Minutes - 09/27/1994 WWTP
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WASTEWATER ADVISORY COMMITTEE
WORKSHOP WITH WOODBURN CITY COUNCIL
MINUTES OF SEPTEMBER 27, 1994
Woodburn City Council Chambers
Members Absent:
Scott Burlingham, Chairman
JoAnn Bjelland
Preston Tack
Gil Flaugher
Forrest Mills
G. S. (Frank) Tiwari
Marv Shelby
Jayne Gorsch
Rich Barstad
Council Members
Present:
Kathy Figley
Elida Sifuentez
Dick Jennings
Don Hagenauer
Members Present:
Staff:
Mayor Kelley
Dean Morrison
Frank Sinclair
Consultants: Gordon Merseth
Daria Wightman, CH2M Hill
Bob Tomlinson, CH2M Hill
Public:
Smuckers' Engineer
Brown & Caldwell
Public Information: Barbara Lucas
Woodburn Independent: Kaye Winona
Chairman Scott Burlingham opened the Wastewater Advisory Committee meeting at 7:00 p.m.
in the Council Chambers of City Hall.
Frank Tiwari introduced the topic of the evening, rate setting philosophy. In the past year, the
committee has been educated on the process of treating wastewater. The options selected by
the committee thus far will allow Woodburn to meet the requirements of DEQ. Now the
committee needs to provide input to the city council on a rate setting philosophy.
Frank introduced Bob Tomlinson of CH2M Hill who showed numerous overhead transparencies
covering policy issues, financing issues, customer classifications, rate structure options, rate
design options, non cost based rate factors including subsidies, and system development
charge options. The objective is to achieve revenue adequacy to cover costs of utility
operations - operations and maintenance, debt service from bonds, and capital outlays; and rate
equity both between customer classes and within customer classes. There are two
approaches: paying rates in amount equal to service provided Q[ paying rates proportional to
cost of service provided. Identify cost that each customer class imposes on the system and
set rates so that those customers pay enough to recover those costs.
Cost of service rates are a defensible, non-arbitrary, logical basis for setting rates. These are
accepted by users because they tend to provide rate equity. Identify costs of treatment plant
that are incurred because of flow, due to treatment of BOD, and treatment of suspended solids.
Then allocate costs to the customer classes, (single family, multifamily, commercial and
industrial) each of which causes certain costs. For example, the residential class incurs flow
costs but tends to have average strength; industrial strength class has steady flow, but higher
strength and would be charged treatment strength cost.
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You have to look forward in adopting a rate structure, projecting revenue requirements in the
future, inflation rate, growth in community, capital improvements, operational changes and past
trends. The committee decided earlier that there will be phasing of the project so there will be
capital costs later on. CH2M Hill recommends reviewing rates at least every two-three years
which would be a good time to review phasing and rates.
Rate design options were discussed: Flat rate (residential only)- charge customer same rate
regardless of amount of sewage they put through system. This is easy to administer. Uniform
volume rate- for every gallon of use, there is set charge/gallon. You can add minimum monthly
charge that would include customer costs (costs for billing customers) and a charge for base
amount of volume. Consistent with average cost pricing and cost of service pricing. Declining
block rate- rate starts out higher for low use and decreases as the use increases. Justification
for this is large industrial users actually place less burden on the system. Encourages economic
expansion. Inverted block rate- system where you pay more as you use more. Encourages
limited use of capacity and conserves water. Winter average water use- measure use during
winter to determine flat rate for the customer class and then the next winter you do an update
on winter water use. This takes account of water not entering the sewers and it is close to
cost of service. Actually, all of these rate structures are conducive to a minimum monthly
charge.
Non cost fixed factors were reviewed: Contractually fixed rates - if there are large industrial
customers, city might want to negotiate separate rate for that industry. If there are outside
users connected to the city system, some municipalities add surcharge to standard rates. The
city may consider subsidy policies like low income discount. In the case of a fairly large
retirement community, a subsidized rate can be given for amount of use and then the rest of
the customers would make up the difference with only minor impact. If interested in economic
development, rates can be set to encourage some large commercial or industrial users to locate
here. The residential class would make up any difference.
