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HomeMy WebLinkAbout04/07/1998, C-15 - RENEWAL OF WATER AND SEWER RATE AGREEMENT WITH CALIFORNIA POLYTECHNIC STATE UNIVERSITY D. council April 7, 1998 JL1 ac,EnOA uEpout CITY OF SAN LUIS 0BISP0 FROM: John Moss,Utilities Director�� Prepared By: Sue Baasch, Administrative alysug�o SUBJECT: RENEWAL OF WATER AND SEWER RATE AGREEMENT WITH CALIFORNIA POLYTECHNIC STATE UNIVERSITY CAO RECOMMENDATION By motion, approve the renewal of the water and sewer rate agreement, as updated, with California Polytechnic State University and authorize the Mayor to execute same. DISCUSSION The proposed 1998 agreement between the City and California Polytechnic State University would update the current agreement by eliminating sections that are no longer appropriate, maintaining the methodology for rate setting, and updating the schedules that establish the 1998- 2002 University percentage of the commercial water and sewer rates. In 1993, the City and California Polytechnic State University entered into a water and sewer rate agreement that established a new methodology for calculating the appropriate water and sewer charges for the University. The 1993 agreement was the result of a number of months of discussion on how to ensure that the University paid its fair share for water and sewer, while also providing a method to account for the University's unique customer characteristics. The University, unlike any other city utility customer, has its own water supply and has historically purchased an equity share in major improvements to the water and sewer system. Purchasing an equity share in the system allows the University to reduce its water and sewer rates by the amount of the rate that supports the debt service component of a particular upgrade project. Eliminated Sections The sections eliminated from the 1998 agreement are those that pertained to phasing in the new rate setting over a period of five years and those offering the option to purchase an equity interest in the 1995 water treatment plant upgrade and the 1991-93 Water Reclamation Facility and collection system upgrade. The rate setting is now fully phased-in, and the University has exercised the equity option by paying over $4 million to the City water and sewer funds in January 1997. c-�s-� Council Agenda Report—Renewal of Water and Sewer Rate Agreement with Cal Poly Page 2 Rate Setting Methodology The methodology approved in the 1993 agreement and continued in the 1998 agreement is based on the desire to tie the University to the City's approved rate structure and periodic rate reviews and adjustments, while reflecting the University's unique differences from other utility customers. This is accomplished through categorizing annual expenses by component and type (see Schedules A, A-1, B, and B-1) for each of the five years. Schedule A shows the water expense matrix. Each year identifies cost by source of supply, treatment and distribution components, and operational, capital and debt service cost types. Schedule B shows the sewer expense matrix. Each year identifies cost by collection,pretreatment, treatment components, and operational, capital and debt service cost types. Water Rate Schedule The Water Rate Schedule (A and A-1) establishes the University's appropriate percentage of the water rate for the 1998-2002 time period as 53%. This calculation is based on the five year average of the University's appropriate share of the projected water system costs. This is an increase from the 39% of the previous five years. The change in appropriate percentage is due to a shift from the first five year period in the proportionate expenses from source of supply to distribution and treatment. The University pays no source of supply costs as it owns its own water supply at Whale Rock reservoir. The University is also exempted from treatment debt service expenses as it paid an equity share to cover its proportionate share of the upgrade of the Water Treatment Plant. When source of supply expenses (operating, capital and debt service costs types) as well as treatment debt service costs are eliminated from the University's rate, the resulting five year percentage of applicable costs is 53%. This percentage will be reviewed annually and reset every five years through the Water Rate Schedule(A and A-1) attached to this agreement. Sewer Rate