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Home My WebLink About17- RFP Submission - FCS GROUP - Water and Wastewater Cost of Service and Rate Design StudyContact Us: 425.867.1802 www.fcsgroup.com This entire proposal is made of readily recyclable materials, including the bronze wire binding and the front and back cover, which are made from post-consumer recycled plastic bottles. WATER AND WASTEWATER UTILITYSYSTEM COST OF SERVICEAND RATE DESIGN STUDY Proposal August 15th, 2017 CITY OF BOZEMAN Firm Headquarters Redmond Town Center 7525 166th Ave NE, Ste. D-215 Redmond, Washington 98052 Established 1988 Washington | 425.867.1802 Oregon | 503.841.6543 Colorado | 303.652.7548 August 15, 2017 Kristin Donald City of Bozeman 121 N Rouse Ave Bozeman, MT 59715 agenda@bozeman.com Subject: Water and Wastewater Cost of Service and Rate Design Study Dear Ms. Donald and Selection Committee Members: Thank you for considering the following proposal from FCS GROUP to perform the water and wastewater utility system cost of service and rate design study for the City of Bozeman. We understand that elected leadership, management and staff, and your customers have a common goal when it comes to utility rates: a rational, equitable cost-basis. Each set of stakeholders may have a different reason for concern, ranging from affordability and economic sensitivity to financial solvency for the operations and future sustainability of adequate and reliable services. FCS GROUP is ready to help. Our long history of serving diverse locales gives us a depth of experience in industry and best practices. But our experience has also taught us to respect the rightful influence of local values in ratemaking. We endeavor to embrace local conditions rather than resist them. Working within the goals and challenges of each individual utility enables us to produce results than can be implemented and that will last. As the proposed managing principal for this engagement, I wanted to highlight some of the benefits and value the City will receive from this effort: ■ A multi-year financial plan that provides the framework for a self-supporting and financially sustainable water and wastewater system. ■ A customer demand forecast that is linked to growth, revenue generation, and resource/capacity limitations. ■ Integration of system capital plans that addresses and prioritizes both existing system needs and future capital reinvestment requirements by optimizing funding sources. ■ Financial policies that address reserves, debt service coverage and system reinvestment. ■ Clearly defined cost recovery methodology that is grounded by industry standards and refined and tailored to the City’s specific customer use profiles. ■ Rate structures that advance the City’s resource efficiency objectives yet align with the fixed and variable costs of the system to recover the revenue identified in the financial plan. ■ Financial planning toolset to sustain long-term utility services and implement policies and practices consistently. August 15, 2017 Kristin Donald Water and Wastewater Utility System Cost of Service and Rate Design Study page 2 www.fcsgroup.com Finally, this letter serves to communicate that our proposed team will perform this study from our Redmond, Washington, office near Seattle. From this location we have completed projects throughout the Western U.S., including an engagement with the City of Missoula that is currently underway. Also, we have no substantive exceptions to your Professional Services Agreement and hereby affirm our commitment to your Statement of Non-discrimination (see Basic Information section). We look forward to learning more about your challenges and offering proven solutions. As Managing Principal and Shareholder at FCS GROUP, I welcome your questions and dialogue. I can be reached at (425) 336-4157 and angies@fcsgroup.com. Sincerely, FCS GROUP Angie Sanchez Virnoche Managing Principal angies@fcsgroup.com (t) 425-867-1802 ext. 230 (f) 425-867-1937 City of Bozeman Water and Wastewater Cost of Service and Rate Design Study i TABLE OF CONTENTS Basic Information ......................................................................................................................................... 1 Primary Contact ........................................................................................................................................ 1 Subconsultants ........................................................................................................................................ 1 Office Where Work will be Performed ..................................................................................................... 1 Firm Experience ........................................................................................................................................... 2 Why FCS GROUP ....................................................................................................................................... 2 Public Utility Experience .......................................................................................................................... 3 Experience with Conservation Rate Designs .......................................................................................... 6 Proposed Team ............................................................................................................................................ 7 Assigned Hours and Tasks ...................................................................................................................... 9 References ................................................................................................................................................ 10 Select Current Clients ........................................................................................................................... 14 Completed Rate Study Example ........................................................................................................... 14 Work Summary .......................................................................................................................................... 15 Work Plan and Project Schedule .............................................................................................................. 17 Task 1 | Kick-Off Meeting .................................................................................................................... 17 Task 2 | Data Collection and Validation .............................................................................................. 17 Task 3 | Model Architecture Planning ................................................................................................. 17 Task 4 | Revenue Requirement Analysis ............................................................................................ 18 Task 5 | Cost of Service Analysis (COSA) ............................................................................................ 19 Task 6 | Rate Design ............................................................................................................................ 20 Task 7 | Meetings/ Presentations .................................................................................................... 20 Task 8 | Documentation ...................................................................................................................... 21 Schedule ................................................................................................................................................ 22 Hours and Tasks Summary .................................................................................................................. 22 City-Furnished Documentation ................................................................................................................. 23 Table of Appendices Appendix A – Résumés Appendix B – Example Rate Study (Bend, Oregon) City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 1 BASIC INFORMATION PRIMARY CONTACT Angie Sanchez Virnoche Principal-in-Charge FCS GROUP 7525 166th Ave NE, Ste D-215 Redmond, WA 98052 (425) 336-4157 angies@fcsgroup.com SUBCONSULTANTS FCS GROUP will self-perform this engagement and no subconsultants will be used. OFFICE WHERE WORK WILL BE PERFORMED FCS GROUP will perform the majority of the work from its Redmond, Washington, headquarters location. FCS GROUP is currently managing projects throughout the Western U.S. from this location including engagements in Missoula, Idaho, Nevada, California and Oregon. FCS GROUP recently established a Boulder, Colorado, office and our technical advisor, Jason Mumm, will participate from that location. Statement of Non-discrimination – Attachment 1 Financial Consulting Solution Group, dba FCS GROUP 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. ______________________________________ Angie Sanchez Virnoche Principal Name and title of person authorized to sign on behalf of submitter City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 2 FIRM EXPERIENCE FCS GROUP, established in 1988, provides utility rate and fee consulting, utility management consulting, financial planning and analysis, and economic services to public sector clients inclusive of city and county governments, municipal corporations, ports, special purpose districts, and state agencies. As an independent and objective firm, FCS GROUP has delivered high-quality, cost- effective consulting services in over 3,500 engagements and served more than 550 clients. Our staff of 30 serves clients throughout the western United States and Canada from locations in Redmond, Washington, Lake Oswego, Oregon, and Boulder, Colorado. Our Utility Rate and Fee Consulting practice serves water, wastewater, stormwater, reclaimed water, solid waste, electric, and transportation clients. We have performed more than 2,000 utility finance and rate development projects ranging from defining revenue requirements and building comprehensive financial modeling tools to crafting long-term capital management strategies and developing full cost-of-service rates. Our Utility Management Consulting group supports city, county and district utilities by offering tailored business management and technology solutions. We have assisted with the formation and merger of utilities, developed detailed asset management programs, implemented efficiency-directed IT systems and negotiated complicated wholesale agreements—helping utilities maintain their resiliency in an ever changing world. Our Financial Planning and Economic Services group provides a unique combination of skills and knowledge about public sector infrastructure in order to support municipal goals of recovering costs, attracting business, creating jobs, enhancing public space and forming economically vital, sustainable communities. WHY FCS GROUP FCS GROUP is best suited to provide these services because: We support strong, solvent utilities…by optimizing your financial performance and supporting your mission to deliver safe, affordable, reliable service. We promote sustainability and transparency…by developing tailored solutions, resilient financial policies, practical conservation strategies and effective communication programs. We build public trust…by arming staff and elected officials with the necessary information and details to adequately engage with customers and stakeholder groups. We love what we do…and offer an infectious enthusiasm for utility cost-of-service and rate analysis that will come through in the myriad specialties we offer, including: General Experience and Firm Specialties ■ Multi-year rate strategy ■ Financial management modeling tool ■ Revenue projections ■ Customer classification evaluations ■ Cost of service allocations ■ Rate design modernization ■ Conservation strategies ■ Affordability analysis ■ Development impact fees (DIF) ■ Demand forecasting ■ Level of service analysis ■ CIP prioritization ■ Capital funding plans ■ O&M efficiency assessment ■ Community Outreach City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 3 PUBLIC UTILITY EXPERIENCE FCS GROUP’s track record of working with municipalities and other levels of government on equivalent engagements extends across nearly three decades for clients representing nearly every imaginable form of government and includes utilities both large and small. In working with hundreds of utilities, we have earned a reputation for providing tailored and targeted financial analyses and modeling tools that stand the test of time. We have also established a high benchmark for engaging with client staff, Commissions/Councils and the public to educate and build consensus. The infographic illustrates our track record in working with municipalities on utility, economic and management consulting engagements. Exhibit 1 summarizes a selection of directly applicable regional projects. Exhibit 1: Select Water and Wastewater Rate Study Experience Client Fiscal Policy Evaluation Revenue Req. Cost of Service Rate Design Development Impact Fee Water Wastewater Anchorage, AK  Arlington, WA  Auburn, WA  Aurora, CO*  Bainbridge Island, WA  Battle Ground, WA  Bellingham, WA  Bend, OR  Billings, MT*  Billings Heights Water District, MT  Bothell, WA  Burlington, WA  Camas, WA  Carnation, WA  Carson City, NV  Cashmere, WA  Central Point, OR  Centralia, WA  Chehalis, WA  Chula Vista, CA  Coeur d’Alene, ID  City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 4 Client Fiscal Policy Evaluation Revenue Req. Cost of Service Rate Design Development Impact Fee Water Wastewater Colorado Springs CO*  Cornelius, OR  Corvallis, OR  Cottage Grove, OR  Duvall, WA  E. Idaho Reg. WW Authority, ID  Edgewood, WA  Edmonds, WA  Enumclaw, WA  Everett, WA  Fife, WA  Forest Grove, OR  Gig Harbor, WA  Gillette, WY  Grants Pass, OR  Gresham, OR  Hayden, ID  Hayden Area Sewer Board, ID  Hillsboro, OR  Issaquah, WA  Kent, WA  Kirkland, WA  Lacey, WA  Lake Oswego, OR  Las Vegas, NV  Longview, WA  Lynnwood, WA  McCall, ID  Medford, OR  Mercer Island, WA  Milwaukie, OR  Missoula, MT  Monroe, WA  Moscow, ID  Mountlake Terrace, WA  Nampa, ID  North Bend, WA  Olympia, WA  City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 5 Client Fiscal Policy Evaluation Revenue Req. Cost of Service Rate Design Development Impact Fee Water Wastewater Omaha, NE*  Orting, WA  Pasco, WA  Port Angeles, WA  Port Townsend, WA  Post Falls, ID  Poulsbo, WA  Richland, WA  Redmond, OR  Redmond, WA  Renton, WA  Roslyn, WA  Sacramento, CA  Santa Fe, NM*  Scottsdale, AZ  Seattle, WA  Shelton, WA  Sheridan, WY*  Snohomish, WA  Snoqualmie, WA  Sparks, NV  Spokane County, WA  St. Helens, OR  Stanwood, WA  Steilacoom, WA  Sultan, WA  Sumner, WA  Surprise, AZ  Tacoma, WA  Vancouver, WA  Walla Walla, WA  Washougal, WA  Wenatchee, WA  Yakima, WA  * Performed by Jason Mumm prior to joining FCS GROUP. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 6 EXPERIENCE WITH CONSERVATION RATE DESIGNS FCS GROUP has been instrumental in supporting utilities in their efforts to address, declining resources, seasonal pressure, peak day demands and drought that drives conservation policy. Targeted solutions are accomplished by completing detailed analyses of use trends by customer classification to understand the unique needs of each agency. Rate designs are developed to advance specific system goals and objectives – from reducing demands during peak use periods, reducing overall average use and/or targeting top water users. The best tools for the City may include development of seasonal pricing structures, additional rate tiers, refined rate blocks and/or individual tiered rates by customer classification. The following studies involved detailed conservation and demand analysis: Santa Fe, NM. Designed a highly-effective two-tier rate that has resulted in a 40% reduction in water demand over 15 years to less than 90 gpcd while still providing predictable revenue and a AAA bond rating. Aurora, CO. Produced a 3-tier rate design that resulted in 30% demand reduction per capita with revenue variability in wet years only ever reaching 10% (neighbors experience as high as 40% variability in wet years). Also developed drought surcharges to apply during the worst dry season to enhance revenue during mandatory restrictions. Loveland, CO. A uniform (single-tier) rate has managed to reduce the City’s peak demands allowing it time to construct an expansion to its WTP without exceeding design capacity. Alderwood Water and Wastewater District, WA. The District was considering adding a fourth tier to their existing tiered rate structure. A bill frequency analysis was completed which indicated that as little as 1.89 percent of bills were falling into the current top tier. A more effective method of advancing conservation included tightening the middle tier blocks rather than adding an additional tier. Bellevue, WA. As part of a water rate structure and revenue stability study, updated the single-family usage blocks to reflect current consumption behavior: Existing Proposed Block 1 1 – 20 ccf 1 – 11 ccf Block 2 21 – 30 ccf 12 – 17 ccf Block 3 31 – 100 ccf 18 – 45 ccf Block 4 > 100 ccf > 45 ccf The first and second blocks were based on the single-family class’ winter-average and summer-average water use, respectively. The third block was based on the peak-day demand used to size water system capacity needs, assumed to be 550 gallons per day for a single-family home. A home using 550 gallons per day for every day in a two-month billing period would use 45 ccf, which represents the upper bound of the potential demands of a typical home and what that home paid for through water system connection charges. Recognizing this, the City considered a surcharge for Block 4 usage based on the cost of “renting” system capacity. Sacramento County Water Agency, CA. Developed cost-based water rates to comply with Proposition 218, which limits cost recovery from a particular customer to that customer’s equitable share of costs. Incorporated BMP #11 in the rate calculations, which established a guideline that water rates recover 70% of costs through volumetric charges. Also evaluated revenue loss from the anticipated metering of unmetered customers, incorporating it into the recommended rates. Lake Oswego, OR. Implemented the first three tiered rate structure for the City resulting from the City’s Water Management and Conservation Plan and to address protection of undeveloped water rights to meet future demands. A 10% price elasticity factor was included and rate tiers targeted 70% revenue generation from the base charge and tier 1 and 81% after tier 2 revenue is considered. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 7 PROPOSED TEAM FCS GROUP’s management team includes professionals with backgrounds in public administration, management, finance, accounting, economics and engineering disciplines. These analytically-focused perspectives equip us to address fiscal policy, government finance, IT and operational challenges while maintaining fixed attention on organizational sensitivities, policy drivers, and community values. The FCS GROUP team was selected due to the direct, relevant experience and strengths each member brings. Angie Sanchez Virnoche will anchor your team as the principal-in-charge and a nationally- recognized expert in cost of service rate development. She will be supported by project manager, Chris Gonzalez, and analyst Paul Quinn. John Ghilarducci and Jason Mumm will serve as technical advisors. Full resumes for our team are included as Appendix A. With a staff of 30, we have the necessary technical experts to address additional issues such as regional rate development, strategic planning, organizational efficiency, asset management and economic analysis. With this depth of resources we can meet your project goals and identify potential areas for improvement. We will not require the assistance of subconsulting partners. Industry Presence/Influence FCS GROUP personnel are active members, and contributors within the professional associations that establish standards for the effective management of resources and set the guidelines for achieving fiscally sustainable utilities— including the American Water Works Association (AWWA), American Public Works Association (APWA), Water Environment Federation (WEF) and Government Finance Officers Association (GFOA). Angie Sanchez Virnoche is an FCS GROUP principal and shareholder. She has 24 years of experience assisting water, wastewater, stormwater, electric and solid waste utilities with their financial planning and cost of service rate setting needs. Her experience includes developing multi-year financial plans for proactive utility management, developing capital funding plans, establishing fiscal policies, rate structure prioritization and redesign to align with utility objectives and public communication. She is highly proficient in managing multi-disciplinary projects and teams to meet project schedule requirements and high quality deliverables. Career highlights include: ■ > 250 utility rate and finance studies. ■ Currently engaged with the City of Missoula to complete water, sewer and stormwater cost of service rate studies. ■ Serves on the National AWWA Rates and Charges Subcommittee and is a contributing author of the AWWA M1 Manual on Principles of Water Rates and Charges. ■ Recently appointed to the EPA Environmental Finance Advisory Board. ■ WA Dept. of Commerce workshop series presenter on Rate-Setting and Tools for Funding Future Infrastructure Projects. ■ Effective in engaging and educating participants in the benefits, costs, and decision-making process to achieve consensus and fulfill objectives. As managing principal, Angie will be responsible for the study’s overall technical direction, QA/QC, day-to-day client communication, presentations and deliverables. Angie Sanchez Virnoche Principal-in-Charge FCS GROUP City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 8 Chris Gonzalez is an FCS GROUP project manager with 14 years of utility rate and public finance experience. Specializing in developing utility rates and connection charges, Chris has performed utility financial studies in Washington, Alaska, Idaho, Colorado, Arizona, California and Nevada in addition to a 2008 water rate review for the Billings Heights Water District. Nationally, Chris serves on the Rates and Charges Subcommittee with the American Water Works Association and contributed to the AWWA M54 Small Systems Manual. Chris has assisted utilities in considering various policy issues including system reinvestment, benchmarking and managing reserve levels, customized rates based on level of service (e.g., wholesale service rates, interruptible service rates, capacity reservation charges, and excess-capacity charges), and sensitivity analyses using Monte Carlo simulations. As the assistant project manager, Chris will lead the technical development of the water and wastewater rate analysis, provide day-to- day technical guidance and assist with overall project management and task facilitation. Paul Quinn is an FCS GROUP analyst with six years of financial research and analytical experience including cost of service and rate modeling engagements throughout the Northwest. He will develop the revenue requirement and cost of service analytical models. Jason Mumm is an FCS GROUP program director with 21 years of experience providing financial and rate development services in a variety of capacities for water and sewer utilities. A nationally-known expert in alternative utility rate design, Jason has authored over 100 published articles in the water/wastewater industry press. Jason’s broad experience includes engagements in MT, CO, NM, WA, WY, CA and TX. In 2001, Jason supported the City of Billings with its arbitration involving a cost-of-service and wholesale rate issue with neighboring Billings Heights. He has designed multiple conservation-based rates that effectively balance water savings with revenue sufficiency and predictability including projects with Santa Fe, Loveland, and Aurora. As a technical advisor, Jason will support the team on issues pertaining to future supply costs, low income rates and sustainable conservation policy. John Ghilarducci is an FCS GROUP principal and shareholder with 29 years of professional experience including 26 with the firm. His practice focuses on all aspects of utility cost of service, rates and impact fees. John is serving as the principal-in-charge on the current City of Missoula water, wastewater and storm water cost of service rate studies. As a technical advisor, John is available to provide support on development impact fees and level of service analyses. Chris Gonzalez Project Manager FCS GROUP Paul Quinn Analyst FCS GROUP Jason Mumm Technical Advisor FCS GROUP John Ghilarducci Principal-in-Charge FCS GROUP City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 9 ASSIGNED HOURS AND TASKS Identified tasks assigned to each individual and the percentage of time each individual is intended to serve on the project are summarized in Exhibit 2 (Hours and Tasks Summary). This summary also corresponds to the proposed Work Plan and Schedule detailed later in this proposal. Exhibit 2: Hours and Tasks Summary TotalEstimated Hours PROJECT TASKS Task 1 | Kick-off Meeting 8 8 8 4 28 Task 2 | Data Collection and Validation 1 4 8 13 - Customer Statistics Analysis 16 55 71 Task 3 | Model Architecture Planning 8 16 24 Task 4 | Revenue Requirement Analysis 16 8 20 40 84 - Project Review Meeting 8 8 8 2 26 Task 5 | Cost of Service Analysis 16 8 20 38 82 - Project Review Meeting 8 8 8 2 26 Task 6 | Rate Design (2 alternative structures)10 24 32 8 74 - Project Review Meeting 8 8 8 2 26 Task 7 | Meetings/Presentations - City Commission Meeting (COSA)12 8 12 32 - City Commission Meeting (Rate Design)12 12 12 36 Task 8 | Documentation 8 2 4 40 4 58 TOTAL PROCESS TASKS 107 62 144 253 14 580 LABOR HOUR DISTRIBUTION 18%11%25%44%2%100% Project Principal Project Manager Admin. SupportAnalystTechnical Advisor City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 10 REFERENCES FCS GROUP has a wide range of experience throughout the West addressing a broad spectrum of policy issues including infrastructure replacement funding, conservation, lifeline/affordability rates, new customer growth impacts and revenue stability, among others. In addition to these important (and sometimes competing) project drivers, we assist communities achieve consensus among stakeholder groups that consist of everyone from small, vocal community groups to large local businesses representing their own customer class. FCS GROUP has worked with a number of cities and towns where universities have represented significant demands for utility services including the cities of Missoula, Montana, Walla Walla, Washington, and Moscow, Idaho. The following project examples and corresponding references were considered for their direct applicability to your subject project. Utility Financial Consulting and Economic Forecasting (2002-Present): City of Bend, OR Key Personnel Angie Sanchez Virnoche, Managing Principal Reference: Gillian Ockner, Senior Policy Advisor, City of Bend, (541) 388-5535, gockner@bendoregon.gov Paul Rheault, Public Works Director, (541) 317-3000 x2, Bend is located in the mountainous high desert of central Oregon. It was listed as the 6th fastest growing city in the U.S with a diverse economy and a growing brewery industry. Bend’s water source is from a combination of groundwater and surface water. FCS GROUP has performed 17 distinct projects for the City of Bend since 2002. Projects have included long-term financial forecasting for both utility and general government services, system development charges (SDCs), and on-call services to address water, sewer and stormwater rate and financial issues. Since 2013, the City has retained FCS GROUP annually to assist update the water, sewer and storm water financial plans and rate strategies as the City moves forward with significant infrastructure projects and advances its conservation programs. Highlights for the water and wastewater work include: ■ Comprehensive water, wastewater and stormwater cost of service rate study that involved developing a 20-year annual financial plan and rate strategies that are recalibrated annually. Evaluated financing alternatives associated with funding the major capital identified in each of the utilities comprehensive plans. ■ Customer statistics analysis to develop future demand forecasts by major customer category, allowing for different growth rates by class and the sensitivity of demand changes. The forecast is used to project revenue for each utility. ■ Capital funding plan to optimize resources in anticipation of $117 million in water projects and $324 million water reclamation projects over the 20-year planning period. ■ Customized rate model that featured an interactive dashboard facilitating real-time sensitivity analyses resulting from changes to growth, debt funding, capital timing and rate increase phasing. ■ Evaluated alternative customer classifications including single-family, multi-family, commercial, irrigation and large users for the water system and evaluated 5 strength categories – standard, low, medium, high, super high for the sewer system ■ Cost of service analysis evaluated distribution of cost allocation under current and new WWTP expansion. ■ Rate modernization included the following options: elimination of the 400 cubic foot allowance from water rate structure, separate water rates by customer class, City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 11 increased fixed charges, higher volume rate for single family. The sewer rate option considered maintaining existing flat rate for residential, eliminating the 1,000 cubic foot allowance and changing to volume based rates for all sewer customer classes. Developed initial rates and established rate differentials for the 5 high strength classes. ■ Rate structure prioritization conducted with City Council to provide consistency when evaluating rate design alternatives. ■ Multiple workshops with the City’s Sewer Infrastructure Advisory Committee and City Council. Separate City Council workshops for water and sewer to understand distinct issues, findings and alternatives. ■ Issue paper on NPV discount and cost escalation rates that should be used to analyze capital project cost benefit. ■ Economic strategy for the 1,500-acre Juniper Ridge development including market analysis of local and regional economic conditions, assessment of buildable lands, and a forecast of land needs based on trends in commercial, industrial, tourism, and housing patterns. Water, Wastewater, and Stormwater Rate Studies (2008, 2014-2017): City of Walla Walla, WA Key Personnel Chris Gonzalez, Project Manager Reference: Ki Bealey, Public Works Director City of Walla Walla, (509) 527-4463 kbealey@wallawallawa.gov The City of Walla Walla is located in southeastern Washington, at the base of the Blue Mountains. About 90% of the City’s water comes from the Mill Creek Watershed, which is owned primarily by the U.S. Forest Service and is one of the few unfiltered surface water systems in the United States. The City’s utilities have been facing a variety of challenges, including the replacement of aging infrastructure and preserving water quality and quantity in the Mill Creek Watershed. With the City’s hot-summer climate and a notable agricultural sector, the City has been pursuing conservation measures to help manage summer demands. FCS GROUP completed a comprehensive rate and capital facilities charge update for the City of Walla Walla. Highlights included: ■ Developed a multi-year financial plan for the water, wastewater, and stormwater utilities. ■ Updated water and wastewater capital facilities charges to reflect current asset cost information and the City’s most recent capital improvement plan. ■ Prepared issue papers discussing a variety of policy topics including residential payment equalization plans, utility rate indexing, area-specific surcharges, and meter turn-on fees. ■ Analyzed bill impacts for each of the City’s customer classes. ■ Engaged with the City Council in several meetings to discuss study findings and recommendations, supporting the public process involved with increasing rates. Water, Wastewater and Solid Waste Rate Studies, (2011-Present): City of Moscow, ID Key Personnel Angie Sanchez Virnoche, Managing Principal Reference: Les MacDonald, Public Works Director, (208) 883-7034, lmacdonald@ci.moscow.id.us Gary Riedner, City Supervisor; (208) 883-7006; griedner@ci.moscow.id.us The City of Moscow is located in northern Idaho along the state border with Washington and is the home of the University of Idaho. The City’s water supply is from five groundwater wells withdrawing water from two aquifers - both the aquifers are experiencing declining water. Alternative future supplies are being studied to meet future growth needs while sustainably managing regional water resources. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 12 The City’s wastewater system offers advanced secondary treatment. The City and the University of Idaho (UofI) have an agreement to reuse Wastewater Treatment Plant effluent for irrigation purposes. The collection system services all of the City of Moscow, the SE Moscow Water and Sewer District and the UofI. FCS GROUP performed an initial rate study for all three utilities in 2013 and most recently completed a solid waste rate update in 2016/2017. Highlights for the water and wastewater work include: ■ Conducted water and wastewater studies that included development of a 10-year financial plan and rate strategy for each utility, capital funding plan for $45 million in project costs, phase-in of system reinvestment funding, review of debt service coverage and fund balance monitoring. ■ Bill frequency analyses were completed to determine if existing tiered rate blocks are set appropriately. Also assisted in the review of multi-family 75% rate factor. ■ Evaluated flow and strength factors by customer class including the University of Idaho. ■ Proposed streamline wastewater rate structures from seven commercial rate classifications to three strength classifications. ■ Water rate structure options included higher fixed charges to increase revenue stability. ■ Worked with Citizen’s Advisory Committee presenting findings for input at key study milestones (3 workshops). Workshop with Council to present study findings. ■ Developed a 10-year financial plan and rate strategy for the sanitation fund including costs for contract transport and disposal, collection, transfer station, recycling center and compost. Water and Wastewater Cost of Service and Rate Design (2013): City of Aurora, CO Key Personnel Jason Mumm, Program Director Reference: Fernando Aranda, Manager of Rates and Charges, (303) 597-8540, faranda@auroragov.org Prior to joining FCS GROUP, Jason Mumm supported the City of Aurora on a concerted water demand management effort. At the time, the City’s per-capita water demand was approximately 170 gallons per capita per day (gpcd). By 2007, the per-capita usage had been reduced to approximately 130 gpcd. While demand plummeted, the City rushed to implement a conservation rate structure that was, unfortunately, poorly designed. The rate structure met with vast public resistance resulting in threats of Council recall elections and legal action by various customer groups. Customer complaint calls to the billing department reached a peak of over 300 calls per day. Project highlights: ■ Updated the conservation rate structure based on an in-depth understanding of the price elasticity of demand, then prepared a revised rate structure that maintained sufficient revenue levels while virtually eliminating public outcry. Immediately upon implementation of the proposed rates, customer complaint calls fell to fewer than 10 per day. ■ Subsequently, with a rate restructuring, water demand fell again. However, because the drop in demand had been anticipated in the rate design, the City did not incur any loss in revenue. Team accurately predicted the water demand to within one percent of its actual level. The City received an AA credit rating that same year after having been placed on negative outlook the year before. ■ In the years following the rate restructuring effort, consultants prepared a new wholesale water delivery rate, rates for irrigation-only customers, and rate differentials for retail customers inside City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 13 and outside the City’s limits. Also addressed the City’s wastewater rates, including a proposal to implement a high- strength sewer surcharge that matches costs associated with treating high- strength wastewater to those who actually contribute those wastes. ■ In early 2013, consultant team developed drought surcharges that aligned with the drought stages from the City’s water conservation plan. This helped the City prepared for a possible drought in 2013. Later, consultant team proposed an innovative new impact fee assessment methodology that allowed the City to customize impact fees based on the projected demand characteristics from different types of developments including a separate fee for water resource development. Consultants delivered an interactive, easy-to-use tool for the City’s engineering department to use for calculating impact fees. Comprehensive Utility Rate Study (2001 – Present): City of Santa Fe, NM Key Personnel Jason Mumm, Program Director Reference: Brian Snyder, City Manager (505) 955-4271, bksnyder@ci.santa-fe.nm.us The City of Santa Fe is located in a semi-arid resort area with very little access to new clean water supplies, so water conservation is extremely important. Since 2001 the City has been directing policies toward an overall reduction in per capita water usage. The city achieved a 25% reduction in the per-capita water usage from 139 gallons in 2001 to 103 gallons in 2009. Per capita water use continues to decline today. Jason Mumm began working with the City’s water rates in 2001, at the beginning of their demand management program, and developed rates with input from the City’s staff, a citizen’s advisory committee, and elected officials. Highlights include: ■ Pricing approach to anticipate and encourage reductions in demand while providing increased revenue performance in the short term and revenue stability in the long term. Used a comprehensive “Conservation-Impact” model to create a statistical simulation of the City’s customer billing patterns in reaction to changes in user rates. Model results ended up projecting both revenue and water demand to within 5% of the actual level attained by the City one year after implementing our recommended rates. ■ Recommended conservation rates became the City’s permanent rate structure. Since then, the City has been commended by many environmental groups for having the best example of conservation pricing in the Western US. As demand continued to decline in the City, the model has remained accurate. ■ The City is now in its third year of no rate increases after a seven year turnaround period guided by our long-range financial plan and revenue stability measures. The City has not only improved and stabilized its revenue, but has also turned its bond rating from “junk” status in 1999 to a model of credit quality. The City obtained an AAA rating from Fitch Ratings in 2009 and maintains a positive outlook today. ■ Due to the success of the water pricing and conservation efforts, the City was able to delay the design and construction of its Buckman Direct Diversion project by about 7 years, saving about $100M in the process. The City’s water rates were featured on the front page of the May 9, 2015 edition of the New York Times as a national example of successful water conservation pricing. The Twin Cities Pioneer calls Santa Fe’s rates “the national champion of water conservation.” City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 14 SELECT CURRENT CLIENTS Citing that FCS GROUP has collectively worked with hundreds of clients during the past five years, Exhibit 3 offers a selection of current and relevant clients within the last five years for whom Angie has provided utility cost-of-service analysis and rate-setting services. A more extensive client list for Angie is included in her full resume in Appendix A. A full current client list is available upon the City’s request. Exhibit 3: Select Public Utility Experience Select Clients Years Engaged Contact Bend, City of 2012- present Gillian Ockner (541) 388-5535 Bellevue, City of 2013- Present Martin Chaw (425) 452-7199 Lakewood Water District 2014- present David Logan (253) 588-4423 Lynnwood, City of 2016- present Bill Franz (425)-670-5204 Kennewick, City of 2014- present Cary Roe (509) 585-4292 Bonney Lake, City of 2016 - present Don Morrison (253) 447-4307 Richland, City 2013- present Pete Rogalsky (509) 942-7558 Skagit County PUD 2006- present George Sidhu (360) 848-4436 Bremerton, City of 2012- present Chal Martin (360) 473-5758 Pasco, City of 2015- present Dave Zabell (509) 545-3404 Hayden Area Regional Sewer Board 2016 Ken Windram (208) 772-0672 Spokane County Environmental Services 2014- present Kevin Cooke (509) 477-3604 COMPLETED RATE STUDY EXAMPLE An example of a recently completed rate study for Bend, Oregon, is included in Appendix B. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 15 WORK SUMMARY The City of Bozeman is initiating a comprehensive utility system cost of service and rate study for its water and wastewater utilities. Each system will have distinct needs, initiatives, and influences which will inform the long-range financial requirements and ultimate rate resources necessary. FCS GROUP understands that every public agency faces its own unique challenges. One of the keys to our success and reputation is our ability to listen to our clients and produce customized study results that can be easily implemented and understood by everyone. While we follow proven methodologies, we recognize and respect that a successful solution for a common problem will inevitably look different depending on the needs and values of each individual agency. An effective rate study generates a pricing structure and financial plan that satisfies the long-term obligations of each utility and targets equitable cost recovery from customers while conforming to legal constraints, agency policies, and community values. Industry- accepted principles of ratemaking identify three primary components to a utility rate analysis, each of which are applicable to the City’s water and wastewater utilities. 1) Revenue Requirement Analysis – This analysis establishes near- and long-term revenue needs to ensure that rates and other utility fees can fully recover the costs of service. Costs include annual obligations for maintenance, operations, and administration; prior debt service; and prevailing fiscal management policies. Beyond that, a thorough revenue requirements analysis develops a capital funding strategy to accomplish known and estimated capital improvement programs. For most agencies, capital programs are dominated by the need to invest meaningfully in system rehabilitation and replacement of their aging infrastructure. Developing a funding strategy for this ongoing, substantial expenditure within the framework of a utility rate study helps the agency avoid rate shock by taking measured steps and considering alternative financing before expenses peak. It also provides the justification for active and successful reserve management, which can enable more stable revenue patterns, phased rate plans, and intergenerational equity. 2) Cost-of-Service Analysis  This analysis addresses whether customers are paying for their proportionate use of the system by establishing a defensible basis for assigning “cost shares”. It also establishes “equity” or the cost to serve each user class using cost causation principles that are in line with their usage characteristics and demographics. FCS GROUP can model the obligations of each utility by program area and identify various level of service, achievement, or benefit within each, including minimum mandatory service levels. This level of service matrix-based approach enables effective decision-making regarding the strategic goals of a utility and the accompanying retail price to utility customers of each decision. Simply put, it allows the City to demonstrate alongside its rate plan what the utility is buying and what it is foregoing. 3) Rate Design Analysis  The final element of the rate study is the design of an actual rate structure: the system of fixed and variable charges that drive customer bills. Whereas cost allocation is focused on interclass equity, quality rate design can achieve better intra-class equity, yielding customer bills that achieve proportionality between individuals. Furthermore, locally-tailored rate designs can implement pricing policies that might further advance agency goals, such as price signaling for resource conservation efforts, increasing revenue stability and low-income affordability. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 16 Enhanced Public Engagement | A rate study will not be successful without effective public engagement. As experts, educators, and influencers in utility rate standards, FCS GROUP consultants are well-positioned to lead public involvement processes necessary for successful adoption of rate outcomes. We regularly work with City Commissions, stakeholder committees, community associations, significant customers, and the general public to inform and collaborate on ultimate rate strategies. Our project approach is captured in three key study areas as illustrated in Exhibit 4. The work effort is organized by major tasks that address the core technical aspects and review points of the study designed to foster a smooth, informed, and interactive study process. We have prepared the flow chart to illustrate the path that has been used to successfully complete the technical work and to maximize the opportunity for input and education for involved parties. There are clear junctures within the flow of work where input and direction is ideal to not only review preliminary outcomes with City staff, but also to engage on key policy issues. These milestone points will yield opportunities to gain input and provide for timely, well- rounded influence into the cost of service and rate design study elements. We also note that the rate study is a living document that should routinely compare the planned strategy to actual outcomes and be recalibrated regularly for significant or unexpected changes. Exhibit 4: Project Approach Model Development Analysis Implementation Key Input /Outputs Interface Reports/Metrics Scenarios Fiscal Policies Revenue Requirement Cost of Service Rate Design 5-Year Rate Strategy Customer Impacts Report / Presentations Communication City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 17 WORK PLAN AND PROJECT SCHEDULE The following work tasks include both the Cost of Service and Rate Design tasks noted in the City’s RFP following a more linear progression of study tasks while also addressing each of the primary elements identified in the RFP. We follow a structured method to arrive at conclusions, which enables us to perform the work in an orderly, efficient, and results- oriented manner tailored to match the unique policies, practices, and attributes of the City. Exhibit 7 on page 22 details the estimated level of effort that supports each of the proposed tasks herein. Our proposed schedule is also included on page 22. TASK 1 | KICK-OFF MEETING What A project kickoff meeting will be scheduled before the commencement of the project with the consultant and City project team. How Ideally this meeting would include a representative from departments that can address issues related to finance, engineering, customer service and administration. Benefits/Project Relevance This meeting will establish the goals and objectives of the overall project and focus the efforts of the project team. The items covered at the meeting include review of the scope of work, identify project objectives, expectations and deliverables, outline the project schedule and key milestone review points and discuss appropriate lines of communication. Deliverable A project schedule with task completion and key milestone review points. Identification of project team communication leads. Select frequency of standing project team meetings to calendar. TASK 2 | DATA COLLECTION AND VALIDATION What FCS GROUP will provide a data needs list encompassing historical and projected financial, operational, billing and planning information. How A Word formatted document will be distributed to City staff outlining key financial information required to complete the tasks outlined in the proposed work plan and kick- off meeting. The provided data will be reviewed, analyzed and validated for inclusion in the study process. Benefits/Project Relevance Validation of the customer statistics data with demands and revenue generation is critical to the cost of service and rate design study. This approach offers consistency throughout the rate study process by using one validated data set to develop revenue, cost distributions, allocation factors and rate designs. The process has proven beneficial in uncovering anomalies in data that can impact forecast revenue and cost allocation. Deliverable Validated customer statistics and profiles that tie to the revenue projections and cost forecast of each utility. TASK 3 | MODEL ARCHITECTURE PLANNING What The financial planning model forms the framework and foundation of the cost of service and rate design study. This task is intended to conceptualize the architecture of the model and will be completed as part of the kick-off meeting. We will work with the City City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 18 to identify the expectations and objectives to be achieved by the model toolset. It is our understanding that the model should improve transparency, functionality, flexibility, and usability such that it can inform how proposed changes may impact rates and the financial requirements of each system. We will discuss how the City will use the model, what answers need to be generated by the tool and what user interface will be most effective. The overall objective of the rate-setting toolset is to offer the City a “nimble” model that can improve decision making through quantifying the impact of changes in key activities and/or assumptions. How Exhibit 5 shows a graphical depiction of the key components of the Excel-based financial planning model. One model will be developed for each utility and consist of a number of different modules that house key data input fields and source documents for consistency across City departments. The data input fields will then be accessed depending on what analysis/output is being developed or generated. Exhibit 5: Key Components of Financial Model Benefits/Project Relevance The financial planning model will be a long- term living document that evolves with the City over time. All analyses will be contained in a single file for each system. An introductory flow screen and user interface will enhance model navigation and “what if” scenarios allowing for various cost and policy alternatives to be simultaneously evaluated. Deliverable A multi-year dynamic financial planning toolset that will determine the rate strategy required to meet the financial requirements of each utility. Dashboard allowing for easy navigation and access to reports, key variables, activities and costs to understand the financial/rate impact of various decisions or actions. TASK 4 | REVENUE REQUIREMENT ANALYSIS What Establishes a sustainable, multi-year financial management plan that meets the projected total financial needs of each utility through generation of sufficient, sustainable revenue. How This task analyzes annual cash flow needs by identifying expenses incurred to operate and manage the system including cost increases resulting from changes in staffing and/or enhanced programs or initiatives, capital project needs, new and existing debt repayment obligations and fiscal policy achievement as identified in the FY 2018 budget along with other planning documents such as the 2017 Water Facility Plan Update, 2017 Drought Management Plan, 2013 Integrated Water Resources Plan, 2017 Bozeman Strategic Plan and the 2015 WW Collection Facilities Plan Update. Projected revenue will consider the sensitivities of changes in economic, weather and demand trends in order to mitigate City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 19 volatility and stabilize revenue. Alternative rate strategies will be developed that consider how cost efficiency, capital prioritization and overall asset management funding approaches can be used to optimize proposed rate strategies. Benefits/Project Relevance The revenue requirement analysis allows the City to proactively plan for the future by evaluating and quantifying the sensitivity associated with revenue and cost changes. This analysis offers the City the tool to craft a rate strategy to meet its short and long-term objectives. The revenue requirement will incorporate all relevant fiscal and planning documents for a holistic evaluation of needs to ensure long-term fiscal sustainability. A matrix summary of level of service alternatives will facilitate comparison of changes for the City. The baseline service level elements for each utility would be identified and quantified. The impact of any changes (e.g. additional FTEs, enhanced program, increased capital for system reinvestment, capital to meet regulatory requirements, debt service, conservation impacts, etc.) will be evaluated and quantified. The change in $/account or $/unit would be compared to the baseline to inform the decision process. This matrix provides useful information for communicating the additional cost each program element change would add to utility unit costs and rates. Deliverable The revenue requirement is a module in the greater financial plan that will identify the required rate strategy that will meet City specified financial metrics, goals and objectives. A five year (2019-2023) rate strategy will be developed for each utility. A project team review meeting will be scheduled to review the draft revenue requirement assumptions and findings before finalizing the analysis and moving to the cost of service analysis. TASK 5 | COST OF SERVICE ANALYSIS (COSA) What Establishes a defensible basis for assigning “cost shares” and establishing “equity” for system customers based on industry standard methodologies that are tailored to the City’s unique water and wastewater systems and customer characteristics. How The COSA develops a series of functional allocations that distribute cost pools to classes of customers linked to a proportionate share of costs required to serve their demand. Specific consideration will be given to total utility costs in relationship to the functions identified in Exhibit 6. Exhibit 6: Utility Cost of Service Functions Water Wastewater Base capacity (average demand) Flow (includes inflow and infiltration Peak capacity (peak demand) Strength (BOD/TSS/Other) Fire Customer Customer Benefits/Project Relevance This analytical exercise will identify the cost to serve each customer class of the water and wastewater system. The results will identify any warranted shifts in cost burden that could improve equity between customers from the existing rate structure. It also identifies the unit cost for each cost category (e.g. base, peak, fire, strength, customer, etc.). The cost of service study is timely as the cost allocations for the City may have changed with the completion of the new water treatment plant facility and the wastewater treatment plant upgrade. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 20 Deliverable The cost of service is a module in the greater financial plan that will identify the required revenue to collect from each customer class to cover their cost of service. Unit costs by functional component will be calculated to support the rate design process. A project team review meeting will be scheduled to review the assumptions and results of the analytical effort to date. The City will provide direction as to interclass adjustments that are identified. Changes will be incorporated into the analysis before moving forward to the next task. TASK 6 | RATE DESIGN What Rate design determines how the target level of revenue will be generated (fixed v. variable charges) from each customer class. How Rate design considers both the level (amount of revenue that must be generated) and structure (how the revenue will be collected or bill assessed). To align the rate structures with the priorities and objectives of the City a rate structure prioritization exercise is proposed. The exercise will identify the priority ranking of key rate setting priorities (e.g. conservation, affordability, revenue stability, etc.). The results will inform what rate design improvements may be warranted to better align the existing rate structures. The rate design process in this study will aim to balance the conservation goals of the City while preserving revenue stability. Each developed rate design alternative should generate sufficient revenue to meet the revenue requirement forecast and begin to address any material inequities identified in the COSA findings. In addition, rate designs will be consistent with the City’s fiscal policies, billing system capabilities, and goals. Benefits/Project Relevance Rate design allows for innovative approaches to cost recovery and can be a tool for sending the appropriate price signals to meet City priorities and objectives. We will work with City staff to identify current issues/needs. At a minimum, the rate design will review the meter equivalency factors for appropriateness. A bill frequency analysis on the metered water statistics will be completed to evaluate if the current three-block tiered single family rate structure is achieving objectives or if stronger pricing signals may be needed. The metered water analysis will also identify if other customer classifications may warrant an alternative rate structure. The sewer utility winter quarter average basis will also be reviewed. Deliverable The rate design deliverable will include two alternative customer class rate designs that align with identified City priorities. A five- year schedule of rates will be develop for each class and utility. Monthly bill impact and neighboring utility rate comparisons will be calculated. A project team review meeting will be scheduled to review alternative rate designs developed. Changes will be incorporated and proposed rate structures finalized to forward to City Commission for review and approval. TASK 7 | MEETINGS/ PRESENTATIONS What Development of transparent, understandable, and graphically-driven informational materials and tools to roll out a 5-year rate strategy and fee schedules for education and input. How The success of a rate study relies on an open and involved process for informing and educating the City Commission and ratepayers on the rate study process and to clearly define the cost basis for the fees imposed on customers by linking the financial requirements to costs. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 21 Based on feedback from the City, it is our understanding that two (2) Presentations to the City Commission are expected. It is ideal for these presentations to be completed in a workshop setting to allow for an informal, open dialogue. ■ The first presentation is to present the results of the revenue requirement annual rate strategy and cost of service (equity evaluation) by customer classification. Once feedback has been incorporated the analysis will be finalized. ■ The second Commission workshop will present the rate design alternatives. Once feedback has been incorporated the analysis will be finalized. ■ We would be more than happy to present the results of the study at a City Commission public hearing, at the City’s request. The project team is available to assist the City determine the best communication strategy and medium. We have assisted utilities with a one page information sheet, newsletters, frequently asked questions, on-line bill calculators, dedicated rate study web-pages and open house forums. Benefits/Project Relevance Our approach has outlined key milestone review points for the City Commission to examine key assumptions and alternative strategies before finalizing the study. We offer a host of options for communicating and implementing rate changes to customers. In our world of time constraints and technology preference, attendance at Commission meetings is not always possible. Our online bill calculator has been used successfully to communicate individual impacts to customers. In addition, a dedicated rate study web page allows customers to be informed on study activities and findings during their selected time and availability. Deliverable Two (2) City Commission meetings/presentations covering the results and recommendations of the water and wastewater studies. Identification of public communication materials for development. TASK 8 | DOCUMENTATION What A written report documenting the rate study process. How A written report documenting the rate study process, methodology, key assumptions, results and recommendations will be provided. All technical exhibits will be included in the report technical appendix. Benefits/Project Relevance The City will have a document that references the rate study process for future reference and use. Deliverable Seven (7) bound copies of the report will be provided to the City. Included will be one (1) electronic copy of the report and models. City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 22 SCHEDULE The City desires the cost of service study to be completed no later than December 1, 2017, and the rate design development to be completed no later than April 1, 2018. The over-arching goal is to have the project fully completed and adopted in order to update the City’s Water and Wastewater Rate schedules in June/July 2018. We have slightly modified the cost of service study completion to extend into January 2018 while not compromising the final rate design schedule which will conclude in late March. HOURS AND TASKS SUMMARY Identified tasks assigned to each individual and the percentage of time each individual is intended to serve on the project are summarized in Exhibit 7, Hours and Tasks Summary. This summary also corresponds to the proposed Work Plan and Schedule detailed later in this proposal. Exhibit 7: Hours and Tasks Summary Mtg Task 1:Kick-off Meeting 1 Task 2:Data Collection and Validation Task 3:Model Architecture Planning Task 4:Revenue Requirement Analysis 1 Task 5:Cost of Service Analysis 1 Task 6:Rate Design 1 Task 7:Meetings/Presentations City Commmission 2 Task 8:Documentation Mar Apr May JunFebProject Task Oct Nov Dec Jan TotalEstimated Hours PROJECT TASKS Task 1 | Kick-off Meeting 8 8 8 4 28 Task 2 | Data Collection and Validation 1 4 8 13 - Customer Statistics Analysis 16 55 71 Task 3 | Model Architecture Planning 8 16 24 Task 4 | Revenue Requirement Analysis 16 8 20 40 84 - Project Review Meeting 8 8 8 2 26 Task 5 | Cost of Service Analysis 16 8 20 38 82 - Project Review Meeting 8 8 8 2 26 Task 6 | Rate Design (2 alternative structures)10 24 32 8 74 - Project Review Meeting 8 8 8 2 26 Task 7 | Meetings/Presentations - City Commission Meeting (COSA)12 8 12 32 - City Commission Meeting (Rate Design)12 12 12 36 Task 8 | Documentation 8 2 4 40 4 58 TOTAL PROCESS TASKS 107 62 144 253 14 580 LABOR HOUR DISTRIBUTION 18%11%25%44%2%100% Project Principal Project Manager Admin. SupportAnalystTechnical Advisor City of Bozeman Water and Wastewater Cost of Service and Rate Design Study 23 CITY-FURNISHED DOCUMENTATION In order for the study to be successful, it will be essential to have City input and assistance. We have attempted to estimate the participation required and level of effort for each of the project tasks (Exhibit 8). We will at all times be focused in our requests for staff time and efficiently schedule review meetings. The bulk of City staff effort will be at the beginning of the study in a data gathering capacity. Subsequent involvement will take the form of technical review meetings. Exhibit 8: City-Furnished Documentation Task City Staff Participation Level of Effort Task 1 | Kick-off Meeting Kick-off 2 hour kick-off meeting. Task 2 | Data Collection and Validation This is where the bulk of the effort will be for City staff. Tasks involve gathering requested data that includes budgets, fixed assets, billing statistics, consumption data, planning documents, utility bills, etc. Total of 20 hours – varies by staff (some requests can be completed in less than 1 hour, others could take 8 such as customer statistics gathering). Task 3 | Model Architecture Planning Will include time in the initial project meeting to discuss model architecture. Included in initial project meeting Task 4 | Revenue Requirement Analysis Conference calls to discuss data specific questions. Analysis review. 