The concept of system development charges is that new users connecting to the system should
pay for the facilities they are connected to. There are three ways to calculate system
development charge: 1) Reimbursement fee: Look at fixed assets utility already has, the
original cost depreciated and determine what the new users should reimburse the existing users
to buy into the system; 2) Improvement fee: This approach is to look at a capital improvement
program for the new facilities being planned for the next five years or so, determine the
additional capacity that those facilities will add to the system, and charge new users for those
additional capacities; 3) Combination of reimbursement and improvement fees.
Bob then summarized general financing issues. In a rate making structure, we want to insure
that the utility has adequate revenues to pay for the cost. Consider fairness between current
and future users which usually relates to system development charges. May want to set rates
for economic development. The capital improvement program may need some bonding or
general obligation bonds to finance that program. There are guidelines from the financial
community where you not only have to collect sufficient revenues to pay for your debt service,
but also something more than that, usually 20-40% above the debt service. Your intent is to
have a financially healthy utility and cost of service certainly is one way to separate and provide
financial reliability.
Frank Tiwari discussed revenue sources. These are pretty much known. The biggest one is
the service charge. The next one is the system development charges (SDCs) which will be
reviewed by the council in about two years. Also, suppose we say that future users will pay
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50% for larger capacity and existing customers pay 50% for upgrading and plant obsolescence.
The rate structure will have to be based on the required revenues. For a new project, a person
buys into capacity of the plant and that capacity fee is based on the estimated cost of
constructing additional capacity unless a policy decision is made to change it. 50 a new user
pays capacity fee and monthly charge like existing users. But you cannot logically ask a
newcomer, who has paid full capacity fee or SDC, to pay same amount every month as the
existing user because the existing user's monthly bill includes a portion of plant upgrading cost.
If newcomers and long-standing residents are paying same amount every month, then
somehow equity has to be brought into the systems develop charge by making it a little bit
lower because newcomers are also paying, in their monthly rate, some amount of 5DC.
Actually state law requires that you must take this into account.
Bob Tomlinson used the definitions, past services and current facilities versus new facilities.
In Oregon you can add those together whereas in many other states it is not allowed.
Generally, it's either/or, typically picking a reimbursement fee and buying into the current
system or picking the improvement fee and paying for the new capacity that you're causing
the utility to add to the system.
Bob said that most places, up until recently, have been using the reimbursement fee. Now that
the grants from federal government have been eliminated and EPA has more stringent strength
standards, more money is needed to keep up with standards and growth. Now the trend is
turning toward improvement fees and/or combined fee. Frank informed the committee that the
City of Woodburn charges for both. At this point we have reimbursement fee based on
whatever city contributed and an improvement fee based on CH2M Hill estimate. Last time
council approved a step system that included the reimbursement fee plus improvement fee.
In discussing the process of a bond sale, Frank Tiwari explained that the city councilor
governing body's decision must precede the prospectus which is sent to the bankers wanting
to bid on the city's bond. This prospectus includes a council approved ordinance symbolizing
the position of the governing body. A better interest rate is obtained if there is one year's
payment in reserve and this must be considered in a project of this magnitude.
Woodburn's present monthly charge is low because of many reasons, one of which is the fairly
simple administration of the water/sewer billing system. It was suggested that, similar to
electric and gas companies, an equal payment plan could be offered along with the rate
structure that is eventually adopted.
Members of the city council discussed the information they would need to make a final decision
on this issue. Information on system development charges, charges necessary to retire bonds,
estimated operational cost, phasing and what each phase will do, metered flow and flat rate
information will be needed. Members of city council discussed this information and Councilman
Jennings emphasized that city council would make the final decision on financing.
When Chairman Burlingham asked for a show of hands indicating the preference of the
committee at this point, a flow-based rate structure was the favored option.
Gil Flaugher/ Preston Tack moved to adjourn. Meeting adjourned at 9:23 p.m.
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