1. City of Sisters, OR 2017 Water & Sewer Rate Study
Presented By: Chris Gonzalez, Project Manager
October 18, 2017

2. Overview Introduction to Ratemaking Revenue Requirement Analysis:
Role of Utility Rate Studies
Overview of Rate Study Process
Revenue Requirement Analysis:
Policy Framework
Assumptions
Findings
Sample Bill Forecast/Comparison
Questions/Discussion

3. Role of Utility Rate Studies
Rate studies are important because they:
Enable a utility to remain self-sufficient
Quantify operating and capital needs
Set rates to cover needs
Account for changing conditions
Declining water sales
Economic cycles
Ensure rates reflect utility policies and priorities
Equitable cost recovery from customers
Revenue stability and financial sustainability
Affordability

4. Overview of Utility Rate Study Process
Revenue Requirement
Cost-of-Service Analysis
Design Rates
Establish Fiscal Policies
Forecast Costs & Revenues
Fixed
Charges
Volume
Costs by Function
Costs by Customer Class
Not part of this study

5. Utility Fiscal Policies
Fiscal policies help guide the financial management of the utilities
Common fiscal policy topics for utilities
Reserve structure / levels
System reinvestment funding
Financial performance standards

6. Fiscal Policies: Reserves
Intended to protect the utility from unforeseen financial impacts
This analysis assumes the following reserve structure:
Low sales year(s)
Regulatory changes
Economic cycles
Changes in contract costs (e.g. plant operations)
Reserve
Purpose
Minimum Balance
Operating Reserve
Accommodate difference in revenue/expense cycles
2 months (17%) of operating expenses
Based on 2018 Budget, $85,000 for water and $92,000 for sewer
Capital Improvement Reserve
Accrue funding for capital improvements (excluding SDC-eligible projects)
No explicit minimum balance (above $0)
Funded by policy-based annual transfers
Capital Replacement Reserve
Accumulate funds for replacement of equipment and vehicles
System Development Charge (SDC) Fund
Segregate SDC revenue to ensure that it is used only for SDC-eligible costs

7. Fiscal Policies: System Reinvestment
Is an important part of long-term asset management
Involves generating cash above current operating costs and debt requirements
City policy provides for capital funding from water and wastewater rates:
Basis for Annual Transfers
Annual Transfers
Capital Improvement Reserve
Projected average annual capital project expenditures (excluding SDC-eligible projects)
Water: $104,094
Sewer: $142,000 (2018), $128,000 (2019)
Capital Replacement Reserve
Allocated replacement cost of equipment/vehicles, amortized over the assets’ expected lives
Water: $45,219
Sewer: $46,026

8. Fiscal Policies: Financial Performance
Defines “revenue sufficiency” based on:
Cash flow needs
Coverage requirements
Net revenue ≥ multiple of annual revenue bond debt service (per bond covenants)
Not currently applicable to the City’s water and wastewater utilities
“Revenue requirement” is the amount needed to satisfy both tests
Cash flow may be negative temporarily to phase in rate increases
Relies on existing fund balances to absorb cash flow deficits
Coverage requirement (if applicable) must always be met
Analysis considers a multi-year period
Goal is to promote a long-term strategy of stable, moderate increases
Operation and maintenance
Debt service (bonds and loans)
Reserve funding
Rate funding for capital

9. Key Assumptions Cost Inflation Annual Growth Rates
General: 1.8% per year
Labor Costs: 2.6% per year
Benefits (PERS): 25.0% every two years
Annual Growth Rates
Average: ≈ 2.7% per year
≈ 43 new water customers
≈ 40 new sewer customers
Rate-Funded System Reinvestment
Policy-based transfers to the Capital Improvement/Replacement Reserves
Water: $149,313 per year
Sewer: $46,026 per year
Operating Forecast
Generally based on 2018 Budget; escalated
Transfers to City Hall Fund based on established loan payment schedule
Franchise fees calculated on projected revenues