10 hours internal communication / review time Task 5 | Cost-of-Service Analysis Conference calls to discuss data specific questions. Analysis review. 10 hours internal communication / review time Task 6 | Rate Design Analysis review of alternative rate designs developed. 8 hours / review time Task 7 | Meetings/ Presentations Involvement in reviewing material and attendance at commission meetings (2); customer communication 12 hours preparation, review of meeting material, strategize on message; May include several staff. Communication effort depends on type of communication. Task 8 | Documentation Review draft and final reports 6 hours internal review, may include several staff City of Bozeman Water and Wastewater Cost of Service and Rate Design Study Appendix A-1 APPENDIX A – RÉSUMÉS Angie Sanchez Virnoche Résumé – Page 1 EDUCATION ■ BS, Business Administration and Finance, Oregon State University CAREER SUMMARY ■ 23 years (since 1993) professional municipal rate and fee consulting experience ■ Joined FCS GROUP in 2006 EXPERTISE ■ Cost-of-Service Utility Rate Studies (Water, Sewer, Stormwater, Solid Waste and Electric) ■ System Development Charges (SDCs)/Connection Charges ■ Comprehensive and Master Plan Financial Chapters ■ Rate Design Restructuring ■ Utility Formations ■ Multi-year Financial Planning ■ Capital Infrastructure Planning ■ Funding Alternatives ■ Cost Benefit Analyses ■ Reserve Analysis ■ Community Education and Involvement PROFESSIONAL AFFILIATIONS ■ American Water Works Association - National, Rates and Charges Subcommittee; Standards Committee ■ Partnership for Water Conservation ■ Washington Finance Officers Association ■ Northwest Public Power Association ■ Washington Association of Public Utility Districts CONTACT ■ AngieS@fcsgroup.com (425) 336-4157 Angie Sanchez Virnoche is an FCS GROUP principal, shareholder and municipal advisor with 23 years of experience providing financial and rate development services in a variety of capacities for water, sewer, stormwater, solid waste and electric utilities. Her project work includes multi-year financial planning, policy development, cost-of-service studies, rate design restructuring, capital and infrastructure planning, funding alternatives, cost benefit analyses, reserve analysis, and community education and involvement. Angie’s utility rate expertise covers a broad range of areas including expert review of the rate-setting framework and methodology used by clients, development of utility rates by service level, establishing renewals and replacement capital funding targets, evaluating fund balances, and the development of minimum charges. In addition to her project management and technical proficiency, Angie routinely collaborates with bond advisors, attorneys, and engineering partners. She also frequently presents results to diverse audiences such as citizen rate advisory groups and boards, commissions and councils to engage and educate participants in the benefits, costs, and decision- making process to achieve consensus and move towards objective fulfillment. Angie provides financial services to clients throughout the United States and serves on the American Water Works Association National Rates and Charges Subcommittee and AWWA Standards Committee and is a contributing author of the AWWA M1 manual on Principles of Water Rates, Fees and Charges. She also serves on the Northwest Public Power Association Board of Trustees and is the Rate-Setting presenter for the Washington State Department of Commerce Infrastructure Academies and one-day Rate Setting Workshops. . She was also recently appointed to the Environmental Protection Agency (EPA) Environmental Finance Advisory Board. Angie Sanchez Virnoche Principal-in-Charge FCS GROUP Angie Sanchez Virnoche Résumé – Page 2 Washington ALDERWOOD WATER AND WASTEWATER DISTRICT ● Strategic Planning for Potential City Annexation ● Water and Wastewater Rate Study, GFC Study and Financial Model Development BEACON HILL WATER AND SEWER DISTRICT ● Water and Sewer Cost-of-Service Analysis ● Water and Sewer Rate Update BELLEVUE ● Water Rate Structures and Revenue Stability Study ● Water Cost-of-Service Analysis ● Utility Rate Model Development ● Energize Eastside Feasibility Study ● Capital Recovery Charge Update BELLINGHAM ● Sewer System Plan Financial Chapter BENTON COUNTY PUD ● Electric Cost-of-Service Analysis ● Electric Load Data Review ● Cost-of-Service Consulting (On-call) BLAINE ● Water and Wastewater Rate Study Update ● Wholesale Water Rate Support – Birch Bay Water and Sewer District ● Electric Rate Study BONNEY LAKE ● Water and Sewer Financial Plan and SDC Study BREMERTON ● Water, Sewer and Stormwater Rate Study ● Water, Sewer and Stormwater GFC Update and Fee Review ● Benchmarking and Cost-of-Service Framework CAMAS ● Water, Sewer, Storm, Sanitation Utility Rate Study ● Financial Consulting Services (On-Call) ● Water and Sewer Revenue Requirement CLARK PUBLIC UTILITIES ● Water Rate Study and SDC Update ● Water Wholesale Rate Development CENTRALIA ● City Light Valuation and Divestiture Feasibility Study ● Electric Model Review ● Electric Rate Study and Updates ● Electric Cost-of-Service Analysis Update ● Electric Revenue Requirement Rate Study CLE ELUM ● Upper Kittitas County Regional WWF Rate Assistance COLLEGE PLACE ● Water Rate Study COVINGTON WATER DISTRICT ● Water Rate Studies (2009, 2012-2016) ● Water Cost Allocation and Other Rate Issues ● Water Long-Range Financial Plan ● Water Cost-of-Service Analysis and Capital Facilities Charge (CFC) Update ● Water Rate Study and Model Development COWLITZ COUNTY PUD #1 ● Electric Financial and Cost-of-Service Rate Assistance (On-call) ● Electric and Water Rate Studies CRYSTAL MOUNTAIN SEWER DISTRICT ● Wastewater Funding Analysis and Cost Allocation Study Angie Sanchez Virnoche Résumé – Page 3 DAYTON ● Water and Sewer Utility Financial Plan ELLENSBURG ● Electric Utility Rate Development FIRGROVE MUTUAL WATER COMPANY ● Water Financial Plan and Share Charge Analysis FRANKLIN PUBLIC UTILITY DISTRICT #1 ● Electric Cost-of-Service Analysis, Rate Design Study and Update ● Electric Revenue Requirement Update ● Rate Analysis Services FRIDAY HARBOR ● Water and Sewer Connection Charge Update ● Fire Cost Analysis ● Water System Plan Financial Chapter ● Water, Sewer and Storm Water Rates and Right to Connection Charges GRANT COUNTY PUD ● Electric Cost-of-Service Analysis HIGHLINE WATER DISTRICT ● Water Rate, GFC and CFC Studies ● GFC Update ● Water System Plan Financial Chapter JEFFERSON COUNTY PUD ● Water and Sewer Rate Study KENNEWICK ● Water and Wastewater Rate Study ● Strong Waste Surcharge Study KING COUNTY ● Solid Waste Fee Structure Redesign KING COUNTY WATER DISTRICT #49 ● Water Rate Study LAKEWOOD WATER DISTRICT ● Fire Cost Analysis ● Water Consulting Services (On-call) ● Water Parity Certificate ● Summit Water Company Wholesale Water Rates ● Financial Model ● Water System Replacement and Rehabilitation and Planning ● Replacement and Rehabilitation Citizen Advisory Group Communication and Facilitation ● Financial Services (On-call) ● JBLM Privatization Analysis LYNNWOOD ● Water, Sewer and Stormwater Rate Studies and Update ● Water System Comprehensive Plan Financial Chapter ● Policy Review of Sewer Connection Charges ● Financial Consulting Services (On-call) MARYSVILLE ● Solid Waste Rate Study and Efficiency Review MCCLEARY ● Electric, Water and Sewer Cost of Service Study ● Water Financial Plan and Connection Charge Study MERCER ISLAND ● Water and Sewer Rate and Connection Charge Studies and Updates, Rate Model ● QC Water Rate Model Update MOAB IRRIGATION DISTRICT ● Water Rate and SDC Update MUKILTEO WATER AND WASTEWATER DISTRICT ● Water and Wastewater Rate Study NORTH BEACH WATER DISTRICT ● Water Rate Study Angie Sanchez Virnoche Résumé – Page 4 NORTH BEND ● Retail Water GFC Update and Wholesale Rate and GFC Development ● Water and Wastewater Rate Study ● Wastewater Facilities Plan and Rate Study ● Sewer System GFC Study ● Parity Certification OLYMPIA ● Water Rate Study Update ● Wastewater Management Plan Financial Chapter ● Public Utility District Wholesale Water Rate Study Update ● Water System Plan Financial Chapter PASCO ● Water, Sewer and Stormwater Rate Study ● Fiscal Impact Analysis PASADENA PARK IRRIGATION DISTRICT #17 ● Water Rate Study and CFC Study PEND OREILLE COUNTY PUD ● Electric Cost-of-Service Analysis PORT ANGELES ● Electric Rate Study ● Water, Wastewater, Electric and Solid Waste Cost- of-Service Analyses and Rate Studies ● Utility Financing Report ● Fiscal Impact Analysis ● Rate Advisory Services PORT TOWNSEND ● Water and Sewer Rate and SDC Study and Update ● Water Supply/Treatment Analysis ● Water Utility Cash Flow Analysis ● Financial Consulting Services (On-call) RICHLAND ● Solid Waste Rate Study and Business Case Evaluation ● Water Comprehensive Plan and Rate Study ● Sewer Utility System Plan Financial Chapter and Rate Study ● Electric Cost-of-Service Review and Rate Design ● Electric Utility Financial Consulting RONALD WASTEWATER DISTRICT ● Financial Plan and Rate Forecast ROSLYN ● Water and Wastewater Rate Study SAMMAMISH PLATEAU WATER ● Water and Wastewater Financial Consulting Rate Study and GFC Study ● Water and Sewer Rate Update ● Capital Connection Charge Analysis ● Financial Consulting Services (On-call) ● Rate Comparison and Benchmarking Analysis SAN JUAN COUNTY ● Stormwater Utility Formation Planning SKAGIT COUNTY PUD ● Water Supply Agreement Review ● Water System Plan Financial Section ● Water Cost-of-Service Analysis and Rate Study ● Financial Consulting Services (On-call) SNOHOMISH ● Water System Plan Financial Chapter ● Sewer Treatment Plant Rate Impact Analysis ● Water, Sewer, Storm Rate Study ● Water and Sewer Connection Charge Study ● Water and Sewer Treatment Plant and Water Supply Study and Technical Assistance ● Water, Sewer and Stormwater Rate Study Updates, Financial Plan and Capital Funding Plan ● Sewer Rate Study Update Angie Sanchez Virnoche Résumé – Page 5 SNOHOMISH COUNTY PUD NO. 1 ● Water Rate and Connection Fee Study SNOQUALMIE PASS UTILITY DISTRICT ● Water System Plan Financial Chapter and Update SOAP LAKE ● Water and Sewer Rate Study SPOKANE COUNTY ● Wastewater Management Plan Financial Chapter ● Wastewater Rate Consultation ● Wastewater Rate Study and Update ● Solid Waste Rate Study STANWOOD ● Water and Wastewater Master Plan Updates and Drain Utility Rate Study SULTAN ● Water and Wastewater Comprehensive Plan Financial Chapter ● Water and Wastewater Rate Studies ● Solid Waste Study TACOMA ● Water Cost of Service Rates ● Economic Development Fee Analysis ● Solid Waste Rate Development ● Water Rate Advisory Services WHATCOM COUNTY ● Birch Bay Stormwater Funding Analysis VERA WATER AND POWER, WA ● Electric Cost-of-Service Rate Study WHATCOM COUNTY PUD NO. 1 ● Water and Electric Rate Study and Analysis WOODINVILLE WATER AND SEWER DISTRICT ● Water and Sewer Rate Modeling Assistance YELM ● General Sewer Plan and Rate Study ● Nisqually Tribe Sewer Treatment Cost-of-Service Analysis ● Water and Sewer Financial Plan and Rate Forecasts and Updates Oregon ASTORIA ● Wastewater Treatment Plant Facilities Plan Financial Chapter ● Water and Sewer Rate Forecast BEND ● Sewer Extra Strength Surcharge Analysis ● Sewer Financial Plan Model ● Water System Divestiture Study CLACKAMAS RIVER WATER ● Wholesale Rate Review ● Water Rate Analysis ● Wholesale Review of South Fork Water Board Rate ● SDC Update ● Financial Feasibility Review ● Rate Forecast Update FOREST GROVE ● Electric Cost-of-Service Analysis and Rate Design LAKE OSWEGO ● Water Cost-of-Service Analysis and Rate Study ● Water Financial Consulting Services (On-call) ● Sewer Utility Financial Plan and Rate Review ● Financial Advisory Services LAKE OSWEGO-TIGARD ● Partnership Cost Study METRO (METRO PORTLAND) ● Solid Waste Disposal Charge Review ● Solid Waste Rate Study ● Solid Waste Reserve Analysis Angie Sanchez Virnoche Résumé – Page 6 SUNRISE WATER AUTHORITY ● Water Cost-of-Service Study TIGARD ● Infrastructure Financing Services WASCO ELECTRIC CO-OP ● Electric Cost of Service Study Idaho COEUR D’ALENE ● Water System Plan Financial Plan and Rate Forecast EASTERN IDAHO REGIONAL WASTEWATER AUTHORITY ● Financial Consulting Services HAYDEN ● Sewer Operations and Maintenance Rate Study ● Sewer Capitalization Fee Update ● Fiscal Impact Analysis ● Sewer Capacity Fee Development HAYDEN AREA REGIONAL SEWER BOARD ● Wastewater Financial Implementation Plan ● Financial Plan and Capacity Fee Update MCCALL ● Consolidated Sewer Rate Study MERIDIAN ● Connection Charge Evaluation MOSCOW ● Sanitation Rate Study ● Water, Sewer and Solid Waste Rate Study PLUMMER ● Electric Rate Study PAYETTE LAKES RECREATIONAL WATER AND SEWER DISTRICT ● Consolidated Sewer Rate Study POST FALLS ● Water and Water Reclamation Capacity Fee Update ● Wastewater Financial Plan and Capacity Fee Update UNITED ELECTRIC CO-OP, ID ● Electric Cost-of-Service Rate Study California LAKE ARROWHEAD COMMUNITY SERVICES DISTRICT ● Water and Wastewater Master Plan Financial Chapter ● Letter of Determination SACRAMENTO ● Solid Waste Rate Model Development ● Solid Waste Rate Support Arizona BENSON ● Water and Sewer Rate Study* LAKE HAVASU CITY ● Sewer Capital Improvement Plan (CIP) Financial Evaluation ● Water Cost-of-Service Analysis Update SURPRISE ● Water, Wastewater and Sanitation Utility Rate Study ● Stormwater Utility Formation Canada DISTRICT OF NORTH VANCOUVER ● Utility Rate Studies SASKATOON, S.K. ● Wastewater Cost-of-Service Analysis ● Water Cost-of-Service Model * Performed prior to 2006 Angie Sanchez Virnoche Résumé – Page 7 PUBLICATIONS / SEMINARS / SPEAKING ENGAGEMENTS ● Asset Management Workshop: Engaging and Educating Elected Officials and Upper Management. Municipal Research and Service Center and Asset Management Committee (APWA WA), August 2017 ● Tools for Funding Future Infrastructure Projects— Rate Setting, Infrastructure Assistance Coordinating Council Regional Training Event, Yakima, May 2017 ● Best Practices in Utility Rate Setting, Oregon Government Finance Officers Association, October 2016 ● Tools for Funding Future Infrastructure Projects— Rate Setting, Infrastructure Assistance Coordinating Council Regional Training Event, Ritzville May 35- 26, 2016 ● Tools for Funding Future Infrastructure Projects— Rate Setting, Infrastructure Assistance Coordinating Council Regional Training Event, Colville May 3-4, 2016 ● Discovering the Power of Your Rate Study, Washington Association of Water & Sewer Districts, April 2016 ● Utility Rate Setting, Infrastructure Assistance Coordinating Council, October 2015 ● Residential Electric Services and Rates with Roof Top Solar: An Objectives-Driven, Building Block Approach, Nevada Rural Electric Association, September 2015 ● Utility Rate Setting, Washington State Public Works Board, Mount Vernon Training Academy, May 2015 ● Utility Rate Setting, Washington State Public Works Board, Moses Lake Training Academy, May 2015 ● Managing Utilities in the New Normal (Panel Moderator), Pacific Northwest Section – American Water Works Association, April 2015 ● Utility Rate Setting, Washington State Public Works Board, South Sound Training Academy, April 2015 ● Rate Design Prioritization: Rate Policy Development in Changing Times, Washington Public Utility Districts Association, April 2015 ● Rate Setting 101, Washington Public Utility Districts Association, April 2015 ● Utility Rates (Panel Moderator), Washington Public Treasurers Association, April 2015 ● Fire Hydrant Responsibilities—O&M and Fiscal, Washington Operator Workshop, March 2015 ● Utility Rate Setting, Washington State Public Works Board, Kitsap-Olympic Local Government Infrastructure Training Academy, November 2014 ● Distributed Generation, Washington Public Utility Districts Association, October 2014 ● Do Cities have the Authority to Tax District Revenues? Washington Association of Sewer and Water Districts, September 2014 ● Building the Case: How to Build Trust and Sell Rate Adjustments to Councils and Stakeholders, Washington Finance Officers Association, September 2014 ● Solid Waste Finance and Rate Setting, Solid Waste Association of North America Northwest Regional Symposium, April 2014 ● Getting it Right: Utility Rate Setting, Association of Washington Cities, June 2013 ● Staffing and Funding for Collection Systems, Pacific Northwest Clean Water Association, October 2012 ● Electric Cost-of-Service and Rate Setting, February 8th and 9th, Public Utility District Workshop, 2012 ● Correctly Calculating Rates and Connection Charges, Conference on Municipal Utility Law, October 2011 ● Rate Relief During Economic Hard Times, Washington Public Utility Districts Association (WPUDA), September 2011 and Evergreen Rural Water of Washington, October 2011 ● Implementing the Supreme Court Ruling on Fire Hydrants, Evergreen Rural Water of Washington, August 2011, Puget Sound Financial Officers, May 2011 and, Washington Operators Workshop, March 2011 ● Conservation Based Rate Considerations, AWWA Pacific Northwest Section Water Conservation Committee Meeting, 2011 ● Trends in Water Rate Making, Evergreen Rural Water of Washington Annual Conference, 2011 ● Evaluating and Improving Utility Financial Health, Evergreen Rural Water of Washington Annual Conference, 2011 ● Comprehensive Financial Master Planning: Setting a Roadmap for Long-Term Strategic Management, Evergreen Rural Water of Washington Annual Conference, Aug. 2010 Angie Sanchez Virnoche Résumé – Page 8 ● Setting Conservation-Based Water Rates, Evergreen Rural Water of Washington Annual Conference, 2010 ● General Facility Charges: Making Growth Pay for Growth, Evergreen Rural Water of Washington Annual Conference, 2010 ● District Finances and Financing Options, Commissioners' Workshop for Washington Association of Sewer and Water Districts, January 2010 ● Comprehensive Utility Financial Planning During Tough Economic Times, Series of Classes for Evergreen Rural Water of Washington, 2009 ● Comprehensive Financial Management Planning - Setting a Path for Long-Term Strategic Management, Washington Finance Officers Association Annual Conference, 2009 ● Setting Water Rates to Promote Conservation, Partnership for Water Conservation Workshop, 2009 ● Fiscal Health in Economic Hard Times, Washington Association of Sewer and Water Districts Workshop, 2009 ● Fire in the Hole, Vision Magazine, Association of Washington Cities, 2009 ● Business Practices for Operation and Management, American Water Works Association, G410-09 Contributing Author, 2009 ● Utility Rate Studies, Washington Municipal Treasurers Association Conference, April 2008 ● Utility Rates, Washington Finance Officers Association, One-Day Non-Conference Workshop, 2007 ● Empowering Agencies to Become Financial Stewards of Water Systems, Washington Finance Officers Association, 51st Annual Conference, September 2006 ● The Rate Process, Washington PUD Association Finance Officers Fall Meeting, 2005 ● Good Until the Last Drop, APWA, August 2005, Co-Author Chapter 8 Utility Management and Structure; Technical Reviewer Chapter 9 Financial Issues. American Public Works Association. ● Capital Asset Management: Planning, Funding, Policies and Procedures, Washington Finance Officers Association Non-Conference Seminar, June 2005. ● Overview of Utility Rate-Setting, Montana League of Cities and Towns Annual Conference, March 2005. ● Building Blocks of Successful Asset Management Systems, Oregon Municipal Finance Officers Association Annual Spring Conference, March 2005. ● Rates for Small Systems: Preparing a Financial Plan, American Water Works Association National Conference, June 2004 ● Strategic Infrastructure Planning and Financing, Washington Finance Officers Association Non- conference Session, April 2004. ● Indirect Cost Allocation: The What, Why, Who, When and How of Cost Allocation, Oregon Municipal Finance Officers Association Annual Spring Conference, March 2004. ● M54 Developing Rates for Small Systems “Chapter 2 Preparing a Financial Plan,” AWWA, 2004 ● Utility Rate Strategies and Techniques, Washington Finance Officers Association Non-conference Session, March 2004 ● Low-Income Ratemaking, Oregon Municipal Finance Officers Association Northwest Government Finance Institute, October 2003 ● Asset Replacement Planning: Alternatives to Duct Tape and Paint, Washington Finance Officers Association Annual Conference, September 2003 Chris Gonzalez Résumé – Page 1 EDUCATION ■ BSE, Operations Research and Financial Engineering, Princeton University CAREER SUMMARY ■ 14 years of experience in municipal rate and fee consulting ■ Joined FCS GROUP in 2003 EXPERTISE ■ Utility Rate Studies (Water, Sewer, Reclaimed Water) ■ Impact Fees, Connection Charges, System Development Charges (SDCs) ■ Wholesale Rate Setting ■ Economic Analysis & Feasibility Studies ■ Excise Tax Reviews & Audits ■ Comprehensive and Master Plan Financial Chapters ■ Utility Fiscal Policy Analysis ■ Risk & Sensitivity Analysis PROFESSIONAL AFFILIATIONS ■ American Water Works Association - National Rates and Charges Subcommittee ■ Washington Association of Sewer and Water Districts Finance Committee CONTACT ■ ChrisG@fcsgroup.com (425) 502-6280 Chris Gonzalez is an FCS GROUP project manager with 14 years of utility rate and public finance experience. Specializing in developing utility rates and connection charges, he has served numerous water and wastewater utilities around Washington and in other western states. Nationally, Chris serves on the Rates and Charges Subcommittee with the American Water Works Association. Chris has assisted utilities in their consideration of a variety of fiscal policy and other issues including system reinvestment for long-term asset management, benchmarking and managing reserve levels, customized rates based on level of service (e.g., wholesale service rates, interruptible service rates, capacity reservation charges, and excess- capacity charges), and sensitivity analyses using Monte Carlo simulations. In recent work with his clients, Chris has facilitated discussion and prioritization of conceptual rate structure objectives by utility staff and elected officials in an interactive workshop format – this additional element has provided useful insight in developing rate structure recommendations that align well with client needs and priorities. He has also conducted presentations on topics of interest to utilities, including providing rate relief to customers during economic hard times, identifying and removing fire protection costs from water rates (in response to the Washington State Supreme Court’s decision in Lane v. Seattle), and minimizing tax liabilities under Washington State’s excise tax rules. Chris is also experienced in developing user- friendly models as dynamic planning tools that can accommodate changing conditions and assumptions. Project experience includes the following. Chris Gonzalez Project Manager FCS GROUP Chris Gonzalez Résumé – Page 2 Washington AIRWAY HEIGHTS ● Water, Sewer and Reclaimed Water Cost-of-Service Analysis, Rate Development and Subsequent Updates ● Financial Consulting Services (On-call) BEACON HILL WATER AND SEWER DISTRICT ● Water and Sewer Excise Tax Refund Support ● Water and Sewer Cost-of-Service Analysis BELLEVUE ● Utility Rate Model Development ● Water Rate Structure and Revenue Stability Study ● Water Cost-of-Service Analysis ● Capital Recovery Charge Update ● Water, Sewer, Drainage Utility Excise Tax Refund Services ● Wholesale Water Supply Cost Analysis BELLINGHAM ● Water and Sewer Rate Study and System Development Charge (SDC) Study and Updates ● Special Sewer Rate Issues Analysis ● Marginal Water Cost Analysis BIRCH BAY WATER AND SEWER DISTRICT ● Water and Sewer General Facilities Charge (GFC) Study ● Water and Sewer Cost-of-Service Analysis and Rate Structure Updates BLAINE ● Water and Wastewater Rate Studies and Updates ● Wholesale Water Rate Studies and Updates BOTHELL ● Water, Sewer and Stormwater Rate and GFC Update ● Wastewater Rate Study and Analysis ● Multi-Family Water Rate Structure Study BREMERTON ● Water, Wastewater and Stormwater GFC Review and Update ● Water, Wastewater and Stormwater Excise Tax Review CARNATION ● Water Rate Study ● Utility Excise Tax Review CASCADE WATER ALLIANCE ● Water System Financial Plan ● Cost Sensitivity Analysis Model Development ● General Rate and Financial Support ● Wholesale Negotiations Support CHEHALIS ● Water and Wastewater Rate and CFC Study ● Wholesale Wastewater Rate Study CONNELL ● Water and Sewer Rate Study Update COVINGTON WATER DISTRICT ● Water Rate Study DOUGLAS COUNTY SEWER DISTRICT #1 ● Sewer Rate Study ● Parity Certificate EAST WENATCHEE WATER DISTRICT ● Water Rate Study EDMONDS ● Water, Sewer and Stormwater Rate Update ● Utility Excise Tax Refund Support FIFE ● Water and Sewer Rate Update ● Water Comprehensive Plan Financial Chapter and Update HIGHLAND WATER DISTRICT ● Water Rate and Connection Fee Update Chris Gonzalez Résumé – Page 3 HIGHLINE WATER DISTRICT ● Financial Consulting Services ● GFC Update KELSO ● Utility Excise Tax Refund Support KING COUNTY WATER DISTRICT #45 ● Water GFC Study KING COUNTY WATER DISTRICT #111 ● Water Rate Study and Update KING COUNTY WATER DISTRICT #125 ● Water Rate Study and Analysis KIRKLAND ● Water and Sewer Cost-of-Service Analysis ● Utility Excise Tax Refund Support LA CONNER ● Utility Excise Tax Refund Support LACEY ● Utility Excise Tax Refund Support LAKE STEVENS ● Utility Excise Tax Refund Support LAKE STEVENS SEWER DISTRICT ● Comprehensive Sewer Plan Financial Chapter LAKE WHATCOM WATER & SEWER DISTRICT ● Utility Excise Tax Refund Support LAKEWOOD WATER DISTRICT ● Financial Consulting Services (On-Call) LIBERTY LAKE SEWER AND WATER DISTRICT ● Water System Plan Financial Chapter and Water Rate Study ● Sewer Rate Study and CFC Update ● Water and Sewer Utility Excise Tax Review LONGVIEW ● Industrial Water Rate Analysis ● Solid Waste Rate Support ● Water and Sewer Cost-of-Service Analysis MOAB IRRIGATION DISTRICT ● Water Rate and SDC Update MONROE ● Utility Excise Tax Refund Support MUKILTEO WATER DISTRICT ● Water and Sewer Excise Tax Refund Support NORTH BEND ● Utility Excise Tax Refund Support NORTHSHORE UTILITY DISTRICT ● Utility Excise Tax Refund Support OLYMPIA ● Wastewater and Stormwater Rate and GFC Study ● PUD Wholesale Water Rate Study Update ● Water System Plan Financial Chapter ● Wastewater Management Plan Financial Chapter ● Water Cost-of-Service Analysis, Rate Study and Updates ● Water and Wastewater Excise Tax Refund Support ● Water Commercial Rate Analysis PIERCE COUNTY ● Stormwater Rate Study POINT ROBERTS WATER DISTRICT #4 ● Water Rate and GFC Studies and Updates ● Large On-Site Sewer System (LOSS) Sewer Rate Analysis PORT ANGELES ● Utility Excise Tax Review ● Water, Wastewater, Solid Waste and Electric Cost- of-Service Analysis and Rate Studies ● Rate Advisory Services Chris Gonzalez Résumé – Page 4 PORT ORCHARD ● Stormwater Funding Analysis PORT TOWNSEND ● Water and Wastewater Rate and SDC Study and Updates ● Wholesale Water Rate Study ● Financial Consulting Services (On-Call) ● Water Utility Cash Flow Analysis POULSBO ● Sewer Utility Master Plan Financial Chapter PUYALLUP ● Wastewater Financial Program ● Sanitary Sewer System Master Plan Financial Chapter REDMOND ● Water and Sewer Cost-of-Service Analysis, Rate Study and Updates ● Stormwater GFC Update ● Water and Sewer GFC Studies ● Business Case Analysis ● Financial Impact Analysis of Water Demand Variability ● Utility Excise Tax Review ● SPWSD Wheeling Rate Analysis SALLAL WATER ASSOCIATION ● Water Rate Study SAMMAMISH PLATEAU WATER AND SEWER DISTRICT ● Water and Sewer Rate Study Update ● Water and Sewer Capital Connection Charge Analysis ● Rate Comparison and Benchmarking Analysis ● Assumption Feasibility Support ● Ames Lake Wholesale and Wheeling Rate Development ● Water and Sewer Excise Tax Refund Support ● Financial Consulting Services (On-call) SAMISH WATER DISTRICT ● Sewer Rate Design, Cost-of-Service Analysis and GFC Update ● Sewer Rate Study Updates SEATTLE PUBLIC UTILITIES ● Water, Wastewater and Drainage Utilities Connection Charge Study SILVER LAKE WATER AND SEWER DISTRICT ● Department of Revenue Review of Partial Audit SKAGIT COUNTY SEWER DISTRICT #2 ● Water Reclamation Cost Allocation Study SOUTHWEST SUBURBAN SEWER DISTRICT ● Utility Excise Tax Refund Support SPOKANE COUNTY ● Wastewater Rates Study, Solid Waste Rates, and Financial Planning Services ● Wastewater Utility Excise Tax Review ● Wastewater Ongoing Rate Consultation SUMNER ● Water, Sewer and Stormwater Rate Study and Updates ● Stormwater SDC Option Analysis TENINO ● Utility Excise Tax Review TUKWILA ● Utility Excise Tax Refund Support VANCOUVER ● Water, Sewer and Storm Drainage Rate Study WALLA WALLA ● Water and Wastewater Rate Study ● Utility Excise Tax Review WAPATO ● Water Rate Study WILDERNESS RIM ASSOCIATION ● Water Rate Analysis and Financial Reserve Analysis