastewater Rate Study Page 10  The percentage of costs recovered in fixed flat charges decreases in the water fund. Fixed costs comprise about 80% of Fernley’s water system total annual operating costs. Currently Fernley collects 40% of costs recovered through rates in service charges and 60% in use charges. The Water Bond Debt Fees are fixed flat monthly charges. Combined, Fernley currently collects 65% of total revenue requirement from service charges and 35% from use charges. The water rate study allocates 65% of rates revenue requirement to service charges. The immediate effect of this change is an increase of the percentage of costs collected through fixed charges to 75%; however, this would decrease again if the Water Bond Debt Fee decreased or went away. 1.6 RATE STRUCTURES Water Rate Structures The amount of money that must be raised through water charges is collected through a combination of water rates and the temporary Water Bond Debt Fee. The water rate study calculates water charges under two scenarios of collection referred to as Scenario 1 and Scenario 2. Scenario 1  The Water Bond Debt Fee continues, but it is gradually reduced 10% per year for all properties except will-serve lots. Will-serve lots pay the same amount each year. Approximately 70% of the total revenue requirement is collected in flat charges by 2021 because the Water Bond Debt Fe is reduced every year. Scenario 2  The Water Bond Debt Fee is only charged to will-serve lots starting fiscal year 2018. Sixty-five percent of the revenue requirement is collected in flat charges. Wastewater Rate Structures There are two rate structures presented in the wastewater rate study. The first is very similar to the current rate structure; the only difference is that it eliminates the monthly water allowance for non-residential customers. The second no longer includes any charge based on water meter size; instead, it charges by customer type. The rate structures are referred to as Scenario 1 and Scenario 2 respectively. Scenario 1  Residential single family and master-metered residential continue to pay a flat monthly charge per unit.  Non-Residential pay a flat monthly charge by water meter size plus a use charge per 1,000 gallons (no allowance). City of Fernley Water and Wastewater Rate Study Page 11 Scenario 2  Residential single family, master metered residential and mobile homes pay a flat monthly charge per unit.  Schools pay a flat monthly charge on a per student basis.  Non-Residential pay a flat monthly charge by customer type plus a use charge per 1,000 gallons. Metered water use is multiplied by a return flow factor. 1.7 CONNECTION FEES Updated connection fees are calculated for water and wastewater. New methodologies for calculating both types of connection fees are also presented for consideration. 1.8 RECOMMENDATIONS FOR THE FUTURE This study recommends the following considerations for the City in the future:  Separating operations and capital into their own funds within the water and wastewater funds,  Formalizing policy on reserve levels for the water and wastewater funds,  Changing the methodologies to calculate connection fees as outlined in this study, and  Refining the customer billing databases so that rate structures in the future can better reflect each customer’s use of the water and wastewater systems, improving equity among ratepayers for the service they receive. City of Fernley Water and Wastewater Rate Study Page 12 Section 2: WATER RATE STUDY SUMMARY 2.1 KEY FINDINGS  The City has been using water fund reserves to fund operations for several years. The water fund has been operating at a net loss. System rehabilitation is being funded from reserves because depreciation is not currently included in the rates. This is unsustainable.  The City has identified a minimum of $20.0 million of water system capital improvements in 2016 dollars to be funded over the next 5 years. This cost is inflated to a total of $22.2 million dollars over the next 5 years. o The funding plan applies $2.7 million in‐lieu of water rights fees to improvements necessary for treating surface water at the water treatment plant, o $12.8 million for aquifer groundwater recharge/infiltration basins and conveyance of surface water to the treatment plant and upgrades to the plant to process surface water is assumed to be debt‐funded, o A new water meter replacement fee included in the monthly service charge will fund $0.6 million of meter replacement costs, and o All other system improvement costs of approximately $5.9 million will be cash‐ funded.  By raising the rates in January 2017 the City will generate sufficient revenue to meet its bond covenants, to fund necessary capital improvements, and to fully fund water operations without using other City funds. Without the rate increase the water fund is projected to have a negative balance of $2.9 million by the end of fiscal year 2017. Without a rate increase the water fund would be unable to make any system facility improvements and would have to be loaned money from other City funds taking away money for other essential City services such as parks and streets.  The increase in rates presented in the water rate study do not allow the City to catch up with cash reserves needed for asset replacement in the long‐term.  Connection fees for single family residential development are calculated to increase from $5,165 per unit to $7,150 per unit. The calculated water rates and Water Bond Debt Fees are shown in Table 1 under Scenario 1 and in Table 2 under Scenario 2. City of Fernley Water and Wastewater Rate Study Page 13 Table 1 Projected Water Charges – Scenario 1 - Water Bond Debt Fees decreased 10% each year (Will-Serve Lots continue to pay Water Bond Debt Fees) Charges Current 2017 2018 2019 2020 2021 New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Service Charge 3/4"[2]$55.28 $59.19 $64.70 $70.19 $74.96 1"[2]$91.76 $98.28 $107.43 $116.57 $124.52 1.5"[2]$218.62 $234.20 $256.13 $278.01 $297.02 2"[2]$345.19 $369.84 $404.53 $439.15 $469.22 3"n.a.$789.74 $846.16 $925.55 $1,004.79 $1,073.63 4"[2]$1,096.14 $1,174.16 $1,283.88 $1,393.39 $1,488.56 6"[2]$2,450.34 $2,625.42 $2,871.78 $3,117.67 $3,331.28 Other Service Charges Standby Fire Line (any size)$40.00 $55.28 $59.19 $64.70 $70.19 $74.96 Hydrant Meter $92.63 $89.82 $96.27 $105.37 $114.45 $122.33 Well 8 Key $41.20 $53.89 $57.76 $63.22 $68.67 $73.40 Treated Water Use Charges Rate per 1,000 Gallons [2]$2.60 $2.75 $3.01 $3.27 $3.49 Raw Water Use Charges [3] Cost per 1,000 Gallons $0.73 $1.01 $1.03 $1.08 $1.12 $1.16 Water Bond Debt Fee 3/4"$31.09 $27.98 $25.18 $22.66 $20.40 $18.36 1"$51.92 $46.73 $42.06 $37.85 $34.06 $30.66 1.5"$103.53 $93.18 $83.86 $75.47 $67.93 $61.13 2"$165.71 $149.14 $134.22 $120.80 $108.72 $97.85 3"$310.90 $279.81 $251.83 $226.65 $203.98 $183.58 4"$518.27 $466.44 $419.80 $377.82 $340.04 $306.03 6"$518.27 $466.44 $419.80 $377.82 $340.04 $306.03 Will Serve $18.65 $16.79 $22.53 $22.53 $22.53 $22.53 Source: HEC.proj rates [1] Includes the meter replacement fee (new). [2] The current rate structure has different service charges for different customer types. Usage charges are also different by customer type. Residential has a tiered usage system of $2.15 per thousand gallons for 0-8,000 gallons, $3.11 for 8,000-30,000 gallons, and $4.08 for 30,000+ gallons. Mastered metered residential customers are charged $2.75 per thousand gallons of usage. Hydrant meter usage is charged $3.00 per thousand gallons. Commercial customers charged $2.79 per thousand gallons. [3] Water taken from well 8 for dust abatement, construction activities, and so forth. See Table A-17 for supporting calculation. Monthly Water Bond Debt Fee Monthly Charges per Meter [1] Monthly Charges Uniform Rate Structure City of Fernley Water and Wastewater Rate Study Page 14 Table 2 Projected Water Charges – Scenario 2 - All Costs in Rates for Rate-Payers (Will-Serve Lots continue to pay Water Bond Debt Fees) Charges Current 2017 2018 2019 2020 2021 New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Service Charge 3/4"[2]$55.28 $74.80 $78.68 $82.71 $86.18 1"[2]$91.76 $124.29 $130.73 $137.44 $143.21 1.5"[2]$218.62 $296.64 $312.05 $328.10 $341.89 2"[2]$345.19 $468.70 $493.07 $518.45 $540.26 3"n.a.$789.74 $1,072.48 $1,128.27 $1,186.37 $1,236.27 4"[2]$1,096.14 $1,486.33 $1,563.49 $1,643.84 $1,712.90 6"[2]$2,450.34 $3,327.78 $3,500.90 $3,681.19 $3,836.06 Other Service Charges Standby Fire Line (any size)$40.00 $55.28 $74.80 $78.68 $82.71 $86.18 Hydrant Meter $92.63 $89.82 $122.29 $128.67 $135.32 $141.02 Well 8 Key $41.20 $53.89 $73.37 $77.20 $81.19 $84.61 Treated Water Use Charges Rate per 1,000 Gallons [2]$2.60 $3.49 $3.68 $3.86 $4.03 Raw Water Use Charges [3] Cost per 1,000 Gallons $0.73 $1.01 $1.03 $1.08 $1.12 $1.16 Water Bond Debt Fee 3/4"$31.09 $27.98 $0.00 $0.00 $0.00 $0.00 1"$51.92 $46.73 $0.00 $0.00 $0.00 $0.00 1.5"$103.53 $93.18 $0.00 $0.00 $0.00 $0.00 2"$165.71 $149.14 $0.00 $0.00 $0.00 $0.00 3"$310.90 $279.81 $0.00 $0.00 $0.00 $0.00 4"$518.27 $466.44 $0.00 $0.00 $0.00 $0.00 6"$518.27 $466.44 $0.00 $0.00 $0.00 $0.00 Will Serve $18.65 $16.79 $22.53 $22.53 $22.53 $22.53 Source: HEC.proj rates [1] Includes the meter replacement fee (new). [2] The current rate structure has different service charges for different customer types. Usage charges are also different by customer type. Residential has a tiered usage system of $2.15 per thousand gallons for 0-8,000 gallons, $3.11 for 8,000-30,000 gallons, and $4.08 for 30,000+ gallons. Mastered metered residential customers are charged $2.75 per thousand gallons of usage. Hydrant meter usage is charged $3.00 per thousand gallons. Commercial customers charged $2.79 per thousand gallons. [3] Water taken from well 8 for dust abatement, construction activities, and so forth. See Table A-17 for supporting calculation. Monthly Water Bond Debt Fee Monthly Charges per Meter [1] Monthly Charges Uniform Rate Structure City of Fernley Water and Wastewater Rate Study Page 15 2.2 METHODOLOGY There are two water rate scenarios. The two scenarios are:  Scenario 1 - Continue charging the temporary Water Bond Debt Fee in property tax bills but decrease them 10% each year (will-serve lots Water Bond Debt Fees do not decline),  Scenario 2 - Eliminate the Water Bond Debt Fees in property tax bills by shifting that cost to customer rates with the exception of will-serve lots which would continue to pay the Water Bond Debt Fee because they do not receive water utility bills. Under both scenarios, customer bills will continue to be comprised of 2 fees: (1) fixed monthly service charges (now also including a meter replacement fee), and (2) variable use charges. 2.3 NEW RATE IMPACTS Components of water fund costs (whether paid for in rates or Water Bond Debt Fees) are shown in Figure 9. Debt service is the largest component of cost at approximately 40%, operations and collections for reserve is the next largest component of cost at approximately 32%, and system improvements the third component of cost at approximately 28% of cost. Figure 9 Components of Total Revenue Requirement City of Fernley Water and Wastewater Rate Study Page 16 The impact of the projected costs differs by customer type and it differs depending on whether costs are collected under Scenario 1 or Scenario 2. The estimated impact to single family customers, sample non-residential users, and large water users is provided below. Single Family Residential Figure 10 shows the water charges impact to a typical single family home under Scenario 1 and Figure 11 shows the water charges impact to a typical single family home under Scenario 2. In both figures the charges are calculated assuming water use of 15,000 gallons, which is typical consumption during the summer months. Winter water charges are less. Total water charges include the Water Bond Debt Fee. Note that fiscal year 2017 charges are from January 1, 2017. Figure 10 Components of Single Family Water Charges – Scenario 1 $19.47 $55.28 $59.19 $64.70 $70.19 $74.96 $38.97 $39.00 $41.25 $45.15 $49.03 $52.38 $31.09 $27.98 $25.18 $22.66 $20.40 $18.36 $89.53 $122.26 $125.63 $132.51 $139.62 $145.69 $0 $20 $40 $60 $80 $100 $120 $140 $160 2016 2017 2018 2019 2020 2021Monthly Water ChargeFiscal Year Ending Water Bond Debt Fee Use Charge (15,000 gallons)Service Charge City of Fernley Water and Wastewater Rate Study Page 17 Figure 11 Components of Single Family Water Charges – Scenario 2 $19.47 $55.28 $74.80 $78.68 $82.71 $86.18 $38.97 $39.00 $52.40 $55.14 $57.97 $60.38 $31.09 $27.98 $89.53 $122.26 $127.20 $133.81 $140.68 $146.56 $0 $20 $40 $60 $80 $100 $120 $140 $160 2016 2017 2018 2019 2020 2021Monthly Water ChargeFiscal Year Ending Water Bond Debt Fee Use Charge (15,000 gallons)Service Charge Non-Residential Users Two types of non-residential users were selected to illustrate the impacts of rate increases, a church and a restaurant. Figure 12 shows the impact to the users under Scenario 1 and Figure 13 shows the impact to the users under Scenario 2. Charges are calculated using actual consumption by the customers between January 2015 and December 2015. The total cost impact is greater under Scenario 1 for some customers and greater under Scenario 2 for other customers. For the restaurant, water charges are greater under Scenario 2. For the church, water charges are greater under Scenario 1. Monthly water charge includes the Water Bond Debt Fee. Note that fiscal year 2017 charges are from January 1, 2017. City of Fernley Water and Wastewater Rate Study Page 18 Figure 12 Non-Residential Monthly Water Charges – Scenario 1 Figure 13 Non-Residential Monthly Water Charges – Scenario 2 City of Fernley Water and Wastewater Rate Study Page 19 Large Water Users The largest water user in the City is the Lyon County School District. There are several other large water users including the Veteran’s Cemetery, large manufacturers, and other large commercial businesses. Average monthly cost increases are shown for large water users in Figures 14 and 15 using current charges and fiscal year 2017-18 charges. Charges are calculated using actual consumption by the customers between January 2015 and December 2015. Figure 14 Average Monthly Water Charges for Large Water Users – Scenario 1 $10,144 $4,900 $5,454 $4,784 $7,972 $15,084 $5,608 $7,183 $5,075 $10,186 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 Lyon County School District Veterans Cemetery Large Commercial Manufacturing 1 Manufacturing 2Monthly Water ChargeFY 2016 FY 2018 Figure 15 Average Monthly Water Charges for Large Water Users – Scenario 2 $10,144 $4,900 $5,454 $4,784 $7,972 $16,376 $6,585 $8,726 $6,441 $11,304 $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 $18,000 Lyon County School District Veterans Cemetery Large Commercial Manufacturing 1 Manufacturing 2Monthly Water ChargeFY 2016 FY 2018 City of Fernley Water and Wastewater Rate Study Page 20 2.4 CONNECTION FEE IMPACTS New users of the water system should pay for existing capacity in the system that they will use as well as their share of costs for new facilities constructed as part of the CIP. Table 3 shows total costs attributable to new development is $33.6 million. The City estimates another 4,695 lots will pay connection fees through buildout of existing tentative and final maps. This results in a cost of $7,150 per lot or per equivalent dwelling unit (EDU). An EDU is the same as an ERC. Table 3 Water Connection Fee Calculation Item Cost Existing Facilities Buy‐In $14,668,402 New Facilities (Growth Share)$10,051,149 Financing Charges for New Facilities $8,849,000 Total Costs $33,568,552 Future new EDUs [1] 4,695 Calculated Connection Fee per EDU $7,150 Source: HEC.conn cost [1] Anticipated through build‐out of tentative and final maps. This report recommends moving to a new connection fee calculation for all master metered residential and non‐residential uses based on projected demand in gallons per minute of the new establishment. Projected water demand for every new establishment is determined when calculating required water rights for a project using plumbing plans or information from a similar establishment in the region. Water rights demand is multiplied by a factor to determine maximum day usage in gallons per minute. Given the similarity in geography between Fernley and the Reno‐Sparks metropolitan area, the factors developed by the Truckee Meadows Water Authority (TMWA) would be appropriate to use in Fernley. The factors are guidelines. Actual maximum day water demands would be approved by the City Engineer. TMWA’s current factors are:  Multi‐family ‐ 0.15 gpm per unit  Commercial/Industrial – 1.17 multiplied by water rights demand  Irrigation – 0.38 multiplied by water rights demand The new connection fee schedule is shown in Table 4 on the following page. City of Fernley Water and Wastewater Rate Study Page 21 Table 4 New Water Connection Fee Schedule Fee Basis Calculated Connection Fee 1/1/2017 Single Family and Manufactured Homes $7,150 Gallons per Minute per Single Family Lot 0.81 Fee per GPM [1]$8,850 Source: HEC.conn meter [1] Automatically adjusted each year per the March to March ENR CCI change. All single family residential units would pay a fee of $7,150 per lot. This fee equates to $8,850 per GPM (gallons per minute). The new water connection fee would be automatically adjusted each fiscal year by the March to March Engineering News Record Construction Cost Index (ENR CCI) change. City of Fernley Water and Wastewater Rate Study Page 22 Section 3: WASTEWATER RATE STUDY SUMMARY 3.1 KEY FINDINGS  The City has been using wastewater fund reserves to fund operations for several years. The wastewater fund has been operating at a net loss every year. System rehabilitation is being funded from reserves because depreciation is not currently included in the rates. This is unsustainable.  The City has identified a minimum of $8.0 million in capital improvements in 2016 dollars to be funded over the next 5 years. In future dollars this totals $8.4 million to be funded over the next 5 years. The financing plan assumes that: o The treatment plant pond 2 cleaning and lining costs will be funded with debt- financing through the Nevada Division of Environmental Protection’s Clean Water State Revolving Fund. o Reserves are used to finance $3.2 million of improvements, approximately $1.3 million of which for the treatment plant and $1.9 million for the collection system. o Cash and a grant fund the remaining CIP costs.  By raising the rates in January 2017 the City will generate sufficient revenue to meet its bond covenants, to fund necessary capital improvements, and to fully fund wastewater operations without using other City funds. Without the rate increase the wastewater fund is projected to have a negative fund balance within two fiscal years and would have to be loaned money from other City funds taking away money for other essential City services such as parks and streets.  The increase in rates presented in the wastewater rate study do not allow the City to catch up with cash reserves needed for asset replacement in the long-term.  Connection fees for residential development will decrease from $3,474 per unit to $1,716 per unit for single family residential, $1,373 per unit for master metered residential, and $1,545 per unit for RV/mobile home parks. Non-residential development will pay $1,716 multiplied by flow per day (as determined by the City Engineer), divided by 160. Table 5 compares the current and calculated five-year wastewater rate schedule under Scenario 1. Table 6 shows the new rate schedule under Scenario 2. City of Fernley Water and Wastewater Rate Study Page 23 Table 5 Projected Wastewater Rate Schedule – Scenario 1 - Modified Rate Structure based on Flow Only Land Use 2016 2017 2018 2019 2020 2021 New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Residential Flat Monthly Charge per Unit $22.02 $29.51 $34.67 $36.60 $37.85 $39.25 Non-Residential Use Charge per 1,000 Gallons [1]$1.13 $2.05 $2.41 $2.54 $2.63 $2.73 Flat Monthly Charge by Meter Size 3/4"$18.39 $49.66 $58.33 $61.59 $63.69 $66.04 1"$22.66 $61.19 $71.87 $75.89 $78.47 $81.38 1.5"$36.45 $98.43 $115.62 $122.07 $126.23 $130.90 2"$67.95 $183.49 $215.53 $227.57 $235.32 $244.03 3"n.a.$474.30 $557.11 $588.23 $608.26 $630.78 4"$175.64 $765.08 $898.66 $948.86 $981.17 $1,017.50 6"$283.32 $1,223.39 $1,436.99 $1,517.26 $1,568.92 $1,627.02 Source: City of Fernley and HEC.calc rates [1] Currently only applies to use above 10,000 gallons per month. The projected rates are for every 1,000 gallons. Fiscal Year Ending Table 6 Projected Wastewater Rate Schedule – Scenario 2 - New Rate Structure based on Flow and Strength Return Flow Customer Category Factor 2017 2018 2019 2020 2021 Rates Effective ------------------->[1]1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Flat Monthly Charges Residential (SF, MM-R, Mobile Homes)per unit $28.45 $33.41 $35.28 $36.48 $37.83 Schools per student $1.10 $1.30 $1.37 $1.42 $1.47 Flat and Variable Monthly Charges Master Metered Comm'l per business $18.22 $21.40 $22.60 $23.38 $24.26 per 1,000 gallons 75%$3.59 $4.22 $4.46 $4.61 $4.78 Religious Places & Comm. Ctrs.per account $21.93 $25.76 $27.20 $28.11 $29.13 per 1,000 gallons 20%$2.38 $2.80 $2.96 $3.06 $3.17 Municipal per account $40.59 $47.69 $50.34 $52.02 $53.91 per 1,000 gallons 41%$2.33 $2.73 $2.89 $2.98 $3.09 Car Wash per account $490.22 $575.97 $607.94 $628.14 $650.91 per 1,000 gallons 40%$2.21 $2.60 $2.74 $2.83 $2.94 Gen. Comm'l & Industrial per account $256.27 $300.97 $317.84 $328.80 $341.11 per 1,000 gallons 82%$3.59 $4.22 $4.46 $4.61 $4.78 Source: HEC.rate sum [1] Multiply the metered water use each month by the return flow factor. Fiscal Year Ending City of Fernley Water and Wastewater Rate Study Page 24 3.2 METHODOLOGY  Two rate structures are presented in the wastewater rate study. o Scenario 1 – modifies the current rate structure so that the use charge is applied to all water use for all non-residential customers, eliminating the monthly allowance of 10,000 gallons. There is no basis for not charging 10,000 gallons per month for all non-residential customers. o Scenario 2 – uses a new rate structure based on flow and strength characteristics of each customer type. This rate structure better allocates costs to the users of the system improving equity among customer classes. Mobile home parks, which display more similar characteristics to residential than non-residential, are shifted to residential. Schools pay on a flat monthly per student basis. Non-residential customers’ water use is multiplied by a return flow factor to account for water that does not go to the wastewater treatment plant (applied outdoors or otherwise does not enter the sewer collection system). 