Schedule The Sewer Rate Schedule (B and B-1) establishes the University's appropriate percentage of the sewer rate for the 1998-2002 time period as 71%. This calculation is based on the five year average of the University's appropriate share of the projected sewer system costs. This is about the same as the 70% set in the previous five years. The University is exempted from treatment or collection system debt service costs as it paid an equity share to cover its proportionate share of the upgrade of the Water Reclamation Facility and collection system. When treatment and collection debt service costs are eliminated from the University's rate,the resulting five year percentage of applicable costs is 71%. Council Agenda Report—Renewal of Water and Sewer Rate Agreement with Cal Poly Page 3 This percentage will be reviewed annually and reset every five years through the Sewer Rate Schedule (B and B-1) attached to this agreement. CONCURRENCES The Finance Department has reviewed this recommendation and concurs. FISCAL IMPACT Approval of the recommended agreement and attached schedules will increase the University's water charges by 14% and sewer charges by 1%for the 1998 -2002 time period. The percentage will be reset in the next five year period. The anticipated affect of the 1998 - 2002 schedule is to increase revenues in the water fund by about $45,000 annually, and in the sewer fund by about $3000 annually, for each of the remaining four years. ATTACHMENT Agreement between the City of San Luis Obispo and California Polytechnic State University Regarding Water and Sewer Rates AGREEMENT BETWEEN THE CITY OF SAN LUIS OBISPO AND CALIFORNIA POLYTECHNIC STATE UNIVERSITY REGARDING WATER AND SEWER RATES THIS AGREEMENT, made this day of 1998, by and between the CITY OF SAN LUIS OBISPO, CALIFORNIA (hereinafter referred to as "City"), and CALIFORNIA POLYTECHNIC STATE UNIVERSITY (hereinafter referred to as "University"). WITNESSETH: WHEREAS, the City and the University entered into a new methodology of calculating rates in January, 1993, and the term of that agreement was five years; and WHEREAS, the City and the University agreed at that time to a rate structure which ties the University to the City's approved rate structure and periodic rate _._.. . . _ ..review, while .reflecting the . University's unique differences from other City customers; and WHEREAS, it is the desire of both parties to continue this approach in calculating water and sewer rates. NOW, THEREFORE, in consideration of their mutual covenants, the parties hereto agree as follows: 1. RATE STRUCTURE METHODOLOGY The University's rate structure for both water and sewer shall be based on whatever the current rate is for City commercial accounts as modified by a percentage ("ratio") that accounts for that part of the rate structure that is applicable to the University. This ratio shall be established as outlined in paragraphs 2 and 3, and shall be re-set every five years. The calculation of the current ratio for water charges is shown in Schedule A to this agreement. The calculation of the current ratio for sewer charges is shown in Schedule B to this agreement. 2. SETTING A WATER RATE RATIO The ratio to be applied to the commercial water rate structure shall be determined by the City. The City shall prepare a prospective five year projection of the expenses for the City's water system. These expenses shall be divided appropriately according to operational, capital and debt service for three components: source of supply, treatment and distribution. The division of expenses in this manner will therefore appear as a matrix of nine (three columns labeled source of supply, treatment, and distribution; three rows labeled operations and maintenance, capital outlay, and debt service). Rate Agreement Page 2 The University's rate structure will be based only on those expenses related to water treatment and distribution, less any equity interest in the system purchased by the University. The University shall not pay the percentage cost of those components related to Source of Supply, as the University has its own source of supply from Whale Rock reservoir. Schedule A to this Agreement shows the current five year expense projections and related percentages as described above. In addition, the schedule provides a step by step description of the ratio-setting method. 