Chris Gonzalez Résumé – Page 5 WOODINVILLE WATER DISTRICT ● Rate Structure Conceptual Review YAKIMA ● Wastewater Rate and Charge Study Alaska MUNICIPALITY OF ANCHORAGE ● Assessment of Residential Customer Water Test Meter Program Arizona SCOTTSDALE ● Water and Wastewater Cost-of-Service Analysis and Rate Study California CARLSBAD ● Wastewater Cost-of-Service Analysis and Rate Study CHULA VISTA ● Sewer Cost-of-Service Analysis and Rate Study ● Residential Median Flow Benchmarking Analysis FRESNO ● Impact Linkage Fee Feasibility Study ORANGE COUNTY SANITATION DISTRICT ● Wastewater Revenue Program and Rate Study Update ● Wastewater Capital Facilities Charge (CFC) Update SACRAMENTO ● Solid Waste Rate Model Development and On-call Support SACRAMENTO COUNTY WATER AGENCY ● Water Rate Study - Zone 41 WESTERN MUNICIPAL WATER DISTRICT ● Wastewater Revenue Requirement and Connection Charge Analysis Colorado WESTMINSTER ● Water and Sewer Financial Plan, Cost-of-Service Analysis and Rate Studies ● Federal Heights Wholesale Rate Support Idaho MOSCOW ● Water, Sewer and Solid Waste Utility Rate Study NAMPA ● Water Rate Study ● Wastewater Cost of Service Analysis and Rate Study Montana BILLINGS HEIGHTS WATER DISTRICT ● Resale Water Rate Review Nevada DOUGLAS COUNTY ● Sewer Rate Study ● Cost-of-Service Analysis, Utility Rate and Connection Charge Studies for the Sheridan Acres, Fairgrounds, Cave Rock, Zephyr Cove, East Valley and West Valley Systems LYON COUNTY ● Dayton Water and Sewer and Mound House Water Cost-of-Service Analysis and Rate Studies WASHOE COUNTY ● Revenue Sufficiency Studies for the Spanish Springs Water Reclamation Facility, the South Truckee Meadows Water Treatment Plant and the North Valleys Water Facility Plan ● Truckee River Flood Area Funding Study and Rate Financing Study Canada GREATER VANCOUVER WATER DISTRICT ● Peak Ratio Review for Seasonal Pricing Chris Gonzalez Résumé – Page 6 PUBLICATIONS/SEMINARS/SPEAKING ENGAGEMENTS ● Utility Rate Setting Fundamentals, Association of Washington Cities, June 2017 ● Discovering the Power of Your Rate Study, Washington Finance Officers Association, September 2016 ● Planning for Infrastructure Replacement, Northwest Asset Management Conference, August 2016 ● System Development Charge Workshop, Washington Public Utility Districts Association, September 2015 ● Using Objectives Prioritization to Drive Alternative Rate Structures, Pacific Northwest Section – American Water Works Association, May 2015 ● Rate Design Prioritization: Rate Policy Development in Changing Times, Washington Public Utility Districts Association, April 2015 ● Using Objectives Prioritization to Drive Alternative Rate Structures, Washington Finance Officers Association, September 2013 ● Water Supply Forum Workshop, Snohomish, King, Pierce County Water Supply Forum, 2013 ● Have You Reviewed Your Excise Tax Worksheets Lately?, MRSC Finance Advisor, August 2012 ● Rate Relief During Economic Hard Times, Washington Public Utility Districts Association, 2011 ● Rate Relief During Economic Hard Times, Evergreen Rural Water of Washington Fall Conference, 2011 ● Paying for Fire Hydrants: A Workshop on Utility Recovery of Fire Protection Costs, 2010 FCS GROUP Workshops in the Cities of Hoquiam, Bellingham, Omak, and Airway Heights. ● Utility Excise Tax Reporting Guidelines, WFOA Annual Conference (2007, 2008) ● Could There Be A Check In The Mail, WASWD Pipeline, December 2007 and January 2008 Paul Quinn Résumé – Page 1 EDUCATION ■ BA, Environmental Studies, Bucknell University CAREER SUMMARY ■ 6 years (since 2011) professional financial consulting experience ■ Joined FCS GROUP in 2017 ■ Prior experience with Troob Capital Management EXPERTISE ■ Water and Sewer Cost-of-Service Utility Rate Analysis and Modeling CONTACT ■ PaulQ@fcsgroup.com (425) 502-6473 Paul Quinn is an FCS GROUP analyst with six years of financial research and analytical experience including cost of service and rate modeling engagements throughout the Northwest. Prior to joining FCS GROUP, Paul was a financial investment analyst where he performed earnings forecasts within the petro-chem, mining, automotive, trucking, aerospace and defense industries. Washington AUBURN ● Utility Rate Study ● Development Fee Study BEACON HILL WATER AND SEWER DISTRICT ● Utility Rate and GFC Update BELLEVUE ● Development Services Cost of Service Analysis DAYTON ● Water and Sewer Utility Financial Plan LONGVIEW ● Water and Sewer Cost of Service Rate Study LYNNWOOD ● Development Fee Study PORT OF SEATTLE ● Stormwater Rate Study TACOMA ● Water Cost of Service Rates ● Site Development Cost of Service and Fee Study WALLA WALLA ● Water and Wastewater Rate Study Paul Quinn Analyst FCS GROUP Angie Sanchez Virnoche Résumé – Page 1 EDUCATION ■ MBA, University of Colorado ■ BS, Colorado State University CAREER SUMMARY ■ 21 years (since 1996) professional municipal rate and fee consulting experience ■ Joined FCS GROUP in 2017 ■ Previous experience with JMa Municipal Advisors, MWH Global (now Stantec) and StepWise Utility Advisors EXPERTISE ■ Utility Enterprise Financial Planning ■ EPA Affordability Analyses ■ Bond Due Diligence Support ■ Utility Ratemaking ■ Cost-of-Service Studies ■ Valuations and Opinions of Value ■ Rate Design ■ Impact/ Development Fee Studies and Other ■ Related Services PROFESSIONAL AFFILIATIONS ■ American Water Works Association (AWWA) ■ Water Environment Federation (WEF) ■ Rocky Mountain Sections of the AWWA and W EF CONTACT ■ JasonM@fcsgroup.com (303) 652-7548 Jason Mumm is an FCS GROUP program director with 21 years of experience providing financial and rate development services in a variety of capacities for water, sewer, reclaimed water, stormwater and solid waste utilities. Experience highlights include:  Performed over a hundred individual studies for water/wastewater utilities primarily for local governments in the United States.  Prepared expert witness testimony in regulatory proceedings in Canada and the United States. Testimony also provided in numerous other court, administrative, and alternative dispute resolution cases.  Admitted as an expert witness in Colorado, Nova Scotia, Texas, Oregon, and Hawaii in matters involving utility finances, rates, and/or cost sharing.  Developed utility business model training for local elected officials.  Held elected office on a water/sewer board in his local community.  Author of over 100 published articles in the water/wastewater industry press. Jason has also contributed much to the advancement of industry thinking in the field of finance and economics. Special areas of thought leadership include:  Affordability – he has developed new methods for measuring financial burden in EPA regulatory enforcement cases and his work has been promoted and advanced by the US Conference of Mayors.  Cost of Capital – he has led the industry in gaining an advanced understanding of the cost of capital to local government utilities, especially the cost inherent in raising equity capital through retained earnings.  Wholesale Rates – Jason is the primary author of the most recent edition of the AWWA Jason Mumm Program Director FCS GROUP Jason Mumm Résumé – Page 2 Manual M1 on the topic of calculating wholesale rates. The manual is AWWA’s primary set of guidelines for water providers in determining their user charges with cost-of- service methods.  Regionalization – Jason has led several studies on regionalizing local utilities and published a number of industry papers on the subject describing the conditions that need to exist in order for regionalization to work as a means of reducing costs. Colorado AURORA ● Water and Wastewater Enterprise Financial Planning COLORADO SPRINGS UTILITIES ● Water Supply Pricing Analysis SOUTH METRO WATER SUPPLY AUTHORITY ● Water Supply Pricing / Regionalization STONEGATE VALLEY METROPOLITAN DISTRICT ● Regional consolidation CASTLE PINES NORTH METROPOLITAN DISTRICT ● Water Supply Business Case Evaluation ● Water/Sewer Rate Studies LOVELAND ● Water/Sewer Rate Studies EVANS ● Water/Sewer Rate Studies PARKER WATER & SANITATION DISTRICT ● Water/Sewer Rate Studies ● Utility Development Fees ● Regional Consolidation Study BANCROFT-CLOVER WATER DISTRICT ● Water/Sewer Rate Studies FIRESTONE ● Stormwater Rate Study DENVER WATER ● Water Supply Pricing Analysis / Regionalization RANGEVIEW METROPOLITAN DISTRICT ● Water/Sewer Utility Startup BRUSH ● Wastewater Rate Study ● Bond/Debt Feasibility Study METROPOLITAN WASTEWATER RECLAMATION DISTRICT ● Business Case Evaluation for Capital Project Planning INVERNESS WATER & SANITATION DISTRICT ● Wastewater Rate Study ● Litigation Support MONTEZUMA VALLEY IRRIGATION DISTRICT ● Water Rate Study FEDERAL HEIGHTS ● Wholesale Water Rate Analysis FORT COLLINS LOVELAND WATER DISTRICT ● Utility Development Fees ● Water/Sewer Rate Studies ARAPAHOE COUNTY WATER & WASTEWATER AUTHORITY ● Water/Sewer Rate Studies ● Local Improvement District Setup ● Utility Development Fees FRUITA ● Utility Development Fees ST. CHARLES MESA WATER DISTRICT ● Water/Sewer Rate Study PALMER LAKE ● Water Rate Study GRANBY ● Regional Consolidation Study ● Water/Sewer Rate Study Jason Mumm Résumé – Page 3 CASTLE ROCK ● Water/Sewer Rate Study ● Development Fee Study New Mexico SANTA FE ● Water, Wastewater and Solid Waste Cost of Service Rate Studies Montana BILLINGS ● Litigation Support / Wholesale Water Rates Washington PIERCE COUNTY ● Wastewater Rate Study ● Bond/Debt Feasibility Study OCEAN SHORES ● Water/Sewer Rate Study Oregon WILLAMETTE WATER SUPPLY PROGRAM ● Regional Water Supply Pricing / Regionalization Wyoming SHERIDAN ● Water/Sewer Rate Study ● Development Fees GILLETTE ● Water/Sewer Rate Study ● Development Fees California WEST BASIN MUNICIPAL WATER DISTRICT ● Water Rate Study SOQUEL CREEK WATER DISTRICT ● Water Rate Study CENTRAL BASIN MUNICIPAL WATER DISTRICT ● Water Rate Study ROSS VALLEY SANITARY DISTRICT NO. 1 ● Regional Consolidation Study Alabama MOBILE AREA WATER AND SEWER SYSTEM ● Long-Range Financial Planning ● Board Strategy Iowa CEDAR RAPIDS ● Wastewater Rate Study Texas BEXAR METROPOLITAN WATER DISTRICT ● Bond Feasibility Study ● Water Rate Study Hawaii WEST HAWAII UTILITY COMPANY ● Litigation Study ● Private Utility Rate Case Indiana MUNCIE ● Wastewater Rate Study ● Affordability Analysis Rhode Island NARRAGANSETT BAY COMMISSION ● Financial Capability Assessment ● Affordability Analysis Massachusetts SPRINGFIELD WATER & SEWER COMMISSION ● Financial Capability Assessment ● Affordability Analysis Jason Mumm Résumé – Page 4 Maryland BALTIMORE ● Financial Capability Analysis ● Affordability Analysis Nebraska OMAHA ● 20-Year Sewer Financial Plan ● Affordability Analysis ● Wastewater Rate Study Ohio AKRON ● Financial Capability Assessment ● Affordability Analysis NORTHEAST OHIO REGIONAL SEWER DISTRICT ● Cost of Service Rate Study ● Affordability Analysis PUBLICATIONS / SEMINARS / SPEAKING ENGAGEMENTS ● Improving the Narrative on Affordability and the Measurements We Need to Take Us There, Journal American Water Works Association, Vol 109, No. 7, May 2017. ● How to MURV Water Utility Plans into Action and Success, Journal American Water Works Association. Vol. 107 , No. 1, January 2015. ● The Equity Option: How to Make the Most of Your Debt, Journal American Water Works Association. Vol. 104, No. 11., Nov 2012. ● Managing Financial and Water Supply Challenges with Regional Partnerships. Journal American Water Works Association. Vol. 104, No. 7., July 2012. ● Regionalization as a Solution for Affordability, Presented at the American Water Works Association Annual Conference and Exposition. Dallas, TX. June, 2012. ● Accepting the Affordability Challenge, Journal American Water Works Association. Vol. 104, No. 5. May 2012. ● Fair Water Pricing. Water & Wastes Digest, April 2012. ● Water Infrastructure Financing: Will the Future be Different? Presented at the 3rd Annual CLE International Water Marketing Conference; Denver, CO. December 2011. ● Water Industry Trends: Threat or Opportunity? Presented at the 103rd Annual Meeting of the Water and Wastewater Manufacturer’s Association. St. Petersburg, FL. November, 2011. ● Financial Aspects of Water Utility Service, presented at The Colorado Law Institute’s Second Annual Water Marketing Conference; Beaver Creek, CO, December 2010. ● Over the Top: Limits and Pitfalls of Conservation Pricing, presented at the 2009 annual conference of ● the American Water Works Association, San Diego, CA. Co-presented with Greg Baird, CFO for ● Aurora Water. ● Adapting GASB 34 for Water Utility Ratemaking, for the Journal of the American Water Works Association, January 2004. ● Regional Publications and Presentations ● You Are Here, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March 2014. ● EPA Considering New Affordability Guidelines, and None Too Soon, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January 2014. ● Lessons in Excellence, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November 2013. ● Cheap Debt: Is it Really so Cheap?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, Sept. 2013. ● Where’s the Value, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July 2013. ● Fast Forward, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May 2013. ● Death, Taxes, and Certainty, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March 2013. ● Death, Taxes, and Certainty, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March 2013. Jason Mumm Résumé – Page 5 ● Tales from ACE 2012: The Future is Now, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, September 2012. ● Having Trouble Getting Rates Approved? Focus on Consequences. published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July 2012. ● Rate Fail, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May 2012 ● Losing Ground: A Trend in the Affordability of Utility Bills, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January 2012 ● Denver Metro Wastewater Reclamation District’s Triumph of Strategy and Vision at 50. Published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November 2011 ● When 2 and 2 Is 3: Why Economies of Scale Benefit Consumers. Published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, September 2011 ● Just Because It’s Measured Doesn’t Mean It Matters, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July 2011. ● From Great to Good: Why Depreciation Isn’t the Answer for Infrastructure Pains, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May 2011. ● Public Drinking Water: Less Efficient But Better Value?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March 2011. ● The Challenge of Deflation, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January 2011. ● Colorado’s Proposed Amendment 61 – Restricting Capital When It’s Needed Most, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November 2010. ● Reaching the Summit, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July 2010. ● Price of Regional Partnership, presented at the 2011 Joint Utility Management Conference of AWWA and WEF (Denver, CO). ● Fiscal Responsibility is Knowing What Not to Cut, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May 2010. ● Social Media and You, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March 2010. ● Ratemaking for the Elected Official, presented at the annual convention of the Colorado Rural Water Association; Colorado Springs, CO, February 2010. ● Private Utilities: Show Me the Efficiencies, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January 2010 ● Corporate Mentality, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November 2009 ● Are You an Ambassador?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, September 2009 ● Paul’s Conundrum; The American Recovery and Reinvestment Act and the Lessons of TARP, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July 2009 ● Refocusing the Value of Service, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May 2009 ● Dude, Where’s My Tap Fee?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March 2009 ● A New, New Deal, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January 2009 ● Mastering the Not-So-Obvious, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November, 2008. ● Take 3: Hitting the Fast Forward Button on the Sub- Prime Mess, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, September, 2008. ● Our Sleepy Infrastructure Assets, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July, 2008. Jason Mumm Résumé – Page 6 ● Private Equity: Panacea or More Private Sector Hooey?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May, 2008. ● Bubble? What Bubble?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March, 2008. ● The Not-So-New-But-Still-Approaching Affordability Crisis, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November, 2007. ● In Defense of #9, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, September, 2007. ● Utilities as a Business, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July, 2007. ● Betting on Water: What We Can Learn from the Stock Market, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May, 2007. ● The State of the States, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March, 2007. ● Rise to Vote Sir!, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January, 2007. ● The Cost of Neglect, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November, 2006. ● The Cost of Money. Part II, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, September, 2006. ● The Cost of Money, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, July, 2006. ● Too Many Jobs? Too Few Workers?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May, 2006. ● What Infrastructure Funding Gap?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March, 2006. ● Water or Sewer; Sewer or Water?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January, 2006. ● I’m not a Lawyer but.., published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, November, 2005. ● Small System Financial Planning and Ratemaking, Best Practices for Colorado Rural Water Association Members, presented to the Colorado Rural Water Association, September, 2005. ● Blood, Sweat and Tears, or Water Waster Blues, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, September, 2005. ● Who Owns Your Utility?, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA. July, 2005. ● The Misunderstood Consumer, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, May, 2005. ● This Golden Age of Ours, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, March, 2005. ● A Shadow of Drought, published in Rumbles, the bimonthly publication of the Rocky Mountain Sections of the AWWA and WEA, January, 2005. ● Planning for Successful Funding, for the Colorado Rural Water Association 2004 Fall Conference, Grand Junction, CO, November 17, 2004. ● Impact Fees In Colorado: Meeting the New Legal Requirements, by Jason G. Mumm and Travis Smith, in the Colorado Special Districts Association Newsletter, 2004. ● Impact Fees in Colorado: Meeting the New Legal Requirements, by Jason G. Mumm and Travis Smith, in the Colorado Rural Water Association Newsletter, 1st Edition 2004 ● Financial Planning and Ratemaking for Small Utilities, for the Colorado Rural Water Association, February 18, 2004. ● Conservation Based Water Utility Rates, by Jason Mumm (moderator), Charles Krogh, Webb Jones, Rich Hayes. and Robert Mall; for the Annual Conference of the Special District Association of Colorado, Keystone, Colorado, September 26, 2003. ● Water Rate Making in the Face of Drought, for the American Water Resources Association Colorado Section, Genesee, Colorado, April 4, 2003. ● Rate Setting for Small Water and Wastewater Systems, by Kees Corssmit, Ph.D., Carol F. Malesky, and Jason G. Mumm, presented at NARUC annual meeting in Rapid City, SD, October 2002. Jason Mumm Résumé – Page 7 ● Impact Fees and Colorado’s Water and Wastewater Utilities, with Carol Malesky, presented at the annual conference of the Rocky Mountain Sections of the American Water Works Association and Water Environment Association; Steamboat Springs, CO. September 2002. ● The City of Santa Fe: A Case Study, with Kathryn Raveling, Annual Conference of the American Water Works Association, New Orleans, Louisiana, June 16, 2002. ● GASB 34: Separating Myth from Reality, in Rumbles (a quarterly publication of the Rocky Mountain Section of the American Water Works Association and the Rocky Mountain Water Environment Association), May 2002. ● GASB 34: Separating Myth from Reality, in the Colorado Special District’s Association Newsletter, April 2002. ● Wastewater Impact Fees: A Significant Legal Ruling, by C. (Kees) W. Corssmit, Ph.D., Carol F. Malesky, and Jason G. Mumm, WEFTEC 2002 National Convention, September 29, 2002, Chicago, Illinois (scheduled). ● The Breckenridge Sanitation District Impact Fee Study: A Case Study, with Andy Carlberg. Gene Riordan, and Kees Corssmit, Annual Conference Special District Association of Colorado, Steamboat Springs, Colorado, September 21, 2001. EXPERT WINESS ASSIGNMENTS ● Pure Cycle Corporation and Rangeview Metropolitan District vs. the State of Colorado (Case No. 2011-CV-8565, 2121-CV-1246, Division 424) ● Castle Pines North Metropolitan District and Castle Pines Metropolitan District (Colorado District Court, Case No.’s 04CW292 and 04CW308). ● Montezuma Water Company, Dolores, Colorado ● Brunswick County, North Carolina ● City of Santa Fe, New Mexico ● Colorado Renaissance Festival, Douglas County District Court Case No. 05CV1146 ● Sol Vista/Silver Creek/Granby Exclusions & Inclusion Hearings ● Developers served by the Louviers Mutual Service Company, Louviers, Colorado ● (PUC Docket #07F-036W) ● West Hawaii Utility Company (PUC Docket #2006- 0409), Waikoloa, Hawaii ● Halifax Regional Water Commission; Application for a Schedule of Rates and Charges before the Nova Scotia Utility and Review Board (W-HRWC-R-10) ● Interveners v. City of Houston ● Cascade Pacific Pulp, LLC v. Georgia-Pacific Consumer Products, LP, Linn County Circuit Court Case No. 091549 John Ghilarducci Résumé – Page 1 EDUCATION ■ MPA, Organization and Management, University of Washington ■ BS, Economics, University of Oregon CAREER SUMMARY ■ 29 years (since 1988) professional experience ■ Joined FCS GROUP in 1991 EXPERTISE ■ System Development Charges (SDCs), General Facilities Charges (GFCs), Capital Facility Charges (CFCs) and Connection Charges ■ Water, Sewer, Stormwater, & Transportation Utility Rates ■ Stormwater and Transportation Utility Formations ■ Transportation Funding ■ Comprehensive Plans Financial Elements ■ Litigation Support/Expert Witness ■ Financial/Feasibility Studies ■ Special Cost of Service ■ Options Analysis PROFESSIONAL AFFILIATIONS ■ American Water Works Association ■ American Public Works Association ■ Oregon Government Finance Officers Association CONTACT ■ JohnG@fcsgroup.com (425) 336-1865 John Ghilarducci is an FCS GROUP principal and shareholder with 29 years of professional experience including 26 with the firm. His practice focuses on all aspects of utility and general services system development charges (SDCs) and financial rate studies, from technical modeling and public involvement to ordinance drafting and implementation. He has formed stormwater and transportation utilities and has developed water, sewer, stormwater, transportation and parks rates and charges for dozens of clients. John is a recognized technical rate and finance expert and provides litigation support/expert witness testimony throughout the Northwest. John’s innovative rate making approaches have resulted in “level of service” stormwater rates, area- specific SDCs, sewer strength sub-classes, inverted block water rate structures, defensible stormwater rate credit methodologies, and nonresidential park impact fees. He offers a broad knowledge of public policy and finance, and a thorough understanding of the institutional issues and options underlying the formation of utilities and the design of supporting rate and charge structures. Project experience includes the following. Washington AUBURN ● Utility Financial Programs and Financial Chapter Development ● Water Supply Optimization Analysis ● Parks Impact Fee Study BAINBRIDGE ISLAND ● Stormwater and Surface Water Rate Study Update ● Special Stormwater Rate Policy Analysis BATTLE GROUND ● Stormwater Utility Financial and Rate Update John Ghilarducci Principal-in-Charge FCS GROUP John Ghilarducci Résumé – Page 2 BELLINGHAM ● Stormwater Rate Study ● Marginal Water Cost Analysis ● Storm and Surface Water Rate, SDC and Permit Fee Study BLAINE ● Stormwater Rate Study Update ● Wholesale Water Rate Support BONNEY LAKE ● Water Rate and SDC Financial Analysis BOTHELL ● Stormwater Rate Study Update ● Water, Sanitary Sewer and Stormwater Rate and Stormwater SDC Study and Update ● Wastewater Rate Analysis BURLINGTON ● Stormwater Utility Formation and Consulting CAMAS ● Financial Services (On-call) ● Water, Sewer, Stormwater and Solid Waste Rate Study CARNATION ● Stormwater Financial Analysis CENTRALIA ● Stormwater Utility Formation and Rate Studies CHEHALIS ● Water and Wastewater Rate and CFC Study ● Wastewater Customer Charge Analysis and Special Evaluation of Treatment Offer ● Water, Wastewater and Stormwater Rate Study ● Wholesale Wastewater Rate Study CLARK COUNTY ● Transportation Impact Fee Study CLINTON ● Sewer Financial Review COWLITZ COUNTY ● Stormwater Funding Analysis DES MOINES ● Stormwater Revenue Requirement Study ● Stormwater Comprehensive Plan, Efficiency and Rate Study and Update DOUGLAS COUNTY SEWER DISTRICT #1 ● Sewer Rate Study DUVALL ● Parks Impact Fee Study ● Sewer Rate and GFC Update and Advice ● Water Rate Analysis and Comprehensive Plan Financial Chapter EAST WENATCHEE ● Stormwater Plan Financial Services EAST WENATCHEE WATER DISTRICT ● Water Rate Study EDGEWOOD ● Sewer Feasibility Study and Financial Chapter EDMONDS ● Water System Plan Financial Chapter ● Stormwater Rate Study Update ENUMCLAW ● Water, Sewer and Stormwater Rate Study ● Stormwater Utility Formation and Financial Analysis ● Water and Wastewater Rate and Charge Study ● Water System Plan Financial Chapter EVERETT ● Water and Sewer Connection Charge Update and Model Review John Ghilarducci Résumé – Page 3 FIFE ● Water and Sewer Rate Update ● Stormwater Rate Study ● Sewer Rate Study ● Water System Plan Financial Chapter ● Wastewater Revenue Requirement and Parity Certificate ● Water Initial Revenue Requirements Study ● Water Rate and GFC Study Update FIRGROVE MUTUAL WATER COMPANY ● Water Utility Financial Plan and Share Charge Analysis GRANT COUNTY CONSERVATION DISTRICT ● Rate Study ISSAQUAH ● Water Rate and GFC Study JEFFERSON COUNTY PUD #1 ● Water and Sewer Rate Study KENT ● Stormwater and Water Rate Policy Review and Update KING CONSERVATION DISTRICT ● Billing Database Update ● Rate Structure Development and Update KING COUNTY WATER DISTRICT #20 ● Water District #20 and Water District #85 Merger KING COUNTY WATER DISTRICT #49 ● Water Rate Study Technical Assistance KING COUNTY ● Regional Watershed Initiative Project ● Stormwater Management Rate Evaluation KIRKLAND ● Sewer Cost of Service Update ● Stormwater Rate, CFC Study and Update ● Stormwater Policy and Revenue Requirement Review KITSAP COUNTY ● Surface and Stormwater Management Performance Audit KLICKITAT PUBLIC UTILITY DISTRICT ● Water and Sewer SDC Rate Study and Update ● Water Rate Support Services LACEY ● Water Rate and Charge Study ● Stormwater Comprehensive Plan LAKEWOOD WATER DISTRICT ● Financial Management Services LEWIS COUNTY ● Regional Flood District Formation ● Water and Wastewater Regional Utility Formation LEWIS COUNTY SEWER DISTRICT #1 ● Connection Charge Review ● Sewer Rate Study and Revenue Requirements Update LONGVIEW ● Water and Sewer Rate and CFC Study LYNNWOOD ● Water, Sewer and Stormwater Rate Study MAPLE VALLEY ● Park Impact Fee Study MERCER ISLAND ● Water Rate and Connection Charge Study John Ghilarducci Résumé – Page 4 MUKILTEO ● Stormwater Rate and GFC Study ● Surface Water Comprehensive Plan Financial Chapter NEWCASTLE ● Infrastructure Maintenance Plan ● Stormwater Funding Analysis NORTH BEND ● Wastewater Facility Plan and Rate Study ● Parks Impact Fee Study and Update ● Retail Water GFC Update and Wholesale Rate and GFC Development ● Stormwater Bond Parity Certificate and Utility Formation ● Water and Sewer Rate and GFC Study and Update NORTH CITY WATER DISTRICT ● Water Cost-of-Service Analysis, GFC, Capital Investment Study and Update ● Management Advisory Services ● Special GFC Analysis OCEAN SHORES ● Water System Financial Plan OLYMPIA ● Evaluation of GFC Development Incentives ● Parks Impact Fee Study and Update ● Storm and Surface Water Rate Study PIERCE CONSERVATION DISTRICT ● Rate Development Study and Update ● Billing Database Update and Maintenance PIERCE COUNTY ● Stormwater Rate Study PORT ANGELES ● Water, Wastewater and Solid Waste Rate Studies PORT ORCHARD ● Stormwater Funding Analysis PORT TOWNSEND ● Water and Sewer Rate and SDC Study POULSBO ● Water and Sewer Rate Study PUGET SOUND REGIONAL COUNCIL ● Regional Transportation Stormwater Retrofit Program PUYALLUP ● Sanitary Sewer System Master Plan Financial Chapter ● Parks Impact Fee Study REDMOND ● Business Case Analysis ● Stormwater Rate Study, Review and Update ● Water and Sewer Rate and GFC Study ● Water and Wastewater Cost-of-Service Analysis RENTON ● Water, Wastewater and Surface Water Comprehensive Rate Study and SDC Studies RICHLAND ● Transportation Plan RIDGEFIELD ● Water and Stormwater Rate and SDC Study ● Transportation Benefit District Formation SAMMAMISH ● Parks and Recreation Impact Fee Study Update ● Stormwater Rate Study SAMMAMISH PLATEAU WATER AND SEWER DISTRICT ● Financial Consulting SAN JUAN COUNTY ● Stormwater Utility Formation Planning SEATAC ● Stormwater Funding Analysis ● Stormwater Rate Study John Ghilarducci Résumé – Page 5 SEATTLE NORTHWEST SECURITIES ● Bel-Red Corridor Financial Strategy SEATTLE PUBLIC UTILITIES ● Conceptual Development ● Outreach Program ● Utility Connection Charge Study PORT OF SEATTLE ● Stormwater Utility Support SHORELINE ● Stormwater Master Plan SKAGIT COUNTY ● Drainage Utility Study ● Flood Control Zone District (FCZD) Formation ● Funding Options Analysis ● Surface Water Consulting (On-call) SKAMANIA COUNTY ● Economic Development Council Grant Applications SNOHOMISH ● Water and Sewer Connection Fee and Capital Facility Charge Update SNOHOMISH COUNTY ● Regional Detention Funding Analysis SNOQUALMIE ● Water, Sewer and Stormwater Rate and GFC Study ● Stormwater Comprehensive Plan Financial Chapter STANWOOD ● Water and Wastewater Master Plan Updates and Drain Utility Rate Study SULTAN ● Solid Waste Rate Study ● Wastewater Rate Study SUMNER ● Golf Course Sale Impacts Analysis ● Stormwater Capital Facilities Charge (CFC) Study ● Stormwater SDC Options Analysis ● Water, Sewer and Stormwater Rate Study, Evaluation and Update TACOMA ● Water Cost of Service Rates ● Economic Development Fee Analysis TUKWILA ● Parks Impact Fee Review ● Stormwater Funding Analysis TUMWATER ● Stormwater Comprehensive Plan UNION HILL WATER ASSOCIATION ● Water System Plan Financial Analysis Element ● Revenue Requirement Update and Rate Structure Evaluation UNIVERSITY PLACE ● Transportation Impact Fee Study VANCOUVER ● Traffic Impact Fee Update ● Water, Sewer, Storm Drainage and Stormwater Rate Studies and Updates WALLA WALLA ● General Sewer Plan Financial Program ● Sanitation Level of Service