3.3 NEW RATE IMPACTS Components of wastewater fund costs are shown in Figure 16. Operations and collections for reserve is the largest component of cost at approximately 55%, followed by system improvements at approximately 30%. Debt service is the smallest component of cost at approximately 16% of total cost. Figure 16 Components of Total Revenue Requirement 49%53%54%54%55%55% 16%13%15%16%15%15% 35%35%31%30%30%30% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2016 2017 2018 2019 2020 2021 Fiscal Year Ending Operations and Reserve Debt Service System Improvements City of Fernley Water and Wastewater Rate Study Page 25 Figure 17 estimates monthly bill impacts of the rate increases to residential customers under both scenarios for the next five years. Figure 17 Bill Impact for Single Family Homes $29.51 $34.67 $36.60 $37.85 $39.25 $28.45 $33.41 $35.28 $36.48 $37.83 $0 $5 $10 $15 $20 $25 $30 $35 $40 $45 2017 2018 2019 2020 2021Monthly BillFiscal Year Ending FY 2018 Modified Rate Structure - Scenario 1 FY 2018 New Rate Structure - Scenario 2 FY 2016 Figure 18 estimates monthly bill impacts of the fiscal year 2017-18 rate changes for a sample of non-residential users. Because monthly bills for non-residential customers will vary from month to month and business type to business type, the examples given are only illustrative. Each non-residential customer will experience a different increase. Figure 18 Average Monthly Bill Impact for Sample Non-Residential Users $20 $41 $920 $165 $78 $131 $2,055 $399 $30 $181 $1,370 $770 $0 $500 $1,000 $1,500 $2,000 $2,500 Church Inn Car Wash RestaurantMonthly BillFY 2016 FY 2018 Modified Structure - Scenario 1 FY 2018 New Structure - Scenario 2 City of Fernley Water and Wastewater Rate Study Page 26 Figure 19 illustrates examples of monthly bill impacts to multi-family and mobile home parks users. Figure 19 Average Monthly Bill Impact for Sample Multi-Family and Mobile Home Park Accounts $557 $1,101 $991 $1,057 $1,279 $2,895 $1,560 $1,664 $1,470 $3,241 $1,504 $1,604 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 RV & Mobile Home Park Manufactured Homes Complex Apartment Complex 1 Apartment Complex 2Monthly BillFY 2016 FY 2018 Modified Structure - Scenario 1 FY 2018 New Structure - Scenario 2 Figure 20 illustrates the impact on the same large water users as in the water rate study with the exception of the Veteran’s Cemetery which does not receive City wastewater service. Figure 20 Average Monthly Bill Impact for Large Water Users $2,547 $177 $1,085 $474 $7,478 $918 $3,522 $1,105 $6,889 $328 $3,202 $1,576 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 Lyon County School District Manufacturing 1 Manufacturing 2 CommercialMonthly BillFY 2016 FY 2018 Modified Structure Scenario 1 FY 2018 New Structure Scenario 2 City of Fernley Water and Wastewater Rate Study Page 27 3.4 CONNECTION FEE IMPACTS New users of the wastewater system should pay for existing capacity in the system that they will use as well as their share of costs for new facilities constructed as part of the CIP. Table 7 shows total costs attributable to new development is $8.1 million. The City estimates another 4,695 lots will pay connection fees through buildout of existing tentative and final maps. This results in a cost of $1,716 per lot or EDU. Table 7 Wastewater Connection Fee Calculation Item Cost Existing Facilities Buy-In $5,524,890 New Facilities (Growth Share)$2,160,293 Financing Charges for New Facilities $372,929 Total Costs $8,058,112 Future new EDUs [1]4,695 Calculated Connection Fee per EDU $1,716 Source: City of Fernley and HEC.conn cost [1] Anticipated through build-out of tentative and final maps. The new connection fee schedule is shown in Table 8. Based on the cost to serve one EDU, it costs $1,373 to serve a master metered residential unit and $1,545 to serve a mobile home unit. The EDU factors for residential are taken from sewer flows shown in Table 13 of the Wastewater Rate Study Technical Memorandum. For non-residential uses the fee per EDU is multiplied by the estimated average sewer flow per day for the new establishment. Sewer flow will be determined by the City Engineer based on engineering plans submitted by the applicant. Sewer flow will then be divided by 160 to determine the number of EDUs that the fee will be multiplied by. One EDU has a sewer flow of 160 gallons per day. City of Fernley Water and Wastewater Rate Study Page 28 Table 8 New Wastewater Connection Fee Schedule Land Use EDU Factor New Connection Fee [1] Residential - per Unit as of 1/1/2017 Single Family (One EDU)1 $1,716 Master Metered Resid.0.8 $1,373 RV/Mobile Home Parks 0.9 $1,545 Non-Residential Source: HEC.conn sew [1] Automatically adjusted each year per the March to March ENR CCI change. [2] As determined by the City Engineer by multiplying average daily water use by a return flow factor. [3] Average daily flow from residential units in Fernley is 300 gallons inclusive of water that does not reach the wastewater treatment plant. Flow from one EDU reaching the plant is 160 gallons per day. Multiply the fee per EDU by estimated sewer flow per day [2] for the establishment, then divide by 160 [3] The new wastewater connection fee would be automatically adjusted each fiscal year by the March to March Engineering News Record Construction Cost Index (ENR CCI) change. City of Fernley Water and Wastewater Rate Study Page 29 Section 4: COMBINED UTILITIES IMPACT 4.1 RESIDENTIAL IMPACTS The combined impact of increased water and wastewater rates on typical single family home utility costs is illustrated in Figure 21. The costs for a typical home are compared under current rates and new rates for fiscal year 2017-18. Figure 21 Combined Single Family Home Utility Costs $58.44 $100.45 $100.45 $127.20 $127.20 $22.02 $34.67 $33.41 $34.67 $33.41 $31.09 $25.18 $25.18 $111.55 $160.30 $159.04 $161.87 $160.61 $0 $30 $60 $90 $120 $150 $180 FY 2016 FY 2018 Water Sc. 1, Sewer Sc. 1 FY 2018 Water Sc. 1, Sewer Sc. 2 FY 2018 Water Sc. 2, Sewer Sc. 1 FY 2018 Water Sc. 2, Sewer Sc. 2 Monthly Utility Cost for 15,000 gallons with July 2017 rates Water Bond Debt Fee Wastewater Water 4.2 AFFORDABILITY The combined impact of increased utility costs must be considered together since they can increase costs beyond what is considered an affordable threshold. The EPA and NDEP have guidelines for what they consider affordable for a typical home using 15,000 gallons in a month. The industry guideline is that utility costs are affordable if they are below 4.5% of median household income (MHI). The guideline is comprised of a threshold of 2.5% of MHI for water and 2.0% for wastewater. In fiscal year 2016 Fernley’s utility costs were 2.5% of MHI. With the increase in costs in July 2017 water costs will total 2.8% of MHI and wastewater will total 0.8% of MHI. Together, the utilities costs total 3.6% of MHI. These calculations are shown in Table 9. NDEP also considers a rate increase that impacts utility costs greater than 25% significant. Utility costs will increase 36% in fiscal year 2017. The impacts are significant. City of Fernley Water and Wastewater Rate Study Page 30 Table 9 Affordability of Utility Costs for Residents Item 2016 2017 Monthly Median Household Income (MHI) [1]$4,503 $4,503 Water Cost - Scenario 1 Monthly Water Bill for 15,000 gallons [2]$58.44 $94.28 Water Bond Debt Fee (on Property Tax Bill)$31.09 $27.98 Total Monthly Water Cost $89.53 $122.26 Percentage of MHI 2.0%2.7% Monthly Wastewater Cost - Scenario 1 $22.02 $29.51 Percentage of MHI 0.5%0.7% Total Monthly Utilities Cost $111.55 $151.77 Average Monthly Utilities Bill as Percentage of MHI [3]2.5%3.4% Percentage Increase in Total Bill 36% Median Household Income (MHI) [1] Estimated Nevada [3]$52,205 Estimated Fernley [3]$54,036 Fernley MHI as a percentage of the State MHI [4]103.5%Not Disadvantaged Source: HEC, Nevada Division of Environmental Protection SRF IUPs, and US Census Bureau. [1] 2014 5-year American Community Survey. [2] Assumes a customer with a 3/4" meter using 15,000 gallons of water per month. [3] NDEP considers water bills in communities with median household income equal to or greater than the State's median household income reasonable if they are equal to or > 2.0%. If rates are already reasonable, NDEP considers if rates are increasing >25%. The EPA considers bills unaffordable if combined water and sewer bills are >4.5% of MHI. (2.5% for water and 2.0% sewer). [4] Per NDEP, a community with an MHI <80% of the Statewide MHI is disadvantaged. Fiscal Year The affordability thresholds are guidelines used by State and Federal funding agencies when determining financing terms for debt-financing projects. While the guidelines indicate an ability to increase wastewater rates by more than in the wastewater rate model, the water rates increase exceeds the affordability threshold guideline. For this reason, the wastewater rates are not increased further for asset replacement. Another affordability consideration is for rental properties, in particular multi-family rental properties where the landlord pays the utility bill. If the Water Bond Debt fee is eliminated it is unlikely that those property tax bill reductions will be passed on to the renters; meanwhile, when the utility bill increases it is likely that the landlord will pass on the increased cost to renters. It is possible that under water rate study Scenario 2 renters would pay more for utilities than they would under water rate study Scenario 1. City of Fernley Water and Wastewater Rate Study Page 31 4.3 LYON COUNTY SCHOOL DISTRICT IMPACTS Lyon County School District (LCSD) is the largest water user in the City therefore the cumulative impact of utility cost increases to LCSD is presented. Figure 22 shows the impact to the LCSD under the least impact combination (Water Scenario 1, Wastewater Scenario 2) and the greatest impact combination (Water Scenario 2, Wastewater Scenario 1) between current average monthly cost and monthly average cost in fiscal year 2017/18. Figure 22 Combined Utilities Impact on Lyon County School District $10,144 $15,084 $16,376 $2,547 $6,889 $7,478 $12,691 $21,974 $23,854 $0 $5,000 $10,000 $15,000 $20,000 $25,000 FY 2016 FY 2018 W Scenario 1, WW Scenario 2 FY 2018 W Scenario 2, WW Scenario 1Average Monthly CostWater Wastewater HANSFORD ECONOMIC CONSULTING City ofFernley Water Rate Study Technical Memorandum August 24, 2016 HECProject #150186 HANSFORD ECONOMIC CONSULTING Phone: 530‐412‐3676 Email: catherine@hansfordecon.com PO Box 10384 Truckee, CA 96162 Technical Memorandum No. 1 WATER RATE STUDY To: City of Fernley From: Catherine Hansford Date: August 24, 2016 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ This technical memorandum presents the detailed water rate study. Support tables are provided in Attachment A. THE WATER FUND Revenues The water system is funded through rates, temporary water treatment plant fees (Water Bond Debt fees), connection fees, interest earnings, in‐lieu of water rights fees, water rights leases, and other miscellaneous revenues. Historically the two largest sources of revenue have been water sales (rates) at 56% of water fund revenue, and Water Bond Debt fees, comprising 33% of revenue. Figure 1 shows the historical share of revenues by source. Figure 1 Typical Annual Sources of Water Fund Revenue Water Sales 56% Water Bond Debt Fee 33% In Lieu of Water Rights 1% Miscellaneous Revenue 3% Contributions‐Hookups/Connections 2%Developer Contributions‐ Water Rights 5% Page 2 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Rate revenue is generated according to the current water rate schedule shown in Table 1. Under the current rate schedule all customers pay a service charge and a use charge. The service charge is different by meter size and by customer type. The use charge is also different by customer type. The use charge is uniform for mastered metered residential customers and commercial customers but individually metered residential customers pay use charges in three tiers. The tier 1 rate is applied to use between 0 and 8,000 gallons per month, the tier 2 rate is applied to use between 8,000 and 30,000 gallons per month, and the tier 3 rate is applied to use greater than 30,000 gallons per month. Table 1 Current Water Rate Schedule Customer RESIDENTIAL Service Charge Individually Metered 0‐8 kgal 8‐30 kgal 30+ kgal 3/4" $19.47 $2.15 $3.11 $4.08 1" $32.32 $2.15 $3.11 $4.08 1.5" $53.50 $2.15 $3.11 $4.08 2" $79.44 $2.15 $3.11 $4.08 4" $230.34 $2.15 $3.11 $4.08 6" $444.66 $2.15 $3.11 $4.08 Mastered Metered 3/4" $19.42 $2.75 $2.75 $2.75 1" $32.17 $2.75 $2.75 $2.75 1.5" $53.20 $2.75 $2.75 $2.75 2" $78.96 $2.75 $2.75 $2.75 4" $228.86 $2.75 $2.75 $2.75 6" $441.70 $2.75 $2.75 $2.75 COMMERCIAL 3/4" $22.60 $2.79 $2.79 $2.79 1" $40.14 $2.79 $2.79 $2.79 1.5" $69.17 $2.79 $2.79 $2.79 2" $104.49 $2.79 $2.79 $2.79 4" $308.64 $2.79 $2.79 $2.79 6" $601.27 $2.79 $2.79 $2.79 8" $952.07 $2.79 $2.79 $2.79 CONSTRUCTION Hydrant Meter $92.63 $3.00 $3.00 $3.00 Well #8 Key $41.20 $0.73 $0.73 $0.73 Standby Fire Line $40.00 per month. Source: City of Fernley.curr rates Use Charge per 1,000 gallons Current Rate Schedule New development pays connection fees for their share of the costs of new facilities that benefit new customers. Table 2 shows the current connection fee schedule. Page 3 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 2 Current Water Connection Fee Schedule Service Type 2016 Fee Residential Single Family per unit $5,165 Multi‐Family per unit $5,165 Commercial $5,165 per 1,000 gallons of daily usage Source: City of Fernley.curr cfee Expenses Annual operating costs include all water system operating expenses. Over the past five years, personnel costs (compensation and benefits), electricity, supplies/tools, contract and technical services, and water rights protection have been the largest expenditure items. Percentage share of historical expenses by expense category is shown in Figure 2. Figure 2 Typical Annual Water Fund Expenses Compensation and Benefits 41% Contract and Technical Services 7%Other Power (gas, diesel, propane) 2% Electricity 18% Water Rights Protection 7% Repairs and Maintenance 5% Interfund Cost Alloc. Build 2% Insurance 5% Communications and Training 1% General Office Supplies and Equip. 1% Supplies/Tools 10% Permits and Licenses 1% Page 4 of 25 Water Rate Study, August 24, 2016 Prepared by HEC The water fund operated at a net loss four out of five years between 2011 and 2015 as shown in Figure 3. Support data is provided in Table A-1. Figure 3 Historical Operating Income (Loss) ($1,500,000)($1,000,000)($500,000)$0 $500,000 2011 2012 2013 2014 2015 Operating Income (Loss) THE WATER SYSTEM The City’s water system is currently supplied entirely by groundwater which is treated at the water treatment plant prior to entering the water distribution system. The City owns and operates raw water pipelines from 6 potable water wells that reach the water treatment plant via two pump stations. Treated water pipelines carry treated water from the treatment plant to customers. In total the City maintains over 242 miles of pipe. In addition, the City has one non-potable water well, 3 pressure regulating valves, 4 potable water ranks and 1 raw water tank. The water treatment plant has a capacity of 20.0 million gallons a day. Currently 3.5 million gallons are processed on average each day. WATER USE System-wide monthly water deliveries are shown in Table 3. Supporting data is provided in Table A-2. About two-thirds of annual water production is used year-round consistently, and one-third of water production is additional water treated for increased demand during the summer months. Page 5 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 3 Monthly Water Delivery Percent Average Production of Delivery Month (thousands of gallons)by Month January 53,727,333 4% February 47,620,167 4% March 62,538,667 5% April 102,068,667 8% May 133,479,833 11% June 155,023,333 12% July 180,110,167 14% August 176,028,667 14% September 148,946,833 12% October 102,653,333 8% November 54,324,500 4% December 52,722,167 4% Total Annual A 1,269,243,667 100% Base Monthly Flow [1]B 67,950,690 Base Annual Flow C = D*12 815,408,286 64% Additional Flow D = A-C 453,835,381 36% Source: City of Fernley.delivery [1] Average monthly production October through April. Water use fluctuates year to year depending on several factors including, but not limited to, growth, the weather, sustained drought, plumbing retrofits, and pricing of water. Average water use by customer category for the past three years is used as the basis on which to project water use over the next five years in the rate study. Historical annual and average annual water use from 2013-2015 is shown in Table A-3. Comparison of production and consumption in Table A-4 shows unaccounted for water system-wide of 14%; however, about 2% is for hydrant flushing, and run to waste at wells, resulting in an estimate of unaccounted for water/leaks of 12% which is within acceptable industry standards. Page 6 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Customer Characteristics Like most cities in the western U.S., Fernley experiences greater water demand in the summer than the winter primarily due to outside applications of water. In Fernley, estimates of sewer flow data suggest that some commercial and industrial customers may also use more water in the summer months that is not applied outdoors. Table 4 shows average monthly use, winter use, and summer use by customer category. Single family homes use more than three times as much water during the summer than the winter. Mobile home parks and commercial customers use more than double the amount of water in the summer than the winter. Master metered residential and commercial accounts use just under twice as much in the summer than winter. Table 4 Customer Usage Characteristics Customer Type Meters Units Residential [1][2] Master Metered - Res 92 592 76,836 5,341 3,534 6,629 1.9 Residential Unit 6,703 6,703 113,294 9,436 4,523 15,710 3.5 RV/Mobile Home Park 7 356 77,647 7,256 4,104 9,979 2.4 Non-Residential Master Metered - Comm'l 2 8 40,281 3,340 2,708 5,000 1.8 Commercial Non-Landscape 231 235 1,015,782 84,674 54,032 126,769 2.3 Landscape 71 71 1,284,581 106,990 3,102 206,825 66.7 Total 7,106 7,659 Source: City of Fernley and HEC.char [1] January and February consumption. [2] July and August consumption. Winter to Summer Ratio Winter Monthly Average Summer Monthly Average Average Monthly Use Average Annual Use use per meter use per unit gallons monthly REVENUE REQUIREMENT The revenue requirement refers to the amount of money that must be raised for revenue sufficiency of the water fund through a combination of rates and Water Bond Debt fees. This section explains the derivation of revenue requirement for this Study. Components of revenue requirement include:  Capital Improvements  Debt Service  Meter Replacement  Operations Expenses Page 7 of 25 Water Rate Study, August 24, 2016 Prepared by HEC  System Rehabilitation  Water Fund Reserves Non-water sales are credited against expenses. Non-water sales include material and labor charges, interest earnings, water rights lease revenues, connection fees, and in-lieu water rights revenues. Capital Improvements Water system capital costs in any one year are dependent on the state of the current infrastructure to serve existing customers and necessary improvements to accommodate potential new customers. Table 5 provides the water system Capital Improvement Project (CIP) for the next 5 years in current and future dollars as provided by the City. Future costs are inflated using the Engineering News Record Construction Cost Index (ENR CCI) past 10-year annual average increase of 3.0%. The cost share of existing water facilities with available capacity and CIP new facilities serving growth is shown in Table 6. This cost data is used to calculate the updated connection fee later in the memorandum. All of the costs associated with bringing surface water to the treatment plant and upgrades to the plant for processing surface water are attributable to new development. Costs for ASR filtration basin(s) and two water distribution trucks are allocated 41% to new development based on growth in population. The cost associated with remaining treatment plant capacity and plant filter replacements is allocated 70% to new development because the treatment plant is currently only 30% utilized. Page 8 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 5 Water Capital Improvements Plan Funding Project Source Total Cost 2017 2018 2019 2020 2021 Estimated Project Costs (2016 $'s) Water Meter Improvements Citywide Cash $1,250,000 $250,000 $250,000 $250,000 $250,000 $250,000 Villa Park Master Meter Installation Cash $186,000 $186,000 $0 $0 $0 $0 Hardie Lane Waterline Rehabilitation Cash $435,000 $435,000 $0 $0 $0 $0 NE Tank Interior Recoat Cash $400,000 $0 $400,000 $0 $0 $0 Well No. 4 Upgrade Cash $50,000 $25,000 $25,000 $0 $0 $0 Fire Hydrant Replacement Cash $25,000 $25,000 $0 $0 $0 $0 Pipe Bridge Rehabilitation Cash $190,000 $20,000 $170,000 $0 $0 $0 Well No. 11 Upgrade Cash $28,000 $0 $28,000 $0 $0 $0 Well No. 9 Upgrade