3. SETTING A SEWER RATE RATIO The ratio to be applied to the commercial sewer rate structure shall be determined by the City. The City shall prepare a prospective five year projection of the expenses for the City's sewer system. These expenses shall be divided appropriately according to operational, capital and debt service for three components: collection, pretreatment and treatment. The division of expenses in this manner will therefore appear as a matrix of nine (three columns labeled source of collection, pretreatment, and treatment; three rows labeled operations and maintenance, capital outlay, and debt service). Schedule B to this Agreement shows the current five year expense projections and related percentages as described above. In addition, the schedule provides a step by step description of the ratio-setting method. 4. AMENDMENTS TO THE RATIO Annual review. It is the intent of both parties to meet annually to review the prior year's projection compared to actual expenses. Any major assumptions significantly changing the established ratio will be discussed. Resetting the ratio. In the event the City and University cannot reach agreement on the proposed applicable ratio for the next five years, the ratio in existence at that time shall remain in effect until agreement is reached. The parties agree to cooperate and use their best efforts to reach agreement on the proposed ratio in an expeditious manner. 5. AMENDMENTS TO THIS AGREEMENT Extensions to the term of this agreement shall be automatic, as long as all conditions described (other than the five year ratio) remain the same. Any amendment, modification, or variation from the terms of this Agreement shall be in writing and shall be effective only upon approval by both parties Rate Agreement Page 3 6. COMPLETE AGREEMENT This written Agreement, including all writings specifically incorporated herein by reference, shall constitute the complete agreement between the parties hereto. No oral agreement, understanding, or representation not reduced to writing and specifically incorporated herein shall be of any force or effect, nor shall any such oral agreement, understanding, or representation be binding upon the parties hereto. 7. NOTICE The City shall provide the University with at least the same notice of proposed changes in water and sewer rates as other City customers. All notices related to this agreement shall be in writing and addressed as follows: University City Ed Johnson, Energy Coordinator Utilities Department Facilities Planning City of San Luis Obispo Cal Poly State University 955 Morro Street San Luis Obispo, CA 93407 San Luis Obispo, CA 93406 Ray Macias, Director Support Services Cal Poly State University San Luis Obispo, CA 93407 8. AUTHORITY TO EXECUTE AGREEMENT Both City and Contractor do covenant that each individual executing this agreement on behalf of each party is a person duly authorized and empowered to execute Agreements for such party. Rate Agreement Page 4 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed the day and year first above written. ATTEST: CITY OF SAN LUIS OBISPO, A Municipal Corporation By: Bonnie Gawf, City Clerk Mayor Allen Settle APPROVED AS TO FORM: UNIVERSIT By: Ray vias, C.P.M. /Ci*'Attfirne Director of Support Services G-/S- 7 WATER RATE SCHEDULE A Cal Poly State University 1997-02 Schedule of Applicable Ratio 53% Summary of Water Cost Components for 1997-98 Source of Supply Treatment Distribution Total Operations and Maintenance 1,799,800 12fi$;5.00'x;;;>i'1287;1'00: 4,355,400 Capital Outlay 163,696 481717..,;. ..:.2,54%1844;' 3,195,300 Debt Service 262,900 945,900 ':j"::'::' > 4j70Ai: 1,433,500 Total 2,226,396 2,696,117 :: 4 0&1,688::: 8,984,200 PercAppo.-Ca . 5 . 54 °° 9b Summary of Water Cost Components for 1998-99 Source of Supply Treatment Distribution Total Operations and Maintenance 1,842,700 ;<`;':?';?:1284;600 !2..68;40Q': 4,395,700 Capital Outlay 0QO:i;j=;' 113fl001,658,000 . Debt Service 837,200 947,300 i>>?' °::»?226;000.':: 2,010,500 Total 2,679,900 2,776,900 s;::;'22.607;400 8,064,200 Percent AppL�ble.to CaE Poly 23% : 32°!