Study ● Transportation Impact Fee Study ● Water and Wastewater Rate and Capital Facility Charge (CFC) Studies ● Water and Wastewater Rate Study WALLA WALLA CONSERVATION DISTRICT ● Rate Development John Ghilarducci Résumé – Page 6 WASHINGTON STATE JOINT TRANSPORTATION COMMISSION ● Joint Transportation SDC Update ● Stormwater Cost Recovery for Cities WASHOUGAL ● Stormwater Rate Study ● Water and Wastewater Rate and Charge Study WENATCHEE ● ERU Analysis ● Water, Sewer and Stormwater Rate and Financial Study WHATCOM COUNTY ● Birch Bay Stormwater Funding Analysis ● Whatcom County/Birch Bay Stormwater Master Plan YARROW POINT ● Stormwater Utility Formation Workshops ● Stormwater Rate Design/Committee Facilitation YELM ● City Finance Technical Advisor Services ● Nisqually Tribe Sewer Treatment Cost-of-Service Analysis Oregon ASHLAND ● Transportation SDC Study ASTORIA ● Wastewater Treatment Plant Facilities Plan Financial Chapter AUMSVILLE ● Utility Rate Design Advisory Services BAKER CITY ● Special SDC Workshop BEAVERTON ● South Cooper Mountain Transportation System Development Charge Analysis BEND ● Water, Wastewater and Stormwater Rates ● Special Transportation Funding Support ● Water and Sewer SDC Study ● Sewer Financial Plan Model ● Extra Strength Surcharge Analysis ● Transportation SDCs BENTON COUNTY ● Parks Funding Plan CANBY ● Parks SDC Study ● Transportation SDC Study ● Special SDC Consulting CENTRAL POINT ● Public Works and Planning Fee Study ● Special Wholesale Water SDC Methodology Review ● Stormwater Rate Study Update ● Transportation SDC Survey and Utility Formation Study ● Water Rate Study and Revenue Requirement Update ● Water, Stormwater, Transportation and Parks SDC Study and Stormwater Utility Formation CHEHALEM PARKS AND RECREATION DISTRICT ● Parks SDC Study CLACKAMAS COUNTY ● Economic Landscape Phase 3 ● Economic Landscape Study ● Fuller Road Transit Oriented Development Study ● Happy Valley Joint Transportation SDC Update ● Transportation Utility Formation Study, Update and Public Outreach CLACKAMAS RIVER WATER ● Water Rate Analysis CLATSKANIE ● Goal 9 Economic Opportunities Analysis Update John Ghilarducci Résumé – Page 7 COLUMBIA COUNTY ● Transportation and Parks SDC Feasibility Study COOS BAY ● Sewer, Stormwater, Flood, Transportation and Parks SDC Evaluation COOS BAY-NORTH BEND WATER BOARD ● Water SDC Methodology and Report CORNELIUS ● Parks SDC Update ● Water, Wastewater and Stormwater Rate and SDC Study and Update CORVALLIS ● Downtown Core SDC Evaluation ● Intermediate SDC Review ● Stormwater SDC Study COTTAGE GROVE ● Water, Wastewater and Stormwater Rate Study Update ● Utility Rate and SDC Study CRESWELL ● Water Rate Study Update CRYSTAL SPRINGS WATER DISTRICT ● Water Rate Study and SDC Update DESCHUTES COUNTY ● Transportation SDC Study EAGLE POINT ● Water, Transportation and Stormwater Rate and SDC Study and Update FALLS CITY ● Transportation System Plan Funding Strategy and Transportation SDC Update FOREST GROVE ● Water Rate and SDC Study and Update GLADSTONE ● Water Rate Study and Stormwater Utility Formation GLENEDEN SANITARY DISTRICT ● Sewer SDC Study GOVERNMENT CAMP SANITARY DISTRICT ● Issues Review GRANTS PASS ● Water, Sewer and Stormwater Rate and SDC Study GRESHAM ● DES Financial Analysis ● Stormwater Bond Feasibility Study HAPPY VALLEY ● Sewer and Stormwater Feasibility Evaluation ● Economic Opportunities Analysis ● Clackamas County Joint Transportation SDC Update ● Transportation Utility Formation ● Transportation Utility Fee Implementation Study HILLSBORO ● Large Water User SDC Payment Alternatives ● Water Rate and SDC Study HUBBARD ● Transportation System Plan Funding Strategy and Transportation SDC Update JACKSON COUNTY ● Transportation and Parks SDC Study JACKSONVILLE ● Transportation and Parks SDC Studies JUNCTION CITY ● Park SDC Advice KEIZER ● Stormwater Utility Formation ● Water Rate Study and Update Assistance KLAMATH COUNTY ● Transportation, Storm Drainage and Parks SDC Study John Ghilarducci Résumé – Page 8 KLAMATH FALLS ● Transportation SDC Study LAFAYETTE ● Parks SDC Capital Facilities Plan Update LAKE OSWEGO ● Planning Work (On-call) ● Population Baseline Forecast ● Sewer Utility Financial Plan and Rate Review ● Water Cost-of-Service Analysis, SDC Study, Rate Study and Update LANE COUNTY ● Stormwater Utility Feasibility Study ● Transportation and Parks SDC Study LA PINE ● Water and Wastewater Rate and SDC Study MADRAS ● Water Rate and SDC Study ● Transportation Utility Formation ● Transportation SDC Study MAMMOTH COMMUNITY WATER DISTRICT ● Connection Fee Ongoing Support Services MCMINNVILLE WATER AND LIGHT ● Water SDC Study MEDFORD ● Leisure Services Plan and System Development Charges ● Street SDC Credit Policy Special Evaluation ● Sewer, Stormwater and Transportation Rate Design Study METRO PLANNING ● Infrastructure Analysis Work Session ● Regional Infrastructure Planning Study and Update METROPOLITAN LAND GROUP ● North Bethany Transportation Funding Strategy MILWAUKIE ● Transportation Maintenance Fee Public Process ● Wastewater Rate and Water, Wastewater and Stormwater SDC Studies and Update ● Stormwater SDC and Rate Study MONMOUTH ● Parks SDC Study ● Transportation SDC Assistance ● Western Oregon University SDC MOSIER ● Parks SDC Study ● Water Rate Study Update and SDC Study MT. ANGEL ● Sewer Rate and SDC Study ● Stormwater SDC Study NEWBERG ● Transportation SDC Study ● Street Utility Formation NEWPORT ● Citywide Cost Allocation Plan and User Fee Study NORTH CLACKAMAS PARKS AND RECREATION DISTRICT ● Parks SDC Methodology Update OREGON CITY ● Police Utility Fee Analysis ● Pavement Maintenance Utility Fee Update ● SDC Forum ● Parks Utility Fee Framework ● Transportation Utility Formation Study, Maintenance Fee Public Process and SDC Study ● Sewer Rate and SDC Study ● Water Rate Study ● SDC Code Review PHOENIX ● Water, Parks, Stormwater System and Transportation SDC Studies John Ghilarducci Résumé – Page 9 PORT OF ST. HELENS ● Strategic Plan PORTLAND ● Parks SDC Comparison Chart and Index Update ● Portland Area Regional Employment Study PREMIER WEST BANK ● Shady Cove Waterworks Valuation ● Rate Model Training PRINEVILLE ● SDC Work Session #1 RAINIER ● Wastewater Rate Study Update RALEIGH WATER DISTRICT ● Water SDC and Revenue Requirements Study REDMOND ● Stormwater Utility Formation and Implementation Support ● Transportation System Plan Financial Section ● Water and Sewer Rate Studies and Update REEDSPORT ● Downtown and Riverfront Plan ROSEBURG ● Transportation SDC Comparison and Update SALEM ● Park SDC Study SANDY ● Transportation and Parks SDC Update SILVERTON ● Transportation SDC Update SCAPPOOSE ● Wastewater Rate Study SEASIDE ● Water Rate, Wastewater and Parks SDC Studies SHADY COVE ● Wastewater, Stormwater, Transportation, Parks SDC Studies and Review SHERWOOD ● Transportation SDC and Street Fee Study ● Transportation Plan Funding SDC Study and Update ● Stormwater and Wastewater Rate and SDC Studies ● Water Rate and SDC Study and Financial Chapter SILVERTON ● Water, Wastewater and Transportation SDC Study and Update ST HELENS ● Water, Sanitary Sewer, Storm Sewer, Transportation and Parks SDC Studies and Updates TALENT ● Stormwater, Transportation and Parks SDC Study THE DALLES ● Wastewater Rate and SDC Study ● Wastewater Financial Plan TIGARD ● River Terrace Community Plan ● Parks and Transportation SDC Studies and Advice ● Infrastructure Financing Services TILLAMOOK ● Stormwater SDC Study TROUTDALE ● Water and Storm Sewer Rate and SDC Study ● Local Gas Tax Revenue Analysis TUALATIN HILLS PARKS AND RECREATION DISTRICT ● Parks System Development Charge Update ● Aging Facilities Assessment Tool ● Park SDC Consulting and Index Adjustment TUALATIN ● Water Rate and SDC Study with Water Master Plan and Financial Element John Ghilarducci Résumé – Page 10 ● Southwest Tualatin Master Plan Implementation VENETA ● Transportation SDC Study ● Wastewater Rates and SDC Study ● Water Rate and SDC Study and Update VERNONIA ● Wastewater Rate Study WARRENTON ● Water and Wastewater Rate Study ● Fort Stevens State Park Wastewater Cost Analysis ● Street, Water, Wastewater, Parks, Storm Drainage SDC Methodology Review and Public Process ● Parks and Stormwater SDC Assistance WASHINGTON COUNTY ● Transportation Impact Fee Study WEST LINN ● Water, Stormwater and Transportation SDC Updates WILLAMALANE PARKS AND RECREATION DISTRICT ● Parks SDC Annual Adjustment Index WILSONVILLE ● Street System Development Charge Update ● Goal 9 Study WOODBURN ● Transportation Impact Fee Study ● Water Rate and SDC Study WOOD VILLAGE ● Transportation Utility Formation YACHATS ● Water, Wastewater and Storm Drainage SDC Studies California LOS GATOS ● Transportation Impact Fee Update MAMMOTH COMMUNITY WATER DISTRICT ● Connection Fee Ongoing Support Services ● Study to Determine Revised Water and Wastewater Connection Fees SACRAMENTO ● Cost-of-Service Analysis and Utility Rate Study ● Stormwater Rate Model Development ● Storm Drainage Rate Structure Review SAN JOSE ● Connection Fee Study Arizona SURPRISE ● Stormwater Utility Formation Alaska KETCHIKAN ● Preliminary Stormwater Financial Services KETCHIKAN PUBLIC UTILITIES ● Water and Wastewater and Storm Drain Cost Allocation and Rate Design Study Idaho COEUR D'ALENE ● Stormwater Utility Formation ● Stormwater Rate Study MERIDIAN ● Connection Charge Evaluation NAMPA ● Water Rate Study ● Wastewater Hookup Fee Update ● Wastewater Special Industrial Rate Estimate ● Stormwater Utility Formation, Technical Support and Rate Study ● Wastewater Funding Options Study ● Wastewater Cost-of-Service Analysis and Rate Study John Ghilarducci Résumé – Page 11 POST FALLS ● Financial Plan and Capacity Fee Update Nevada SPARKS ● Financial Rate Study for Sanitary, Storm and Effluent Sewer System WASHOE COUNTY ● Stormwater Utility Formation ● Truckee River Flood Area Funding Study Canada CALGARY, AB ● Water, Wastewater and Storm Drainage Cost-of- Service Analysis SASKATOON, SK ● Data Needs Review ● Wastewater Cost-of-Service Analysis Federal Government UNITED STATES ARMY CORPS OF ENGINEERS (CA) ● Tahoe Basin Sewer Cost-of-Service Report Peer Review PUBLICATIONS/SEMINARS/SPEAKING ENGAGEMENTS ● Solutions to Stormwater Rate Challenges, American Public Works Association Spring Conference, April 2017 ● Solutions to Stormwater Rate Challenges, Washington Finance Officers Association, September 2016 ● System Development Charges, League of Oregon Cities Training Seminars, 2012-2016 ● Cap Fee Basics and Legal Update, Association of Idaho Cities, June 2016 ● Rate and Charge Setting: A Conservation District ‘How to’, Washington Association of Conservation Districts, November 2015 ● Managing Financial Risk and Declining Water Sales, Pacific Northwest Section – American Water Works Association, May 2015 ● Trip-Based Stormwater Rates, American Public Works Association Oregon Chapter, October 2014 ● Water System Development Charges, American Water Works Association Oregon Subsection Waterworks School, June 2014 ● Managing Financial Risk and Declining Water Sales, Washington Finance Officers Association Training Series, April 2014 ● Rate Study Basics, Washington Finance Officers Association Training Series, April 2014 ● Building a Solid System Development Charge Methodology, League of Oregon Cities “Local Focus,” July 2013 ● Managing Financial Risk and Declining Water Demand, Pacific Northwest Section American Water Works Association, May 2013 ● Connection Charges, Washington Association of Sewer and Water Districts, April 2013 ● Managing Financial Risk and Declining Water Demand, Washington Finance Officers Association Annual Conference, September 2012 ● Managing Financial Risk and Declining Water Demand, Washington Association of Sewer & Water Districts Spring Conference, April 2012 ● Managing Financial Risk and Declining Water Sales, Cascade Water Alliance Regional Water Supply Forum, November 2011 ● Transportation Benefit District Formation, Washington Finance Officers Association Annual Conference, 2011 ● Local Transportation Funding Options, Washington Finance Officers Association Annual Conference, 2011 ● Models for Regional and Multi-Jurisdictional Transportation Impact Fees, National Impact Fee Roundtable Annual Conference, November 6, 2009 ● Fiscal Health During Hard Economic Times; Washington Association of Sewer and Water Districts (WASWD) Workshop, SeaTac, WA, May 2009 ● Funding Infrastructure Locally: Rates v. System Development Charges v. Impact Fees v. Taxes, Lorman Education Services Seminar on Approval & Funding of Infrastructure in Washington, May 9, 2008 ● Structuring General Facilities Charges to Meet Redevelopment Objectives, Washington Finance Officers Association Annual Conference, September 2007 John Ghilarducci Résumé – Page 12 ● Funding Ongoing Stormwater Programs, Washington Finance Officers Association Annual Conference, September 14, 2006 ● Recovering the Cost of Infrastructure from Growth: Connection Charges & Impact Fees, Washington Finance Officers Association Annual Conference, September 14, 2005 ● System Development Charges, Statewide Training Series, League of Oregon Cities, 2005 ● Recovering the Cost of Infrastructure from Growth: Connection Charges & Impact Fees, Washington Finance Officers Association Annual Conference, September 14, 2005 ● “Seven Tips for Building a Successful System Development Charge”, League of Oregon Cities Local Focus, February 2005 ● “Transportation Utility Fee – Oregon Experience”, Transportation Research Record/Journal of the Transportation Research Board, No. 1895, TRB, National Research Council, Washington DC, 2004 ● System Development Charges, Pacific Northwest Clean Water Association Fall Conference, September 6, 2004 ● Utility Connection Charges, Washington Finance Officers Association Annual Conference, September 18, 2003 and 2001 ● System Development Charges, Oregon Chapter APWA Conference, Sun River, Oregon, April 5, 2001 ● Storm/Surface Water Utilities, Washington Finance Officers Association Annual Conference, September 22, 1999 ● Conservation Rate Setting, AWWA Water Works School Session, Clackamas, OR, June 1999 ● System Development Charges, AWWA Water Works School Session, Clackamas, OR, June 1999 ● Growth Paying for Itself in Stormwater Facilities: Fact or Fiction? (Washington & Oregon), Surface Water Conference, Bend, OR, April 1998 ● SDCs – Conflicts and Controversy, Oregon Government Finance Officers' Association, Northwest Government Finance Institute, Portland, OR, November 1997 ● Ratemaking: A Level-of-Service Approach, Washington Finance Officers Association Conference, Pasco, WA, September 1995 ● Funding Packages for Stormwater, Second Annual Surface Water Conference, Bend, OR, March 1994 ● Emergency Rate Surcharges in Drought Conditions, CONSERV93 Conference, Las Vegas, NV, December 1993 ● Utility Connection Charges and Growth, Pacific Northwest Pollution Control Association, 58th Annual Conference, Portland, OR, November 1991 City of Bozeman Water and Wastewater Cost of Service and Rate Design Study APPENDIX B – EXAMPLE RATE STUDY (BEND, OREGON) Final Report for COMPREHENSIVE WATER, WASTEWATER AND STORMWATER UTILITIES RATE STUDY December 2016 FCS GROUP 7525 166th Avenue NE, Suite D-215 Redmond, WA 98052 T: 425.867.1802 | F: 425.867.1937 This entire report is made of readily recyclable materials, including the bronze wire binding and the front and back cover, which are made from post-consumer recycled plastic bottles. City of Bend Glossary of Terms page 1-2 TABLE OF CONTENTS SECTION I. GLOSSARY OF TERMS ................................................................................... 1-4 SECTION II. GUIDING PRINCIPLES .................................................................................... 2-1 II.A. Introduction.............................................................................................................................. 2-1 II.B. Principles of the Industry ............................................................................................................ 2-1 II.B.1. Revenue-Related Attributes ................................................................................................. 2-1 II.B.2. Cost-Related Attributes ....................................................................................................... 2-1 II.B.3. Practical Attributes ............................................................................................................ 2-2 II.B.4. Prioritizing the Attributes ..................................................................................................... 2-2 II.C. Principles of the City .................................................................................................................. 2-3 II.C.1. Defining and Prioritizing ...................................................................................................... 2-3 II.C.2. C.2 Phasing ..................................................................................................................... 2-4 SECTION III. RATE STUDY METHODOLOGY ......................................................................... 3-1 III.B. Rate Setting Principles and Methodology ....................................................................................... 3-1 III.C. Revenue Requirement ............................................................................................................... 3-2 III.D. Cost of Service ......................................................................................................................... 3-2 III.E. Rate Design ............................................................................................................................. 3-3 SECTION IV. WATER RATES .............................................................................................. 4-1 IV.A. Introduction .......................................................................................................................... 4-1 IV.B. Revenue Requirement ............................................................................................................... 4-1 IV.B.1. Operating Forecast ............................................................................................................ 4-1 IV.B.2. Capital Funding Plan .......................................................................................................... 4-3 IV.B.3. Summary of Revenue Requirement ....................................................................................... 4-4 IV.C. Cost of Service ..................................................................................................................... 4-5 IV.C.1. Allocation of Utility Assets By Function .................................................................................. 4-5 IV.C.2. Allocation of Utility Costs By Function .................................................................................... 4-7 IV.C.3. Customer Class Distinctions ................................................................................................ 4-8 IV.C.4. Customer Class Allocations ................................................................................................. 4-9 City of Bend Glossary of Terms page 1-3 IV.C.5. Cost of Service Summary .................................................................................................. 4-10 IV.D. Rate Design ....................................................................................................................... 4-11 IV.D.1. Existing Water Rates ........................................................................................................ 4-11 IV.D.2. Proposed Water Rates ..................................................................................................... 4-12 IV.E. Water Utility Rate considerations ................................................................................................ 4-13 IV.F. Summary ............................................................................................................................... 4-14 SECTION V. WATER RECLAMATION RATES ........................................................................ 5-1 V.A. Introduction.............................................................................................................................. 5-1 V.B. Revenue Requirement ............................................................................................................... 5-1 V.B.1. Operating Forecast ............................................................................................................ 5-1 V.B.2. Capital Funding Plan .......................................................................................................... 5-3 V.B.3. B.3 Summary of Revenue Requirement.................................................................................. 5-4 V.C. Cost of Service ......................................................................................................................... 5-5 V.C.1. Allocation of Utility Assets by Function ................................................................................... 5-6 V.C.2. Allocation of Utility Costs By Function .................................................................................... 5-7 V.C.3. Customer Class Distinctions .............................................................................................. 5-10 V.C.4. Customer Class Allocations ............................................................................................... 5-10 V.C.5. Water Reclamation Cost of Service ..................................................................................... 5-12 V.C.6. Rate Design ................................................................................................................... 5-13 V.C.7. Existing Water Reclamation Rates ...................................................................................... 5-13 V.C.8. Proposed Water Reclamation Rates .................................................................................... 5-14 V.D. Water Reclamation Utility Rate considerations .............................................................................. 5-15 V.E. Summary ............................................................................................................................... 5-16 SECTION VI. STORMWATER RATES ................................................................................... 6-1 VI.A. Introduction .......................................................................................................................... 6-1 VI.B. Revenue Requirement ............................................................................................................... 6-1 VI.B.1. Operating Forecast ............................................................................................................ 6-1 VI.B.2. Capital Funding Plan .......................................................................................................... 6-3 VI.B.3. Summary of Revenue Requirement ....................................................................................... 6-3 City of Bend Glossary of Terms page 1-4 Section I. GLOSSARY OF TERMS Allocation factor. The basis used to assign costs to customer groups. The basis may include water use, sewer flow, number of customers or accounts, strength contribution, fire flow requirements, etc. Base water use. Water use correlated with year-round constant average water consumption. BOD. Biochemical oxygen demand is the parameter used to characterize the organic strength of sewage. Capital improvement plan or CIP. A multi-year plan that outlines the future capital needs of a utility. CCF. One hundred cubic feet of volume. Cost of service. An analysis that reviews the operating and capital costs incurred in providing utility service and distributes costs to customer classes based on their proportional demand and use of the system. Debt service. The amount of money needed to pay interest and principal payments over a specific borrowing term. Debt service coverage or DSC. A ratio of cash available for debt service (principal and interest). The calculation is a measurement of an entity’s financial ability to repay debt payments. Bond covenants will identify the required debt service coverage for an entity. ENR. Refers to the Engineering News Record construction cost index that measure how much it costs to purchase a hypothetical package of goods compared to what it was in the base year. This index is commonly used to escalate capital costs to the year of construction or to calculate a current replacement cost from the original cost year to the most current year. Equivalent unit. Refers to a unit of measure used to equate non-residential or multi-family residential customers to a specific number of single-family residences or a base customer unit. Fire cost. The costs associated with the ability of the system to provide adequate capacity and water flow corresponding to minimum fire safety standards required to serve its customer demographic Functions of service. Refers to the distinct operational components of a utility to which cost can be assigned. For a water utility, functional components generally include; base, peak, customer, meters & service and fire. For a wastewater utility, functional components generally include; customer, volume, strength (biochemical oxygen demand and suspended solids). Meters and service cost. These costs are associated with installation, maintenance, and repairs of meters and services. MGD. Million gallons per day City of Bend Glossary of Terms page 1-5 Peak water use. Water use correlated with peak month water consumption, which usually occurs during the summer months. Rate design/structure. Refers to the fixed and variable rates that are assessed to customers. Rate revenue. The revenue received from ongoing user rates/charges. Revenue requirement. An analysis that identifies the total revenue needed to fully fund each system on a self-supporting basis. Revenue needs include; operating and maintenance expenditures, capital funding needs, debt requirements and fiscal policy objectives. Sewer flow. The amount of sewer volumes processed at the treatment plant. System development charge or SDC. A one-time charged assessed to new development as a condition of service. The charge is intended to represent a proportionate share of the cost of system infrastructure investment System reinvestment. An amount funded to ensure system integrity through reinvestment in capital infrastructure. Many entities use annual depreciation as a surrogate for a minimum amount to target for system reinvestment. The ideal annual system reinvestment amount would be tied to an asset replacement plan. Total suspended solids (TSS). Is the parameter that measures the amount of particles suspended in water that will not pass through a filter and requires treatment. Customer class. Generally a grouping of customers with homogenous demand/use characteristics and/or facility requirements. Utility plant in service (assets). Plant in service is generally organized based on the accounting system in use by the utility. If not grouped, the cost of service process will generally organize assets into the major components related to delivering service. For a water utility, functional components may include; supply, treatment, storage, pumping, transmission, distribution, meters & service, hydrants and general plant. For a wastewater utility, functional components may include; treatment, collection lines, pumping and general. City of Bend Glossary of Terms page 2-1 Section II. GUIDING PRINCIPLES II.A. INTRODUCTION Our approach to rate studies rests on a foundation of principles. Many of these principles originate from the scholarly research and managerial experience of the utility industry. We apply these principles to all rate studies that we perform. Other principles are specific to the needs and policy objectives of our client. This section describes the principles upon which our rate studies for the City are based. II.B. PRINCIPLES OF THE INDUSTRY The authoritative source for ratemaking principles in the utility industry is Principles of Public Utility Rates by Bonbright, Danielsen, and Kamerschen (“Bonbright”). Excerpts presented here are from the second edition, which Public Utilities Reports, Inc., published in 1988. Bonbright articulates ten attributes of a sound rate structure. These attributes fall into the three categories of revenue-related, cost-related, and practical. II.B.1. Revenue-Related Attributes The first attribute of a sound rate structure is “effectiveness in yielding total revenue requirements under the fair-return standard without any socially undesirable expansion of the rate base or socially undesirable level of product quality and safety” (page 383). In other words, a sound rate structure should provide for the total revenue needs of the utility (net of non-rate revenues) without creating any perverse incentives. The second attribute of a sound rate structure is “revenue stability and predictability, with a minimum of unexpected changes seriously adverse to utility companies” (page 383). In other words, a sound rate structure should minimize financial risk to the utility by minimizing the volatility of revenues earned from year to year. The third attribute of a sound rate structure is “stability and predictability of the rates themselves, with a minimum of unexpected changes seriously adverse to rate-payers and with a sense of historical continuity” (page 383). In other words, a sound rate structure should minimize financial risk to the rate-payers by considering a multi-year forecast of revenue needs and providing a smooth program of rate adjustments. II.B.2. Cost-Related Attributes The fourth attribute of a sound rate structure is “static efficiency of the rate classes and rate blocks in discouraging wasteful use of service while promoting all justified types and amounts of use (1) in the City of Bend Glossary of Terms page 2-2 control of the total amounts of service supplied by the company [and] (b) in the control of the relative uses of alternative types of service by ratepayers (on-peak versus off-peak service or higher quality versus lower quality service)” (page 383). In other words, a sound rate structure should provide rate- payers with a financial incentive to use less of a service or use a lower-quality service. The fifth attribute of a sound rate structure is “reflection of all of the present and future private and social costs and benefits occasioned by a service’s provision (i.e., all internalities and externalities)” (page 383). In other words, a sound rate structure should eliminate all externalities by ensuring that all costs are reflected in the revenue requirement and that all benefits are appropriately priced. The sixth attribute of a sound rate structure is “fairness of the specific rates in the apportionment of total costs of service among the different ratepayers so as to avoid arbitrariness and capriciousnes s and to attain equity in three dimensions: (1) horizontal (i.e., equals treated equally); (2) vertical (i.e., unequals treated unequally); and (3) anonymous (i.e., no ratepayer’s demands can be diverted away uneconomically from an incumbent by a potential entrant” (pages 383-384). In other words, a sound rate structure should treat customers within a class equally, and it should treat different classes in relation to their burden on the utility. This attribute can be achieved by conducting and implementing a cost-of-service analysis. The seventh attribute of a sound rate structure is “avoidance of undue discrimination in rate relationships so as to be, if possible, compensatory (i.e., subsidy free with no intercustomer burdens)” (page 384). In other words, a sound rate structure should require each customer to bear its own burden on the utility. This attribute can be achieved by conducting and implementing a cost-of- service analysis. The eighth attribute of a sound rate structure is “dynamic efficiency in promoting innovation and responding economically to changing demand and supply patterns” (page 384). In other words, a sound rate structure should incent the utility to be responsive to changes in markets, technologies, and other business conditions. II.B.3. Practical Attributes The ninth attribute of a sound rate structure is “the related, practical attributes of simplicity, certainty, convenience of payment, economy in collection, understandability, public acceptability, and feasibility of application” (page 384). In other words, a sound rate structure should be free of friction in its implementation. The tenth attribute of a sound rate structure is “freedom from controversies as to proper interpretation” (page 384). This attribute functions as a gloss on the practical attribute of understandability described above. II.B.4. Prioritizing the Attributes Each attribute described above is a continuum. Every rate structure possesses each attribute to a greater or lesser degree. No rate structure maximizes all the attributes. Some complex rate structures provide a high degree of equity among customers but are difficult to implement. Such rate structures are the result of prioritizing one attribute (like the sixth) over another attribute (like the ninth). Tradeoffs like this are unavoidable. City of Bend Glossary of Terms page 2-3 Determining the relative priority of each attribute is the role of the utility’s governing body. The next part of this section documents the City’s unique set of priorities and tradeoffs. II.C. PRINCIPLES OF THE CITY The City’s staff, council, and stakeholders have been working steadily to define and refine the principles upon which the City’s utility rates are based. II.C.1. Defining and Prioritizing During a utility rate policy work session on May 7, 2014, the City identified seven rate policy objectives:  Fair and Equitable. The work session defined equitable rates as rates that “are based on an impartial allocation of total costs of providing services within and between the customer classes for the water, wastewater, and stormwater utilities, avoiding undue discrimination or subsidization between customers.” This objective is the City’s version of Bonbright’s sixth attribute, and it includes a commitment to volumetric pricing for water and wastewater.  