Cash $25,000 $0 $25,000 $0 $0 $0 Peach Tank Demolition Cash $75,000 $0 $75,000 $0 $0 $0 Ricci Tank Interior Recoat Cash $225,000 $0 $225,000 $0 $0 $0 Two (2) Water Distribution Trucks Cash $60,000 $0 $60,000 $0 $0 $0 Well Bypass Projects Cash $120,000 $0 $0 $120,000 $0 $0 Sage Ranch Booster Pump Repair/Relocation Project Cash $295,000 $0 $0 $295,000 $0 $0 WTP Filter Replacement Cash $1,620,000 $0 $0 $540,000 $540,000 $540,000 Sage Tank Interior Recoat Cash $225,000 $0 $0 $0 $225,000 $0 Vine Street Water Main Connection Cash $500,000 $0 $0 $0 $500,000 $0 Tank Recoat Project Cash $300,000 $0 $0 $0 $0 $300,000 ASR - Infiltration Basin(s)Debt $4,000,000 $0 $0 $1,053,000 $1,550,000 $1,397,000 Surface Water Integration [1]Debt $10,000,000 $0 $0 $6,000,000 $4,000,000 $0 Total Estimated Project Costs (2016 $'s)$20,009,000 $941,000 $1,258,000 $8,258,000 $7,065,000 $2,487,000 Estimated Project Costs (Future $'s) Increased Annually by 3% Water Meter Improvements Citywide Cash $1,367,102 $257,500 $265,225 $273,182 $281,377 $289,819 Villa Park Master Meter Installation Cash $191,580 $191,580 $0 $0 $0 $0 Hardie Lane Waterline Rehabilitation Cash $448,050 $448,050 $0 $0 $0 $0 NE Tank Interior Recoat Cash $424,360 $0 $424,360 $0 $0 $0 Well No. 4 Upgrade Cash $52,273 $25,750 $26,523 $0 $0 $0 Fire Hydrant Replacement Cash $25,750 $25,750 $0 $0 $0 $0 Pipe Bridge Rehabilitation Cash $200,953 $20,600 $180,353 $0 $0 $0 Well No. 11 Upgrade Cash $29,705 $0 $29,705 $0 $0 $0 Well No. 9 Upgrade Cash $26,523 $0 $26,523 $0 $0 $0 Peach Tank Demolition Cash $79,568 $0 $79,568 $0 $0 $0 Ricci Tank Interior Recoat Cash $238,703 $0 $238,703 $0 $0 $0 Two (2) Water Distribution Trucks Cash $63,654 $0 $63,654 $0 $0 $0 Well Bypass Projects Cash $131,127 $0 $0 $131,127 $0 $0 Sage Ranch Booster Pump Repair/Relocation Project Cash $322,354 $0 $0 $322,354 $0 $0 WTP Filter Replacement Cash $1,823,855 $0 $0 $590,073 $607,775 $626,008 Sage Tank Interior Recoat Cash $253,239 $0 $0 $0 $253,239 $0 Vine Street Water Main Connection Cash $562,754 $0 $0 $0 $562,754 $0 Tank Recoat Project Cash $347,782 $0 $0 $0 $0 $347,782 ASR - Infiltration Basin(s)Debt $4,514,686 $0 $0 $1,150,642 $1,744,539 $1,619,506 Surface Water Integration [1]Debt $11,058,397 $0 $0 $6,556,362 $4,502,035 $0 Total Estimated Project Costs (Future $'s)$22,162,416 $969,230 $1,334,612 $9,023,740 $7,951,720 $2,883,115 Funding Source (Future $s) Cash $5,946,517 $849,429 $1,210,686 $1,188,363 $1,572,170 $1,125,870 Cash (New Water Meter Replacement Program)$642,815 $119,801 $123,926 $128,373 $132,976 $137,739 In Lieu of Water Rights $2,728,000 $0 $0 $2,728,000 $0 $0 Debt $12,845,083 $0 $0 $4,979,004 $6,246,574 $1,619,506 Total Funding Sources $22,162,416 $969,230 $1,334,612 $9,023,740 $7,951,720 $2,883,115 Source: City of Fernley and HEC.cip [1] Funded partially by debt and partially by In Lieu of Water Rights. Fiscal Year Ending Page 9 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 6 Capital Facilities Costs Allocated to Future Customers Water Facilities Estimated Cost Future Customers Share of Cost Estimated Future Customers Cost Existing Facilities [1] Total Cost of WTP and Associated Facilities $86,169,229 70%$60,206,440 Less Outstanding Principal ($65,175,380)70%($45,538,038) Total Remaining Project Cost $20,993,849 $14,668,402 New Facilities [2] Hardie Lane Waterline Rehabilitation $435,000 0%$0 Well No. 4 Upgrade $50,000 0%$0 Pipe Bridge Rehabilitation $190,000 0%$0 Well No. 11 Upgrade $28,000 0%$0 Well No. 9 Upgrade $25,000 0%$0 Two (2) Water Distribution Trucks $60,000 41%$24,344 Well Bypass Projects $120,000 0%$0 Sage Ranch Booster Pump Repair/Relocation Project $295,000 0%$0 WTP Filter Replacement $1,620,000 70%$1,131,894 Vine Street Water Main Connection $500,000 0%$0 ASR - Infiltration Basin(s)$4,000,000 41%$1,622,912 Surface Water Integration $7,272,000 100%$7,272,000 Subtotal New Facilities $14,595,000 $10,051,149 Source: City of Fernley and HEC.cip future cust [1] Total plant capacity (MGD)20.00 Current Future 2015 Peak Day Plant Usage (MGD)6.03 30%70% [2] Percentage shares based on population in 2015 18,936 59%41% Population with buildout of tentative and final maps 31,864 Debt Service The water fund pays debt service for the City Hall improvements which is included in the annual interfund cost allocation. It also pays for debt service associated with the water treatment plant and associated facility improvements. A summary of outstanding principal for water facilities is provided in Table A-5. Associated debt service payments are shown in Table A-6. New debt service is assumed to be incurred to finance the infiltration basin(s) and surface water integration to the system. The total estimated project costs are $15.6 million in future dollars; however, $2.7 million of existing in-lieu fees (held in a restricted fund) will be put toward this total cost leaving a net cost of $12.9 million to be funded through rates and connection fees. Due to the large cost and unknown timing of construction of these projects a 15% contingency factor was added to the estimated City costs. The estimated annual debt service is $183,500 for existing customers and $694,800 for future customers. For the rate Page 10 of 25 Water Rate Study, August 24, 2016 Prepared by HEC study, equal annual installments are assumed. Actual structure of the debt may differ. The calculated annual new debt service for existing and future customers is shown in Table 7. Table 7 Water Fund New Debt Service Facilities and Cost Existing Customers Future Customers Total New Facilities Year Built ASR - Infiltration Basin(s)2019-2021 $2,682,952 $1,831,734 $4,514,686 Surface Water Integration 2019-2020 $0 $8,330,397 $8,330,397 Subtotal Cost $2,682,952 $10,162,131 $12,845,083 Contingency (15%)$402,443 $1,524,320 $1,926,762 Total Cost $3,085,395 $11,686,451 $14,771,846 Bond Sizing Issuance Costs 2.25%$69,420 $262,950 $332,370 Underwriter's Discount 0.5%$15,430 $58,430 $73,860 Estimated Bond Size $3,170,240 $12,007,830 $15,178,080 Bond Size Adjusted for Rounding $3,172,000 $12,014,000 $15,185,000 Estimated Annual Debt Service $183,500 $694,800 $878,200 Financing Charge [1]$2,333,000 $8,830,000 $11,161,000 Source: City of Fernley and HEC.exis conn fee [1] Financing charge based on sale of revenue bonds with the following terms: interest rate 4.00% years 30 Inflated Costs The financial model assumes that existing customers will pay for future customers’ share of the debt service in years when revenues from connection fees are insufficient to cover the debt service. It is estimated that existing customers will pay for 85% of future customers’ share of the debt service within the financial model time period. If growth is greater than 35 units per year, then existing customers should pay less of the future users’ cost share. Meter Replacement The City does not currently collect for replacement of water meters; costs of replacement are currently paid for with reserves, which is unsustainable. This rate study includes calculation of annual costs to replace meters. Each year City crews will replace older water meters that are near the end of their useful life, or which are inaccurately measuring water flow. The cost to replace meters by size of meter was used to determine the annual cost of meter replacement. Meter replacement costs will increase as the number of City water meters Page 11 of 25 Water Rate Study, August 24, 2016 Prepared by HEC increases and as the cost of installation increases. It is estimated that meter replacement will increase from approximately $120,000 in 2017 to $138,000 in 2021 as shown in Table 8. Meter replacement costs by size are shown in Table A-7. Table 8 Estimated Meter Replacement Cost 2016 2017 2018 2019 2020 2021 Item Assumption Current Year 1 Year 2 Year 3 Year 4 Year 5 Projected Growth in Water Meters 0.50%0.50%0.50%0.50%0.50% City Water Meters in 2016 6,935 6,935 6,935 6,935 6,935 6,935 Projected City Water Meters 6,935 6,970 7,000 7,040 7,080 7,120 Estimated Replacement Cost per Meter [1]3.0%$334 $344 $354 $365 $376 $387 Percentage of Meters Replaced 20-yr cycle 5.0%5.0%5.0%5.0%5.0%5.0% Estimated Meter Replacement Cost $115,728 $119,801 $123,926 $128,373 $132,976 $137,739 Source: City of Fernley and HEC.meter cost [1] Weighted average cost of meters. Fiscal Year Ending Operations Expenses Estimated year-end expenses for fiscal year 2015/16 are used to project future year expenditures. All operating expenditures are increased 4.5% each year with the exception of the Bureau of Reclamation (BOR) water storage costs. BOR costs to store water in Stampede Reservoir have been negotiated and the projected costs reflect the negotiated terms applied to 4,000 acre-feet stored between fiscal years 2017 and 2020, and 6,000 acre-feet stored each year thereafter. Table A-8 shows the calculated historical annual average operating cost increases of 4.5%. Additional information is provided in Table A-9. System Rehabilitation Depreciation is used as the basis for which to collect rates to cover system rehabilitation costs. Inclusion of system rehabilitation costs demonstrates fiscal responsibility toward the assets to potential future investors and helps to establish good credit1. Depreciation is calculated based on existing water assets and new assets added to the water system in the next 5 years. Table 9 shows the total annual amount included in the rates for system rehabilitation. Supporting data is provided in Table A-10. If collected revenue is not applied to a CIP rehabilitation project it should be designated within the fund for the purposes of repair and rehabilitation only. System rehabilitation revenue should not be included in calculating available cash reserves (see cash flow discussion). 1 Per Governmental Accounting Standards Board (GASB) 34, local governments must report on the value of their infrastructure assets and plan for asset maintenance (including collecting sufficient revenue) to obtain good credit when issuing bonds or procuring other forms of financing for long-term construction projects. Page 12 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 9 System Rehabilitation Annual Costs Depreciation 2017 2018 2019 2020 2021 Existing Assets Annual Depreciation [1] $3,256,000 $3,353,680 $3,454,290 $3,557,919 $3,664,657 New Assets Annual Depreciation $29,050 $83,825 $258,618 $423,618 $533,058 Total Annual Depreciation $3,285,050 $3,437,505 $3,712,909 $3,981,537 $4,197,715 System Rehabilitation in Rates $3,285,050 $3,437,505 $3,712,909 $3,981,537 $4,197,715 Source: HEC.depr [1] Increased 3% per year. Water Fund Reserves The water fund currently has no reserves for capital replacement. While the system rehabilitation cost described above helps to fund needed capital repairs and improvements over the next 5 years it does not help to rectify the lack of reserves for asset replacement. The City should have $15.4 million in reserves to replace assets today. This increases to $22.0 million over the next five years as additional assets are added to the water system. Trying to catch‐up to $22.0 million in five years from a zero cash reserve for capital replacement would place undue cost burden on customers. In the financial model for this rate study, cash in unrestricted reserves increases from $3.2 million to $11.2 million, meeting a target minimum balance of one year of operating expenses and contributing $5.0 million to an asset replacement fund. An analysis of the impact to customer rates if the City funded long‐term asset replacement was conducted. Table A‐11 shows that the additional cost to a single family home (3/4” meter) would be at least $30 per month. Table 10 provides the projection of annual costs and revenues and the resulting revenue requirement through fiscal year 2021. Total revenue requirement is projected to increase from $11.1 million in fiscal year 2016 to $13.7 million in fiscal year 2021. Note that the calculated revenue requirement for fiscal year ending 2016 is $11.1 million but actual water rates and Water Bond Debt fees totaled $8.2 million. The water fund has been using existing cash reserves to support operations and maintenance costs. Continuing to use cash reserves is unsustainable. Page 13 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 10 Projected Revenue Requirement Operating Expenses and Revenues Annual 2016 2017 2018 2019 2020 2021 Increase Est. Year End Year 1 Year 2 Year 3 Year 4 Year 5 Operating Expenses Compensation and Benefits 4.5%$1,523,657 $1,592,551 $1,664,560 $1,739,825 $1,818,493 $1,900,718 Contract and Technical Services 4.5%$286,511 $299,466 $313,007 $327,160 $341,952 $357,414 Other Power (gas, diesel, propane)4.5%$60,000 $62,713 $65,549 $68,512 $71,610 $74,848 Electricity 4.5%$587,000 $613,542 $641,284 $670,280 $700,588 $732,265 Water Rights Protection 4.5%$200,000 $209,043 $218,495 $228,375 $238,701 $249,494 Repairs and Maintenance 4.5%$184,700 $193,051 $201,780 $210,904 $220,440 $230,408 Interfund Cost Alloc. Build 4.5%$219,673 $229,606 $239,988 $250,839 $262,181 $274,036 Insurance 4.5%$235,500 $246,148 $257,278 $268,911 $281,071 $293,779 Communications and Training 4.5%$52,181 $54,540 $57,007 $59,584 $62,278 $65,094 General Office Supplies and Equip.4.5%$27,500 $28,743 $30,043 $31,402 $32,821 $34,305 Supplies/Tools 4.5%$203,500 $212,701 $222,319 $232,371 $242,878 $253,860 Permits and Licenses 4.5%$22,000 $22,995 $24,034 $25,121 $26,257 $27,444 BOR Stampede Storage 2.3%$0 $34,000 $34,794 $35,606 $36,438 $55,933 Total Operating Expenses $3,602,222 $3,765,100 $3,935,344 $4,113,284 $4,299,271 $4,493,667 Debt Service Water Bonds $4,660,435 $4,692,384 $4,538,384 $4,471,431 $4,482,767 $4,470,891 New Debt $0 $0 $0 $439,100 $878,200 $878,200 Subtotal Debt Service $4,660,435 $4,692,384 $4,538,384 $4,910,531 $5,360,967 $5,349,091 Capital Projects [1] $0 $0 $0 $0 $0 $0 System Rehabilitation 3.0%$3,256,000 $3,285,050 $3,437,505 $3,712,909 $3,981,537 $4,197,715 Operating Reserve $0 $0 $350,000 $175,000 ($50,000) $150,000 Non‐Operating Credits (Expenses) Material and Labor Charges constant $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 Interest Earnings constant $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 In Lieu of Water Rights [2]$7,000 $60,000 $60,000 $61,000 $61,000 $61,000 Water Rights Lease constant $500 $500 $500 $500 $500 $500 Miscellaneous Revenue constant $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 Connection Fees [3]$200,000 $90,000 $91,000 $91,000 $91,000 $92,000 Meter Replacement Program $0 $119,801 $123,926 $128,373 $132,976 $137,739 Total Non‐operating Credits (expenses) $419,500 $482,301 $487,426 $492,873 $497,476 $503,239 TOTAL REVENUE REQUIREMENT $11,099,157 $11,260,233 $11,773,807 $12,418,851 $13,094,300 $13,687,235 Percent Increase in Revenue Requirement 38% 5% 5% 5% 5% Source: City of Fernley and HEC.rev req [1] CIP paid for with cash greater than collected for system rehabilitation. [2] For new developments using the City's water rights the payments are calculated as: Demand per Lot (acre feet) 0.64 Projected New Lots paying In‐Lieu fee: Water Rights Cost per Lot $7,500 13 13 13 13 13 In‐Lieu Fee per Lot $4,800 Number of new lots paying = # new units multiplied by ratio of lots to pay the in‐lieu fee to total remaining will‐serves [3] Calculated using the new calculated connection fee. The new connection fee is calculated at $6,397 per lot. Fiscal Year Ending Table 11 shows the projected cash deficit with no rate increases. The water fund is projected to be negative by the end of fiscal year 2017 and negative $18.0 million by the end of the five‐ year period. Page 14 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 11 Projected Water Cash Deficit with No Rate Increase Water 2016 2017 2018 2019 2020 2021 Fund Est. Year End Year 1 Year 2 Year 3 Year 4 Year 5 Fiscal Year 2015/16 Water Sales $4,800,000 $4,800,000 $4,800,000 $4,800,000 $4,800,000 $4,800,000 Water Bond Debt Fee $3,385,000 $3,385,000 $3,385,000 $3,385,000 $3,385,000 $3,385,000 Total Revenues 15/16 $8,185,000 $8,185,000 $8,185,000 $8,185,000 $8,185,000 $8,185,000 Projected Revenue Requirement $11,099,000 $11,260,000 $11,774,000 $12,419,000 $13,094,000 $13,687,000 Net Revenues $784,000 $121,834 ($2,576,819) $28,454 ($2,359,367) ($3,221,845) Water Fund Deficit with No Rate Increase ($3,196,834) ($1,012,181) ($4,262,454) ($2,549,633) ($2,280,155) Designated $0 $1,250,000 $1,250,000 $1,250,000 $1,250,000 Water Fund Unrestricted Cash Balance $279,000 ($2,917,834) ($5,180,015) ($10,692,469) ($14,492,102) ($18,022,257) Source: City of Fernley and HEC.deficit Rounded to $1,000's Collecting the Revenue Requirement The revenue requirement will be met through a combination of water rates (collected in utility bills) and Water Bond Debt fees (collected in property tax bills). There are two revenue requirement collection scenarios modeled in this rate study. Under Scenario 1 Water Bond Debt fees continue to decrease 10% each year for all customers except will‐serve lots. The Water Bond Debt fee per will‐serve lot remains the same each year. Under Scenario 2 Water Bond Debt fees only apply to will‐serve lots after fiscal year 2017. Calculation of rates is based on the rates revenue requirement only. Table 12 shows the collection of total revenue requirement under Scenario 1. Unless otherwise stated all the tables presented from this point forward in the technical memorandum are for Scenario 1. Page 15 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 12 Collection of Revenue Requirement - Water Bond Debt Fees decreased 10% each year Scenario 1 2016 2017 2018 2019 2020 2021 Revenue Est. Year End Year 1 Year 2 Year 3 Year 4 Year 5 Water Bond Debt Fees [1]$3,384,561 $2,987,847 $2,869,281 $2,626,359 $2,407,510 $2,210,326 Rates $7,714,596 $8,272,386 $8,904,526 $9,792,492 $10,686,790 $11,476,908 Total $11,099,157 $11,260,233 $11,773,807 $12,418,851 $13,094,300 $13,687,235 Percent collected in Water Bond Debt Fees 30%27%24%21%18%16% Percent collected in Rates 70%73%76%79%82%84% Source: City of Fernley and HEC.source rev [1] Even if bond debt fee is shifted to rates for rate-payers, lots with will-serves will continue to pay a water bond debt fee. Calculation of cost per will-serve: Debt Service for Water Treatment Plant $4,538,384 Estimated Meter Equivalent Units and Will-Serves (Total EDUs)10,072 Debt Service cost per EDU (3/4")$450.59 Will-Serve Lots Pay 60% the 3/4" Rate $270.36 Monthly Cost per Will-Serve Lot $22.53 $22.53 $22.53 $22.53 Estimated Number of Will-Serves Remaining (reduces 0.5% per year)1,713 1,705 1,696 1,688 The comparison of revenue requirement collection under scenarios 1 and 2 are shown in Figure 4 and Figure 5. Figure 4 Comparison of Collection of Revenue Requirement – Scenario 1 Page 16 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Figure 5 Comparison of Collection of Revenue Requirement – Scenario 2 COST CLASSIFICATION After determining a utility’s revenue requirements, a utility’s next step is determining the cost of service. Utilizing a public agency’s approved budget, financial reports, operating data, and capital improvement plans, the rate study categorizes (functionalizes) the costs, expenses, and assets of the water system among major operating functions to determine the cost of service. After the assets and the costs of operating those assets are properly categorized by function, the rate study allocates those “functionalized costs” to the various customer classes (e.g., single family residential, multi-family residential and commercial) by determining the characteristics of those classes and the contribution of each to incurred costs such as peaking factors or different delivery costs, service characteristics and demand patterns. Rate design is the final part of the rate-making procedure. The rates revenue requirement and cost of service analysis are used to determine appropriate rates for each customer class. Cost classification provides a guideline for the City in determining the portion of rates revenue requirement to collect through service charges versus use charges. Generally, rates reflect fixed costs in the service charges (flat monthly rates) and variable costs in the use charges (per 1,000 gallons of water). Through the cost classification analysis, it is calculated that fixed costs comprise about 80% of Fernley’s water system total annual operating costs. Currently Fernley collects 40% of costs recovered through rates in service charges and 60% in use charges. With the addition of the Water Bond Debt fees, which are flat monthly charges like service charges, Fernley collects 65% of total revenue requirement from service charges and 35% from use charges. If all fixed costs (80%) were in the service charge the bill increase would be dramatic for people on a fixed income. The water rate model keeps 65% of costs in service charges. Under Page 17 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Scenario 1 this results in about 75% of revenue requirement collected from flat charges, reducing to 70% over the 5-year period. Allocation of the projected rates revenue requirement is summarized in Table 13. Supporting detail is shown in Tables A-12 and A-13 in Attachment A. Table 13 Allocation of Rates Revenue Requirement to Service and Use Charges - Water Bond Debt Fees decreased 10% each year Scenario 1 Costs 2017 2018 2019 2020 2021 Rates Revenue Requirement $8,272,386 $8,904,526 $9,792,492 $10,686,790 $11,476,908 Fixed Charges 65.0%65.0%65.0%65.0%65.0% Fixed Charges $5,377,051 $5,787,942 $6,365,120 $6,946,414 $7,459,990 Use Charges $2,895,335 $3,116,584 $3,427,372 $3,740,377 $4,016,918 Total from Rates $8,272,386 $8,904,526 $9,792,492 $10,686,790 $11,476,908 Source: HEC.cost alloc RATES ANALYSIS Service Charges. Service costs are allocated to customers based on the number of equivalent meters, determined by the relative hydraulic capacity of the meter size relative to a 3/4-inch meter. Table 14 shows the calculation of equivalent meters. Total number of meters by