10. Capital Needs Forecast – Water
$995,420 in capital projects from 2018 – 2022
Cash resources are expected to provide enough cash funding to cover the utility’s projected capital costs without any additional debt
Supply Improvements: $460,120
Distribution Improvements: $354,500
Equipment/Vehicle Replacements: $110,800
Other: $70,000

11. Water Revenue Requirement Forecast
Proposed
Projected
Annual Rate Revenue Adjustment
2.0%
Rate Increase Drivers
% of 5-Year Rate Increase
Funding capital (system reinvestment) through rates
83%
Correcting existing deficit and keeping up with rising operating costs
17%

12. Recommended Water Rates
Existing
Proposed
Projected
Monthly Base Rate
5/8” × 3/4” Meter
$20.59
$15.50
$16.05
$16.77
$17.36
$18.02
1” & 1-1/2” Meter
$23.09
$17.38
$18.00
$18.80
$19.47
$20.21
2” Meter
$25.58
$19.25
$19.95
$20.83
$21.57
$22.39
3” or Larger Meters
$62.40
$46.96
$48.65
$50.82
$52.62
$54.61
Volume Rate Over Allotment
$1.00
Monthly Volume Allotment
1,000 cf
0 cf
Monthly Residential 700 cf
$22.50
$23.05
$23.77
$24.36
$25.02
Change From Prior Year
+$1.91
+$0.56
+$0.71
+$0.59
+$0.66
Recommended rate structure removes allotment built into base rate
Corresponding reduction in base rate
Customers pay for all water usage

13. Capital Needs Forecast – Sewer
$1,836,800 in capital projects from 2018 – 2022
Cash resources are expected to provide enough cash funding to cover the utility’s projected capital costs without additional debt
Treatment Plant Improvements: $595,000
Conveyance Improvements: $626,000
Effluent/Disposal Improvements: $580,000
Equipment/Vehicle Replacements: $35,800

14. Sewer Revenue Requirement Forecast
Proposed
Projected
Annual Rate Adjustment
2.0%
Rate Increase Drivers
% of 5-Year Rate Increase
Funding capital and related reserves
100%

15. Recommended Sewer Rates
Existing
Proposed
Projected
Monthly Rate per EDU
$39.00
$37.77
$38.50
$39.25
$40.01
$40.78
Change From Prior Year
-$1.23
+$0.73
+$0.75
+$0.76
+$0.77
Equivalent dwelling units (EDUs) assigned to customers based on class:
Residential: 1 EDU per dwelling unit
Commercial: 1 EDU per cubic feet per month of “winter-average” water use
Existing structure defines winter period as January – March
Issue: January – March not a representative demand period for some customers
Proposed structure changes winter period to October – April
Customers with high irrigation in October and April assumed to reduce usage
Increases calculated commercial EDUs by 14% (≈ 100 EDUs)
Decreases residential bills by $1.23 per EDU (≈ 3%) relative to existing rates

16. Water/Sewer Bill Impacts Under Proposed Rates
Under the proposed structure, 742 customers (≈ 54%) would see an increase of up to $ in their average monthly water/sewer bill.
Under the proposed structure, 623 customers (≈ 46%) would see a decrease of up to $ in their average monthly water/sewer bill.

17. Combined Residential Utility Bill Forecast
Single-Family Residence (3/4” meter, 700 cf of water use per month)
Monthly Residential Bill Forecast
(Recommended Rates)
Existing
Proposed
Projected
Water 700 cf
$20.59
$22.50
$23.05
$23.77
$24.36
$25.02
Sewer Bill
39.00
37.77
38.50
39.25
40.01
40.78
Total
$59.59
$60.27
$61.55
$63.02
$64.37
$65.80
Change From Prior Year
+$0.68
+$1.28
+$1.47
+$1.35
+$1.43
% Change From Prior Year
+1.1%
+2.1%
+2.4%
+2.2%

18. Monthly Single-Family Bill Comparison
Assumptions:
5/8” Meter
Water Use: 7 ccf

19. Questions / Discussion

20. Chris Gonzalez (425) 867-1802 www.fcsgroup.com Project Manager
Contact FCS GROUP:
(425)