Affordable. The work session defined affordable rates as rates that “have median affordability percentages at or below USEPA’s affordability guidelines.” This objective is not found in Bonbright’s attributes, because it is more of a social objective than an economic objective. The City has some awareness that this objective may compete directly with the Fair and Equitable objective.  Efficient Use. The work session listed among its objectives that rates should be “set to discourage wasteful practices and promote investment in efficient fixtures, technology, processes and behaviors.” This objective is the City’s version of Bonbright’s fourth attribute. The City has some awareness that this objective may compete directly with the Administratively Feasible objective.  Rate Stability & Predictability. The work session defined stable and predictable rates as rates that “are increased in a measured way . . . to minimize unexpected changes in customer bills.” This objective is the City’s version of Bonbright’s third attribute.  Revenue Stability. The work session listed among its objectives that rate revenues collected from “water, sewer, and stormwater customers covers all costs to administrate, comply with regulation, operate and maintain, as well as repair and replace utility assets both now and in the future within the 20 year planning horizon.” This objective is the City’s version of Bonbright’s first and second attributes.  Justifiable & Publicly Acceptable. The work session defined justifiable and publicly acceptable rates as rates that “are justified by costs and prioritized policy objectives in a transparent and understandable way. The public is informed of the proposed rate adjustments in advance.” This objective reflects most of Bonbright’s ninth attribute and all of Bonbright’s tenth attribute.  Administratively Feasible. The work session defined administratively feasible rates as rates that are “easy to understand and explain to customers. Rates should be cost-effective to administer.” This objective reflects one aspect of Bonbright’s ninth attribute. City of Bend Glossary of Terms page 2-4 The City will continue to refine the rate policy objectives and evaluate their relative priority. II.C.2. C.2 Phasing The City recognizes the need to adopt utility rate structures that are based on rigorous cost-of-service analyses. At the same time, the City also recognizes that an abrupt change in rate structure is not consistent with the objective of Rate Stability & Predictability. To balance these objectives, staff has expressed interest in a “trajectory for reaching cost of service.” We agree that a phased implementation of cost-of-service rates is appropriate for balancing competing objectives. City of Bend Glossary of Terms page 3-1 Section III. RATE STUDY METHODOLOGY III.A. RATE SETTING PRINCIPLES AND METHODOLOGY The methods used to establish user rates are based on principles that are generally accepted and widely followed throughout the industry. These principles are designed to produce rates that equitably recover costs from each class of customer by setting the appropriate level of revenue to be collected from ratepayers, and establishing a rate structure to equitably collect those revenues. The primary tasks of the rate study are listed below:  Revenue Requirement Analysis. This analysis identifies the total revenue requirement to fully fund each system on a self-supporting basis, considering operating and maintenance expenditures, capital funding needs, debt requirements and fiscal policy objectives.  Cost-of-Service Analysis. This analysis equitably distributes costs to customer classes based on their proportional demand and use of the system. Due to the simplicity of the stormwater rate structure, a cost of service analysis is not reviewed for this service.  Rate Design Analysis. This analysis includes the development of rates that generate sufficient revenue to meet each system’s revenue requirement forecast, and addresses the City’s pricing goals and objectives. Figure 1 illustrates the rate study process. Overview of the Rate Study Process Figure 1. City of Bend Glossary of Terms page 3-2 III.B. REVENUE REQUIREMENT A revenue requirement analysis forms the basis for a long-range financial plan and multi-year rate management strategy for each system. It also enables the City to set utility rate structures which fully recover the total cost of operating each system: capital improvement and replacement, operations, maintenance, general administration, fiscal policy attainment, cash reserve management, and debt repayment. Linking rate levels to a financial plan such as this helps to enable not only sound financial performance for the City’s utility enterprise funds, but also a clear and reasonable relationship between the costs imposed on utility customers and the costs incurred to provide service. A revenue requirement analysis includes the following core elements to form a complete portrayal of each utility’s financial obligations.  Fiscal Policy Analysis. Identifies formal and informal fiscal policies of the City to ensure that current policies are maintained, including reserve levels, capital/system replacement funding and debt service coverage.  Operating Forecast. Identifies future annual non-capital costs associated with the operation, maintenance, and administration of the system.  Capital Funding Plan. Defines a strategy for funding the City’s capital improvement/equipment replacement program, including an analysis of available resources from rate revenues, debt financing, and any special resources that may be readily available (e.g. grants, outside contributions, etc.). Identifies if additional funding sources are needed.  Revenue Sufficiency Testing. Evaluates the sufficiency of revenues in meeting all financial obligations, including any coverage requirements associated with long-term debt.  Rate Strategy Development. Designs a forward-looking strategy for adjusting rates to fully fund all financial obligations on an annual basis over the projection period. III.C. COST OF SERVICE The purpose of a cost-of-service analysis is to provide a rational basis for distributing the costs of providing each utility service to each class of customers in proportion to the demands they place on the system. Detailed cost allocations, along with appropriate customer class designations, help to sharpen the degree of equity that can be achieved in the resulting rate structure design. The key analytical steps of the cost-of-service analysis are as follows:  Functional Cost Allocation. Apportions the annual revenue requirement to the major functions of the system:  Water: base capacity (average use), peak capacity (highest use), meters & services (reading and servicing meters), fire protection (fire specific costs) and customer (utility billing and general administrative costs that do not depend on meter size or water usage).  Sewer: flow (collection), Biochemical Oxygen Demand (BOD), Total Suspended Solids (TSS) and customer (general administrative costs). City of Bend Glossary of Terms page 3-3  Stormwater: due to simplicity of the rate stormwater rate structure, a cost of service analysis is not reviewed for this service. Future standards are likely to develop for stormwater as the industry matures – likely cost of service considerations are quality and quantity.  Customer Class Designation. Identifies the customer classes that will be evaluated as part of the study. Existing as well as new or revised customer classes or class definitions may be considered. It is appropriate to group customers that exhibit similar usage characteristics and service requirements.  Cost Allocation. Allocates the costs from the functional cost allocation to different customer classes based on their unique demands for each service as defined by system planning documents, industry standards, and recorded user history (billing data). The results identify shifts in cost recovery by customer class from that experienced under the existing rate structure.  Unit Costs. Total costs are distributed to each class of service through the cost allocation process. Responsibility for each component is then determined based on the number of units used to allocate costs. For instance, all customer costs are distributed based on the number of accounts on the system. The unit cost would then be calculated by taking the total costs divided by the number of accounts. This same exercise takes place for each functional cost pool and is distributed based on the applicable units (e.g. accounts, meter equivalents, total water use, peak use, fire flow requirements, total sewer flow, unit per BOD and unit per SS, etc.). Unit costs are used as the building blocks for the design of rate design structures. III.D. RATE DESIGN The principal consideration of rate design is for the rate structure to generate sufficient revenues for the system which are reasonably commensurate with the cost of providing service. The pricing structure is largely dictated by the objectives of the system. Most rate structures consist of a combination of fixed and variable charges. Fixed charges typically attempt to cover system costs that do not vary with usage, but in practice only recover a portion of those costs (as the majority of utility costs are fixed in nature). Variable charges typically serve two functions, equitably recovering variable costs such as chemicals and electricity and encouraging customers to use the system efficiently (e.g. conservation). City of Bend Glossary of Terms page 4-1 Section IV. WATER RATES IV.A. INTRODUCTION The City of Bend operates a water utility that uses both surface water and ground water to provide service to residential and non-residential customers. The water system has 23 wells, 16 reservoirs with aggregate capacity of 30.35 million gallons, 475 miles of mains, and 24,228 service connections (2014-15 Comprehensive Annual Financial Report, page 234). IV.B. REVENUE REQUIREMENT A revenue requirement was completed for the water utility and forms the basis for the long-range financial plan and multi-year financial management strategy. IV.B.1. Operating Forecast The purpose of the operating forecast is to determine whether the existing rates and charges are sufficient to recover the costs the City incurs to operate and maintain the water system. The 2015-17 biennial budget formed the basis for forecasting expenditures through fiscal year (FY) 2036-37; the following list highlights some of the key assumptions used in the development of the water utility operating forecast for the baseline rate-setting year of FY 2015-16. IV.B.1.a Reserves  Operating Reserves. City Policy requires a minimum of 3 months of operating and maintenance (O&M) expenditures ($3.30 million in FY 2015-16 increasing annually with increased O&M costs to $5.97 million in FY 2036-37).  Debt Reserves. City Policy enforces the amount as required by covenant within each debt issuance, future additional debt reserves are projected at one-year of debt service ($3.90 million in FY 2015-16 increasing annually with new debt obligations to a peak of $4.54 million in FY 2022-23). IV.B.1.b Operating Revenue  Rate Revenue. Based on the provided detailed monthly customer usage statistics from calendar year 2014, the City’s customer statistics are forecasted according to any customer gro wth assumptions. Assumed rate increases and the resulting rate schedules are applied on a monthly basis to the customer statistics forecast in order to calculate rate revenues for the study period.  Non-Rate Revenue. Non-rate revenue consists mostly of meter installations (39 percent), service charges (29 percent), set-up fees (12 percent), and building rental (12 percent). Juniper City of Bend Glossary of Terms page 4-2 account charges 5.1.02 are included in non-rate revenue as they are not subject to the system wide rate increases.  Customer Growth. Based on historical data provided by the City, we estimate that accounts in all classes will grow at an average rate of 1.39 percent per year. We further project that per-capita water demand will remain unchanged during the study period.  Interest Earnings. City staff projects that the interest rate for funds held on deposit will rise from 0.70 percent in FY 2015-16 to 3.00 percent by FY 2024-25. The short term interest rate projection is based on the current yield of the Oregon Short Term Fund. The long term interest rate reflects a return to a level of interest rates that closely resemble the current yield on 20 year bonds, and the rate is set to trend along with estimates made in the General Cost Inflator (below).  Franchise Fee. The City charges a franchise fee of 3.00 percent. This fee is charged directly to customers inside the city, listed separately on the bills of those customers, and ultimately passed on to the City’s transportation infrastructure program; it is therefore not considered in our rate calculations.  SDC Revenue. System development charge (SDC) revenue is available to offset other sources of financing for capital projects. Annual revenue ranges from $2.14 million to $2.86 million and depends on growth. We assume that the existing rate of $4,624 per meter equivalent (ME) remains unchanged during the forecast period. The 1.39 percent growth rate represents 464–619 additional MEs per year. An inflationary adjustment to the existing rate may be made annually by the City, but no rate changes of this kind have been reflected in the SDC revenue forecast. Furthermore, the City reviews its SDC methodology approximately every 5 years, which may result in increases to the existing rate, but these too have been excluded from the SDC revenue forecast. IV.B.1.c O&M Expenditures  General Cost Inflation. 2.00 percent per year (based on the Federal Reserve’s longer-run objective in inflation).  Construction Cost Inflation. Falling from 4.00 percent to 2.00 percent by FY 2019-20 (based on the current inflation per the 20-city national index (Engineering News Record) and trending towards General Cost Inflation (above)).  Labor Cost Inflation. 2.50 percent per year (based on the Bureau of Labor Statistics Employment Cost Index for compensation of State and Local Government employees).  Benefit Cost Inflation. Alternating between 2.50 percent for years without a change in PERS rates and 3.00 - 6.00 percent for those years in which a change in PERS rates is expected (based on the Bureau of Labor Statistics Employment Cost Index for benefits of State and Local Government employees). IV.B.1.d Debt Service  Existing Debt. The water utility’s existing debt service consists of a loan from the Safe Drinking Water Revolving Loan Fund and one series of full-faith-and-credit obligations issued in 2010. City of Bend Glossary of Terms page 4-3 Annual debt service on existing debt ranges from $399,517 in FY 2015-16 to zero by FY 2032- 33.  New Debt. We anticipate that the water utility will borrow $8.70 million (in proceeds, not principal) from FY 2017-18 through FY 2036-37 to finance its capital improvement plan. Annual debt service on new debt will reach a peak of $4.54 million in FY 2022-23 and remain at that level through FY 2035-36. This annual debt service reflects not only the $8.70 million used to fund projects but also the $52.98 million revenue bond issuance that is planned for FY 2016-17. We assume that all new debt will be revenue bonds with an interest rate of 4.00 percent, a term of 20 years, and issuance costs of 1.50 percent. IV.B.1.e System Reinvestment  System reinvestment funding policies aim to ensure system integrity through reinvestment in capital infrastructure. There are a variety of funding benchmarks. Utilities most commonly use annual depreciation expense to establish an annual funding provision, which for the City’s water utility is currently about $2.91 million per year (2014-15 Comprehensive Annual Financial Report, page 55).  Another common benchmark nets annual debt principal payments against depreciation expense to avoid double charging customers concurrently for assets and their replacement (as well as manage the rate impacts of funding system reinvestment). Based on the water utility’s projected depreciation expense and debt payments, this benchmark would be roughly $1.24 to $5.02 million per year during the study period.  The water utility is not currently funding a budget account line item for system reinvestment, and we have not specified any system reinvestment in the rate model. Rather, the City directs the remaining revenue after O&M and debt service has been satisfied to first fund the residual fund balance target and then capital needs. As a result, rate revenues do contribute to the funding of capital projects, but the level of funding is not consistent from year to year. IV.B.2. Capital Funding Plan The water utility is anticipating $117.77 million in capital improvement plan costs from FY 2015-16 through FY 2036-37, with costs already adjusted for inflation. Some of the more significant capital projects include the water pipe and treatment project ($14.33 million) and line replacement ($12.81 million). The proposed capital funding strategy envisions using a mix of cash balances (including interest), system development charges, and new debt issuance to pay for the planned projects. The City’s Fiscal Policies provide guidance on whether the City should use the “pay-as-you-go” approach in capital funding, or to use debt financing. Table 1 provides a summary of the planned capital funding strategy. Table 1. Water Capital Funding Summary City of Bend Glossary of Terms page 4-4 IV.B.3. Summary of Revenue Requirement The operating forecast components of O&M expenditures, debt service and rate funded system reinvestment come together to form the multi-year revenue requirement. The revenue requirement compares the overall revenue available to the water system to the expenditures and evaluates the sufficiency of rates. Figure 1 provides a summary of the water system revenue requirement findings. In addition to the operating forecast, rates must also support the reserves and fiscal policy targets of the utility. Water Utility Revenue Requirement Summary Figure 2. Key findings of the water system revenue requirement analysis include:  Current rate revenue will not be sufficient to meet the water utility’s financial obligations by FY 2020-21. This deficiency will be caused by the need to service new debt that will finance the capital improvement plan.  The projected total debt issued through FY 2036-37 is expected to increase the water utility’s annual debt service burden from $0.40 million in FY 2015-16 to a peak of $4.92 million in FY 2022-23. Debt service begins to reduce as debt obligations are eliminated and totals $0.64 million in FY 2036-37.  The deficit is attributable to a capital improvement plan that requires $117.77 million in capital infrastructure expenditure over the study period. FY 2015-16 FY 2016-17 Next 20 Years Total Project Costs by Funding Source: Debt proceeds 17,000,000$ 1,301,982$ 7,932,305$ 26,234,287$ System development charges 2,158,435 2,190,611 51,738,698 56,087,744 Rates and fund balance 1,757,145 - 33,686,004 35,443,148 Total Project Costs by Funding Source 20,915,580$ 3,492,592$ 93,357,007$ 117,765,179$ $- $5 $10 $15 $20 $25 $30 201620172018201920202021202220232024202520262027202820292030203120322033203420352036MillionsCash Operating Expenses Existing Debt Service New Debt Service Total Existing Revenues City of Bend Glossary of Terms page 4-5  To meet the total projected financial obligations of the water utility, we propose the City adopts at least the following program of rate increases:  3.00 percent on July 1, 2015  3.00 percent on July 1, 2016  3.00 percent on July 1, 2017  2.50 percent on July 1, 2018  2.50 percent on July 1, 2019  2.50 percent on July 1, 2020  1.00 percent on July 1 of every year thereafter With the proposed rate adjustments, the water utility is expected to meet its minimum balance and bond coverage requirements in every year of the study period (FY 2016-17 through FY 2036-37).The City acknowledges that fluctuations may occur in the previously outlined program of rate increases. Pursuant to its Fiscal Policies, the City will annually review the water utility revenue requirement. IV.C. COST OF SERVICE The cost of service analysis defines cost differences in providing service across customer classes to determine how to divide up the total revenue requirement of the utility equitably. This is accomplished through a review of the usage, demands and facility requirements to service each class. The cost-of-service allocation process for the water utility involves three steps:  Functional allocation. Assets used in service and annual revenue requirements (costs) were first allocated to functional categories of water service (base demand, peak demand, customer, meters & services and fire protection) based on system requirements and characteristics 1. Customer Designation. Identifies the customer class (groups) that will be evaluated as part of the study. Existing as well as new or revised customers may be considered. It is appropriate to group customers that exhibit similar usage characteristics and service requirements. 2. Cost Allocation. Allocates the costs from the functional cost allocation to customers based on their unique demands for each service as defined by system planning documents, industry standards, and recorded user history (billing data). The results identify shifts in cost recovery from that experienced under the existing rate structure. The industry standard cost of service methodology used conforms to industry standards as identified by the American Water Works Association (AWWA) Principles of Water Rates, Fees and Charges, M1 Manual. IV.C.1. Allocation of Utility Assets By Function The City’s water assets in service were reviewed to identify what infrastructure assets are in use and relate to providing water service. This allocation assigns value and costs to functional categories City of Bend Glossary of Terms page 4-6 based on documented system requirements, including engineering criteria, (e.g. average demand, peak demand, etc.) and industry standard practice based on the relationship of each class of asset and their use of the system. Assets are allocated to the functions of service according to known or assumed cost “causation”. The functions of service to which the assets were allocated are discussed below and summarized in Exhibit 2.  Customer. These are the costs associated with establishing, maintaining, and serving water customers and tend to include administrative, billing, and customer service costs. These costs are generally uniform by customer regardless of their meter size or demand placed on the water system.  Meters & Services Costs. These costs are associated with installation, maintenance, and repairs of meters and services. These costs are typically allocated based on number of connections and meter size.  Base Costs. These costs relate to average service provided on demand and are essentially correlated with year-round water consumption.  Peak Costs. These costs relate to peak demand service typically associated with the ability of the system to provide capacity to customers with higher than average volume, which usually occurs during the summer months.  Fire Protection. These are the costs associated with the ability of the system to provide adequate capacity and water flow corresponding to minimum fire safety standards required to serve its customer demographic. These are mostly incremental costs related to providing storage, transmission capacity, and hydrants for fire protection. Table 2. Water Utility Functional Asset Allocation The water utility functional asset allocation indicates that the majority of asset infrastructure is in place to meet peak requirements (46.7 percent) and base needs (38.6 percent). The allocation basis used for the major functions of service are as follows:  Supply and treatment assets allocated based on the peak demand ratio of maximum month to peak month (2.25 from the Water Master Plan). Assets were functionalized 44.4 percent to base and 56 percent to peak.  Pumping assets allocated based on a pumping analysis that evaluated each pump on the system and identified the purpose of the pump as meeting average, peak, fire requirements or a combination. The analysis was completed based on discussions with engineering staff and FUNCTIONS OF WATER SERVICE CUSTOMER METERS & SERVICES BASE PEAK FIRE FUNCTION AS ALL OTHERS Supply/Treatment 16,624,048$ 0.00%0.00%44.44%55.56%0.00%0.00%100.00%Peak Demand Ratio Pumping 1,571,062 0.00%0.00%29.48%26.59%43.93%0.00%100.00%Pumping Storage 9,401,945 0.00%0.00%40.10%35.41%24.49%0.00%100.00%Storage Distribution 53,478,691 0.00%0.00%39.28%49.10%11.62%0.00%100.00%Distribution - Incremental Transmission 13,729,230 0.00%0.00%44.44%55.56%0.00%0.00%100.00%Peak Demand RatioMeters & Services 5,460,165 0.00%100.00%0.00%0.00%0.00%0.00%100.00%Meters & Services Hydrants 145,678 0.00%0.00%0.00%0.00%100.00%0.00%100.00%Hydrants General Plant 15,310,273 0.00%0.00%0.00%0.00%0.00%100.00%100.00%General Plant Total Utility Plant 115,721,092$ -$ 5,460,165$ 38,729,670$ 46,867,079$ 9,353,904$ 15,310,273$ 115,721,092$ Water Service Functions 0.00%5.44%38.57%46.68%9.32%100.00% Allocation of "As All Others"-$ 832,546$ 5,905,358$ 7,146,120$ 1,426,249$ (15,310,273)$ -$ TOTAL 115,721,092$ -$ 6,292,711$ 44,635,028$ 54,013,199$ 10,780,153$ -$ 115,721,092$ Allocation Percentages 0.00%5.44%38.57%46.68%9.32%0.00%100.00% ALLOCATION BASISPlant in Service Total Costs TOTAL City of Bend Glossary of Terms page 4-7 comprehensive planning documents. Assets were functionalized 29.5 percent base, 26.6 percent to peak and 43.9 percent to fire.  Storage assets allocated based on a storage analysis that categorized storage into operating, equalizing, standby, fire suppression and dead storage. Similar to the pumping analysis the storage analysis was based on discussion with engineering staff to determine the use of storage facilities to meet average, peak, fire requirements or a combination. The analysis was completed based on discussions with engineering staff. Assets were functionalized to 40.1 percent base, 35.4 percent peak and 24.5 percent fire.  Distribution assets based on a pipe analysis of the distribution network. The approach used allocates costs to fire protection by designating those pipes in the distribution network that have been upsized for additional capacity related to fire. Pipes 4” and below are considered to provide domestic water distribution while all pipes larger than 12” are considered strictly for transmission needs and have no fire related costs. Pipe sizes ranging from 6” to 12” are considered to include capacity to meet fire needs. Under this approach, the fire increment is considered to be the next largest pipe size. For example, for a 6” pipe the allocation considers 4” for domestic purposes and the remainder is allocated to fire. Similarly for an 8” the allocation for domestic is 6” and the remainder allocated to fire. The portion related to this one size increment is calculated by multiplying the length of pipe by the differential in cost between the actual replacement cost and the replacement cost of the next smallest pipe. Under this approach 39.3 percent of pipes are allocated to base, 49.1 percent is related to peak and 11.6 percent is related to fire.  Transmission assets are allocated based on the peak demand ratio. This approach does not recognize transmission assets related to fire and instead considers transmission assets main function to deliver water under average and peak day conditions.  Meters & Service assets are allocated 100 percent to the meters and service function.  Fire assets are allocated 100% to fire  General assets are allocated as all other plant assets. The result of the functional asset allocation is 5.4 percent allocated meters & services, 38.6 percent base, 46.7 percent peak and 9.3 percent fire. The resulting asset allocation is referred to as the “plant in service” allocation and is used to allocate annual costs if the cost supports the total utility system. IV.C.2. Allocation of Utility Costs By Function The annual test period costs (budget) were also allocated by function. The allocation was completed by the engineers and utility budget specialists in charge of managing the utility for the City. The process required assigning all expense program line items to water functions. City staff assigned percentages program costs attributed to different functions based on their field experience with the City’s unique system. The following summarizes the key cost allocation assumptions:  7100 Admin and Support Services, 7110 Data Services, 7120 ICE and 7210 Water Operations allocated as plant in service.  