customer type is shown in Table A-14. Table 14 Meter Equivalents Meter Size Type Number of Meters Meter Flow (gpm) Ratio to 3/4" Service Equivalent Meter Units [1] 3/4"Displacement (C700-09)6,596 30 1.0 6,596 1"Displacement (C700-09)128 50 1.7 213 1.5"Compound (C701-10) Class II 59 120 4.0 236 2"Compound (C701-10) Class II 132 190 6.3 836 3"Compound (C701-10) Class II 3 435 14.5 44 4"Turbo (C701-12) Class II 15 600 20.0 300 6"Turbo (C701-12) Class II 2 1,350 45.0 90 Total 6,935 8,315 Source: Sensus, City of Fernley, and HEC.m equiv [1] Maximum intermittent flow rate. Page 18 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Use Charges. Variable costs are costs that vary with the amount of water consumption. Operations and maintenance consumption costs include well pumping and chemical costs, and capital outlay costs related to peak month deliveries. Variable costs are recovered through use charges. Calculated Rates The calculation of monthly service charges and use charges is shown in Table 15. Note that these charges exclude the meter replacement monthly fees. The calculation of use charges is based on allocated cost and projected water demand. Projected water demand is shown in Table A-15. The projection of water demand incorporates assumed growth of 35 units per year and an expectation that as water rates increase demand will decrease. The relationship between increased prices and decreased demand is referred to as price elasticity. Price elasticity varies by geography due to many micro-economic variables. HEC applied industry knowledge to establish assumed price elasticity factors for Fernley. Price elasticity analysis is shown in Tables A-16 and A-17. All treated water customers pay the same per 1,000 gallons consumed in the new rate structure. Two alternative rate structures were also examined as part of the water rate study. These rate structures are described in Attachment B. Page 19 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 15 Calculated Water Charges under New Rate Structure - Water Bond Debt Fees decreased 10% each year Scenario 1 2017 2018 2019 2020 2021 Meter Size Year 1 Year 2 Year 3 Year 4 Year 5 SERVICE CHARGES Allocated Costs $5,377,051 $5,787,942 $6,365,120 $6,946,414 $7,459,990 Est. Billable Meter Equivalents 8,315 8,350 8,390 8,430 8,470 Meter Size Meter Ratio 3/4"1.0 $53.89 $57.76 $63.22 $68.67 $73.40 1"1.7 $89.82 $96.27 $105.37 $114.45 $122.33 1.5"4.0 $215.56 $231.06 $252.89 $274.67 $293.58 2"6.3 $341.30 $365.84 $400.40 $434.89 $464.84 3"14.5 $781.41 $837.58 $916.71 $995.68 $1,064.24 4"20.0 $1,077.80 $1,155.28 $1,264.43 $1,373.35 $1,467.92 6"45.0 $2,425.06 $2,599.38 $2,844.96 $3,090.04 $3,302.83 USE CHARGES Allocated Cost $2,895,335 $3,116,584 $3,427,372 $3,740,377 $4,016,918 Uniform Rate Total Consumption in 1,000 gallons $1,113,610 $1,133,290 $1,138,562 $1,144,272 $1,150,389 Cost per 1,000 Gallons $2.60 $2.75 $3.01 $3.27 $3.49 Source: City of Fernley and HEC.service charge Fiscal Year Ending Monthly Base Charge per Meter The meter replacement fee is projected through the study period using an annual escalation factor of 3 percent as shown in Table 16. Table 16 Calculated Meter Replacement Fees Meter 2016 2017 2018 2019 2020 2021 Size Current Year 1 Year 2 Year 3 Year 4 Year 5 Annual escalator 3.0% 3/4"$1.35 $1.39 $1.43 $1.47 $1.52 $1.56 1"$1.89 $1.94 $2.00 $2.06 $2.13 $2.19 1.5"$2.97 $3.06 $3.15 $3.24 $3.34 $3.44 2"$3.78 $3.89 $4.01 $4.13 $4.25 $4.38 3"$8.09 $8.33 $8.58 $8.84 $9.11 $9.38 4"$17.80 $18.34 $18.89 $19.45 $20.04 $20.64 6"$24.55 $25.28 $26.04 $26.82 $27.63 $28.46 Source: HEC.meter fee Fiscal Year Ending Page 20 of 25 Water Rate Study, August 24, 2016 Prepared by HEC The new rate structure under Scenario 1 is presented in Table 17. Table 17 Projected Water Charges - Water Bond Debt Fees decreased 10% each year Scenario 1 (Will-serve Lots continue to pay Water Bond Debt Fees) Charges Current 2017 2018 2019 2020 2021 New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Service Charge 3/4"[2]$55.28 $59.19 $64.70 $70.19 $74.96 1"[2]$91.76 $98.28 $107.43 $116.57 $124.52 1.5"[2]$218.62 $234.20 $256.13 $278.01 $297.02 2"[2]$345.19 $369.84 $404.53 $439.15 $469.22 3"n.a.$789.74 $846.16 $925.55 $1,004.79 $1,073.63 4"[2]$1,096.14 $1,174.16 $1,283.88 $1,393.39 $1,488.56 6"[2]$2,450.34 $2,625.42 $2,871.78 $3,117.67 $3,331.28 Other Service Charges Standby Fire Line (any size)$40.00 $55.28 $59.19 $64.70 $70.19 $74.96 Hydrant Meter $92.63 $89.82 $96.27 $105.37 $114.45 $122.33 Well 8 Key $41.20 $53.89 $57.76 $63.22 $68.67 $73.40 Treated Water Use Charges Rate per 1,000 Gallons [2]$2.60 $2.75 $3.01 $3.27 $3.49 Raw Water Use Charges [3] Cost per 1,000 Gallons $0.73 $1.01 $1.03 $1.08 $1.12 $1.16 Water Bond Debt Fee 3/4"$27.98 $27.98 $25.18 $22.66 $20.40 $18.36 1"$46.73 $46.73 $42.06 $37.85 $34.06 $30.66 1.5"$93.18 $93.18 $83.86 $75.47 $67.93 $61.13 2"$149.14 $149.14 $134.22 $120.80 $108.72 $97.85 3"$279.81 $279.81 $251.83 $226.65 $203.98 $183.58 4"$466.44 $466.44 $419.80 $377.82 $340.04 $306.03 6"$466.44 $466.44 $419.80 $377.82 $340.04 $306.03 Will Serve $16.79 $16.79 $22.53 $22.53 $22.53 $22.53 Source: HEC.proj rates [1] Includes the meter replacement fee (new). [2] The current rate structure has different service charges for different customer types. Usage charges are also different by customer type. Residential has a tiered usage system of $2.15 per thousand gallons for 0-8,000 gallons, $3.11 for 8,000-30,000 gallons, and $4.08 for 30,000+ gallons. Mastered metered residential customers are charged $2.75 per thousand gallons of usage. Hydrant meter usage is charged $3.00 per thousand gallons. Commercial customers charged $2.79 per thousand gallons. [3] Water taken from well 8 for dust abatement, construction activities, and so forth. See Table A-19 for supporting calculation. Monthly Water Bond Debt Fee Monthly Charges per Meter [1] Monthly Charges Uniform Rate Structure The service charge includes the meter replacement fee. Other service charges include standby fire lines, hydrant meters, and Well 8 key. The standby fire line monthly service charge is equal to a ¾” meter service charge. The hydrant meter charge is equal to a 1” meter service charge less the meter replacement fee. The Well 8 key service charge is equal to a ¾” Page 21 of 25 Water Rate Study, August 24, 2016 Prepared by HEC meter service charge less the meter replacement fee. Raw water costs are calculated in Table A-17. The new rate structure under Scenario 2 is presented in Table 18. Table 18 Calculated Water Rates Scenario 2 - All costs in rates for rate payers (Will-serve Lots continue to pay Water Bond Debt Fees) Charges Current 2017 2018 2019 2020 2021 New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Service Charge 3/4"[2]$55.28 $74.80 $78.68 $82.71 $86.18 1"[2]$91.76 $124.29 $130.73 $137.44 $143.21 1.5"[2]$218.62 $296.64 $312.05 $328.10 $341.89 2"[2]$345.19 $468.70 $493.07 $518.45 $540.26 3"n.a.$789.74 $1,072.48 $1,128.27 $1,186.37 $1,236.27 4"[2]$1,096.14 $1,486.33 $1,563.49 $1,643.84 $1,712.90 6"[2]$2,450.34 $3,327.78 $3,500.90 $3,681.19 $3,836.06 Other Service Charges Standby Fire Line (any size)$40.00 $55.28 $74.80 $78.68 $82.71 $86.18 Hydrant Meter $92.63 $89.82 $122.29 $128.67 $135.32 $141.02 Well 8 Key $41.20 $53.89 $73.37 $77.20 $81.19 $84.61 Treated Water Use Charges Rate per 1,000 Gallons [2]$2.60 $3.49 $3.68 $3.86 $4.03 Raw Water Use Charges [3] Cost per 1,000 Gallons $0.73 $1.01 $1.03 $1.08 $1.12 $1.16 Water Bond Debt Fee 3/4"$27.98 $27.98 $0.00 $0.00 $0.00 $0.00 1"$46.73 $46.73 $0.00 $0.00 $0.00 $0.00 1.5"$93.18 $93.18 $0.00 $0.00 $0.00 $0.00 2"$149.14 $149.14 $0.00 $0.00 $0.00 $0.00 3"$279.81 $279.81 $0.00 $0.00 $0.00 $0.00 4"$466.44 $466.44 $0.00 $0.00 $0.00 $0.00 6"$466.44 $466.44 $0.00 $0.00 $0.00 $0.00 Will Serve $16.79 $16.79 $22.53 $22.53 $22.53 $22.53 Source: HEC.proj rates [1] Includes the meter replacement fee (new). [2] The current rate structure has different service charges for different customer types. Usage charges are also different by customer type. Residential has a tiered usage system of $2.15 per thousand gallons for 0-8,000 gallons, $3.11 for 8,000-30,000 gallons, and $4.08 for 30,000+ gallons. Mastered metered residential customers are charged $2.75 per thousand gallons of usage. Hydrant meter usage is charged $3.00 per thousand gallons. Commercial customers charged $2.79 per thousand gallons. [3] Water taken from well 8 for dust abatement, construction activities, and so forth. See Table A-19 for supporting calculation. Monthly Water Bond Debt Fee Monthly Charges per Meter [1] Monthly Charges Uniform Rate Structure Page 22 of 25 Water Rate Study, August 24, 2016 Prepared by HEC CASH FLOW Table 19 shows the projected cash flow through fiscal year ending 2021. With adoption of the calculated rates it is anticipated that the City will be able to meet all water enterprise fund obligations, including existing and potential debt service coverage requirements, and achieve a minimum target of one year of operating expenses reserve. Table 19 Projected Cash Flow Revenues and 2016 2017 2018 2019 2020 2021 Expenses Est. Year End Year 1 Year 2 Year 3 Year 4 Year 5 New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Revenue Water Sales $4,800,000 $6,536,193 $8,904,526 $9,792,492 $10,686,790 $11,476,908 Material and Labor Charges $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 Water Bond Debt Fee $3,384,561 $2,987,847 $2,869,281 $2,626,359 $2,407,510 $2,210,326 Interest Earnings $8,000 $8,000 $8,000 $8,000 $8,000 $8,000 In Lieu of Water Rights $7,000 $60,000 $60,000 $61,000 $61,000 $61,000 Water Rights Lease $500 $500 $500 $500 $500 $500 Miscellaneous Revenue $192,000 $192,000 $192,000 $192,000 $192,000 $192,000 Connection Fees $200,000 $90,000 $91,000 $91,000 $91,000 $92,000 Meter Replacement Program $0 $119,801 $123,926 $128,373 $132,976 $137,739 Total Revenues $8,604,061 $10,006,341 $12,261,233 $12,911,725 $13,591,776 $14,190,473 Operating Expenses $3,602,222 $3,765,100 $3,935,344 $4,113,284 $4,299,271 $4,493,667 Net Revenue before Debt Service and System Rehabilitation $5,001,839 $6,241,241 $8,325,889 $8,798,440 $9,292,504 $9,696,806 Debt Service $4,660,435 $4,692,384 $4,538,384 $4,910,531 $5,360,967 $5,349,091 Debt Service Coverage [1]1.07 1.33 1.83 1.79 1.73 1.81 CIP Cash Funded $0 $0 $0 $0 $0 $0 System Rehabilitation $3,256,000 $3,285,050 $3,437,505 $3,712,909 $3,981,537 $4,197,715 Net Revenue ($2,914,596)($1,736,193)$350,000 $175,000 ($50,000)$150,000 Beginning Cash Balance [2]$6,904,327 $3,205,931 $3,084,097 $5,660,916 $5,632,462 $7,991,829 Net Revenue ($2,914,596)($1,736,193)$350,000 $175,000 ($50,000)$150,000 CIP Projects FY 15/16 ($783,800)$0 $0 $0 $0 $0 Use of In Lieu Water Fees for Surface Water Project $0 $0 $0 ($2,728,000)$0 $0 Add Back System Rehabilitation Net of CIP [3]$0 $1,614,359 $2,226,819 $2,524,546 $2,409,367 $3,071,845 Ending Cash Balance $3,205,931 $3,084,097 $5,660,916 $5,632,462 $7,991,829 $11,213,674 Restricted and Designated Restricted-In-Lieu Fees $2,927,386 $2,927,386 $2,927,386 $199,386 $199,386 $199,386 Designated System Rehabilitation Costs [4]$0 $0 $1,250,000 $2,500,000 $3,750,000 $5,000,000 Unrestricted and Undesignated Balance $278,545 $156,711 $1,483,530 $2,933,076 $4,042,443 $6,014,288 Minimum Balance (one year expenses) [5]$3,602,222 $3,765,100 $3,935,344 $4,113,284 $4,299,271 $4,493,667 Source: City of Fernley and HEC.flow [1] Debt service coverage should not fall below 1.20. [2] Unrestricted cash balance as of July 1, 2015. [3] No revenue collected for system rehabilitation in fiscal year 2015-16; new rates in place for 9 months in fiscal year 2016-17. [4] Designated in new, separate fund. [5] Target minimum balance of unrestricted and undesignated water funds. Fiscal Year Ending Water rights in-lieu fees and a portion of revenues collected for system rehabilitation are restricted or designated and are not included in the unrestricted balance which is compared with the minimum target cash balance. Page 23 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Figure 6 shows projected water cash balances with and without rate increases and the cash balance necessary to fund a long‐term asset replacement program with cash. Figure 6 Projected Water Fund Cash Balance ($20,000,000) ($15,000,000) ($10,000,000) ($5,000,000) $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 2016 2017 2018 2019 2020 2021 Target Cash for Capital Replacement Target Unrestricted Cash Balance (1 yr operating costs) Projected Unrestricted Cash Balance (with rate increase) WATER CONNECTION FEE New users of the water system should pay for existing capacity in the system that they will use as well as their share of costs for new facilities constructed as part of the CIP. Table 20 shows total costs attributable to new development is $33.6 million. The City estimates another 4,695 lots will pay connection fees through buildout of existing tentative and final maps. This results in a cost of $7,150 per lot or per equivalent dwelling unit (EDU). Page 24 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 20 Connection Fee Calculation Item Cost Existing Facilities Buy-In $14,668,402 New Facilities (Growth Share)$10,051,149 Financing Charges for New Facilities $8,849,000 Total Costs $33,568,552 Future new EDUs [1]4,695 Calculated Connection Fee per EDU $7,150 Source: HEC.conn cost [1] Anticipated through build-out of tentative and final maps. This report recommends moving to a new connection fee calculation for all master metered residential and non-residential uses based on projected demand in gallons per minute of the new establishment. Projected water demand for every new establishment is determined when calculating required water rights for a project using plumbing plans or information from a similar establishment in the region. Water rights demand is multiplied by a factor to determine maximum day usage in gallons per minute. Given the similarity in geography between Fernley and the Reno-Sparks metropolitan area, the factors developed by the Truckee Meadows Water Authority (TMWA) would be appropriate to use in Fernley. The factors are guidelines. Actual water demands would be approved by the City Engineer. TMWA’s current factors are:  Multi-family - 0.15 gpm per unit  Commercial/Industrial – 1.17 multiplied by water rights demand  Irrigation – 0.38 multiplied by water rights demand The new connection fee schedule is shown in Table 21. All single family residential units would pay a fee of $7,150 per lot. This fee equates to $8,850 per GPM (gallons per minute). The new water connection fee would be automatically adjusted each fiscal year by the March to March ENR CCI change. Page 25 of 25 Water Rate Study, August 24, 2016 Prepared by HEC Table 21 New Connection Fee Schedule Meter Size Calculated Connection Fee 1/1/2017 Single Family and Manufactured Homes $7,150 Gallons per Minute per Single Family Lot 0.81 Fee per GPM [2]$8,850 Source: HEC.conn meter [1] Automatically adjusted each year per the March to March ENR CCI change. HANSFORD ECONOMIC CONSULTING Regional and Resource Economics ATTACHMENT A WATER RATE STUDY SUPPORT TABLES Table A‐1 City of Fernley Water Rate Study Historical Financial Performance Revenues and Expenses 2011 2012 2013 2014 2015 Operating Revenues Service Fees $4,580,081 $6,325,663 $4,925,752 $4,940,786 $4,822,461 Other Revenues $4,893 $97,966 $0 $198,689 $207,929 Total Operating Revenues $4,584,974 $6,423,629 $4,925,752 $5,139,475 $5,030,390 Operating Expenses Salaries $850,082 $858,238 $803,456 $859,999 $936,082 Benefits $355,206 $373,844 $311,139 $368,850 $390,932 Supplies, Services and Other $1,526,874 $1,596,547 $1,703,871 $1,763,567 $1,921,545 Depreciation $3,207,491 $3,246,418 $3,230,816 $3,192,486 $3,167,944 Total Operating Expenses $5,939,653 $6,075,047 $6,049,282 $6,184,902 $6,416,503 Operating Income (Loss) ($1,354,679) $348,582 ($1,123,530) ($1,045,427) ($1,386,113) Nonoperating Revenues (Expenses) Water Bond Debt Fee Revenue $0 $0 $3,345,781 $3,323,649 $3,378,183 Connection Fee Revenue $40,157 $5,297 $6,995 $59,052 $446,296 Interest Income $29,619 $6,631 $12,910 $12,631 $8,541 Other Income $154,729 $233,285 $341,799 $35,076 $205,291 Gain (Loss) on Disposals of Capital Assets $0 $0 $0 $1,764 $0 Interest Expense ($3,331,698) ($3,242,454) ($3,231,326) ($3,138,372) ($2,903,107) Income (Loss) Before Contributions ($4,461,872) ($2,648,659) ($647,371) ($751,627) ($250,909) Capital Contributions $1,776,893 $2,160 $22,575 $363,126 $1,544,753 Change in Net Position ($2,684,979) ($2,646,499) ($624,796) ($388,501) $1,293,844 Total Net Position Beginning of Year $75,794,535 $73,805,706 $71,159,207 $70,534,411 $69,998,868 Restatement Adjustment $696,150 $0 $0 ($147,042) ($1,495,501) Total Net Position End of Year $73,805,706 $71,159,207 $70,534,411 $69,998,868 $69,797,211 Source: City of Fernley Audited Financial Statements.cafr Fiscal Year Ending Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐2 City of Fernley Water Rate Study Fernley Monthly Water Production since 2010 Month 2010 2011 2012 2013 2014 2015 Average January 52,024,000 50,141,000 50,898,000 56,249,000 57,617,000 55,435,000 53,727,333 February 44,650,000 43,769,000 45,866,000 48,789,000 51,325,000 51,322,000 47,620,167 March 56,146,000 49,097,000 58,854,000 68,420,000 69,044,000 73,671,000 62,538,667 April 86,651,000 81,730,000 107,217,000 109,417,000 116,576,000 110,821,000 102,068,667 May 119,382,000 124,811,000 152,021,000 142,556,000 141,647,000 120,462,000 133,479,833 June 156,616,000 140,875,000 161,149,000 163,828,000 163,917,000 143,755,000 155,023,333 July 200,449,000 178,310,000 183,033,000 182,585,000 182,216,000 154,068,000 180,110,167 August 191,375,000 181,734,000 184,153,000 176,899,000 167,958,000 154,053,000 176,028,667 September 154,672,000 150,385,000 155,865,000 147,591,000 146,036,000 139,132,000 148,946,833 October 86,711,000 101,695,000 112,479,000 101,863,000 112,605,000 100,567,000 102,653,333 November 51,744,000 47,872,000 53,929,000 57,000,000 59,440,000 55,962,000 54,324,500 December 49,022,000 51,545,000 50,880,000 57,105,000 53,250,000 54,531,000 52,722,167 Total 1,249,442,000 1,201,964,000 1,316,344,000 1,312,302,000 1,321,631,000 1,213,779,000 1,269,243,667 Source: City of Fernley.water prod All Figures in Gallons Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐3 City of Fernley Water Rate Study Historical Water Use by Customer Category 3‐Year Customer 2013 2014 2015 Average Residential Single Family 770,500,972 743,162,833 709,789,038 741,150,948 Master Metered ‐ Res 32,321,000 33,981,000 38,606,000 34,969,333 RV/Mobile Home Park 26,720,000 30,037,000 26,170,000 27,642,333 Subtotal Residential 802,821,972 777,143,833 748,395,038 776,120,281 Non‐Residential Commercial (includes landscape) 317,471,200 350,409,600 288,611,305 318,830,702 Master Metered ‐ Comm 261,000 333,000 368,000 320,667 Subtotal Non‐Residential 317,732,200 350,742,600 288,979,305 319,151,368 Total Billable Water 1,147,274,172 1,157,923,433 1,063,544,343 1,122,913,983 Source: City of Fernley and HEC.use Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐4 City of Fernley Water Rate Study Comparison of 2015 Production and Consumption Water 2015 gallons Production 1,213,779,000 Billed Consumption 1,037,374,343 Hydrants & Well 8 Consumption 3,417,364 Unaccounted for Water [1] 172,987,293 % Unaccounted for 14% Source: City of Fernley.unaccount [1] Includes water for flushing wells, hydrant testing, and leaks. Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐5City of Fernley Water Rate StudyOutstanding Principal on Water FacilitiesBond IssueIssue DateInterest RateMaturity Date PurposeOutstanding Principal6/30/20162007 Bond Issue 3/28/2007 4% ‐ 5% 2/1/2037 Water treatment plant 13,735,000 2008 Bond Issue 4/1/2008 3.25%‐5% 2/1/2038 Water treatment plant 2,395,000 2014 Refunding 10/23/2014 2.48% 2/1/2026 Partial refunding of 2007 & 2008 Bonds 11,380,380 2015B Refunding 11/4/2015 2%‐5% 2/1/2038 Partial refunding of 2007 & 2008 Bonds 37,665,000 Total Outstanding Principal65,175,380 Source: City of Fernley.outstandingPrepared by HEC150186 Water Model_v17 8/24/2016 Table A‐6 City of Fernley Water Rate Study Existing Water Debt City Hall Water Facilities Total [1], [3][2] 2016 $63,364 $4,660,435 $4,723,799 2017 $63,383 $4,692,384 $4,755,766 2018 $63,543 $4,538,384 $4,601,927 2019 $63,501 $4,471,431 $4,534,932 2020 $63,429 $4,482,767 $4,546,196 2021 $63,499 $4,470,891 $4,534,391 2022‐2026 $317,249 $22,350,103 $22,667,353 2027‐2031 $0 $22,457,469 $22,457,469 2032‐2036 $0 $22,371,113 $22,371,113 2037‐2038 $0 $6,102,750 $6,102,750 Source: City of Fernley.debt [1] A portion of the City Hall debt is paid by the water fund. Debt is paid by different government departments based on the number of employees working in City Hall. Water pays approximately 17.25% [2] Includes 2007 and 2008 bond issues, and the 2014 and 2015B partial refundings. [3] Debt service included in the Interfund Cost Allocation. includes principal and interest payments Fiscal Year Ending Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐7 City of Fernley Water Rate Study Meter Replacement Fee Calculation Assumption Item / Total 3/4" 1" 1‐1/2" 2" 3" 4" 6" 8" New Meter with Transponder [1] $250 $350 $550 $700 $1,500 $3,300 $4,550 $5,450 Installation Costs [2] 20% $50 $70 $110 $140 $300 $660 $910 $1,090 Administration Costs 3% $8 $11 $17 $21 $45 $99 $137 $164 Total Cost per Meter $334 $308 $431 $677 $861 $1,845 $4,059 $5,597 $6,704 Replacement Interval (years) 20 20 20 20 20 20 20 20 Cost per Meter per Year $15 $22 $34 $43 $92 $203 $280 $335 Monthly Cost per Meter $1.28 $1.79 $2.82 $3.59 $7.69 $16.91 $23.32 $27.93 Monthly Cost per Billing Meter [3] $1.35 $1.89 $2.97 $3.78 $8.09 $17.80 $24.55 $29.40 Source: HEC.meter prog [1] Approximate prices based on HEC experience. [2] Actual installation costs vary by meter size as a percentage of meter cost. [3] Accounts for an estimated vacancy rate of 5% Meter Size Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐8 City of Fernley Water Rate Study Operating Expenses Cost Escalation Factors Total Annual Avg. Expenses 2012 2013 2014 2015 Change % Change Compensation and Benefits $1,232,083 $1,114,596 $1,228,849 $1,327,015 $94,932 2.5% Contract and Technical Services $104,013 $250,063 $259,012 $225,922 $121,909 29.5% Other Power (gas, diesel, propane) $65,729 $52,633 $53,198 $48,789 ‐$16,941 ‐9.5% Electricity $567,229 $580,777 $541,009 $483,268 ‐$83,962 ‐5.2% Water Rights Protection $255,678 $233,676 $166,702 $157,771 ‐$97,907 ‐14.9% Repairs and Maintenance $161,824 $55,876 $158,113 $263,613 $101,789 17.7% Interfund Cost Alloc. Build $20,000 $20,000 $60,293 $94,112 $74,112 67.6% Insurance $146,466 $168,161 $156,558 $138,149 ‐$8,317 ‐1.9% Communications and Training $36,519 $36,196 $42,623 $39,973 $3,454 3.1% General Office Supplies and Equip. $35,590 $28,587 $24,469 $32,306 ‐$3,284 ‐3.2% Supplies/Tools $201,451 $270,981 $290,308 $424,731 $223,280 28.2% Permits and Licenses $18,353 $11,300 $11,281 $12,911 ‐$5,442 ‐11.1% Subtotal Expense $2,844,937 $2,822,845 $2,992,416 $3,248,560 $403,6234.5% June 2012 June 2013 June 2014 June 2015 ENR Construction Cost Index [1] 9,291 9,542 9,800 10,039 748 2.6% West Region Consumer Price Index 233 236 242 244 11 1.5% Source: Engineering News Record, Bureau of Labor Statistics, and City of Fernley.indicies [1] The ENR CCI 10‐year annual average increase is: Dec ENR CCI 2005 7,647 Change Annual Avg. % Change 2015 10,135 2,488 2.9% Actual Financials Fiscal Year Ending Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐9 City of Fernley Water Rate Study Historical Revenues and Expenditures Revenues Est Year End and Expenditures 2012 2013 2014 2015 2016 Revenue Water Sales $4,873,902 $4,925,752 $4,940,786 $4,822,461 $4,800,000 Material and Labor Charges $2,495 $5,530 $11,480 $11,140 $12,000 WTP Debt Assess $1,449,260 $3,345,781 $3,323,649 $3,378,183 $3,384,561 Interest Earnings $6,631 $12,910 $12,631 $8,541 $8,000 Sale of Fixed Assets $0 $0 $1,764 $0 $0 In Lieu of Water Rights $0 $0 $6,280 $199,266 $7,000 Water Rights Lease $2,942 $13,583 $28,796 $6,025 $500 Miscellaneous Revenue $247,153 $327,064 $187,209 $196,789 $192,000 Contributed Revenue $97,966 $0 $0 $0 $0 Customer Contributions‐Hookups/Connections $5,297 $6,995 $59,052 $446,296 $200,000 Dev. Contrib.