° : 4 55°Jri Summary of Water Cost Components for 1999-00 Source of Supply Treatment Distribution Total Aerations and Maintenance 1,882,400 ;:. :.7;329;700 :;::'::_;:::;::7:;343;200.1::: 4,561,300 Capital Outlay 0 715,000 1050,000:: 1,165,000 Debt Service 960,900 945,500 ;';;::;; <:;:_22:4;400: 2,130,800 Total 2,843,300 2,390,200 : j : 2 U3,000.: 7,857,100 Perpent Applicablav CaI Poly 18% 33%. Summary of Water Cost Components for 2000-01 Source of Supply Treatment Distribution Total Operations and Maintenance 1,938,800 ; ;:;;:; 1''3fi360Q; j ;:':1 :389;70.0;; 4,698,100 Capital Outlay 0 ,..,...,:..1..,.7!00,DDO;,; ;1,ODQD00 2,100,000 .: ::......:.:::..:..:..::... Debt Service 910,600 946,600 0Q>> 2,084,100 Total 2,849,400 3,416,200 ;; ii .2fi1fifi00 8,882,200 P >: :::.:.:.::...,:.,..;;.:;•;:>:>•;:>:> ............::...:.:.:.:::..........:,.....:......:....:.:.:::. erces€Appllcabfe to CaC Pofy: :::::..:..:....:.:..::: :::...:.: 281 .: Summary of Water Cost Components for 2001-02 Source of Supply Treatment Distribution Total Operations and Maintenance 5,018,800 > ;1s� 1`7:0'900>:, ,;:; :j11'88.000 . 7,377,700 Capital Outlay 0 ._. 0.:i ....1,000.000 1,000,000 Debt Service 910,400 944,700 ..2 2,081,400 Total 5,929,200 2,115,600 :'.....:i2 414 3Q0 10,459,100 .Percent Ap.plicable..to Cal Poly 11% : 23% 34 6 SCHEDULE A-1. -Steps to Setting Cal Poly's appropriate share of the commercial water rate © The City shall prepare a prospective five year projection of the expenses for the City's water system. © These expenses shall be divided appropriately according to operational, capital or debt service. Each of these categories will be further divided according to whether is a source of supply, treatment or distribution expense. The information for each year will be shown in a matrix, at the bottom and right of which will appear the totals for that row and that column. TABLE OF DEFINITIONS Operations and Maintenance The portion of the budget that pertains to daily operations and delivery of basic governmental services. The six water program budgets in the City's financial plan form the Water Fund's operating budget Capital Outlay The portion of the budget that pertains to maintaining or replacing existing public facilities and assets, and for building or acquiring new ones. The Capital Outlay only includes projects that cost$15,000 or more; capital projects costing less that$15, 000 are included in the operating budget For the purpose of the Cal Poly ratio-setting model, any project that is debt-financed will not show in the capital outlay expense category. It will show in debt service. Debt Service Payments of principal and interest on bonds and other debt instruments according to a pre- determined schedule. Source of Supply Those water expenses directly related to the City's water supply from Whale Rock and Salinas Reservoirs and groundwater. It also includes water conservation expenses, as this has been the key to reducing City water demand, effectively creating more water by reducing the need to create additional water supply. Development of new water supply projects fall into this category. Treatment The cost to receive raw water from the City's sources, treat it to meet potable water standards, and deliver it into the water distribution system. Distribution The cost to deliver potable water from the water treatment plant to customers and fire hydrants via the distribution infrastructure. Monthly meter reading and billing (customer service) are included as distribution expenses. © Expenses applicable to Cal Poly will be shaded. For example, Cal Poly has its own source of supply, so the source of supply expenses are not shaded. Cal Poly has chosen to be an equity partner in the recent upgrade of the water treatment plant, and has prepaid all of its share of these costs. Therefore, Cal Poly is excluded from the debt service component of the treatment expenses(hence debt service is not shaded). © The percentage of the shaded expenses to the total expenses will be calculated each year on the line labelled"Percent Applicable to Cal Poly". © The fire annual percentages will be totalled and then divided by five to determine the average percentage of the rate applicable to Cal Poly, based on the five year projection of expenses. This is the percentage of the commercial rate that will be charged to Cal Poly for the five year period. 