7220 Wells and 7260 Water Resources allocated as supply/treatment assets. City of Bend Glossary of Terms page 4-8  7270 Customer service allocated 100 percent to the customer function.  7280 & 7290 Treatment Plant Operations and Maintenance as supply/treatment assets.  7630 Water Line Maintenance as Distribution assets.  7640 Water Meter and Backflow as 61 percent customer and 39 percent Meters & Services. Meters and parts, Testing and Vehicles and Equipment line items as 100 percent customer.  7650 Pumping as pumping assets  Transfers out and Internal Expenditures as plant in service. Finance transfer allocated 61 percent to customer and 39 percent as all other.  Debt service (existing and new) as plant in service.  Rate funded system reinvestment as plant in service  Miscellaneous revenue used as an offset to the total revenue requirement (operating expenses, debt service and rate funded system reinvestment) as plant in service. Meter installation as 61 percent to customer and 39 percent as all other. The line by line utility cost allocation results in costs being allocated to the functional cost pools identified in Figure 2. Water Utility Functional Cost Allocation Summary Figure 3. The utility cost allocation by function follows the asset allocation with the majority of costs related to peak costs at 37 percent and base costs at 31 percent. IV.C.3. Customer Class Distinctions The City currently has one rate schedule, based on meter sizse, that serves all customers on the system. In order to evaluate if there were cost differences that serve different customer classes, the cost of service separated the City’s water customers into the following customer classes: City of Bend Glossary of Terms page 4-9  Single family  Multi-family  Commercial  Irrigation  Large User (monthly average use >300,000 cubic feet) IV.C.4. Customer Class Allocations The next step in the cost-of-service analysis involves distribution of the allocated system costs to the customer classes served by the system. The costs assigned to each function were allocated among customer classes based on the following basis:  Customer. Allocated by number of customer accounts (meters)  Meters & Services Costs. Allocated based on proportional shares of meter service equivalents. The American Water Works Association has developed a meter service equivalency factor that reflects relative cost distinctions for serving different size meters.  Base Costs. Allocated based on average annual total use of the class compared to the total system annual water use.  Peak Costs. Allocated based on the class average monthly use compared to the class use during the system peak month.  Fire Protection. Allocated based on the amount of water flow required per minute. The Water Master Plan identified the required gallons per minute (gpm) range of 1,500 gpm for a duration of 120 minutes for single family to 2,500 gpm for 180 minutes for the large volume class. Table 3. summarizes the allocation factors used for the customer classes evaluated in the cost of service analysis. Table 3. Water Utility Customer Allocation Factors CUSTOMER CLASS CUSTOMER METERS & SERVICES EQUIV. BASE TOTAL USE CCF PEAK MO. TO AVG. MO. FIRE FLOW REQ. GPM Single Family 18,701 20,577 3,105,349 2.07 1,500 Multi Family 1,562 2,105 512,519 1.63 2,000 Commercial 2,182 3,578 1,347,285 1.83 2,500 Irrigation 338 602 360,204 2.55 - Large Volume 4 44 103,204 1.39 2,500 Total 22,787 26,906 5,428,561 City of Bend Glossary of Terms page 4-10 The cost of service by class was calculated by multiplying the functional cost pools by the allocation factor distribution percentages. Ultimately, this element of the analysis defines the total annual revenue that should be generated from each customer class, in order to achieve cost based recovery from rates. IV.C.5. Cost of Service Summary The cost of service summary identifies the target revenue level to collect from each customer class based on the cost of service analysis performed. In addition, it compares the existing revenue distribution to the total cost to serve each customer class identifying the shift in cost burden re quired to implement the cost of service findings. Table 4 provides a comparison of current rate revenue distribution between customer classes and the distribution of revenues indicated from the cost-of-service analysis. Table 4. Water Cost of Service The cost of service results indicate that some classes could increase more than the overall total system increase and others could decrease. The City currently charges one rate structure for all water classes meaning that there is no rate differentiation for those customers that have either a higher peaking factor and/or fire flow requirements. Both the single family class and irrigation class cost of service show an increase required to meet the class cost of service. Both of these classes have higher peaking requirements meaning they require oversizing of facilities to meet peak day requirements. Single Family 82.07%76.48%57.20%59.60%71.25% Multi Family 6.85%7.82%9.44%7.75%7.93% Commercial 9.58%13.30%24.82%22.83%20.78% Irrigation 1.48%2.24%6.64%8.50%0.00% Large Volume 0.02%0.16%1.90%1.32%0.04% Total 100.00%100.00%100.00%100.00%100.00% PEAK MO. TO AVG. MO. FIRE FLOW REQ. GPMCUSTOMER CLASS CUSTOMER BASE TOTAL USE CCF METERS & SERVICES EQUIV. Single Family 9,953,281$ 10,964,613$ 1,011,332$ 10.2% Multi Family 1,500,204 1,368,449 (131,755) -8.8% Commercial 3,576,596 3,418,195 (158,401) -4.4% Irrigation 852,138 948,964 96,826 11.4% Large Volume 199,147 185,213 (13,934) -7.0% Total 16,081,366$ 16,885,434$ 804,068$ 5.0% Customer Class EXISTING REVENUE FY 2015 COST OF SERVICE $ Difference % Difference City of Bend Glossary of Terms page 4-11 The results of the cost of service reveal that when classes are reviewed independently, those classes who have a higher peaking requirement show the need for an increase and they are currently paying rates that have no rate differential for this cost category. It should be noted that if a class of service is within +/- 5 percent of the overall system average, they are generally considered to be paying their cost to serve. This range of reasonableness is given since although there is an industry accepted methodology, the City specific classification and allocation of assets and expenses reflect cost and usage characteristics at a given point in time. As time goes on, customer’s consumption patterns, usage requirements and asset investments change. Only over time and through repeated analysis, can one fully understand the true cost of service for class. As previously stated, the City currently does not have separate water rates by customer class. The cost of service results were reviewed with City Council and a citizen committee and the City Council decided to maintain the current practice of one rate for all customer classes to allow other changes to take effect, which are described in Section D below. Separation of customers by class is something that the City will address in a future study. This cost of service analysis provides the City with a baseline to compare against to determine whether or not there is a lasting trend in customer demands that would justify not only development of new customer classes but shifts in cost recovery between classes. IV.D. RATE DESIGN The principal objective of the rate design stage is to implement rate structures that collect the appropriate level of revenue as outlined by the revenue requirement. A well designed rate structure must first provide revenue stability by targeting an appropriate level of revenue that is generated from fixed and variable charges. Additionally, the rate structure will also be governed by the City’s rate policy objectives identified as:  Equitable  Affordable  Promote efficient use  Revenue stability  Publically acceptable  Administratively feasible The results of the revenue requirement analysis and cost of service are used to inform the rate design process. IV.D.1. Existing Water Rates The existing water rates include one rate structure that is applied to all customers. The minimum monthly charge is applied by meter size and includes the first 400 cubic feet (cf) of water use. Excess use above the 400 cf is charged at the same rate for all use. The existing rate schedule collects approximately 53 percent of revenue from the monthly meter charge and 47 percent from the use or City of Bend Glossary of Terms page 4-12 volume charge. Larger meters are charged a different rate to recognize that larger meters cause the system to be sized differently to support demands thereby changing operations and costs. Table 5 provides a summary of the existing monthly water rates. Table 5. Existing Water Rates The City applies a 1.5 outside City rate multiplier to those customers served outside the City. IV.D.2. Proposed Water Rates A rate modernization workshop was held with the City Council and a temporary citizen committee known as the Rate Structure Working Group on October 14, 2014 to discuss alternative rate structure options as part of the Utility Rate Modernization initiative to meet Council goals. The primary purpose of the workshop was to consider ways of meeting multiple rate objectives. The City Council was presented with a number of options for consideration. All of the options included the elimination of the 400 cf of water use from the meter charge to provide the customer with more control of their bill. The options included:  One rate schedule for all classes maintained and billed by meter size  Separate rate schedules by customer class that tie to the cost of service analysis  Apply a conservation incentive following cost of service to single family by creating ahigher volume charge and lower base charge for single family  One rate schedule with higher volume charge to incentivize efficient use All Customers Minimum monthly charge by meter size includes first 400 cubic feet of consumption Inside City 3/4"22.36$ 1"34.68$ 1-1/2"67.39$ 2"120.30$ 3"315.39$ 4"493.38$ 6"963.94$ 8"1,440.08$ 10"& Above 2,043.92$ excess >400 cu. ft.1.68$ /100 cu. ft Existing Rates City of Bend Glossary of Terms page 4-13 After significant work and discussion, the City Council decided to maintain the existing one rate structure for all customer classes. They also decided to increase the volume charge some so that volume charge would generate 60% of the revenue as compared to the existing 47%, but agreed to set a policy limit so that in future no less than 40% of the water revenue would be generated by the meter charge to protect revenue stability. Another administrative change that was proposed and moved upon was to recalibrate the meter capacity equivalents to align with the American Water Works Association (AWWA) meter capacity ratios. The City currently has differential factors that did not align with standards. The rate study took the opportunity to recalibrate the meter factors to industry standards. Table 6 provides a summary of proposed water utility rates. The proposed rates maintain one rate schedule for all customers, recalibrate the meter size differentials to AWWA standards and charge for all water use (400 cf allowance eliminated). Table 6. Proposed Water Rates IV.E. WATER UTILITY RATE CONSIDERATIONS The following list is intended to help the City improve upon key data that is needed for future cost of service studies along with simply tracking and validating customer statistics and revenue to actual reports. It is common for multiple reports to be used by different departments during daily operations. For efficiency and accuracy, it is important for each department to determine what common information is used/needed by each department (public works and finance) and then to make sure each report is consistent and reporting accurate data (e.g. do the units reported as produced tie to the units billed, less losses, and the revenue reported?). This level of coordination can reduce duplication of effort and minimize the chance of using inconsistent date. Proposed Water Utility Rate Strucure All Customers Minimum monthly charge by Meter Size Inside City Monthly Rate 3/4"22.66$ 1"26.73$ 1.5"36.80$ 2"48.95$ 3"81.37$ 4"117.80$ 6"218.95$ 8"340.38$ 10"482.09$ 12"648.03$ All Water Use 1.68$ /100 cu. Ft City of Bend Glossary of Terms page 4-14  Develop a report that tracks monthly customer account statistics such as meter size, units billed per account (multi-family), billed usage and total revenue. The report would ideally be developed by month for a full 12-month period. The revenue should tie to the reported revenue in the financial statements. This report is also useful in provide information related to changes in use and revenue by class.  Begin tracking the account, meter size and billed use information by customer class. The classes that were identified in the cost of service analysis (single family, multi-family, commercial, irrigation and large user) are typical for a water utility and may be a good starting point. A brainstorming session regarding those classes that have homogenous usage characteristics and facility requirements may reveal additional classes that would be good to separate in the billing system for future rate development opportunities.  Reconcile the revenue to the billing units for the class (multiply billing units by current rates) and compare to actual revenue received from billing system and to financial reports for the same period.  Compare the billing units to the water production reports. The billing units along with unaccounted for water and/or losses should tie closely to the total water production reports.  Monitor irrigation use accounts for parks and schools to gain an understanding of the use and demand profiles of these customers allowing for the City to collaboratively work with these customers to develop rate structure alternatives with the goal of service area protection. IV.F. SUMMARY The analysis described above concludes the water utility rate study. The revenue requirement provided an evaluation of the sufficiency of existing revenue levels in meeting annual financial obligations. Based on the operating and capital needs facing the water utility, revenue increases will be needed to cover increasing costs, including both operating costs and new debt service associated with the planned capital projects. A rate strategy was proposed to meet current and long term financial obligations on a stand-alone utility basis. The water rate strategy included a proposed rate increase of 3.0 percent in FY 2015-16. A cost of service study was performed for different customer classes revealing that some interclass adjustments would be warranted if the City moved toward separate rate structures by customer class. The City decided to maintain the current practice of one rate for all classes. Separation of customers by class is something that will be addressed in a future study. A number of rate structures were presented for consideration by the City. The proposed rate structure that was approved included maintaining the existing one rate schedule for all customer classes, removing the 400 cubic foot allowance in the base charge and recalibrating meter size factors to industry standards. We recommend that the City revisit the study findings during the budget cycle to check that the assumptions used are still appropriate and no significant changes have occurred that would alter the results of the rate strategy. The City should use the study findings as a living document, continuously comparing the study outcomes to actual revenues and expenses. Any significant or unexpected changes will require adjustments to the rate strategy proposed. City of Bend Glossary of Terms page 5-1 Section V. WATER RECLAMATION RATES V.A. INTRODUCTION The City of Bend operates a water reclamation utility that provides collection and treatment of wastewater from residential and non-residential customers. The water reclamation system has 453 miles of collection lines, 414 pump stations, a wastewater treatment plant, and 28,672 service connections (2014-15 Comprehensive Annual Financial Report, page 234). V.B. REVENUE REQUIREMENT A revenue requirement was completed for the water reclamation utility and forms the basis for the long-range financial plan and multi-year financial management strategy. V.B.1. Operating Forecast The purpose of the operating forecast is to determine whether the existing rates and charges are sufficient to recover the costs the City incurs to operate and maintain the water reclamation system. The 2015-17 biennial budget formed the basis for forecasting expenditures through fiscal year (FY) 2036-37; the following list highlights some of the key assumptions used in the development of the water reclamation utility operating forecast for the baseline rate-setting year of FY 2015-16. V.B.1.a Reserves  Operating Reserves. City Policy requires a minimum of 3 months of operating and maintenance (O&M) expenditures ($3.50 million in FY 2015-16 increasing annually with increased O&M costs to $6.14 million in FY 2036-37).  Debt Reserves. City Policy enforces the amount as required by covenant within each debt issuance, future additional debt reserves are projected at one-year of debt service ($3.57 million in FY 2015-16 increasing annually with new debt obligations to a peak of $13.61 million in FY 2031-32). V.B.1.b Operating Revenue  Rate Revenue. Based on the provided detailed monthly customer account and usage statistics from calendar year 2014, the City’s customer statistics are forecasted according to any customer growth assumptions. Existing rate schedules are applied on a monthly basis to the customer statistics forecast in order to calculate rate revenues for the study period.  Non-Rate Revenue. Non-rate revenue consists mostly of administrative charges for extra strength, sewage dump fees, grants, effluent reuse and recycling, and service charges. City of Bend Glossary of Terms page 5-2  Customer Growth. Based on historical data provided by the City, we estimate that accounts in all classes will grow at an average rate of 1.39 percent per year. We further project that per-capita water demand, and the highly correlated water reclamation demand, will remain unchanged during the study period.  Interest Earnings. City staff projects that the interest rate for funds held on deposit will rise from 0.80 percent in FY 2015-16 to 3.00 percent by FY 2023-24. The short term interest rate projection is based on the current yield of the Oregon Short Term Fund. The long term interest rate reflects a return to a level of interest rates that closely resemble the current yield on 20 year bonds, and the rate is set to trend along with estimates made in the General Cost Inflator (below).  Franchise Fee. The City charges a franchise fee of 3.00 percent. This fee is charged directly to customers inside the city, listed separately on the bills of those customers, and ultimately passed on to the City’s transportation infrastructure program; it is therefore not considered in our rate calculations.  SDC Revenue. Annual SDC revenue ranges from $1.90 million to $2.82 million and is dependent on growth. We assumed that the existing rate of $2,840 per equivalent dwelling unit (EDU) remains unchanged during the forecast period. The 1.39 percent growth rate represents 637–829 additional EDUs (or meter equivalents) per year. An inflationary adjustment to the existing rate may be made annually by the City, but no rate changes of this kind have been reflected in the SDC revenue forecast. Furthermore, the City reviews it SDC methodology approximately every 5 years, which may result in increases to the existing rate, but these too have been excluded from the SDC revenue forecast. V.B.1.c O&M Expenditures  General Cost Inflation. 2.00 percent per year (based on the Federal Reserve’s longer-run objective in inflation).  Construction Cost Inflation. Falling from 4.00 percent to 2.00 percent by FY 2019-20 (based on the current inflation per the 20-city national index (ENR) and trending towards General Cost Inflation (above).  Labor Cost Inflation. 2.50 percent per year (based on the Bureau of Labor Statistics Employment Cost Index for compensation of State and Local Government employees).  Benefit Cost Inflation. Alternating between 2.50 percent for years without a change in PERS rates and 3.00 - 6.00 percent for those years in which a change in PERS rates is expected (based on the Bureau of Labor Statistics Employment Cost Index for benefits of State and Local Government employees). V.B.1.d Debt Service  Existing Debt. The water reclamation utility’s existing debt service consists of revenue bonds issued in 2005 and 2008, four loans from the Clean Water State Revolving Fund, and two series of full-faith-and-credit obligations issued in 2010 and 2012. Annual debt service on existing debt ranges from $4.83 million in FY 2015-16 to zero by FY 2035-36. City of Bend Glossary of Terms page 5-3  New Debt. We anticipate that the water reclamation utility will borrow $207.12 million (includes proceeds, reserves and issuance costs) from FY 2015-16 through FY 2036-37 to finance its capital improvement plan. Annual debt service on new debt will reach a peak of $14.96 million in FY 2031-32 and remain at that level through FY 2036-37. For revenue bonds, we assume an interest rate of 4.00 percent and a term of 20 years with issuance costs of 1.50 percent. For DEQ loans, we assume an interest rate of 2.12 percent and a term of 20 years with a loan fee of 0.50 percent. V.B.1.e System Reinvestment  System reinvestment funding policies aim to ensure system integrity through reinvestment in capital infrastructure. There is a variety of funding benchmarks. Utilities most commonly use annual depreciation expense to establish an annual funding provision, which for the City’s water reclamation utility is currently about $3.03 million per year (2014-15 Comprehensive Annual Financial Report, page 55).  Another common benchmark nets annual debt principal payments against depreciation expense to avoid double charging customers concurrently for assets and their replacement (as well as manage the rate impacts of funding system reinvestment). Based on the water reclamation utility’s projected depreciation expense and debt payments, this benchmark would be roughly $2.79 to $10.36 million per year during the study period.  The water reclamation utility is not currently funding a specified amount for system reinvestment, and we have not identified any system reinvestment in the rate model. Rather, the City directs the remaining revenue after O&M and debt service has been satisfied to first fund the residual fund balance target and then capital needs. As a result, rate revenues do contribute to the funding of capital projects, but the level of funding is not consistent from year to year. V.B.2. Capital Funding Plan The water reclamation utility is anticipating $324.05 million in capital improvement plan costs from FY 2015-16 through FY 2036-37, with costs already adjusted for inflation. Some of the more significant capital projects include collection system enhancements ($63.11 million) and ongoing repair and replacement ($40.15 million). The proposed capital funding strategy envisions using a mix of cash balances (including interest), system development charges, and new debt issuance to pay for the planned projects. The City’s Fiscal Policies provide guidance on whether the City should use the “pay-as-you-go” approach in capital funding, or to use debt financing. Table 1 provides a summary of the planned capital funding strategy. Table 7. Water Reclamation Capital Funding Summary City of Bend Glossary of Terms page 5-4 V.B.3. B.3 Summary of Revenue Requirement The operating forecast components of O&M expenditures, debt service and rate funded system reinvestment come together to form the multi-year revenue requirement. The revenue requirement compares the overall revenue available to the water reclamation system to the expenditures and evaluates the sufficiency of rates. Figure 1 provides a summary of the water reclamation system revenue requirement findings. In addition to the operating forecast, rates must also support the reserves and fiscal policy targets of the utility. Water Reclamation Utility Revenue Requirement Summary Figure 4. Key findings of the water reclamation revenue requirement analysis include:  Current rate revenue will not be sufficient to meet the water reclamation utility’s financial obligations by FY 2018-19. This deficiency will be caused by the need to service new debt that will finance the capital improvement plan.  The projected total debt issued through FY 2036-37 is expected to increase the water reclamation utility’s annual debt service burden from $4.83 million in FY 2015-16 to a peak of $17.54 million in FY 2031-32. Debt service begins to reduce as debt obligations are eliminated and totals $13.3 million in FY 2036-37 FY 2015-16 FY 2016-17 Next 20 Years Total Project Costs by Funding Source: Debt proceeds 50,124,584$ 10,614,458$ 135,816,568$ 196,555,609$ System development charges - 2,838,324 44,707,854 47,546,179 Rates and fund balance - 295,157 79,650,079 79,945,236 Total Project Costs by Funding Source 50,124,584$ 13,747,939$ 260,174,501$ 324,047,024$ Note: Debt issue in FY 2015/16 identified at $50,412,883 is used over multiple years to cover capital costs $- $5 $10 $15 $20 $25 $30 $35 $40 $45 2016201720182019202020212022202320242025202620272028202920302031203220332034203520362037MillionsCash Operating Expenses Existing Debt Service New Debt Service Total Existing Revenues City of Bend Glossary of Terms page 5-5  The deficit is attributable to a capital improvement plan that requires $324.05 million in capital infrastructure expenditure over the study period.  To meet the total projected financial obligations of the water reclamation utility, we propose the following program of rate increases:  4.00 percent on July 1, 2015  4.00 percent on July 1, 2016  3.50 percent on July 1, 2017  3.50 percent on July 1, 2018  3.00 percent on every July 1 thereafter  With the proposed rate adjustments, the water reclamation utility is expected to meet its minimum balance and bond coverage requirements in every year of the study period (FY 2015-16 through FY 2036-37). The City acknowledges that fluctuations may occur in the previously outlined program of rate increases. Pursuant to its Fiscal Policies, the City will annually review the water reclamation utility revenue requirement. The Council approved the revenue requirement for the water reclamation utility by adopting the budget, Master Plans and Capital Improvement Plans (CIP). The greatest volatility in the revenue requirement comes from the CIP and associated debt service. The water reclamation utility is in the process of making significant CIP investments, which may result in volatility in the program of rate increases. V.C. COST OF SERVICE The cost of service analysis defines cost differences in providing service across customer classes to determine how to divide up the total revenue requirement of the utility equitably. This is accomplished through a review of the wastewater flow, strength and facility requirements to service each class. The cost-of-service allocation process for the water reclamation utility involves three steps: 3. Functional allocation – Assets used in service and annual revenue requirements (costs) were first allocated to functional categories of wastewater service (flow, strength and customer) based on system requirements and characteristics. 4. Customer Designation. Identifies the customer class (groups) that will be evaluated as part of the study. Existing as well as new or revised customers may be considered. It is appropriate to group customers that exhibit similar usage characteristics and service requirements. 5. Cost Allocation. Allocates the costs from the functional cost allocation to customers based on their unique demands for each service as defined by system planning documents, industry standards, and recorded user history (billing data). The results identify shifts in cost recovery from that experienced under the existing rate structure. City of Bend Glossary of Terms page 5-6 The cost-of-service methodology used conforms to industry standards as identified by the Water Environment Federation (WEF) Financing and Charges for Wastewater Systems Manual 27. The objective of the cost of service is to determine the most equitable distribution of cost shares to customers proportionate to class wastewater flow contributions and system facility requirements. V.C.1. Allocation of Utility Assets by Function The City’s water reclamation assets in service were reviewed to identify what infrastructure assets are in use and relate to providing wastewater service. This allocation assigns value and costs to functional categories based on documented system requirements, including engineering criteria, (e.g. wet weather flow, dry weather flow, etc.) and industry standard practice based on the relationship of each class of asset and their use of the system. Assets are allocated to the functions of service according to known or assumed cost “causation”. The functions of service to which the water reclamation assets were allocated are discussed below and summarized in Exhibit xx.  Customer. These costs are associated with providing service to customers regardless of wastewater flow or strength contribution, such as billing and office support.  Flow. These costs relate to water reclamation volumes processed within the system in a year.  Strength. These costs reflect strength of sewage processed, in terms of biochemical oxygen demand (BOD) and total suspended solids (TSS). BOD is the parameter used to characterize the organic strength of sewage. TSS is the parameter that measures the amount of particles suspended in water that will not pass through a filter and require treatment. Table 8. Water Reclamation Functional Asset Allocation The water reclamation utility functional asset allocation indicates that the majority of asset infrastructure is in place to handle wastewater flow (~71% percent) with the remainder (31 percent) related to handling strength. The allocation basis used for the major functions of service are as follows:  Collection lines and pumping allocated based on 100 percent flow. The asset infrastructures primary responsibility is handling the peak flow requirements of the system. Collection - Sewer Lines 99,550,905$ 0.00%100.00%0.00%0.00%0.00%100.00%As Flow Collection - Pumping 7,365,247 0.00%100.00%0.00%0.00%0.00%100.00%As Flow Treatment - Headworks 8,944,770 0.00%0.00%25.00%75.00%0.00%100.00%As Treatment - Headworks Treatment - Screening 223,055 0.00%0.00%25.00%75.00%0.00%100.00%As Treatment - Screening Treatment - Aeration 904,084 0.00%5.00%90.00%5.00%0.00%100.00%As Treatment - Aeration Treatment - Seconadry 6,131,859 0.00%5.00%85.00%10.00%0.00%100.00%As Treatment - Seconadry Treatment - Primary 3,029,154 0.00%5.00%25.00%70.00%0.00%100.00%As Treatment - Primary Treatment - Reuse and Disinfection 5,694,617 0.00%30.00%0.00%70.00%0.00%100.00%As Treatment - Reuse and Disinfection Treatment - Handling and Septage 7,854,528 0.00%0.00%50.00%50.00%0.00%100.00%As Treatment - Handling and Septage Treatment - Support (Treatment All Other)16,722,631 0.00%6.75%39.66%53.59%0.00%100.00%As Treatment - Support (Treatment All Other) General 4,505,383 0.00%0.00%0.00%0.00%100.00%100.00%As All Other Local Improvement District - CIAC 2,153,268 0.00%100.00%0.00%0.00%0.00%100.00%As Flow Total Utility Plant 163,079,501$ -$ 112,409,251$ 19,634,918$ 26,529,949$ 4,505,383$ 163,079,501$ Allocation of "As All Others"-$ 3,193,754$ 557,864$ 753,765$ (4,505,383)$ -$ TOTAL Assets in Service 163,079,501$ -$ 115,603,005$ 20,192,782$ 27,283,714$ -$ 163,079,501$ Allocation Percentages 0.00%70.89%12.38%16.73%0.00%100.00% TOTAL ALLOCATION BASISCUSTOMERFLOWBODTSSAS ALL OTHERSAssets in Service TOTAL COSTS FUNCTIONS OF SERVICE City of Bend Glossary of Terms page 5-7  Treatment was based on a detailed allocation by sub-function of treatment. The allocation to functions of service was informed by the prior rate study along with refinements from City staff.  