‐Desert Lakes $0 $3,709 $4,845 $185 $0 Capital Grant Contributions $0 $0 $0 $48,093 $0 Developer Contributions‐Water Rights $2,160 $18,866 $358,281 $1,496,475 $0 Subtotal Revenue $6,687,808 $8,660,191 $8,934,774 $10,613,454 $8,604,061 Expense Compensation and Benefits $1,232,083 $1,114,596 $1,228,849 $1,327,015 $1,523,657 Contract and Technical Services $104,013 $250,063 $259,012 $225,922 $286,511 Other Power (gas, diesel, propane) $65,729 $52,633 $53,198 $48,789 $60,000 Electricity $567,229 $580,777 $541,009 $483,268 $587,000 Water Rights Protection $255,678 $233,676 $166,702 $157,771 $200,000 Repairs and Maintenance $161,824 $55,876 $158,113 $263,613 $184,700 Interfund Cost Alloc. Build $20,000 $20,000 $60,293 $94,112 $219,673 Insurance $146,466 $168,161 $156,558 $138,149 $235,500 Communications and Training $36,519 $36,196 $42,623 $39,973 $52,181 General Office Supplies and Equip. $35,590 $28,587 $24,469 $32,306 $27,500 Supplies/Tools $201,451 $270,981 $290,308 $424,731 $203,500 Permits and Licenses $18,353 $11,300 $11,281 $12,911 $22,000 Subtotal Expense $2,844,937 $2,822,845 $2,992,416 $3,248,560 $3,602,222 Interest on Water Bonds $3,242,454 $3,231,326 $3,138,372 $2,831,029 $2,831,541 Bond Issuance Cost $0 $0 $0 $72,078 $0 Net Revenue $600,417 $2,606,020 $2,803,985 $4,461,786 $2,170,298 Source: City of Fernley.rev exp Actual Financials Fiscal Year Ending Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐10City of Fernley Water Rate StudyEstimated Depreciation of New AssetsAssetNew Asset Life (years) 2017 2018 2019 2020 2021Water Meter Improvements Citywide 20 $12,500 $25,000 $37,500 $50,000$62,500Villa Park Master Meter Installation 20 $9,300 $9,300 $9,300 $9,300 $9,300Hardie Lane Waterline Rehabilitation 80 $5,438 $5,438 $5,438 $5,438 $5,438NE Tank Interior Recoat 20 $0 $20,000 $20,000 $20,000 $20,000Well No. 4 Upgrade 20 $1,250 $2,500 $2,500 $2,500 $2,500Fire Hydrant Replacement 80 $313 $313 $313 $313 $313Pipe Bridge Rehabilitation 80 $250 $2,375 $2,375 $2,375 $2,375Well No. 11 Upgrade 20 $0 $1,400 $1,400 $1,400 $1,400Well No. 9 Upgrade 20 $0 $1,250 $1,250 $1,250 $1,250Peach Tank Demolition 0 n.a. n.a. n.a. n.a. n.a.Ricci Tank Interior Recoat 20 $0 $11,250 $11,250 $11,250 $11,250Two (2) Water Distribution Trucks 12 $0 $5,000 $5,000 $5,000 $5,000Well Bypass Projects 50 $0 $0 $2,400 $2,400 $2,400Sage Ranch Booster Pump Repair/Relocation Project 30 $0 $0 $9,833 $9,833 $9,833WTP Filter Replacement 10 $0 $0 $54,000 $108,000 $162,000Sage Tank Interior Recoat 20 $0 $0 $0 $11,250 $11,250Vine Street Water Main Connection 80 $0 $0 $0 $6,250 $6,250Tank Recoat Project 20 $0 $0 $0 $0 $15,000ASR ‐ Infiltration Basin(s) 50 $0 $0 $21,060 $52,060 $80,000Surface Water Integration 80 $0 $0 $75,000 $125,000 $125,000Total Estimated Annual Depreciation of New Assets$29,050 $83,825 $258,618 $423,618 $533,058Source: City of Fernley and HEC.new deprFiscal Year EndingPrepared by HEC150186 Water Model_v17 8/24/2016 Table A‐11 City of Fernley Water Rate Study Calculated Capital Replacement Fee 2017 2018 2019 2020 2021 Meter Size Year 1 Year 2 Year 3 Year 4 Year 5 $2,927,511 $3,027,511 $3,227,511 $3,527,511 $3,927,511 Est. Billable Meter Equivalents 8,315 8,350 8,390 8,430 8,470 Meter Size Meter Ratio 3/4" 1.00 $29.34 $30.21 $32.06 $34.87 $38.64 1" 1.67 $48.90 $50.36 $53.43 $58.12 $64.40 1.5" 4.00 $117.36 $120.86 $128.23 $139.48 $154.57 2" 6.33 $185.82 $191.36 $203.03 $220.85 $244.73 3" 14.50 $425.43 $438.11 $464.83 $505.62 $560.30 4" 20.00 $586.80 $604.29 $641.14 $697.41 $772.83 6" 45.00 $1,320.31 $1,359.66 $1,442.57 $1,569.18 $1,738.86 Source: City of Fernley and HEC.cap fee Fiscal Year Ending Monthly Capital Replacement Charge per Meter Five‐year Buildup to Capital Replacement Reserve Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐12 City of Fernley Water Rate Study Functional Allocation of Revenue Requirement Expenditures BUDGET 2015‐16 Allocation Basis Customer Capacity Fire Capacity Use Unclassified TREATMENT Debt Service $2,831,541 Customers 100% 0% 0% 0% 0% Bond Issuance Cost $0 Customers 100% 0% 0% 0% 0% Regular Pay $627,449 Avg. of Classified 0% 0% 0% 0% 100% Standby Pay $30,000 Avg. of Classified 0% 0% 0% 0% 100% Overtime Pay $20,150 Avg. of Classified 0% 0% 0% 0% 100% Annual Leave Pay $4,605 Avg. of Classified 0% 0% 0% 0% 100% Sick Leave Pay $0 Avg. of Classified 0% 0% 0% 0% 100% Holiday Pay $0 Avg. of Classified 0% 0% 0% 0% 100% Other Leave Pay $0 Avg. of Classified 0% 0% 0% 0% 100% Salaries‐Misc $0 Avg. of Classified 0% 0% 0% 0% 100% FICA $0 Avg. of Classified 0% 0% 0% 0% 100% Medicare $9,892 Avg. of Classified 0% 0% 0% 0% 100% Unemployment $7,239 Avg. of Classified 0% 0% 0% 0% 100% Retirement (PERS) $177,254 Avg. of Classified 0% 0% 0% 0% 100% Pension Expense ‐ GASB 68 Adj $0 Avg. of Classified 0% 0% 0% 0% 100% Group Insurance $153,005 Avg. of Classified 0% 0% 0% 0% 100% Workers Compensation Insurance $45,462 Avg. of Classified 0% 0% 0% 0% 100% Other Benefits $0 Avg. of Classified 0% 0% 0% 0% 100% OPEB Liability $19,920 Avg. of Classified 0% 0% 0% 0% 100% Benefits‐Misc $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐City Attorney $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Legal $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Engineering $3,750 Avg. of Classified 0% 0% 0% 0% 100% Prof. Serv. ‐ GIS $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Other $12,500 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Environmental $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐PW Inspections $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Reimbursable $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Auditing $28,261 Avg. of Classified 0% 0% 0% 0% 100% Tech Services‐Lab Analysis $0 Avg. of Classified 0% 0% 0% 0% 100% Tech Services‐Other $0 Avg. of Classified 0% 0% 0% 0% 100% Research & Development $0 Avg. of Classified 0% 0% 0% 0% 100% Prof & Tech Fees‐Misc $0 Avg. of Classified 0% 0% 0% 0% 100% Utility Services‐Water & Sewer $0 Customers 100% 0% 0% 0% 0% Utility Service‐Refuse $12,500 Avg. of Classified 0% 0% 0% 0% 100% Contract Services $19,000 Avg. of Classified 0% 0% 0% 0% 100% Contract Services‐ANALYTICAL $8,600 Avg. of Classified 0% 0% 0% 0% 100% Contract Services‐ELECTRICAL $5,500 Avg. of Classified 0% 0% 0% 0% 100% Contract Services‐SCADA $12,000 Avg. of Classified 0% 0% 0% 0% 100% Repairs & Maintenance $25,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Repairs & Maintenance‐Roads $10,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Repairs & Maintenance‐TCID $102,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Rental $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Interfund Cost Alloc. Build $219,673 Avg. of Classified 0% 0% 0% 0% 100% Insurance $117,000 Avg. of Classified 0% 0% 0% 0% 100% Communications $3,000 Avg. of Classified 0% 0% 0% 0% 100% Advertising $2,000 Avg. of Classified 0% 0% 0% 0% 100% Printing and Postage $25,000 Avg. of Classified 0% 0% 0% 0% 100% Training $6,000 Avg. of Classified 0% 0% 0% 0% 100% Dues and Memberships $2,000 Avg. of Classified 0% 0% 0% 0% 100% Educational Assistance Program $500 Avg. of Classified 0% 0% 0% 0% 100% General Supplies $0 Avg. of Classified 0% 0% 0% 0% 100% Office Supplies $8,000 Avg. of Classified 0% 0% 0% 0% 100% Minor Equipment $15,000 Avg. of Classified 0% 0% 0% 0% 100% Automotive Supplies $12,500 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Supplies‐Janitorial $1,500 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Supplies‐Meter Service $25,000 Customers 100% 0% 0% 0% 0% Supplies‐Plant/Shop/Maint $32,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Supplies‐Meter Installation $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Supplies‐Safety $1,500 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Supplies‐Chemical $5,500 Customers 100% 0% 0% 0% 0% Supplies‐Well Head Protection $0 Avg. of Classified 0% 0% 0% 0% 100% Natural Gas $2,000 Utilities 0% 0% 0% 100% 0% Electricity $350,000 Utilities 0% 0% 0% 100% 0% Propane $1,000 Utilities 0% 0% 0% 100% 0% Bulk Diesel $5,000 Utilities 0% 0% 0% 100% 0% Gasoline $31,500 Utilities 0% 0% 0% 100% 0% Books and Periodicals $800 Avg. of Classified 0% 0% 0% 0% 100% Permits and Licenses $17,000 Avg. of Classified 0% 0% 0% 0% 100% Property Taxes/Assessmnts/Fees $0 Avg. of Classified 0% 0% 0% 0% 100% Community Support $0 Avg. of Classified 0% 0% 0% 0% 100% In‐Lieu of Fees Expenses $0 Avg. of Classified 0% 0% 0% 0% 100% TROA Expend Grant #07FG200125 $0 Avg. of Classified 0% 0% 0% 0% 100% SB62 Water Rights Tech Support $0 Avg. of Classified 0% 0% 0% 0% 100% Water Rights Protection $200,000 Avg. of Classified 0% 0% 0% 0% 100% Miscellaneous $0 Avg. of Classified 0% 0% 0% 0% 100% Bad Debt $0 Avg. of Classified 0% 0% 0% 0% 100% Prepared by HEC Page 1 of 2 150186 Water Model_v17 8/24/2016 Table A‐12 City of Fernley Water Rate Study Functional Allocation of Revenue Requirement Expenditures BUDGET 2015‐16 Allocation Basis Customer Capacity Fire Capacity Use Unclassified DISTRIBUTION Capital Expenditure Clearing $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Depreciation $3,256,000 Plant In Service 5% 78% 5% 12% 0% Regular Pay $233,231 Avg. of Classified 0% 0% 0% 0% 100% Standby Pay $25,000 Avg. of Classified 0% 0% 0% 0% 100% Overtime Pay $23,150 Avg. of Classified 0% 0% 0% 0% 100% Annual Leave Pay $1,237 Avg. of Classified 0% 0% 0% 0% 100% Sick Leave Pay $0 Avg. of Classified 0% 0% 0% 0% 100% Holiday Pay $0 Avg. of Classified 0% 0% 0% 0% 100% Other Leave Pay $0 Avg. of Classified 0% 0% 0% 0% 100% Salaries‐Misc $0 Avg. of Classified 0% 0% 0% 0% 100% FICA $0 Avg. of Classified 0% 0% 0% 0% 100% Medicare $3,977 Avg. of Classified 0% 0% 0% 0% 100% Unemployment $2,685 Avg. of Classified 0% 0% 0% 0% 100% Retirement (PERS) $65,888 Avg. of Classified 0% 0% 0% 0% 100% Pension Expense ‐ GASB 68 Adj $0 Avg. of Classified 0% 0% 0% 0% 100% Group Insurance $41,160 Avg. of Classified 0% 0% 0% 0% 100% Workers Compensation Insurance $22,953 Avg. of Classified 0% 0% 0% 0% 100% Other Benefits $0 Avg. of Classified 0% 0% 0% 0% 100% OPEB Liability $9,400 Avg. of Classified 0% 0% 0% 0% 100% Benefits‐Misc $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Legal $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Engineering $3,750 Avg. of Classified 0% 0% 0% 0% 100% Prof. Serv. ‐ GIS $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐Other $0 Avg. of Classified 0% 0% 0% 0% 100% Prof Serv‐PW Inspections $0 Avg. of Classified 0% 0% 0% 0% 100% Tech Services‐Lab Analysis $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Tech Services‐Other $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Prof & Tech Svcs‐Misc $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Utility Services‐Water & Sewer $0 Customers 100% 0% 0% 0% 0% Utility Service‐Refuse $150 Avg. of Classified 0% 0% 0% 0% 100% Contract Services $6,500 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Contract Services‐ANALYTICAL $3,500 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Contract Services‐HVAC $3,400 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Contract Svc‐Residuals Dispose $168,750 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Contract Svc‐WTP Operations $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Contract Svc‐Electrical & Cont $6,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Contract Services‐SCADA $5,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Service‐Repair and Maintenance $47,700 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Rental $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Insurance $118,500 Avg. of Classified 0% 0% 0% 0% 100% Communications $8,381 Avg. of Classified 0% 0% 0% 0% 100% Advertising $500 Avg. of Classified 0% 0% 0% 0% 100% Printing and Postage $500 Avg. of Classified 0% 0% 0% 0% 100% Training $2,000 Avg. of Classified 0% 0% 0% 0% 100% Dues and Memberships $500 Avg. of Classified 0% 0% 0% 0% 100% Travel $0 Avg. of Classified 0% 0% 0% 0% 100% Educational Assistance Program $500 Avg. of Classified 0% 0% 0% 0% 100% Office Supplies $1,000 Avg. of Classified 0% 0% 0% 0% 100% Minor Equipment $3,500 Avg. of Classified 0% 0% 0% 0% 100% Automotive Supplies $500 Avg. of Classified 0% 0% 0% 0% 100% Supplies‐Janitorial $0 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Plant/Shop/Maint. Supplies $12,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Safety Supplies $1,000 Ratio Avg. to Peak Month 64% 0% 0% 36% 0% Chemicals $99,350 Utilities 0% 0% 0% 100% 0% Natural Gas $17,500 Utilities 0% 0% 0% 100% 0% Electricity $237,000 Utilities 0% 0% 0% 100% 0% Propane $0 Utilities 0% 0% 0% 100% 0% Bulk Diesel $2,200 Utilities 0% 0% 0% 100% 0% Gasoline $800 Utilities 0% 0% 0% 100% 0% Books and Periodicals $500 Avg. of Classified 0% 0% 0% 0% 100% Permits and Licenses $5,000 Avg. of Classified 0% 0% 0% 0% 100% Svc & Supplies‐Misc $0 Plant In Service 5% 78% 5% 12% 0% TOTAL OPERATING EXPENDITURES $9,689,763 $3,313,217 $2,555,633 $150,060 $1,283,830 $2,387,022 Reallocate As All Others $1,082,980 $835,351 $49,050 $419,641 ALLOCATION OF OPERATING EXPENDITURES $9,689,763 $4,396,197 $3,390,985 $199,110 $1,703,472 Percentage of Allocation 45% 35% 2% 18% Source: HEC and City of Fernley.func alloc Prepared by HEC Page 2 of 2 150186 Water Model_v17 8/24/2016 Table A‐13City of Fernley Water Rate StudyFunctional Allocation of Plant In ServicePlant in ServiceCustomer CapacityFire Capacity UseAccummulated Depreciation Customer Capacity Fire Capacity UseBuildings & Property Improvements 50% 50% $1,188,031 $594,016 $594,016 $0 $0Pipes 90% 10% $11,798,453 $0 $10,618,607 $1,179,845 $0Hydrants 100% $0 $0 $0 $0 $0Meters & Services 100% $703,962 $703,962 $0 $0 $0Treatment Plant 80% 20% $8,838,633 $0 $7,070,907 $0 $1,767,727Wells 80% 20% $1,346,925 $0 $1,077,540 $0 $269,385Tank 100% $605,681 $0 $605,681 $0 $0Pump Station 10% 90% $1,053,320 $0 $105,332 $0 $947,988Vehicles/Fleet 54% 33% 13% $65,209 $35,213 $21,519 $0 $8,477Total Plant in Service $25,600,216 $1,333,191 $20,093,602 $1,179,845 $2,993,577Percentage of Plant in Service 100% 5% 78% 5% 12%Source: HEC.plantPrepared by HEC150186 Water Model_v17 8/24/2016 Table A‐14 City of Fernley Water Rate Study Number of Accounts / Meters Meter Size TOTAL Single Landscape Master SF Master RV/Mobile 3/4" 6,596 88 18 1 6,487 2 0 1" 128 23 16 0 43 45 1 1.5" 59 33 8 1 1 16 0 2" 132 75 26 0 0 26 5 3" 3 0 10 02 0 4" 15 11 2 0 0 1 1 6" 2 2 00 00 0 Total 6,935 232 71 2 6,531 92 7 Source: City of Fernley.consump cust Customer Type ResidentialCommercial Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐15 City of Fernley Water Rate Study Projected Water Demand 2016 2017 2018 2019 2020 2021 Customer Year 1 Year 2 Year 3 Year 4 Year 5 Residential Single Family 741,150,948 736,148,938 748,066,723 751,576,923 755,344,825 759,352,220 Master Metered ‐ Res 34,969,333 34,815,497 35,300,490 35,468,305 35,646,025 35,832,962 RV/Mobile Home Park 27,642,333 27,520,730 27,904,104 28,036,758 28,177,240 28,325,009 Subtotal Residential 776,120,281 798,485,165 811,271,316 815,081,986 819,168,090 823,510,191 Non‐Residential Commercial (includes landscape) 318,830,702 314,805,954 321,695,139 323,155,115 324,777,354 326,550,087 Master Metered ‐ Comm 320,667 318,502 323,659 325,178 326,808 328,542 Subtotal Non‐Residential 319,151,368 315,124,457 322,018,797 323,480,293 325,104,162 326,878,629 Total Billable Water 1,122,913,983 1,113,609,621 1,133,290,113 1,138,562,279 1,144,272,252 1,150,388,820 Source: City of Fernley and HEC.demand Figures in Gallons Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐16 City of Fernley Water Rate Study Assumptions for the Effect of Increasing Prices on Water Demand (Price Elasticity) Estimated 2017 2018 2019 2020 2021 Customer Type Elasticity Year 1 Year 2 Year 3 Year 4 Year 5 % Change in Price to Meet Revenue Requirement 37.6% 4.6% 5.5% 5.4% 4.5% Assumption for Inflation 2.5% 2.5% 2.5% 2.5% 2.5% Price Increase Adjusted for Inflation 35.1% 2.1% 3.0% 2.9% 2.0% Residential Single Family ‐0.10 ‐3.5% ‐0.2% ‐0.3% ‐0.3% ‐0.2% Master Metered ‐ Res ‐0.08 ‐2.8% ‐0.2% ‐0.2% ‐0.2% ‐0.2% RV/Mobile Home Park ‐0.08 ‐2.8% ‐0.2% ‐0.2% ‐0.2% ‐0.2% Non‐Residential Commercial (includes landscape) ‐0.15 ‐5.3% ‐0.3% ‐0.4% ‐0.4% ‐0.3% Master Metered ‐ Comm ‐0.10 ‐3.5% ‐0.2% ‐0.3% ‐0.3% ‐0.2% Source: HEC.elasticity Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐17 City of Fernley Water Rate Study Projected Changes in Water Demand due to Price Changes Customer Type 2016 2017 2018 2019 2020 2021 Year 1 Year 2 Year 3 Year 4 Year 5 Projected Growth 0.50% 0.50% 0.50% 0.50% 0.50% Projected Population 18,936 19,031 19,126 19,221 19,318 19,414 Additional Population 95 95 96 96 97 Number of Lots Added 34 35 35 35 35 Residential Single Family 741,150,948 744,856,702 748,580,986 752,323,891 756,085,510 759,865,938 Master Metered ‐ Res 34,969,333 35,144,180 35,319,901 35,496,500 35,673,983 35,852,353 RV/Mobile Home Park 27,642,333 27,780,545 27,919,448 28,059,045 28,199,340 28,340,337 Subtotal Residential 803,762,614 807,781,427 811,820,335 815,879,436 819,958,833 824,058,628 Non‐Residential Commercial (includes landscape) 318,830,702 320,424,855 322,026,979 323,637,114 325,255,300 326,881,576 Master Metered ‐ Comm 320,667 322,270 323,881 325,501 327,128 328,764 Subtotal Non‐Residential 319,151,368 320,747,125 322,350,861 323,962,615 325,582,428 327,210,340 Total Billable Water 1,122,913,983 1,449,275,678 1,456,522,056 1,463,804,666 1,471,123,690 1,478,479,308 Change in Demand due to Price [1] Residential Single Family ‐8,664,442 ‐8,707,764 ‐514,263 ‐746,967 ‐740,686 ‐513,718 Master Metered ‐ Res ‐327,048 ‐328,683 ‐19,411 ‐28,195 ‐27,958 ‐19,391 RV/Mobile Home Park ‐258,523 ‐259,815 ‐15,344 ‐22,287 ‐22,100 ‐15,328 Subtotal Residential ‐9,250,013 ‐9,296,263 ‐549,018 ‐797,450 ‐790,744 ‐548,436 Non‐Residential Commercial (includes landscape) ‐5,590,946 ‐5,618,901 ‐331,841 ‐481,999 ‐477,946 ‐331,489 Master Metered ‐ Comm ‐3,749 ‐3,768 ‐223 ‐323 ‐320 ‐222 Subtotal Non‐Residential ‐5,594,695 ‐5,622,669 ‐332,063 ‐482,323 ‐478,266 ‐331,711 Total Billable Water ‐14,844,708 ‐14,918,931 ‐881,082 ‐1,279,772 ‐1,269,010 ‐880,148 Source: HEC.elas demand [1] Change applied to summer months consumption only. Percent of Year 33% Prepared by HEC 150186 Water Model_v17 8/24/2016 Table A‐18 City of Fernley Water Rate Study Calculation of Raw Water Cost Share Operation Costs 2017 2018 2019 2020 2021 Treatment $2,039,616 $2,131,839 $2,228,233 $2,328,985 $2,434,292 Distribution $1,725,485 $1,803,504 $1,885,052 $1,970,287 $2,059,375 Capital Improvements $3,285,050 $3,285,050 $3,437,505 $3,712,909 $3,981,537 Debt Service $4,692,384 $4,538,384 $4,910,531 $5,360,967 $5,349,091 Reserves $0 $350,000 $175,000 ($50,000) $150,000 Total Costs $11,742,534 $12,108,778 $12,636,321 $13,323,147 $13,974,296 Percent Allocation to Fixed Costs 65.0% 65.0% 65.0% 65.0% 65.0% Distribution Fixed Costs [1] $1,121,565 $1,172,278 $1,225,284 $1,280,686 $1,338,594 Water Use in Thousands of Gallons 1,113,610 1,133,290 1,138,562 1,144,272 1,150,389 Raw Water Cost per Thousand Gallons $1.01 $1.03 $1.08 $1.12 $1.16 Source: City of Fernley and HEC.raw [1] Raw water only pays for fixed distribution costs. Prepared by HEC 150186 Water Model_v17 8/24/2016 HANSFORD ECONOMIC CONSULTING Regional and Resource Economics ATTACHMENT B ALTERNATIVE RATE STRUCTURES HEC’s contract with the City included examining alternative rate structures. Attachment B shows the calculations for the uniform rate structure presented in the main body of the report and two seasonal rate structures. While changing to a seasonal rate structure is not recommended at this time due to the need for the water rate to be administratively feasible and clearly understandable, an