0 The commercial rate itself will vary according to the rates set by Council each year. SEWER RATE SCHEDULE B Cal Poly State University 1997-02 Schedule of Applicable Ratio Summary of Sewer Cost Components for 1997-98 Collection Pretreatment Treatment Total Operations and Maintenance 689,127 232,146 2,572,027 3,493,300 Capital Outlay 555,122 0 737,178 1,292,300 Debt Service 249,765 0 1,885,916 2,135,680 Total 1,494,014 232,146 5,195,120 6,921,280 Percent Applicable to Cal Poly 18% 3% 48% 69% Summary of Sewer Cost Components for 1998-99 Collection Pretreatment Treatment Total Operations and Maintenance 659,654 224,905 2,577,241 3,461,800 Capital Outlay 769,414 0 259,586 1,029,000..; Debt Service 249,765 0 1,885,915 2,135,680 Total 1,678,833 2.24,905 4,722,742 6,626,480 Percent Applicable to Cal Poly 22% 3% 43% -.68%. Summary of Sewer Cost Components for 1999-00 Collection Pretreatment Treatment_ Total Operations and Maintenance 715,883 241,228 3,587,089 4,544,200;: Capital Outlay 771,212 0 246,788 1,018,000 Debt Service 249,765 0 1,885,916 2,135,680 Total 1,736,860 241,228 5,719,792 7,697,880 Percent Applicable to Cal Poly 19% 3% 50% 72% Summary of Sewer Cost Components for 2000-01 Collection Pretreatment Treatment Total Operations and Maintenance 737,305 248,463 3,694,732 4,680,500 Capital Outlay 780,405 0 297,595 1,078,000 Debt Service 249,765 0 1,885,916 2,135,680 Total 1,767,475 248,463 5,878,243 7,894,180 Percent Applicable to Cal Poly 19% 3% 51% 73% Summary of Sewer Cost Components for 2001-02 Collection Pretreatment Treatment Total Operations and Maintenance 759,415 255,975 3,805,611 4,821,000 Capital Outlay 750,000 0 270,000 1,020,000 Debt Service 249,765 0 1,885,916 2,135,680 Total 1,759,179 255,975 5,961,526 7,976,680 Percent Applicable to Cal Poly 19% 3% 51% 73% e-is-le SCHEDULE B-1. Steps to Setting Cal Poly's appropriate share of the commercial sewer rate © The City shall prepare a prospective five year projection of the expenses for the City's sewer system. © These expenses shall be divided appropriately according to operational, capital or debt service. Each of these categories will be further divided according to whether is a collection, pretreatment or a treatment expense. The information for each year will be shown in a matrix, at the bottom and right of which will appear the totals for that row and that column. TABLE OF DEFINITIONS Operations and Maintenance The portion of the budget that pertains to daily operations and delivery of basic governmental services. The six water program budgets in the City's financial plan form the Water Fund's operating budget. Capital Outlay The portion of the budget that pertains to maintaining or replacing existing public facilities and assets, and for building or acquiring new ones. The Capital Outlay only includes projects that cost$15,000 or more; capital projects costing less that$15, 000 are included in the operating budget For the purpose of the Cal Poly ratio-setting model, any project that is debt-financed will not show in the capital outlay expense category. It will show in debt service. Debt Service Payments of principal and interest on bonds and other debt instruments according to a pre- determined schedule. Collection Those sewer expenses directly related to the collection and transportation of wastewater from its various sources to the water reclamation facility. Pretreatment The cost of the program whose goal is to prevent toxic waste from entering the wastewater collection system at commercial and industrial sources. Treatment The cost to receive, treat, and dispose of municipal wastewater. All disposal must strictly comply with the State Health and Regional Water Quality board's requirements for discharge into the creek or disposal of biosolids. © Expenses applicable to Cal Poly will be shaded. For example, Cal Poly has chosen to be an equity partner in the recent upgrade of the water reclamation facility and the collection system, and has prepaid all of its share of these costs. Therefore, Cal Poly is excluded from the debt service component of the collection and treatment expenses(hence debt service is not shaded in these two columns). ® The percentage of the shaded expenses to the total expenses will be calculated each year on the line labelled "Percent Applicable to Cal Poly". © The five annual percentages will be totalled and then divided by five to determine the average percentage of the rate applicable to Cal Poly, based on the five year projection of expenses. This is the percentage of the commercial rate that will be charged to Cal Poly for the five year period. 0 The commercial rate itself will vary according to the rates set by Council each year.