Headworks – 25 percent BOD and 75 percent TSS  Screening – 25 percent BOD and 75 percent TSS  Aeration – 5 percent flow, 90 percent BOD and 5 percent TSS  Secondary treatment – 5 percent flow, 85 percent BOD and 10 percent TSS  Primary treatment – 5 percent flow, 25 percent BOD and 70 percent TSS  Reuse and disinfection – 30 percent flow and 70 percent TSS  Handling and Septage – 50 percent BOD and 50 percent TSS  Treatment support - as all other treatment assets; 6.75 percent flow, 39.66 percent BOD and 53.59 percent TSS  General – as all other plant in service collection and treatment  Local improvement district – 100 percent flow as it is likely collection related assets. The result of the functional asset allocation is 71 percent allocated to flow, 12 percent BOD and 17 percent TSS. The resulting asset allocation is referred to as the total “assets in service” allocation and is used to allocate annual costs if the cost supports the total utility system. It is important to note that as infrastructure assets are added, the plant in service functional allocation should be revisited to determine if the functional allocation changes over time resulting in changes to how costs are allocated between flow and strength. V.C.2. Allocation of Utility Costs By Function The annual test period costs (budget) were also allocated by function. The allocation was completed by the engineers and utility budget specialists in charge of managing the utility for the City. The process required assigning all expense program line items to water reclamation functions. City staff assigned percentages program costs attributed to different functions based on their field experience with the City’s unique system. The cost allocation had slightly different functions than the plant allocation in an attempt to collect cost of service information that might inform development of new rates. The additional categories included an additional strength category of Nitrogen and direct costs related to Industrial Pretreatment and Septage. The following summarizes the key cost allocation assumptions:  7100 Admin and Support Services allocated as all other expenses  7310 Water Reclamation Operations allocated as:  Personnel Services - 90 percent operations (40 percent flow, 35 percent BOD, 20 percent TSS and 5 percent Nitrogen) and 10 percent solids handling (50 percent BOD and 50 percent TSS)  Electricity - 80 percent electricity (30 percent flow, 50 percent BOD, 10 percent TSS and 10 percent Nitrogen) and 20 percent solids handling (50 percent BOD and 50 percent TSS) City of Bend Glossary of Terms page 5-8  Chemicals - 70 percent chemicals (10 percent flow, 50 percent BOD, 30 percent TSS and 10 percent Nitrogen) and 30 percent solids handling (50 percent BOD and 50 percent TSS)  Other Materials and Services - 65 percent operations (40 percent flow, 35 percent BOD, 20 percent TSS and 5 percent Nitrogen) and 35 percent septage (100 percent to direct septage function)  Vehicles and Equipment – as operations (40 percent flow, 35 percent BOD, 20 percent TSS and 5 percent Nitrogen)  7330 Maintenance, Water Reclamation Facility (WRF) allocated as maintenance (50 percent flow, 35 percent BOD and 15 percent TSS)  7350 Customer Service Water Reclamation allocated as sewer lines or 100 percent to the flow function.  7360 Technical Services allocated as sewer lines or 100 percent to the flow function.  7410 Maintenance Sewer Lines allocated as sewer lines or 100 percent to the flow function.  7420 Maintenance Pump Stations allocated as pumping or 100 percent to the flow function.  All Transfers out and Internal Expenditures as all other expenses with the exception of the following:  Transfer finance allocated 77 percent to customer and 23 percent as all other.  Transfer engineering allocated 30 percent flow, 30 percent BOD, 35 percent TSS and 5 percent Nitrogen  Allocation to Public Works (PW) Admin 47.6 percent to lab (45 percent BOD, 45 percent TSS and 10 percent Nitrogen) and general- 52.4 percent as all other expenses.  Billed services related to garage – repair & maintenance, parts and fuel allocated as 90 percent sewer lines (100 percent flow) and 10 percent as all other expenses.  Special transfers – information technology allocated as 90 percent sewer lines (100 percent flow) and 10 percent as all other expenses  Special transfers to facilities allocated as sewer lines (100 percent flow).  Debt service (existing and new) as total assets in service.  Rate funded system reinvestment as total assets in service  Miscellaneous revenue used as an offset to the total revenue requirement allocated based on  Miscellaneous grants as flow  Sewage dump fees as 100 percent septage functional allocation  Effluent reuse/recycle as treatment plant – reuse and disinfection (30 percent flow and 70 percent TSS)  Service charges as 100 percent customer functional allocation City of Bend Glossary of Terms page 5-9  Bond principal for issuance costs allocated as existing debt - 24 percent collection or flow and 76 percent treatment (6.7 percent flow; 39.7 percent BOD and 53.6 percent TSS)  Fats Oil and Grease (FOG) fines and inspection as 100 percent direct industrial pretreatment function  Service reimbursements as 100 percent customer functional allocation  Other miscellaneous, purchase discount, sale of equipment and operating and debt reserve interest as all other  Sewer lines and Woodriver & Romaine LID as 100 percent flow related The functional allocation resulted in the following cost pools: 3.5 percent customer, 66.1 percent to flow, 14.2 percent to BOD, 12.4 percent to TSS, 1.3 percent to Nitrogen, 2.45 percent industrial pretreatment and zero allocation to septage (the revenue on sewage dump fees directly offset the costs assigned to this functional area). After several discussions regarding the results, it was determined that the nitrogen functional category was a bit premature as the City has no way to currently measure and bill for this type of strength. As the industry matures, this may be a new strength category that is monitored and billed. This strength category was therefore, rolled back in to the strength costs 50 percent to BOD and 50% to TSS. Industrial pretreatment allocated costs resulted in approximately $481,000. The extra strength charge (ESC) program was targeting annual revenue for administering this program at $265,000. The remaining costs above the target program cost recovery was spread to other classes based on the total allocated revenue requirement by class and by function. The $265,000 cost for the extra strength cost program was considered a customer expense as it would be recovered per account. The functional cost allocation for summarized in Figure 2. Water Reclamation Utility Functional Cost Allocation Summary Figure 5. Customer5% Flow 67% Strength28% Wastewater Functional Cost Pools City of Bend Glossary of Terms page 5-10 The utility cost allocation by function resulted in 67 percent of costs related to flow, 28 percent related to strength and 5 percent to customer. V.C.3. Customer Class Distinctions The City’s current customer class structure consists of a three main classes: 1) Single Family Residential, 2) Multi-Family Residential and Non-Residential. The multi-family customer class had two rate classes – one class is billed a per unit fixed rate (similar to single family) and the second class is billed a fixed charge plus a volume rate (similar to non-residential). It was determined that the multi-family customers should be in one class so for cost of service purposes the multi-family customers were combined. The City has been studying customers with higher than domestic strength for some time. In 2012, the Extra Strength Charge Advisory Group was convened to work on a number of issues one of which was the rate classification categories that would better align the water reclamation costs incurred to the rates that are charged for those users with above domestic strength. The advisory group work suggested the following revisions to the existing customer classes. Table 3 summarizes the existing rate classes and the customer classes used to evaluate the cost of service analysis. Table 9. Existing and Revised Customer Classes V.C.4. Customer Class Allocations The next step in the cost-of-service analysis involves distribution of the allocated system costs to the customer classes served by the system. The costs assigned to each function were allocated among customer classes based on the following principles:  Customer. Allocated based on the number of accounts or equivalent dwelling units on the system. Single Family Residential Single Family Residential Multi Family Residential Multi Family Residential Non Residential Non Residential Standard ESC Low ESC Medium ESC High ESC Super High Existing Customer Classes COSA Customer Classes City of Bend Glossary of Terms page 5-11  Flow. Allocated based on annual flow entering the water reclamation system (e.g. excluding consumptive uses such as irrigation). For single family, the average winter water used by this class in the non-irrigation months (537 cubic feet) was used to estimate flow as the City did not currently bill these customers for volume. For multi-family, 80 percent of the single family winter water use was assumed per unit. The non-residential flow was based on actual billed flow.  Strength. Based on annual volume and adjusted for the different strength factors associated with each customer class.  Residential strength is 500 milligrams per liter (mg/l) of BOD and 500 mg/l of TSS.  Non-residential strength factors:  Standard 250 mg/l for both BOD and TSS  ESC Low 1,000 mg/l for both BOD and TSS  ESC Medium 1,500 mg/l for both BOD and TSS  ESC High 2,000 mg/l for both BOD and TSS  ESC Super High 2,500 mg/l for both BOD and TSS Strength allocations came from the Extra Strength committee work and assumed loadings related to North American Industry Classification System (NAICS) codes. Table 4 summarizes the allocation factors developed to allocate the functional cost pools to the customer classes of service under review. Table 10. Water Reclamation Utility Customer Allocation Factors Single Family Residential 23,154 1,507,321 500 500 Multi Family Residential 1,657 340,297 500 500 Non Residential Standard 1,875 674,202 0 0 ESC Low 326 171,301 1,000 1,000 ESC Medium 0 0 1,500 1,500 ESC High 9 13,133 2,000 2,000 ESC Super High 8 40,804 2,500 2,500 Total 27,029 2,747,058 Note: mg/L = Milligrams per liter Single Family Residential 85.66%54.87%54.14%54.14% Multi Family Residential 6.13%12.39%12.22%12.22% Non Residential Standard 6.94%24.54%12.11%12.11% ESC Low 1.21%6.24%12.31%12.31% ESC Medium 0.00%0.00%0.00%0.00% ESC High 0.03%0.48%1.89%1.89% ESC Super High 0.03%1.49%7.33%7.33% Total 100.00%100.00%100.00%100.00% CUSTOMER CLASS CUSTOMER FLOW CCF STRENGTH BOD mg/L STRENGTH TSS mg/L CUSTOMER CLASS CUSTOMER FLOW CCF STRENGTH BOD mg/L STRENGTH TSS mg/L City of Bend Glossary of Terms page 5-12 The cost of service by class was calculated by multiplying the functional cost pools by the allocation factor distribution percentages. Ultimately, this element of the analysis defines the total annual revenue that should be generated from each customer class in order to achieve cost based recovery from rates. V.C.5. Water Reclamation Cost of Service The cost of service summary identifies the target revenue level to collect from each customer class based on the cost of service analysis performed. In addition, it compares the existing revenue distribution to the total cost to serve each customer class identifying the shift in cost burden required to implement the cost of service findings. Exhibit 5 provides a comparison of current rate revenue distribution between customer classes and the distribution of revenues indicated from the cost of service analysis. Table 11. Water Reclamation Cost of Service The cost of service results indicate that the residential class is paying more than the current allocated cost of service and all other classes are paying below cost of service. The two multi-family classes were evaluated on a combined basis. If we were to separately evaluate the two classes, those that were paying a flat rate per unit would need to decrease and those that were paying based on volume would see an increase because they have been receiving the benefit of the 1,000 cubic foot allowance. On a combined basis the multi-family class has to increase. The extra strength classes are not currently paying a strength differential. When we consider strength in the cost of service, all classes see an increase above 100 percent. The ESC medium class is zero as there are currently no accounts in this category. It should be noted that if a class of service is within +/- 5 percent of the overall system average, they are generally considered to be paying their cost to serve. This range of reasonableness is given since although there is an industry accepted methodology, the City specific classification and allocation of assets and expenses reflect cost and usage characteristics at a given point in time. As time goes on, customer’s consumption patterns, usage requirements and asset investments change. Only over time and through repeated analysis, can one fully understand the true cost of service for each class. Due to the large distance between the existing revenue and cost of service, it was agreed that bringing classes into alignment over time (phasing) would be the best alternative. The City Council Single Family Residential 12,468,914$ 10,824,581$ (1,644,333)$ -13.2% Multi Family Residential 1,895,578 2,350,235 454,658 24.0% Non Residential Standard 2,830,370 3,948,268 1,117,897 ESC Low 658,323 1,762,629 1,104,305 167.7% ESC Medium - - - 0.0% ESC High 47,511 174,633 127,122 267.6% ESC Super High 143,717 608,065 464,348 323.1% Total 18,044,413$ 19,668,410$ 1,623,997$ 9.0% CUSTOMER CLASS EXISTING REVENUE COST OF SERVICE $ DIFFERENCE % DIFFERENCE City of Bend Glossary of Terms page 5-13 was provided a number of phasing options for consideration. The Council preferred a slow phase in option as the first step to bringing costs into alignment. The revised slow phase-in cost of service is presented in Exhibit 6. Table 12. Cost of Service Slow Phase-in The council will revisit the cost of service phase-in during the annual rate adjustment process and determine the next cost of service phase-in increment. V.C.6. Rate Design The principal objective of the rate design stage is to implement rate structures that collect the appropriate level of revenue as outlined by the revenue requirement. A well designed rate structure must first provide revenue stability by targeting an appropriate level of revenue that is generated from fixed and variable charges. Additionally, the rate structure will also be governed by the City’s rate policy objectives identified as:  Equitable  Affordable  Promote efficient use  Revenue stability  Publically acceptable  Administratively feasible The results of the revenue requirement analysis and cost of service are used to inform the rate design process. V.C.7. Existing Water Reclamation Rates The rate structure includes three main classes of service; single family residential, multi-family residential and non-residential. All classes are billed a fixed monthly charge per account or per Single Family Residential 13,570,037$ 13,570,037$ 0% Multifamily Residential 2,067,312 2,067,312 0% Non Residential Standard 3,088,609 2,888,704 -6% ESC Low 718,506 712,338 -1% ESC Medium - - ESC High 51,870 53,900 4% ESC Super High 156,923 166,243 6% Class Existing Revenue Cost of Sevice Phase-In COSA Adjustment City of Bend Glossary of Terms page 5-14 equivalent dwelling unit (EDU). Some multi-family residential class customers and all non- residential customers pay a volume charge for all flow greater than 1,000 cubic feet. The billed flow is billed based on the customer’s winter quarter average. The existing rate structure collects 83 percent of revenue from monthly fixed charges and 17 percent from volume charges. Table 7 provides a summary of the existing monthly water reclamation rates. Table 13. Existing Monthly Water reclamation Rates The City applies a 1.03 outside city rate multiplier to those customers served outside the City. V.C.8. Proposed Water Reclamation Rates A sewer rate design workshop was held with the City Council and a temporary citizen committee known as the Rate Structure Working Group on September 24, 2014 to discuss alternative rate structure options as part of the Utility Rate Modernization initiative to meet Council goals. A significant level of work was completed to come to the final rate proposals for the water reclamation rates. The proposed rates include a number of modifications to the existing rate structure:  Fixed monthly charge per equivalent dwelling unit for multi-family. The charge is lower than the single family and non-residential fixed charge representing the lower flow contribution per unit.  Elimination of the 1,000 cubic foot allowance providing the customer more control of their bill.  All volume is billed for all classes improving the price signal for efficient use.  Implementation of extra strength cost (ESC) differentials improving equity.  Implement monthly ESC program fee to generate funding for the program to begin and c over ongoing costs to administer the program.  Minimize ESC impacts by phasing in volume based differentials. Table 8 provides a summary of the adopted water reclamation rates for fiscal year 2015-16. Inside City Single Family Residential $48.36 /month Multi Family Residential $48.36 /month/EDU Non Residential Rates $48.36 /month $3.80 >1,000 cu. Ft Existing Rate Structure Total Mo. Charge Volume Charge/ 100 cu. Ft OR City of Bend Glossary of Terms page 5-15 Table 14. Adopted Water Reclamation Rates The City applies a 1.03 outside city rate multiplier to those customers served outside the City. V.D. WATER RECLAMATION UTILITY RATE CONSIDERATIONS The following list is intended to help the City improve upon key data that is needed for future cost of service studies along with simply tracking and validating customer statistics and revenue to actual reports.  Develop a standard report that tracks monthly customer account statistics such as accounts, EDUs billed per account (multi-family), billed usage and total revenue. The report would ideally be developed by month for a full 12-month period. The revenue should tie to the reported revenue in the financial statements. This report is also useful in provide information related to changes in use and revenue by class.  Reconcile the revenue to the billing units for the class (multiply billing units by current rates) and compare to actual revenue received from billing system and to financial reports for the same period.  Continue to monitor average winter water use basis, update as needed  Create reports to monitor the extra strength program by category. Create standard report that tracks accounts and billed volume.  Improve report for extra strength customers that have different customer strengths. This revenue reconciliation is currently very cumbersome. Review rate implementation process and determine if billing can be streamlined. Create standard report to improve ability to reconcile units with revenue. Inside City Base Charge ESC Charge Single Family Residential $31.00 n/a $31.00 /month $3.25 /100 cu. Ft Multi Family Residential $12.25 n/a $12.25 /month/EDU $3.25 /100 cu. Ft Non Residential Rates Standard $31.00 n/a $31.00 /month $3.25 /100 cu. Ft Low $31.00 $24.66 $55.66 /month $3.45 /100 cu. Ft Medium $31.00 $24.66 $55.66 /month $3.70 /100 cu. Ft High $31.00 $24.66 $55.66 /month $3.85 /100 cu. Ft Super High $31.00 $24.66 $55.66 /month $4.00 /100 cu. Ft Volume Charge Adopted Rate Structure Total Mo. Charge City of Bend Glossary of Terms page 5-16 V.E. SUMMARY The analysis described above concludes the water reclamation utility rate study. The revenue requirement suggests that existing rate levels are not sufficient to meet total water reclamation system financial obligations. Revenue increases will be needed to cover increasing costs, including both operating costs and new debt service associated with the planned capital projects. The water reclamation rate strategy proposed a rate increase of 4.0 percent in FY 2015-16. The cost of service results indicate that the residential class could reduce and all other classes would need to increase. Strength is not currently considered in the existing rates, when strength is considered for the extra strength categories all classes see an increase above 100 percent. Due to the large distance between the existing revenue and cost of service, it was agreed that bringing classes into alignment over time (phasing) would be the best alternative. A number of rate structure changes were implemented with the adopted rate structures included eliminating the 1,000 cubic foot allowance in the fixed base monthly charge, billing all volume for all customers, charging the multi-family base charge per EDU and implementation of an extra strength charge volume differential and monthly program fee. We recommend that the City revisit the study findings during the budget cycle to check that the assumptions used are still appropriate and no significant changes have occurred that would alter th e results of the rate strategy. The City should use the study findings as a living document, continuously comparing the study outcomes to actual revenues and expenses. Any significant or unexpected changes will require adjustments to the rate strategy proposed. City of Bend Glossary of Terms page 6-1 Section VI. STORMWATER RATES VI.A. INTRODUCTION The City of Bend operates a stormwater utility that provides storm drainage throughout the city. The stormwater system has 14 miles of pipe, 28 outfalls, 4,600 dry wells, and 1,000 drill holes (2014 Stormwater Master Plan, page 4-1). VI.B. REVENUE REQUIREMENT A revenue requirement was completed for the stormwater utility and forms the basis for the long- range financial plan and multi-year financial management strategy. VI.B.1. Operating Forecast The purpose of the operating forecast is to determine whether the existing rates and charges are sufficient to recover the costs the City incurs to operate and maintain the stormwater system. The 2015-17 biennial budget formed the basis for forecasting expenditures through fiscal year (FY) 2036 - 37; the following list highlights some of the key assumptions used in the development of the stormwater utility operating forecast for the baseline rate-setting year of FY 2015-16. VI.B.1.a Reserves  Operating Reserves. City Policy requires a minimum of 3 months of operating and maintenance (O&M) expenditures ($0.68 million in FY 2015-16 increasing annually with increased O&M costs to $1.20 million in FY 2036-37).  Debt Reserves. City Policy enforces the amount as required by covenant within each debt issuance, future additional debt reserves are projected at one-year of debt service (debt issuance begins in FY 2020-21 with $0.08 million and increases annually with new debt obligations to a peak of $2.02 million in FY 2032-33). VI.B.1.b Operating Revenue  Rate Revenue. The City’s rate revenue is forecasted along with any customer growth assumptions. Assumed rate increases are applied on a monthly basis to the rate revenue forecast in order to calculate rate revenues for the study period. Customers are billed based on equivalent residential unit (ERU), which is equal to 3,800 square feet.  Non-Rate Revenue. Non-rate revenue is minor and consists mostly of service charges (91 percent).  Customer Growth. Based on historical data provided by the City, we estimate that all accounts will grow at an average rate of 1.39 percent per year. City of Bend Glossary of Terms page 6-2  Interest Earnings. City staff projects that the interest rate for funds held on deposit will remain constant at 0.50 percent per year. Projections are based on the current Oregon Short Term Fund rate. VI.B.1.c O&M Expenditures  General Cost Inflation. 2.00 percent per year (based on the Federal Reserve’s longer-run objective in inflation).  Construction Cost Inflation. Falling from 4.00 percent to 2.00 percent by FY 2019-20 (based on the current inflation per the 20-city national index (Engineering News Record) and trending towards General Cost Inflation (above))  Labor Cost Inflation. 2.50 percent per year (based on the Bureau of Labor Statistics Employment Cost Index for compensation of State and Local Government employees).  Benefit Cost Inflation. Alternating between 2.50 percent for years without a change in PERS rates and 3.0 – 6.0 percent for those years in which a change in PERS rates is expected (based on the Bureau of Labor Statistics Employment Cost Index for benefits of State and Local Government employees). VI.B.1.d Debt Service  Existing Debt. The stormwater utility does not have any debt outstanding.  New Debt. We anticipate that the stormwater utility will borrow $26.98 million (includes proceeds, reserves and issuance costs) in full-faith-credit-obligations from FY 2020-21 through FY 2032-33 to finance its capital improvement plan. Annual debt service on new debt will reach a peak of $2.02 million in FY 2032-33 and remain at that level through the remainder of the forecast period. We assume that all new debt will be revenue bonds with an interest rate of 4.00 percent, a term of 20 years, and issuance costs of 1.50 percent. VI.B.1.e System Reinvestment  System reinvestment funding policies aim to ensure system integrity through reinvestment in capital infrastructure. There is a variety of funding benchmarks. Utilities most commonly use annual depreciation expense to establish an annual funding provision, which for the City’s stormwater utility is currently about $0.84 million per year (2014-15 Comprehensive Annual Financial Report, page 55).  Another common benchmark nets annual debt principal payments against depreciation expense to avoid double charging customers concurrently for assets and their replacement (as well as manage the rate impacts of funding system reinvestment). Based on the stormwater utility’s projected depreciation expense and debt payments, this benchmark would be roughly zero to $0.77 million per year during the study period.  The stormwater utility is not currently funding a budget account line item for system reinvestment, and we have not specified any system reinvestment in the rate model. Rather, the City directs the remaining revenue after O&M and debt service has been satisfied to first fund the City of Bend Glossary of Terms page 6-3 residual fund balance target and then capital needs. As a result, rate revenues do contribute to the funding of capital projects, but the level of funding is not consistent from year to year. VI.B.2. Capital Funding Plan The stormwater utility is anticipating $27.02 million in capital improvement plan costs from FY 2015-16 through FY 2036-37, with costs already adjusted for inflation. Some of the more significant capital projects include the Franklin & Greenwood underpass ($10.25 million) and line replacement ($3.25 million). The proposed capital funding strategy envisions using a mix of cash balances (including interest) and new debt issuance to pay for the planned projects. The City’s Fiscal Policies provide guidance on whether the City should use the “pay-as-you-go” approach in capital funding, or to use debt financing. Table 1 provides a summary of the planned capital funding strategy. Table 15. Stormwater Capital Funding Summary VI.B.3. Summary of Revenue Requirement The operating forecast components of O&M expenditures, debt service and rate funded system reinvestment come together to form the multi-year revenue requirement. The revenue requirement compares the overall revenue available to the stormwater system to the expenditures and evaluates the sufficiency of rates. Figure 1 provides a summary of the stormwater system revenue requirement findings. In addition to the operating forecast, rates must also support the reserves and fiscal polic y targets of the utility. FY 2015-16 FY 2016-17 Next 20 Years Total Project Costs by Funding Source: Debt proceeds -$ -$ 24,960,864$ 24,960,864$ System development charges - - - - Rates and fund balance 806,000 267,806 985,393 2,059,200 Total Project Costs by Funding Source 806,000$ 267,806$ 25,946,257$ 27,020,064$ City of Bend Glossary of Terms page 6-4 Stormwater Utility Revenue Requirement Summary Figure 6. Key findings of the stormwater revenue requirement analysis include:  Current rate revenue is not currently sufficient to meet the stormwater utility’s financial obligations.  The annual volatility shown in the cash operating expenses is due to the inconsistent budget amounts related to vehicles and equipment and one time larger expenses in FY 2016 related to transfers to engineering and special transfers to facilities.  The projected total debt issued through FY 2036-37 is expected to increase the stormwater utility’s annual debt service burden from zero in FY 2015-16 to a peak of $2.02 million in FY 2032-33.  The debt issuance is attributable to a capital improvement plan that requires $27.02 million in capital infrastructure expenditure over the study period.  To meet the total projected financial obligations of the stormwater utility, we propose the City adopts at least the following program of rate increases:  25.00 percent on July 1, 2015  3.00 percent on July 1, 2016  3.00 percent on July 1, 2017  3.00 percent on July 1, 2018  3.00 percent on July 1, 2019  2.00 percent on July 1, 2020  1.50 percent on July 1 of every year thereafter $- $1 $2 $3 $4 $5 $6 $7 $8 2016201720182019202020212022202320242025202620272028202920302031203220332034203520362037MillionsCash Operating Expenses Existing Debt Service New Debt Service Total Existing Revenues City of Bend Glossary of Terms page 6-5  With the proposed rate adjustments, the stormwater utility is expected to meet its minimum balance and bond coverage requirements in every year of the study period (FY 2015-16 through FY 2036-37). The City acknowledges that fluctuations may occur in the previously outlined program of rate increases. Pursuant to its Fiscal Policies, the City will annually review the stormwater utility revenue requirement.