alternative rate structure might be desired in the future. Only the use charges differ under the seasonal rate structures. All other charges remain the same. Calculated use charges are shown in Table B-1 under Scenario 1 for each rate structure. Uniform Rate Structure Total costs allocated to use charges are divided by total projected water demand to calculate the use rate per 1,000 gallons. The use rate is the same for all treated water customers. Seasonal Rate Structure Off-peak water rates are lower October through April (off-peak months) than during peak months (May through September). The use rates reflect that during the peak months the costs of operating the water system are 10% higher. Supporting data is provided in Table B-2. Seasonal Rate Structure with Single Family Allowance Although operating costs are 10% higher in the summer months due to greater water demand, residences have an indoor water need that is constant throughout the year. The average monthly use for single family residential customers is 9,436 gallons per month and the winter average use is 4,523 gallons per month. The current Tier 1 of 8,000 gallons is intended to capture indoor water use and would be appropriate as a summer water allowance with off-peak rates applied. The percentage of Tier 1 water used during peak months in shown in Table B-3 and is applied in the seasonal rate structure with single family allowance calculation. Table B‐1 City of Fernley Water Rate Study Scenario 1 Calculated Use Charges per Thousand Gallons Water Bond Debt Fees decreased annually 10% 2017 2018 2019 2020 2021 Item Year 1 Year 2 Year 3 Year 4 Year 5 Allocated Cost $2,895,335 $3,116,584 $3,427,372 $3,740,377 $4,016,918 UNIFORM RATE Total Consumption in 1,000 gallons 1,113,610 1,133,290 1,138,562 1,144,272 1,150,389 Cost per 1,000 Gallons $2.60 $2.75 $3.01 $3.27 $3.49 SEASONAL RATE [1] Off‐Peak Water Use (Oct‐Apr) 38% 419,745,380 427,163,416 429,150,618 431,302,839 433,608,316 Peak Water Use (May‐Sep) 62% 693,864,241 706,126,698 709,411,661 712,969,412 716,780,504 Total Water Use 1,113,609,621 1,133,290,113 1,138,562,279 1,144,272,252 1,150,388,820 Off‐Peak Cost per 1,000 Galls [2]$2.45 $2.59 $2.84 $3.08 $3.29 Peak Cost per 1,000 Galls 1.10 $2.69 $2.84 $3.11 $3.38 $3.61 SEASONAL RATE WITH SINGLE FAMILY ALLOWANCE Off‐Peak Water Use 419,745,380 427,163,416 429,150,618 431,302,839 433,608,316 Peak Water Use First 8,000 Galls/Mo 45% 210,973,433 214,388,960 215,394,950 216,474,796 217,623,278 Excess of 8,000 Galls/Mo 55% 253,726,241 257,833,908 259,043,759 260,342,430 261,723,647 Subtotal Single Family 464,699,675 472,222,868 474,438,709 476,817,226 479,346,925 All Other Users 229,164,566 233,903,830 234,972,952 236,152,187 237,433,579 Total Water Use 1,113,609,621 1,133,290,113 1,138,562,279 1,144,272,252 1,150,388,820 Off‐Peak Cost per 1,000 Galls $2.45 $2.59 $2.84 $3.08 $3.29 Peak Cost per 1,000 Galls Single Family First 8,000 Galls/Mo [3]$2.45 $2.59 $2.84 $3.08 $3.29 Excess of 8,000 Galls/Mo & All Other Users $2.79 $2.95 $3.23 $3.51 $3.75 Source: HEC.use charge [1] Percentage of water consumed on‐peak and off‐peak the last 3 years. [2] See Table B‐2. [3] Off‐Peak Revenue $1,029,121 $1,107,762 $1,218,229 $1,329,483 $1,427,777 On Peak SF Block 1 Revenue $517,259 $555,974 $611,441 $667,280 $716,586 On Peak Excess Block 1 Revenue $1,348,955 $1,452,848 $1,597,703 $1,743,614 $1,872,555 Total Revenue $2,895,335 $3,116,584 $3,427,372 $3,740,377 $4,016,918 Fiscal Year Ending Prepared by HEC 150186 Water Model_v17 (version 1) 8/24/2016 Table B‐2City of Fernley Water Rate StudyWater Fund Operating Expenses By Month FY 2016PEAK AS % PEAK OFF‐PEAK PEAK TO OFF‐Operating Expenses Jul‐15 Aug‐15 Sep‐15 Oct‐15 Nov‐15 Dec‐15 Jan‐16 Feb‐16 Mar‐16 Apr‐16 May‐16 Jun‐16TOTAL PEAK OF TOTAL OFF‐PEAK AVG. AVG. PEAK RATIODistributionExcludes items not influenced by actual operations such as debt and interest expense, insurance, permits and licenses, water rights protection, and interfund cost allocationCompensation and Benefits$76,703 $79,073 $76,616 $107,397 $72,218 $80,179 $80,727 $81,410 $81,599 $116,031 $80,786 $81,854$1,014,592 $395,032 39% $619,560 $79,006 $88,5090.89Contract and Technical Services$17,931 $9,414 $10,163 $5,338 $913 $3,352 $20,187 $2,452 $2,207 $2,898 $3,446 $4,152 $82,454 $45,10755% $37,347 $9,021 $5,3351.69Other Power (gas, diesel, propane)$1,639 $2,280 $1,521 $1,740 $1,664 $2,379 $969 $833 $2,339 $1,961 $1,554 $1,369 $20,248 $8,36341% $11,884 $1,673 $1,6980.99Electricity$16,931 $32,706 $32,053 $30,290 $21,477 $19,152 $18,211 $16,774 $16,717$16,463 $19,455 $17,004 $257,235 $118,15046% $139,086 $23,630 $19,8691.19Repairs and Maintenance$107,809 $0 $3,314 $4,426 $2,077 $4,603 $1,074 $7,272 $110 $1,184 $7,298 $1,074 $140,241 $119,49585% $20,746 $23,899 $2,9648.06Communications and Training$4,535 $2,211 $2,089 $3,265 $2,742 $2,526 $2,540 $3,317 $3,176 $2,788 $4,276 $3,175 $36,640 $16,28644% $20,354 $3,257 $2,9081.12General Office Supplies and Equip.$413 $6,971 $2,865 $599 $3,303 $3,048 $6,003 $411 $115 $1,284 $616 $151 $25,780 $11,01643% $14,764 $2,203 $2,1091.04Supplies/Tools$23,372 $8,159 $2,942 $2,066 $2,363 $2,234 $2,348 $3,661 $5,682 $15,470 $3,827 $1,107 $73,232 $39,40754% $33,825 $7,881 $4,8321.63TreatmentCompensation and Benefits$26,662 $26,002 $29,845 $44,295 $26,489 $28,641 $32,883 $32,693 $32,854$46,740 $27,977 $27,669 $382,748 $138,15436% $244,594 $27,631 $34,9420.79Contract and Technical Services$28,514 $11,092 $3,887 $4,778 $435 $24,896 $793 $27,884 $2,716 $30,474 $11,560 $21,687 $168,715 $76,74045% $91,975 $15,348 $13,1391.17Other Power (gas, diesel, propane)$287 $268 $364 $512 $1,586 $3,027 $4,290 $2,955 $3,548 $1,758 $1,177 $613 $20,383 $2,70713% $17,675 $541 $2,5250.21Electricity$21,319 $21,046 $18,859 $14,589 $10,833 $9,793 $9,818 $9,095 $9,483 $12,164 $11,944 $0 $148,942 $73,16849% $75,774 $14,634 $10,8251.35Repairs and Maintenance$7,631 $3,367 $8,781 $3,314 $6,505 $3,089 $1,812 $767 $327 $994 $1,613 $188 $38,388 $21,58056% $16,807 $4,316 $2,4011.80Communications and Training$465 $216 $15 $270 $485 $0 $474 $886 $425 $658 $774 $241 $4,909 $1,71135% $3,198 $342 $4570.75General Office Supplies and Equip.$494 $10 $24 $16 $118 $704 $32 $51 $74 $12 $1,154 $331 $3,021 $2,01467% $1,007 $403 $1442.80Supplies/Tools$8,922 $1,327 $2,224 $7,709 $857 $851 $1,716 $7,410 $18,834 $7,242 $666 $9,616 $67,374 $22,75434% $44,620 $4,551 $6,3740.71TOTAL $343,628 $204,142 $195,562 $230,604 $154,065 $188,475 $183,876 $197,871 $180,205 $258,121 $178,123 $170,229$2,484,902 $1,091,685 44% $1,393,217$218,337 $199,0311.10Percent of Year Total 14% 8% 8% 9% 6% 8% 7% 8% 7% 10% 7% 7% 100%Source: City of Fernley.exp monthlyPrepared by HEC150186 Water Model_v16 8/22/2016 Table B‐3City of Fernley Water Rate StudyCurrent Revenue by Tier ‐ Residential Customers for Year Ending May 2016Jun‐15 Jul‐15 Aug‐15 Sep‐15 Oct‐15 Nov‐15 Dec‐15 Jan‐16 Feb‐16 Mar‐16 Apr‐16 May‐16 TOTAL% FOR YEAR % in PEAKConsumptionTier 1 42,362,072 43,832,050 42,289,061 42,990,093 37,383,097 24,995,028 27,969,009 24,182,004 23,720,005 28,433,005 34,709,026 38,167,062 411,031,512 57% 45%Tier 2 34,848,000 50,114,000 38,890,000 43,759,000 18,732,000 2,723,000 4,167,000 2,794,000 2,317,000 4,204,000 12,002,000 20,666,000 235,216,000 33% 41%Tier 3 9,737,000 18,998,000 24,018,000 9,099,000 2,712,000 751,000 1,235,000 1,195,000 489,000 561,000 1,151,000 1,994,000 71,940,000 10% 14%Total Consumption 86,947,072 112,944,050 105,197,061 95,848,093 58,827,097 28,469,028 33,371,009 28,171,004 26,526,005 33,198,005 47,862,026 60,827,062 718,187,512 100% 100%RevenueTier 1 $91,078 $94,239 $90,921 $92,429 $80,374 $53,739 $60,133 $51,991 $50,998 $61,131 $74,624 $82,059 $883,718 46%Tier 2 $108,377 $155,855 $120,948 $136,090 $58,257 $8,469 $12,959 $8,689 $7,206 $13,074 $37,326 $64,271 $731,522 38%Tier 3 $39,727 $77,512 $97,993 $37,124 $11,065 $3,064 $5,039 $4,876 $1,995 $2,289 $4,696 $8,136 $293,515 15%Total Revenue $239,183 $327,605 $309,863 $265,643 $149,695 $65,272 $78,132 $65,556 $60,199 $76,494 $116,647 $154,466 $1,908,755Source: City of Fernley.rev by tierPrepared by HEC150186 Water Model_v16 8/22/2016 HANSFORD ECONOMIC CONSULTING City ofFernley Wastewater Rate Study Technical Memorandum August 24, 2016 HECProject #150186 HANSFORD ECONOMIC CONSULTING Phone: 530‐412‐3676 Email: catherine@hansfordecon.com PO Box 10384 Truckee, CA 96162 Technical Memorandum WASTEWATER RATE STUDY To: City of Fernley From: Catherine Hansford Date: August 24, 2016 ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ This technical memorandum presents the detailed wastewater rate study. Support tables are provided in Attachment A. THE WASTEWATER FUND Revenues The wastewater system is funded through rates, connection fees, interest earnings, and other miscellaneous revenues. Figure 1 below shows the annual share of revenues by source for the past five years. Almost all revenue (92%) is from rates. Figure 1 Wastewater System Revenue Sources Sewer Rates 92% Connection Fees 7% Interest Earnings 1% Page 2 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC The City charges single family and multi-metered residential customers a flat monthly rate and non-residential customers a flat base rate depending on meter size plus a consumption rate per 1,000 gallons of water registered through the water meter. All non-residential customers have a monthly allowance of 10,000 gallons which is not charged. The current wastewater rate schedule is shown in Table 1. Table 1 Current Wastewater Rate Structure Land Use Monthly Flat Rate Consumption Rate (per 1,000 gallons) over 10,000 gallons Residential Single Family $22.02 Multi-Family $22.02 Non-Residential 3/4"$18.39 $1.13 1"$22.66 $1.13 1 1/2"$36.45 $1.13 2"$67.95 $1.13 4"$175.64 $1.13 6"$283.32 $1.13 8"$453.04 $1.13 10"$724.87 $1.13 Source: City of Fernley.curr rates The City’s current wastewater connection fee schedule is shown in Table 2. Table 2 Current Wastewater Connection Fee Service Type 2016 Fee Residential Single Family per unit $3,474 Multi-Family per unit $3,474 Commercial $3,474 x (Usage per day/345 gallons) Source: City of Fernley. curr conn Page 3 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Expenses Figure 2 displays the components of expenditures for the past five years for the wastewater enterprise fund. About half of the City’s annual expenditures is for personnel. Other major expenditures are for electricity, supplies/tools, and contract and technical services. Figure 2 Historical Wastewater Fund Expenditures Compensation and Benefits 49% Contract and Technical Services 7% Electricity 18% Gas 1% Repairs and Maintenance… Interfund Cost Alloc. Build… Insurance 4% Communications and Training 2% General Office Supplies and Equipment 1% Supplies/Tools 10% Permits and Licenses 1%Capital Improvements 1% The wastewater fund has been operating at a net loss every year the past five years as shown in Figure 3. Support data is provided in Table A‐1. Page 4 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Figure 3 Historical Operating Losses ($300,000) ($200,000) ($100,000) $0 2011 2012 2013 2014 2015 Operating Income (Loss) THE WASTEWATER SYSTEM The City’s wastewater system consists of a collection system of more than 106 miles of pipe. Sewer is lifted by approximately 224 residential mini lift stations, 9 large lift stations and 19 pumps to the wastewater treatment plant. Effluent is treated at the 3.0 million gallons a day treatment plant; total flow averages 1.4 million gallons a day. Figure 4 shows historical average daily flow. Summer average daily flow tends to be higher than winter average daily flow. Historical average daily flow is supported by data in Table A‐2. Page 5 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Figure 4 Historical Average Wastewater Treatment Plant Flow REVENUE REQUIREMENT The revenue requirement refers to the amount of money that must be raised through rates. The projection of revenue requirement is the cornerstone for calculation of rates. This section explains the derivation of revenue requirement for this Study. Components of revenue requirement include:  Capital Improvements  Debt Service  Operations Expenses and Reserves  System Rehabilitation  E-1 Grinder Replacement  Wastewater Fund Reserves Non-water sales revenue projections are credited against projected operations costs. Non- water sales include interest earnings, connection fees, and other miscellaneous revenues. Capital Improvements Table 3 provides the CIP list of facilities provided by the City for the next 5 years in current and future dollars. Major necessary improvements include pond 2 cleaning and relining at the treatment plant, AOC pond reline project, rehabilitation of Donner Trails lift station, Farm District Road force main replacement, and other sewer mains replacement or rehabilitation. Page 6 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 3 Capital Improvements Plan Improvement Funding Type Souce Total 2017 2018 2019 2020 2021 Estimated Project Costs (2016 $'s) Sewer Collection System Zone 6 Replacement and Rehabilitation Phase 2 Cash $430,000 $430,000 $0 $0 $0 $0 Hardie Lane Sewer Line Rehabilitation Cash $69,200 $69,200 $0 $0 $0 $0 Donner Trails Lift Station Reserves $929,250 $929,250 $0 $0 $0 $0 Cedar Street Replacement Reserves $250,000 $0 $250,000 $0 $0 $0 East Plant Fire Line and Potable Water Main Cash $525,000 $0 $525,000 $0 $0 $0 Farm District Road Force Main Replacement Reserves $620,000 $0 $620,000 $0 $0 $0 Sewer Main Replacement/Rehabilitation Cash $750,000 $0 $0 $250,000 $250,000 $250,000 Subtotal Sewer Collection $3,573,450 $1,428,450 $1,395,000 $250,000 $250,000 $250,000 Treatment Plant NDEP AOC Pond Reline Project Reserves $1,000,000 $1,000,000 $0 $0 $0 $0 EWWTP Sludge Drying Beds and Removal Facilities Cash $60,550 $60,550 $0 $0 $0 $0 EWWTP Sludge Drying Beds Grant Funded Grant $290,000 $290,000 $0 $0 $0 $0 Pond 2 Cleaning and Lining Debt $2,500,000 $2,500,000 $0 $0 $0 $0 Enclosure for Headworks Reserves $250,000 $0 $250,000 $0 $0 $0 City of Fernley Sewer Model Cash $50,000 $50,000 $0 $0 $0 $0 Metal Storage Building/Shop for East Plant Cash $275,000 $0 $0 $275,000 $0 $0 Subtotal Treatment Plant $4,425,550 $3,900,550 $250,000 $275,000 $0 $0 Total Estimated Project Costs (2016 $'s)$7,999,000 $5,329,000 $1,645,000 $525,000 $250,000 $250,000 Estimated Project Costs (Future $'s) [1]Costs escalated annually by 3% Sewer Collection System Zone 6 Replacement and Rehabilitation Phase 2 Cash $442,900 $442,900 $0 $0 $0 $0 Hardie Lane Sewer Line Rehabilitation Cash $71,276 $71,276 $0 $0 $0 $0 Donner Trails Lift Station Reserves $957,128 $957,128 $0 $0 $0 $0 Cedar Street Replacement Reserves $265,225 $0 $265,225 $0 $0 $0 East Plant Fire Line and Potable Water Main Cash $556,973 $0 $556,973 $0 $0 $0 Farm District Road Force Main Replacement Reserves $657,758 $0 $657,758 $0 $0 $0 Sewer Main Replacement/Rehabilitation Cash $844,377 $0 $0 $273,182 $281,377 $289,819 Subtotal Sewer Collection $3,795,636 $1,471,304 $1,479,956 $273,182 $281,377 $289,819 Treatment Plant NDEP AOC Pond Reline Project Reserves $1,030,000 $1,030,000 $0 $0 $0 $0 EWWTP Sludge Drying Beds and Removal Facilities Cash $62,367 $62,367 $0 $0 $0 $0 EWWTP Sludge Drying Beds Grant Funded Grant $298,700 $298,700 $0 $0 $0 $0 Pond 2 Cleaning and Lining Debt $2,575,000 $2,575,000 $0 $0 $0 $0 Enclosure for Headworks Reserves $265,225 $0 $265,225 $0 $0 $0 City of Fernley Sewer Model Cash $51,500 $51,500 $0 $0 $0 $0 Metal Storage Building/Shop for East Plant Cash $300,500 $0 $0 $300,500 $0 $0 Subtotal Treatment Plant $4,583,291 $4,017,567 $265,225 $300,500 $0 $0 Total Estimated Project Costs (Future $'s)$8,378,928 $5,488,870 $1,745,181 $573,682 $281,377 $289,819 Total Infrastructure Costs in Future $'s [1]$8,378,928 $5,488,870 $1,745,181 $573,682 $281,377 $289,819 Cash $2,329,892 $628,043 $556,973 $573,682 $281,377 $289,819 Reserves $3,175,336 $1,987,128 $1,188,208 $0 $0 $0 Grant $298,700 $298,700 $0 $0 $0 $0 Debt $2,575,000 $2,575,000 $0 $0 $0 $0 Sewer Collection 27%85%48%100%100% Treatment Plant 73%15%52%0%0% Total 100%100%100%100%100% Source: City of Fernley and HEC.cip [1] Cost estimates have been escalated by the past 10-year average ENR CCI increase of 3%. Fiscal Year Ending Page 7 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Total estimated costs are $8.0 million in 2016 dollars. Future costs are inflated using the 10- year Engineering News Record Construction Cost Index (ENR CCI) average annual increase of 3.0%, bringing the total estimated costs to be funded to $8.4 million in future dollars. The CIP costs will be funded through a combination of cash/reserves, debt (for the pond 2 cleaning and lining at the treatment plant), and a grant (sludge drying beds). The cost share of existing wastewater facilities with available capacity and CIP new facilities serving growth is shown in Table 4. This data is used to calculate the updated connection fee later in the memorandum. Existing customers use 47% of the wastewater treatment plant. Remaining facilities capacity and new projects costs at the wastewater treatment plant are therefore allocated 53% to future customers. Other new facilities are allocated 41% to future customers based on estimated population growth. Table 4 Capital Facilities Costs for Future Customers Wastewater Facilities [1]Estimated Cost Future Customers Share of Cost Estimated Future Customers Cost Existing Facilities [3] Treatment Plant [2]$2,458,085 53%$1,294,895 Fernley Interceptor, Hwy 50 & E. Lift Stations $15,103,462 53%$7,956,354 Less Outstanding Principal ($7,073,707)53%($3,726,358) Total Remaining Project Cost $10,487,840 $5,524,890 New Facilities [3], [4] NDEP AOC Pond Reline Project $1,000,000 53%$526,790 EWWTP Sludge Drying Beds and Removal Facilities $350,550 53%$184,666 Pond 2 Cleaning and Lining $2,500,000 53%$1,316,975 City of Fernley Sewer Model $50,000 41%$20,286 Metal Storage Building/Shop for East Plant $275,000 41%$111,575 Subtotal New Facilities $4,175,550 $2,160,293 Source: City of Fernley and HEC.cip future cust [1] All wastewater facilities are asssociated with the treatment plant and conveyance to the plant via lift stations. None of the collector system improvements are of benefit to future users. [2] Capital cost per the City's existing asset records. [3] Total plant capacity (MGD)3.05 Current Future 2015 Peak Day Plant Usage (MGD)1.44 47%53% [4] Percentage shares based on population in 2015 18,936 59%41% Population with buildout of tentative and final maps 31,864 Page 8 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Debt Service The City has wastewater system debt associated with 2007 and 2008 bond issues, and refunding of those bond issues in 2014 and 2015. Existing bond issues are summarized in Table A-3. The wastewater fund also pays for a portion of debt associated with the construction of City Hall. The debt service for the latter is included in the interfund cost allocation therefore it is not included under debt service in the revenue requirement table. Existing annual debt service for wastewater facilities ranges from $233,000 to $436,000 each year over the next five years and is summarized in Table A-4. New debt is anticipated to be incurred for the treatment plant pond 2 lining and cleaning project. For the rate study it is assumed this project is funded with a Clean Water SRF loan, through the Nevada Division of Environmental Protection. The calculated new debt service to the wastewater fund is shown in Table 5. Table 5 Estimated Debt Financing for Pond 2 Bond Costs SRF Funding Estimated Year of Construction 2016 Pond 2 Cleaning and Lining [1]$2,575,000 Bond Issuance Costs (2.25%)$57,938 Total Estimated Bond Size $2,632,938 Estimated Annual Debt Service $164,146 Total Payments $3,282,927 Principal $2,575,000 Interest $707,927 Source: City of Fernley and HEC.bonds [1] Includes non-construction costs. Assumed SRF Loan Terms 2.20% 20 years [2] Assumes the city sells general obligation bonds to the State. Operations Expenses Operations expenses are projected using estimated fiscal year 2015-16 operating expenses. The operating expenses are projected at a constant 5.5% per year. The annual inflator is higher than in the water model (which is 4.5%) because the historical annual average cost increase in the wastewater fund has been greater than in the water fund. The historical annual average change is shown in Table A-5. The calculated average annual change of 5.7% was rounded down to 5.5%. Page 9 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC E-1 Grinder Replacement Costs Some residential homes have an individual lift station (an “E-1 grinder”). E-1 grinders must be replaced approximately every 10 years. Currently the rates do not include these replacement costs. The estimated cost of the E-1 grinder replacements is about $54,000 per year in 2016 dollars, as shown in Table 6. Table 6 E-1 Grinder Replacement Costs Item Number of Residential E-1 Grinders 224 Replacement Cost per Grinder $2,400 Replacement Interval (years)10 Cost per Grinder per Year $240 Annual E-1 Grinder Replacement Cost $53,760 Source: City of Fernley and HEC.e-one System Rehabilitation Depreciation is used as the basis for which to collect rates to cover system rehabilitation costs. Inclusion of system rehabilitation costs demonstrates fiscal responsibility toward the assets to potential future investors and helps to establish good credit1. Depreciation is calculated based on existing wastewater assets and new assets added to the wastewater system in the next 5 years. Table 7 shows the amount of depreciation for existing and new assets included in the rate study. If the collected revenue is not applied to a CIP rehabilitation project it should be designated within the fund for the purposes of repair and rehabilitation only. System rehabilitation revenue should not be included in calculating available cash reserves (see cash flow discussion). Table A-6 provides supporting data for new assets depreciation. 1 Per Governmental Accounting Standards Board (GASB) 34, local governments must report on the value of their infrastructure assets and plan for asset maintenance (including collecting sufficient revenue) to obtain good credit when issuing bonds or procuring other forms of financing for long-term construction projects. Page 10 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 7 System Rehabilitation Annual Cost Asset List 2017 2018 2019 2020 2021 Existing Assets $994,561 $1,024,398 $1,055,130 $1,086,784 $1,119,387 New Assets Annual Depreciation $79,843 $102,281 $114,573 $117,698 $120,823 System Rehabilitation in Rates $1,074,404 $1,126,679 $1,169,702 $1,204,481 $1,240,210 Source: City of Fernley and HEC.assets Fiscal Year Ending Wastewater Fund Reserves The wastewater fund currently has $7.3 million in reserves for capital and replacement. While the system rehabilitation cost described above helps to fund needed capital repairs and improvements over the next 5 years it does not help to rectify the lack of reserves for asset replacement. The City should have about $10.1 million in reserves to replace assets today. This increases to $13.6 million over the next five years as additional assets are added to the wastewater system. Trying to catch‐up to $13.6 million in 5 years would place undue cost burden on customers. The wastewater fund will be in a weaker financial position at the end of the 5‐year period as a result of assets being added to the system. Although cash in reserves do not increase in the wastewater rate model, a minimum target balance of one year of operating expenses is projected to be achieved and $5.0 million would be placed in a designated fund for asset repair and replacement. The model only adds $1.0 million to reserves over the next five years. The cash balance declines in the first two years because some CIP items will be funded with existing reserves. An analysis of the impact to customer rates if the City funded long‐term asset replacement was conducted. Table A‐8 shows that the additional cost to a single family home would be at least $22 per month. Table 8 on the next page provides fiscal year ending 2016 costs and revenues (see support Table A‐7), the projection of annual costs and revenues, and the resulting revenue requirement through fiscal year ending 2021. Total revenue requirement is projected to increase from $2.8 million in fiscal year ending 2016 to $4.0 million in fiscal year ending 2021. Note that the calculated revenue requirement for fiscal year ending 2016 is $2.8 million but actual sewer rates totaled $2.0 million. The sewer fund has been using existing cash reserves to support operations costs. Continuing to use cash reserves is unsustainable. Table 9 shows the projected cash deficit with no rate increases. Page 11 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 8 Projected Revenue Requirement Revenues and 2016 2017 2018 2019 2020 2021 Expenses Assumptions Est. Year End Year 1 Year 2 Year 3 Year 4 Year 5 Operating Expenses Compensation and Benefits **5.5%$756,521 $798,130 $842,027 $888,338 $937,197 $988,743 Contract and Technical Services 5.5%$74,664 $78,771 $83,103 $87,674 $92,496 $97,583 Utilities 5.5%$1,700 $1,794 $1,892 $1,996 $2,106 $2,222 Electricity 5.5%$200,000 $211,000 $222,605 $234,848 $247,765 $261,392 Gas 5.5%$21,400 $22,577 $23,819 $25,129 $26,511 $27,969 Repairs and Maintenance 5.5%$59,500 $62,773 $66,225 $69,867 $73,710 $77,764 Interfund Cost Alloc. Build **5.5%$119,905 $126,500 $133,457 $140,797 $148,541 $156,711 Insurance **5.5%$67,000 $70,685 $74,573 $78,674 $83,001 $87,566 Communications and Training 5.5%$35,425 $37,373 $39,429 $41,598 $43,885 $46,299 General Office Supplies and Equipment 5.5%$20,000 $21,100 $22,261 $23,485 $24,776 $26,139 Supplies/Tools 5.5%$134,500 $141,898 $149,702 $157,935 $166,622 $175,786 Permits and Licenses **5.5%$7,000 $7,385 $7,791 $8,220 $8,672 $9,149 E-1 Residential Grinder Replacement 3.0%$0 $53,760 $55,373 $57,034 $58,745 $60,507 Total Operating Expenses $1,497,615 $1,633,744 $1,722,256 $1,815,595 $1,914,027 $2,017,830 Debt Service Wastewater Bonds $496,528 $232,972 $372,648 $435,827 $431,143 $436,115 Future Debt Service $164,146 $164,146 $164,146 $164,146 $164,146 Total Debt Service **$496,528 $397,119 $536,794 $599,973 $595,289 $600,262 Capital Greater than Rehabilitation **$0 $0 $0 $0 $0 $0 System Rehabilitation **$1,060,000 $1,074,404 $1,126,679 $1,169,702 $1,204,481 $1,240,210 Operating Reserves $0 $0 $250,000 $250,000 $250,000 $250,000 SUBTOTAL Annual Cost $3,054,143 $3,105,267 $3,635,729 $3,835,271 $3,963,798 $4,108,302 Fixed **$1,750,433 $1,676,093 $1,879,294 $1,997,367 $2,039,985 $2,093,898 Variable $1,303,710 $1,429,174 $1,756,435 $1,837,904 $1,923,813 $2,014,404 Credits Interest Earnings constant $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 Miscellaneous Revenue constant $200 $200 $200 $200 $200 $200 Connection Fees [1]$250,000 $59,014 $59,309 $59,605 $59,903 $60,203 Total Credits $259,700 $68,714 $69,009 $69,305 $69,603 $69,903 REVENUE REQUIREMENT $2,794,443 $3,036,553 $3,566,720 $3,765,965 $3,894,194 $4,038,399 Estimated Sewer Sales FY 15/16 $2,016,348 Increase (Decrease) from Prior Year $3,036,553 $530,167 $199,245 $128,229 $144,205 Annual Percentage Change 17%6%3%4% Fixed Costs Percentage 52%57%54%52%52%51%51% Variable Costs Percentage 48%43%46%48%48%49%49% Source: HEC.rev req [1] Growth assumptions: Projected Growth Rate 0.50%0.50%0.50%0.50%0.50% Projected Population 18,936 19,031 19,126 19,221 19,318 19,414 Additional Population 95 95 96 96 97 Number of Lots Developed 34 35 35 35 35 Fiscal Year Ending Page 12 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 9 Projected Wastewater Cash Deficit with No Rate Increase Wastewater 2016 2017 2018 2019 2020 2021 Fund Est. Year End Year 1 Year 2 Year 3 Year 4 Year 5 Fiscal Year 2015/16 Sewer Sales $2,016,348 $2,016,348 $2,016,348 $2,016,348 $2,016,348 $2,016,348 Projected Revenue Requirement $3,036,553 $3,566,720 $3,765,965 $3,894,194 $4,038,399 Net Revenues $1,680,450 $2,307,291 $354,126 ($861,275) ($1,188,957) ($1,216,913) Wastewater Deficit with No Rate Increase ($3,327,497) ($1,904,498) ($888,342) ($688,890) ($805,138) Designated Cash $500,000 $1,000,000 $1,000,000 $1,250,000 $1,250,000 Wastewater Undesignated Cash Balanc $6,792,605 $2,965,108 $60,610 ($1,827,732) ($3,766,621) ($5,821,759) Source: City of Fernley and HEC.deficit This wastewater rate study presents two options for collection of the revenue requirement. The first a modification of the current rate structure eliminating the monthly water allowance for non‐residential customers. The second no longer includes any charge based on water meter size; instead, it charges by customer type. The rate structures are referred to as Scenario 1 and Scenario 2. Scenario 1  Residential single family and master‐metered residential continue to pay a flat monthly charge per unit.  Non‐Residential pay a flat monthly charge by water meter size plus a use charge per 1,000 gallons (no allowance). Scenario 2  Residential single family, master metered residential and mobile homes pay a flat monthly charge per unit.  Schools pay a flat monthly charge on a per student basis.  Non‐Residential pay a flat monthly charge by customer type plus a use charge per 1,000 gallons. Metered water use is multiplied by a return flow factor. RATES ANALYSIS Modified Rate Structure Scenario 1 Methodology 1. Determine Number of Sewer Meter Equivalents – First establish the daily flow for one EDU (equivalent dwelling unit). This flow is the flow per day for a ¾” meter since almost all residential units have a ¾” water meter. Calculate the number of sewer meter equivalents using the current City meter ratios. Total number of meters is shown in Table A‐8. Using metered water usage data, it is determined that residential units use 300 gallons per day on average; however, only 160 gallons per day reaches Page 13 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC the wastewater treatment plant. Table 10 shows the flow per day by meter size and the calculation of estimated sewer meter equivalents for non-residential customers. Table 10 Calculation of Non-Residential Meter Equivalents Item Number of Meters Meter Ratios Flow per Day in Gallons Estimated Sewer Meter Equivalents Single Family (One EDU)160 Meter Size 3/4"82 1.0 160 82 1"22 1.2 197 27 1.5"33 2.0 317 65 2"66 3.7 591 244 3"0 9.6 1,528 0 4"8 15.4 2,465 123 6"2 24.6 3,942 49 Total Estimated Non-Residential Sewer Equivalents 591 Source: City of Fernley and HEC.m equivs 2. Allocate Revenue Requirement to Residential and Non-Residential – Residential customers are allocated costs based on percentage of flow by the residential customer category. Non-residential costs are allocated based on percentage of flow by non-residential customers. Non-residential costs are further allocated to fixed costs collected in flat monthly charges by meter size and use costs collected in consumption charges. Table 11 shows the allocation of revenue requirement. Costs are allocated 78% to residential and 22% to non-residential. Non-residential costs are further allocated 52% to fixed costs and 48% to use costs. Page 14 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 11 Allocation of Revenue Requirement to Residential and Non-Residential Item 2017 2018 2019 2020 2021 Residential 78%$2,359,835 $2,771,850 $2,926,692 $3,026,344 $3,138,412 Non-Residential 22%$676,718 $794,870 $839,273 $867,850 $899,987 Revenue Requirement $3,036,553 $3,566,720 $3,765,965 $3,894,194 $4,038,399 Residential Number of Units (SF & MM-R)6,663 6,663 6,663 6,663 6,663 Annual Cost per Residential Unit $354.17 $416.01 $439.25 $454.20 $471.02 Monthly Cost per Residential Unit $29.51 $34.67 $36.60 $37.85 $39.25 Non-Residential Table 8 Fixed Costs 52%$352,133 $413,614 $436,719 $451,590 $468,312 Use Costs 48%$324,585 $381,256 $402,554 $416,260 $431,675 Meter Equivalents 591 591 591 591 591 Fixed Charge per Meter Equivalent $595.92 $699.97 $739.07 $764.24 $792.54 Monthly Fixed Charge per Meter Equivalent $49.66 $58.33 $61.59 $63.69 $66.04 Metered Water Use 158,320,964 158,320,964 158,320,964 158,320,964 158,320,964 Use Charge per 1,000 Gallons $2.05 $2.41 $2.54 $2.63 $2.73 Source: City of Fernley and HEC.rev alloc Fiscal Year Ending 3. Calculate the Annual Cost per Residential Unit and Non-Residential Meter Equivalent – Divide residential costs by number of residential units. Divide non- residential fixed costs by number of meter equivalents. There are 6,663 residential units. The calculated monthly cost per residential unit is shown in Table 11. The non- residential fixed costs are divided by number of sewer meter equivalents from Table 10. 4. Calculate Rates – For residential divide the annual cost by twelve to determine monthly residential rates. For non-residential multiply the cost per meter equivalent by the meter ratios and divide by twelve to determine monthly base rates by water meter size. For non-residential use charges, divide use costs by metered water use. Flat monthly residential rates and non-residential use charges per 1,000 gallons are calculated in Table 11. Flat monthly non-residential rates by meter size are calculated in Table 12. A comparison of current and calculated wastewater rates for the next five years is included in Table 12. Page 15 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 12 Comparison of Current and Projected Wastewater Rates – Scenario 1 - Modified Rate Structure based on Flow Only Land Use 2016 2017 2018 2019 2020 2021 New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Residential Flat Monthly Charge per Unit $22.02 $29.51 $34.67 $36.60 $37.85 $39.25 Non-Residential Use Charge per 1,000 Gallons [1]$1.13 $2.05 $2.41 $2.54 $2.63 $2.73 Flat Monthly Charge by Meter Size 3/4"$18.39 $49.66 $58.33 $61.59 $63.69 $66.04 1"$22.66 $61.19 $71.87 $75.89 $78.47 $81.38 1.5"$36.45 $98.43 $115.62 $122.07 $126.23 $130.90 2"$67.95 $183.49 $215.53 $227.57 $235.32 $244.03 3"n.a.$474.30 $557.11 $588.23 $608.26 $630.78 4"$175.64 $765.08 $898.66 $948.86 $981.17 $1,017.50 6"$283.32 $1,223.39 $1,436.99 $1,517.26 $1,568.92 $1,627.02 Source: City of Fernley and HEC.calc rates [1] Currently only applies to use above 10,000 gallons per month. The projected rates are for every 1,000 gallons. Fiscal Year Ending New Rate Structure Scenario 2 Methodology The following tables show the calculations for the first year of the analysis, fiscal year 2016- 17, in order to demonstrate the model and illustrate how the rates are calculated for Scenario 2. The same cost allocation methodology is used for all years considered in this analysis. 1. Establish the Wastewater Customer Base and User Characteristics – The wastewater customer base includes residential (single family, master metered residential, and mobile homes), schools, commercial, religious places and community centers, municipal, car wash, and master metered commercial users. Wastewater flow parameters are based on City water meter reads and sewer strength is based on industry standards. Wastewater inflow at the treatment plant currently averages 1.4 million gallons per day (MGD). The number of customers and total calculated flow for each customer and customer category, Biological Oxygen Demand (BOD) and Total Suspended Solids (TSS) characteristics are summarized in Table 13. Page 16 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 13 Summary of User Characteristics - New Rate Structure based on Flow and Strength Customer Billing No. Billing Flow BOD SS Flow BOD SS Flow BOD SS Category Basis Units GPD MG/L MG/L MGD Lbs/Day Lbs/Day MG Lbs/Year Lbs/Year (A)(B)(C)(D)(E)=(A)x(B)(F)= (C)x(E)x8.34 (G)= (D)x(E)x8.34 (H)=(E)x365 (I)=(C)x(H)x8.34 (J)=(D)x(H)x8.34 /1,000,000 [1] Residential Single Family Unit 6,081 160 200 200 0.97 1,622.90 1,622.90 355.13 592,358 592,358 Master Metered Resid.Unit 582 125 200 200 0.07 121.35 121.35 26.55 44,292 44,292 RV/Mobile Home Parks Unit 344 140 200 200 0.05 80.33 80.33 17.58 29,321 29,321 Non-Residential Schools Student 3,720 15 130 100 0.06 59.72 45.94 9.91 10,749 8,269 Master Metered Comm'l Business 8 80 325 325 0.00 1.73 1.73 0.23 633 633 Religious Places & Comm. Ctrs.Account 9 145 130 100 0.00 1.41 1.09 0.48 516 397 Municipal Account 10 275 130 80 0.00 2.98 1.83 1.00 1,088 670 Car Wash Account 4 3,495 20 150 0.01 2.33 17.49 5.10 851 6,383 Gen. Comm'l & Industrial Account 183 1,125 325 325 0.21 558.02 558.02 75.14 203,679 203,679 TOTAL 1.37 2,450.78 2,450.68 491.14 883,487 886,001 Source: City of Fernley and HEC.char [1] Schools multiplied by 180 days per year. Wastewater Characteristics Existing Treatment Load Total Annual Load 2. Project Revenue Requirement and Allocate to Collection and Treatment –Projections of annual costs and non-rate revenues are used to determine revenue requirement as previously described. The revenue requirement (the amount to be funded through wastewater service charges/rates) for fiscal year 2016-17 is $3.0 million. The revenue requirement is allocated between collection and treatment. Of this total cost, approximately $2.4 million (80%) is for the treatment plant and $0.6 million (20%) for the collection system. Table 14 shows the allocation of projected costs between the wastewater collection system and the treatment plant for fiscal year 2016-17. Page 17 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 14 Revenue Requirement Distributed between Collection and Treatment - New Rate Structure based on Flow and Strength Projected Expenditures Total Collection Treatment Operations Capital Total Operations Capital Total Compensation and Benefits **$798,130 25%75%$199,532 $199,532 $598,597 $598,597 Contract and Technical Services $78,771 20%80%$15,754 $15,754 $63,016 $63,016 Utilities $1,794 20%80%$359 $359 $1,435 $1,435 Electricity $211,000 20%80%$42,200 $42,200 $168,800 $168,800 Gas $22,577 20%80%$4,515 $4,515 $18,062 $18,062 Repairs and Maintenance $62,773 20%80%$12,555 $12,555 $50,218 $50,218 Interfund Cost Alloc. Build **$126,500 50%50%$63,250 $63,250 $63,250 $63,250 Insurance **$70,685 20%80%$14,137 $14,137 $56,548 $56,548 Communications and Training $37,373 50%50%$18,687 $18,687 $18,687 $18,687 General Office Supplies and Equipment $21,100 20%80%$4,220 $4,220 $16,880 $16,880 Supplies/Tools $141,898 20%80%$28,380 $28,380 $113,518 $113,518 Permits and Licenses **$7,385 5%95%$369 $369 $7,016 $7,016 E-1 Residential Grinder Replacement $53,760 100%0%$53,760 $53,760 $0 $0 Debt Service $397,119 0%100%$0 $0 $397,119 $397,119 Capital Greater than Rehabilitation **$0 45%55%$0 $0 $0 $0 System Rehabilitation **$1,074,404 15%85%$161,161 $161,161 $913,244 $913,244 Subtotal Costs $3,105,267 20%80%$403,957 $214,921 $618,878 $1,176,026 $1,310,362 $2,486,389 Operating Reserves $0 Offsetting Credits ($68,714) Total $3,036,553 Source: HEC.alloc Allocation Collection Treatment 3. Allocate Revenue Requirement based on Flow and Strength and Determine Unit Costs – The revenue requirement is allocated based on flow and load (strength) depending on the percentage distribution of operations and maintenance operations attributed to flow, BOD, or TSS. Per unit revenue requirement for each projected year is determined by dividing the allocated revenue requirement by the demand for each customer type. Costs are allocated to customer categories as follows: 1. Allocate the costs (by Cost Category) to flow, BOD and TSS 2. Determine the Unit Cost by Cost Category Each of these steps is described in greater detail below. 1. Cost Allocation to Flow, BOD, and SS Costs are allocated to flow, BOD, and SS based on percentage allocation or distribution factors. These percentage allocation factors are based on the estimated distribution of the treatment and collection facilities O&M activities between or related to flow, BOD, and TSS. Table 15 shows the calculation of unit costs by cost category for flow, BOD, and TSS. Collection costs are strictly related to flow and therefore, 100 percent of the collection costs are allocated to flow. Treatment plant costs are allocated by cost category for flow, BOD and TSS using the subtotal percentages from the collection and treatment cost allocations. FY 2017 Page 18 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 15 Unit Cost Determination - New Rate Structure based on Flow and Strength Cost Category Allocated Flow BOD SS Flow BOD SS Flow BOD SS Mgal of Flow Klb of BOD Klb of SS Costs MG Klbs Klbs ($/Mgal)($/Klb)($/Klb) (A) (B)(C)(D) (E) = (A)*(B)(F)=(A)*(C)(G)=(A)*(D)(H)(I) (J)(K)=(E)/(H)(L)=(F)/(I)(M)=(G)/(J) Operating Costs Table 14 Collection System Costs $403,957 100%0%0%$403,957 $0 $0 491 883 886 $822.49 $0.00 $0.00 Treatment Costs $1,176,026 34%33%33%$399,849 $388,089 $388,089 491 883 886 $814.13 $439.27 $438.02 Capital Costs Collection System Costs $214,921 100%0%0%$214,921 $0 $0 491 883 886 $437.60 $0.00 $0.00 Treatment Costs $1,310,362 60%20%20%$786,217 $262,072 $262,072 491 883 886 $1,600.81 $296.63 $295.79 Subtotal Collection Costs $618,878 100%0%0%$618,878 $0 $0 491 883 886 $1,260.09 $0.00 $0.00 Subtotal Treatment Costs $2,486,389 48%26%26%$1,186,066 $650,161 $650,161 491 883 886 $2,414.94 $735.90 $733.82 Subtotal Costs $3,105,267 58%21%21%$1,804,945 $650,161 $650,161 $3,675.03 $735.90 $733.82 Other Costs Operating Reserves $0 58%21%21%$0 $0 $0 491 883 886 $0.00 $0.00 $0.00 Offsetting Credits ($68,714)58%21%21%($39,940)($14,387)($14,387)491 883 886 ($81.32)($16.28)($16.24) Subtotal Other Costs ($68,714)58%21%21%($39,940)($14,387)($14,387)$982 $1,767 $1,772 ($81.32)($16.28)($16.24) TOTAL COSTS $3,036,553 $1,765,004 $635,774 $635,774 $3,593.70 $719.62 $717.58 Source: HEC.unit Percent Allocation Cost Total Influent Unit Cost Per: Table 13 2. Unit Cost by Cost Category The allocated costs are then divided by total annual capacity from Table 13 to determine the unit cost by flow, BOD, and TSS units of measurement. These unit costs are used to determine the cost allocated to each customer type in the next step. 4. Determine Revenue Requirement by Customer Type – The per unit costs are multiplied by the flow and strength characteristics of each customer category to determine the annual cost by customer type. The unit costs determined in Table 16 are multiplied by the flow, BOD, or TSS for each customer type. These costs are then summed to determine the total costs allocated to each customer type. Total allocated costs to each customer category under Scenario 2 are shown in Table 17. Residential customers are responsible for 79% of the total costs, and non-residential uses, including commercial, schools, religious places and community centers, car washes, and municipal customers are responsible for 21%. Total treatment cost per 1,000 gallons is greatest for high strength customers such as general commercial users, and lowest for car washes, municipal users, schools, and community centers and religious places which have low strength wastewater. FY 2017 Page 19 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 16 Allocation of Costs to Flow, BOD, and SS by Customer Category - New Rate Structure based on Flow and Strength Collection TOTAL Unit Cost/Customer Flow BOD SS Flow Flow BOD SS Flow BOD SS Category MG/Yr Klb/Yr Klb/Yr ($/Mgal)($/Mgal)($/Klb)($/Klb)($/Mgal)($/Klb)($/Klb) Unit Cost Table 15 ---------------->$1,260.09 $2,414.94 $735.90 $733.82 ($81.32)($16.28)($16.24) Residential Single Family 355 592 592 $447,496 $857,617 $435,918 $434,681 ($28,880)($9,646)($9,619)$2,127,568 Master Metered Resid.27 44 44 $33,460 $64,126 $32,594 $32,502 ($2,159)($721)($719)$159,082 RV/Mobile Home Parks 18 29 29 $22,150 $42,451 $21,577 $21,516 ($1,430)($477)($476)$105,311 Non-Residential Schools 10 11 8 $12,493 $23,943 $7,910 $6,068 ($806)($175)($134)$49,299 Master Metered Comm'l 0 1 1 $294 $564 $466 $465 ($19)($10)($10)$1,749 Religious Places & Comm. Ctrs.0 1 0 $600 $1,150 $380 $292 ($39)($8)($6)$2,368 Municipal 1 1 1 $1,265 $2,424 $801 $491 ($82)($18)($11)$4,871 Car Wash 5 1 6 $6,430 $12,323 $626 $4,684 ($415)($14)($104)$23,531 Gen. Comm'l & Industrial 75 204 204 $94,689 $181,469 $149,888 $149,463 ($6,111)($3,317)($3,307)$562,773 TOTAL 491 883 886 $618,878 $1,186,066 $650,161 $650,161 ($39,940)($14,387)($14,387)$3,036,553 Source: HEC.alloc cost Treatment Other Table 17 Calculated Cost per 1,000 Gallons - New Rate Structure based on Flow and Strength Customer Allocated Percentage Annual Cost per Cost of Cost Flow (MG)1,000 Gallons Residential Single Family $2,127,568 70%355.13 $5.99 Master Metered Resid.$159,082 5%26.55 $5.99 RV/Mobile Home Parks $105,311 3%17.58 $5.99 Subtotal Residential $2,391,961 79%399.26 $5.99 Non-Residential Schools $49,299 2%9.91 $4.97 Master Metered Comm'l $1,749 0%0.23 $7.49 Religious Places & Comm. Ctrs.$2,368 0%0.48 $4.97 Municipal $4,871 0%1.00 $4.85 Car Wash $23,531 1%5.10 $4.61 Gen. Comm'l & Industrial $562,773 19%75.14 $7.49 Subtotal Non-Residential $644,592 21%91.88 $7.02 TOTAL $3,036,553 100%491.14 $6.18 Source: HEC.flow cost FY 2017 FY 2017 Page 20 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 18 illustrates the difference between resulting cost allocations to customer types by scenario. Scenario 1 only allocates costs based on flow. Scenario 2 allocates costs based on flow and strength. Under Scenario 2 costs shift from residential to non-residential, in particular commercial industrial which produces higher strength sewer that is more expensive to treat. Table 18 Cost Allocation Comparison between Scenario 1 and Scenario 2 Customer Scenario 1 Scenario 2 Modified New Residential Single Family 72.3%70.1% Master Metered Resid.5.4%5.2% RV/Mobile Home Parks 3.5% Subtotal Residential 77.7%78.8% Non-Residential Schools 2.0%1.6% RV/Mobile Home Parks 3.6% Master Metered Comm'l 0.0%0.1% Religious Places & Comm. Ctrs.0.1%0.1% Municipal 0.2%0.2% Car Wash 1.0%0.8% Gen. Comm'l & Industrial 15.3%18.5% Subtotal Non-Residential 22.3%21.2% TOTAL 100.0%100.0% Source: HEC.scenarios alloc Table 19 presents the calculated rates under Scenario 2 for fiscal year ending 2018. The total allocated costs to each customer category provide the basis for the rates. It is projected that 91% of costs will be recovered through flat monthly charges (residential and school customers, as well as base charges for non-residential customers) and 9% of costs will be recovered through consumption charges. Customers with consumption charges pay for water passing through the water meter multiplied by a return flow factor. Using metered water data, it is estimated that master metered commercial customers return 75% of potable water, religious places and community centers return 20%, municipal users return 41%, car washes return 40%, and general commercial users return 82% of their water to the wastewater treatment plant. Page 21 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC The more customers can be classified into their own category, the more equitably customers will pay for their use of the system. For example, there are some industrial customers included in the general commercial category, as well as grocery stores and restaurants. These customers have very different BOD and SS parameters and return flow factors which are currently mingled in the general commercial category. Table 19 Wastewater Rates Calculations for July 2017 - New Rate Structure based on Flow and Strength Customer Category Billing No. Billing Allocated Base Flow Basis Units Cost 52%48%Base Flow Total Base Usage Residential Single Family Unit 6,081 $2,499,093 $1,300,414 $1,198,679 $214 $197 $411 $34.25 Master Metered Resid.Unit 582 $186,862 $97,234 $89,627 $167 $154 $321 $26.76 RV/Mobile Home Parks Unit 344 $123,701 $64,368 $59,333 $187 $172 $360 $29.97 Total Residential 7,007 $2,809,656 $1,462,017 $1,347,639 $209 $192 $401 $33.41 Non-Residential Schools Student 3,720 $57,917 $30,137 $27,780 $8 $7 $16 $1.30 Master Metered Comm'l Business 8 $2,055 $1,069 $986 $134 $123 $257 $21.40 $4.22 Religious Places & Comm. Ctrs.Account 9 $2,783 $1,448 $1,335 $161 $148 $309 $25.76 $2.80 Municipal Account 10 $5,723 $2,978 $2,745 $298 $274 $572 $47.69 $2.73 Car Wash Account 4 $27,646 $14,386 $13,260 $3,596 $3,315 $6,912 $575.97 $2.60 Gen. Comm'l & Industrial Account 183 $660,940 $343,923 $317,017 $1,879 $1,732 $3,612 $300.97 $4.22 TOTAL $3,566,720 $1,855,958 $1,710,762 Source: City of Fernley and HEC.rates Annual Cost per Billing Unit Monthly Cost per 1,000 gallons Table 20 on the following page shows the projected rate schedule under Scenario 2. FY 2018 Page 22 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 20 Projected Wastewater Rate Schedule – Scenario 2 - New Rate Structure based on Flow and Strength Return Flow Customer Category Factor 2017 2018 2019 2020 2021 Rates Effective ------------------->[1]1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Flat Monthly Charges Residential (SF, MM-R, Mobile Homes)per unit $28.45 $33.41 $35.28 $36.48 $37.83 Schools per student $1.10 $1.30 $1.37 $1.42 $1.47 Flat and Variable Monthly Charges Master Metered Comm'l per business $18.22 $21.40 $22.60 $23.38 $24.26 per 1,000 gallons 75%$3.59 $4.22 $4.46 $4.61 $4.78 Religious Places & Comm. Ctrs.per account $21.93 $25.76 $27.20 $28.11 $29.13 per 1,000 gallons 20%$2.38 $2.80 $2.96 $3.06 $3.17 Municipal per account $40.59 $47.69 $50.34 $52.02 $53.91 per 1,000 gallons 41%$2.33 $2.73 $2.89 $2.98 $3.09 Car Wash per account $490.22 $575.97 $607.94 $628.14 $650.91 per 1,000 gallons 40%$2.21 $2.60 $2.74 $2.83 $2.94 Gen. Comm'l & Industrial per account $256.27 $300.97 $317.84 $328.80 $341.11 per 1,000 gallons 82%$3.59 $4.22 $4.46 $4.61 $4.78 Source: HEC.rate sum [1] Multiply the metered water use each month by the return flow factor. Fiscal Year Ending CASH FLOW Table 21 shows the projected cash flow for the wastewater fund and Figure 5 demonstrates cash balances with and without rate increases. With adoption of the calculated rates it is anticipated that the City will be able to meet all wastewater enterprise fund obligations, including existing and potential debt service coverage requirements, and achieve a target minimum one year of operating expenses reserve. A portion of revenues collected for system rehabilitation are designated and are not included in the undesignated balance. The necessary cash balance to fund a long-term asset replacement program is also shown in Figure 5. Page 23 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 21 Projected Cash Flow Revenues and Expenses 2016 2017 2018 2019 2020 2021 Est. Year End 1 2 3 4 5 Estimated Number New Units 34 35 35 35 35 Operating Revenues New Rates Effective 1/1/2017 7/1/2017 7/1/2018 7/1/2019 7/1/2020 Sewer Services $2,016,348 $2,526,451 $3,566,720 $3,765,965 $3,894,194 $4,038,399 Sewer Revenue from New Services $12,178 $14,375 $15,254 $15,853 $16,522 Interest Earnings $9,500 $9,500 $9,500 $9,500 $9,500 $9,500 Miscellaneous Revenue $200 $200 $200 $200 $200 $200 Connection Fees $250,000 $59,014 $59,309 $59,605 $59,903 $60,203 Total Operating Revenues $2,276,048 $2,607,342 $3,650,104 $3,850,525 $3,979,650 $4,124,824 Operating Expenses $1,497,615 $1,633,744 $1,722,256 $1,815,595 $1,914,027 $2,017,830 Operating Revenue before Capital Improvements and Debt Service $778,433 $973,598 $1,927,849 $2,034,930 $2,065,623 $2,106,993 Debt Service $496,528 $397,119 $536,794 $599,973 $595,289 $600,262 Debt Service Coverage 1.57 2.45 3.59 3.39 3.47 3.51 CIP Cash Funded $0 $0 $0 $0 $0 $0 System Rehabilitation $1,060,000 $1,074,404 $1,126,679 $1,169,702 $1,204,481 $1,240,210 Net Revenues (Deficit) ($778,095)($497,925)$264,375 $265,254 $265,853 $266,522 Beginning Cash Balance [1]$9,250,578 $6,792,605 $4,485,314 $4,131,187 $4,992,462 $6,181,419 Net Revenues (Deficit) ($778,095)($497,925)$264,375 $265,254 $265,853 $266,522 CIP Projects FY 15/16 ($1,680,450)$0 $0 $0 $0 $0 Add Back System Rehabilitation $0 $177,761 $569,706 $596,021 $923,104 $950,391 CIP Projects paid with Reserves $0 ($1,987,128)($1,188,208)$0 $0 $0 Grant Revenue $572 $0 $0 $0 $0 $0 Cash Balance $6,792,605 $4,485,314 $4,131,187 $4,992,462 $6,181,419 $7,398,332 Designated Balance [2]$500,000 $1,500,000 $2,500,000 $3,750,000 $5,000,000 Undesignated Balance $6,792,605 $3,985,314 $2,631,187 $2,492,462 $2,431,419 $2,398,332 Minimum Operating Reserves [3]$1,497,615 $1,633,744 $1,722,256 $1,815,595 $1,914,027 $2,017,830 Source: HEC.flow [1] Cash balance as of July 1, 2015. [2] Designation for future system rehabilitation costs in new, separate fund. [3] Target minimum balance of undesignated wastewater funds is one year operating expenses. Fiscal Year Page 24 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Figure 5 Projected Wastewater Fund Balances ($6,000,000) ($1,000,000) $4,000,000 $9,000,000 $14,000,000 2016 2017 2018 2019 2020 2021 Target Cash for Capital Replacement Target Undesignated Cash Balance (1 yr operating costs) Projected Undesignated Cash Balance (with rate increase) Projected Total Cash Balance (with rate increase) Projected Undesignated Cash Balance (with no rate increase) WASTEWATER CONNECTION FEE New users of the wastewater system should pay for existing capacity in the system that they will use as well as their share of costs for new facilities constructed as part of the CIP. Table 22 shows total costs attributable to new development is $8.1 million. The City estimates another 4,695 lots will pay connection fees through buildout of existing tentative and final maps. This results in a cost of $1,716 per lot or per equivalent dwelling unit (EDU). The new connection fee schedule is shown in Table 23. Based on the cost to serve one EDU, it costs $1,373 to serve a master metered residential unit and $1,545 to serve a mobile home unit. The EDU factors for residential are taken from sewer flows shown in Table 13. For non‐residential uses the fee per EDU is multiplied by the estimated sewer flow per day for the new establishment. Sewer flow will be determined by the City Engineer based on engineering plans submitted by the applicant. Sewer flow will then be divided by 160 to determine the number of EDUs that the fee will be multiplied by. One EDU has a sewer flow of 160 gallons per day. Page 25 of 25 Wastewater Rate Study, August 24, 2016 Prepared by HEC Table 22 Connection Fee Calculation Item Cost Existing Facilities Buy-In $5,524,890 New Facilities (Growth Share)$2,160,293 Financing Charges for New Facilities $372,929 Total Costs $8,058,112 Future new EDUs [1]4,695 Calculated Connection Fee per EDU $1,716 Source: City of Fernley and HEC.conn cost [1] Anticipated through build-out of tentative and final maps. Table 23 New Connection Fee Schedule Land Use EDU Factor New Connection Fee [1] Residential - per Unit as of 10/1/2016 Single Family (One EDU)1 $1,716 Master Metered Resid.0.8 $1,373 RV/Mobile Home Parks 0.9 $1,545 Non-Residential Source: HEC.conn sew [1] Automatically adjusted each year per the March to March ENR CCI change. [2] As determined by the City Engineer by multiplying average daily water use by a return flow factor. [3] Average daily flow from residential units in Fernley is 300 gallons inclusive of water that does not reach the wastewater treatment plant. Flow from one EDU reaching the plant is 160 gallons per day. Multiply the fee per EDU by estimated sewer flow per day [2] for the establishment, then divide by 160 [3] The new wastewater connection fee would be automatically adjusted each fiscal year by the March to March Engineering News Record Construction Cost Index (ENR CCI) change. HANSFORD ECONOMIC CONSULTING Regional and Resource Economics ATTACHMENT A WASTEWATER RATE STUDY SUPPORT TABLES Table A‐1 City of Fernley Wastewater Rate Study Historical Financial Performance Revenues and Expenses 2011 2012 2013 2014 2015 Operating Revenues User Fees $1,865,202 $1,904,073 $1,929,793 $1,981,631 $2,012,025 Other Revenue $0 $0 $0 $0 $261 Total Operating Revenues $1,865,202 $1,904,073 $1,929,793 $1,981,631 $2,012,286 Operating Expenses Salaries $373,712 $313,760 $340,917 $367,975 $438,744 Benefits $161,035 $165,018 $131,470 $161,012 $179,594 Services and Supplies $556,688 $494,053 $550,481 $635,695 $562,096 Depreciation $1,068,514 $1,062,758 $1,018,396 $995,063 $984,995 Total Operating Expenses $2,159,949 $2,035,589 $2,041,264 $2,159,745 $2,165,429 Operating Income (Loss) ($294,747) ($131,516) ($111,471) ($178,114)($153,143) Nonoperating Revenue (Expense) Interest Earned on Investments $38,598 $12,695 $26,362 $20,003 $11,820 Miscellaneous $5 $21 $240 $0 $0 Gain (Loss) on Disposals of Capital Assets $0 $0 $0 $978 $0 Interest Expense ($365,009) ($353,802) ($355,539) ($333,002) ($307,369) Total Nonoperating Revenue ($326,406) ($341,086) ($328,937) ($312,021) ($295,549) Capital Contributions Connection Fees $31,178 $669 $3,474 $79,365 $547,852 Developer Fees $49,140 $0 $0 $0 $0 Grant Income $0 $0 $0 $0 $10,974 Total Capital Contributions $80,318 $669 $3,474 $79,365 $558,826 Change in Net Assets ($540,835) ($471,933) ($436,934) ($410,770) $110,134 Net Assets Beginning of Year $30,463,145 $29,922,310 $29,450,377 $29,013,443 $28,590,458 Restatement Adjustment $0 $0 $0 ($12,215) ($726,548) Net Assets End of Year $29,922,310 $29,450,377 $29,013,443 $28,590,458 $27,974,044 Source: City of Fernley.cafr Actual Financials for Fiscal Year Ending Prepared by HEC 150186 Sewer Model v11 8/22/2016 Table A‐2City of Fernley Wastewater Rate StudyAverage Daily FlowMonthlyYear Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Average20131,185,893 1,182,654 1,151,235 1,174,986 1,228,234 1,183,657 1,207,572 1,223,256 1,221,881 1,198,050 1,247,884 1,241,858 1,203,930 1,173,261 1,215,414 20141,094,401 1,084,696 1,211,418 1,233,001 1,262,986 1,224,810 1,258,957 1,227,745 1,217,436 1,232,171 1,219,433 1,162,915 1,202,498 1,130,172 1,243,351 20151,021,497 1,193,679 1,229,194 1,284,300 1,350,839 1,354,767 1,345,452 1,368,290 1,305,767 1,443,290 1,407,767 1,371,968 1,306,401 1,148,123 1,356,871 Source: City of Fernley and HEC.sewer flow[1] Winter is calculated using January, February, and March data.[2] Summer is calculated using July and August data.Average Daily Flow (GPD)Winter Average Summer Average Prepared by HEC150186 Sewer Model v11 8/22/2016 Table A‐3 City of Fernley Wastewater Rate Study Outstanding Principal on Wastewater Facilities Bond Issue Issue Date Interest Rate Maturity Date Purpose Outstanding Principal 6/30/2016 2007 Bond Issue 3/28/2007 4% ‐ 5% 2/1/2037 Fernley interceptor upgrade & East lift station $0 2008 Bond Issue 4/1/2008 3.25%‐5% 2/1/2038 Highway 50 lift station $0 2014 Refunding 10/23/2014 2.48% 2/1/2026 Partial refunding of 2007 & 2008 Bonds $1,274,620 2015A Refunding 8/5/2015 2.35% 2/1/2038 Partial refunding of 2007 & 2008 Bonds $5,799,087 Total Outstanding Principal $7,073,707 Source: City of Fernley.outstanding Prepared by HEC 150186 Sewer Model v11 8/22/2016 Table A‐4 City of Fernley Wastewater Rate Study Existing Wastewater Debt Fiscal Year Ending City Hall Wastewater Facilities Total [1], [3][2] 2016 $35,300 $496,528 $531,828 2017 $35,311 $232,972 $268,283 2018 $35,400 $372,648 $408,048 2019 $35,376 $435,827 $471,203 2020 $35,336 $431,143 $466,479 2021 $35,376 $436,115 $471,491 2022‐2026 $176,740 $2,178,356 $2,355,096 2027‐2031 $0 $2,251,679 $2,251,679 2032‐2036 $0 $2,248,998 $2,248,998 2037‐2038 $0 $547,099 $547,099 Source: City of Fernley.debt [1] City Hall debt is paid by different government departments based on number of employees working in City Hall. Wastewater pays approximately 9.61% [2] Debt for Fernley interceptor upgrade, East Lift Station, and Highway 50 Lift Station. [3] Debt service included in the Interfund Cost Allocation. Prepared by HEC 150186 Sewer Model v11 8/22/2016 Table A‐5City of Fernley Wastewater Rate StudyOperating Expenses Cost Escalation FactorsTotal Annual Avg.Operating Expenses 2012 2013 2014 2015 Change % ChangeCompensation and Benefits $520,385 $472,387 $528,987 $618,338 $97,9535.9%Contract and Technical Services $68,693 $103,342 $84,454 $52,998 ‐$15,695 ‐8.3%Utilities $2,705 $4,595 $2,602 $2,517 ‐$188 ‐2.4%Electricity $141,952 $191,350 $248,744 $190,395 $48,443 10.3%Gas $15,376 $15,239 $16,426 $16,594 $1,218 2.6%Repairs and Maintenance $34,308 $29,776 $26,879 $29,132 ‐$5,176 ‐5.3%Interfund Cost Alloc. Build $20,000 $20,000 $33,239 $54,129 $34,129 39.4%Insurance $40,593 $44,652 $44,450 $41,048 $455 0.4%Communications and Training $25,456 $25,489 $31,018 $30,215 $4,760 n.a.General Office Supplies and Equipment $13,998 $15,786 $13,401 $18,544 $4,546 9.8%Supplies/Tools $98,708 $90,931 $114,918 $125,618 $26,910 8.4%Permits and Licenses $8,522 $8,786 $7,981 $802 ‐$7,719 ‐54.5%Miscellaneous $8,728 $533 $31 $104 ‐$8,624 ‐77.1%Total Operating Expenses $999,422 $1,022,866 $1,153,129 $1,180,434 $181,012 5.7%June 2012June 2013June 2014June 2015ENR Construction Cost Index [1] 9,291 9,542 9,800 10,039 748 2.6%West Region Consumer Price Index 233 236 242 244 11 1.5%Source: Engineering News Record, Bureau of Labor Statistics, and City of Fernley.indicies[1] The ENR CCI 10‐year annual average increase is: Dec ENR CCI2005 7,647 Change Annual Avg. % Change2015 10,135 2,488 2.9%Actual Financials Fiscal Year EndingPrepared by HEC150186 Sewer Model v11 8/22/2016 Table A‐6 City of Fernley Wastewater Rate Study New Assets Estimated Depreciation Schedule Average Useful Improvements Life (years)2017 2018 2019 2020 2021 Sewer Collection System Zone 6 Replacement and Rehabilitation Phase 2 80 $5,375 $5,375 $5,375 $5,375 $5,375 Hardie Lane Sewer Line Rehabilitation 80 $865 $865 $865 $865 $865 Donner Trails Lift Station 50 $18,585 $18,585 $18,585 $18,585 $18,585 Cedar Street Replacement 80 $0 $3,125 $3,125 $3,125 $3,125 East Plant Fire Line and Potable Water Main 80 $0 $6,563 $6,563 $6,563 $6,563 Farm District Road Force Main Replacement 80 $0 $7,750 $7,750 $7,750 $7,750 Enclosure for Headworks 50 $0 $5,000 $5,000 $5,000 $5,000 Sewer Main Replacement/Rehabilitation 80 $0 $0 $3,125 $6,250 $9,375 Subtotal Sewer Collection $24,825 $47,263 $50,388 $53,513 $56,638 Treatment Plant NDEP AOC Pond Reline Project 30 $33,333 $33,333 $33,333 $33,333 $33,333 EWWTP Sludge Drying Beds and Removal Facilities 30 $11,685 $11,685 $11,685 $11,685 $11,685 City of Fernley Sewer Model 5 $10,000 $10,000 $10,000 $10,000 $10,000 Metal Storage Building/Shop for East Plant 30 $0 $0 $9,167 $9,167 $9,167 Subtotal Treatment Plant $55,018 $55,018 $64,185 $64,185 $64,185 New Assets Estimated Annual Depreciation $79,843 $102,281 $114,573 $117,698 $120,823 Source: City of Fernley and HEC.new depr Fiscal Year Ending Prepared by HEC 150186 Sewer Model v11 8/22/2016 Table A‐7 City of Fernley Wastewater Rate Study Historical and Budgeted Revenues and Expenses Revenues Est. Year End and Expenditures 2012 2013 2014 2015 2016 Revenue Sewer Services $1,904,071 $1,928,358 $1,981,631 $2,012,025 $2,016,348 Material and Labor Charges $0 $1,435 $84 $0 $0 Interest Earnings $12,695 $26,362 $20,003 $11,820 $9,500 Disposition of Capital Assets $0 $0 $978 $0 $0 Miscellaneous Revenue $21 $240 $319 $261 $200 Customer Contributions‐Hookups/Connections $669 $3,474 $78,962 $547,852 $250,000 East Plant Lift Station $0 $0 $0 $10,974 $572 Subtotal Revenue $1,917,456 $1,959,869 $2,081,975 $2,582,932 $2,276,620 Expense Compensation and Benefits $520,385 $472,387 $528,987 $618,338 $756,521 Contract and Technical Services $68,693 $103,342 $84,454 $52,998 $74,664 Utilities $2,705 $4,595 $2,602 $2,517 $1,700 Electricity $141,952 $191,350 $248,744 $190,395 $200,000 Gas $15,376 $15,239 $16,426 $16,594 $21,400 Repairs and Maintenance $34,308 $29,776 $26,879 $29,132 $59,500 Interfund Cost Alloc. Build $20,000 $20,000 $33,239 $54,129 $119,905 Insurance $40,593 $44,652 $44,450 $41,048 $67,000 Communications and Training $25,456 $25,489 $31,018 $30,215 $35,425 General Office Supplies and Equipment $13,998 $15,786 $13,401 $18,544 $20,000 Supplies/Tools $98,708 $90,931 $114,918 $125,618 $134,500 Permits and Licenses $8,522 $8,786 $7,981 $802 $7,000 Miscellaneous $8,728 $533 $31 $104 $0 Capital Improvements $15,015 $0 $11,553 $0 $0 Subtotal Expense $1,014,437 $1,022,866 $1,164,682 $1,180,434 $1,497,615 Interest Expense $353,802 $355,539 $333,002 $299,296 $300,422 Bond Issuance Cost $0$0$0$8,073$0 Net Revenue $549,217 $581,463 $584,291 $1,095,129 $478,583 Source: City of Fernley.rev exp Actual Financials Fiscal Year Ending Prepared by HEC 150186 Sewer Model v11 8/22/2016 Table A‐8 City of Fernley Wastewater Rate Study Calculated Capital Replacement Fee 2017 2018 2019 2020 2021 Meter Size 12345 Five‐year Buildup to Capital Replacement Reserve $1,693,716 $1,793,716 $1,993,716 $2,293,716 $2,693,716 Number of Sewer Accounts 6,424 6,459 6,494 6,529 6,564 Monthly Fee per Account $21.97 $23.14 $25.59 $29.28 $34.20 Source: City of Fernley and HEC.cap fee Fiscal Year Ending Prepared by HEC 150186 Sewer Model v12 8/24/2016 Table A‐9 City of Fernley Wastewater Rate Study Sewer Customers Number of Meters Customer Number of Category Meters Residential Single Family 6,081 RV/Mobile Home Park 6 Master Metered Residential 3/4" 2 1" 45 1.5" 16 2" 24 3" 2 4" 1 6" 0 Total Residential Master Metered 90 Non‐Residential (Commercial & Master Meter ‐ Commercial) 3/4" 82 1" 22 1.5" 33 2" 66 3" 0 4" 8 6" 2 TOTAL 60 Total Number of Meters for Sewer 6,231 Source: City of Fernley and HEC.meters Prepared by HEC 150186 Sewer Model v12 8/24/2016 THISPAGEISINTENTIONALLYBLANKFORDOUBLEǦSIDEDPRINTING HANSFORD ECONOMIC CONSULTING Regional and Resource Economics ATTACHMENT C STATEMENT OF NON‐DISCRIMINATION THISPAGEISINTENTIONALLYBLANKFORDOUBLEǦSIDEDPRINTING Statement of Non‐Discrimination Hansford Economic Consulting hereby affirms it will not discriminate on the basis of race, color, religion, creed, sex, age, marital status, national origin, or because of actual or perceived sexual orientation, gender identity or disability and acknowledges and understands the eventual contract will contain a provision prohibiting discrimination as described above and this prohibition on discrimination shall apply to the hiring and treatments or proposer’s employees and to all subcontracts. Catherine Hansford, Principal