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HomeMy WebLinkAbout03/04/2003, C3 - RENEWAL AND UPDATE OF WATER AND SEWER RATE AGREEMENT WITH CALIFORNIA POLYTECHNIC STATE UNIVERSITY counatMarch 4 2003 j acEnba RepoRt '�Numb` c� C I T Y OF SAN LUIS O B I S P O FROM: John Moss, Utilities Director Prepared By: Sue Baasch SUBJECT: RENEWAL AND UPDATE OF WATER AND SEWER RATE AGREEMENT WITH CALIFORNIA POLYTECHNIC STATE UNIVERSITY CAO RECOMMENDATION By motion, approve and authorize the Mayor to execute the updated agreement with Cal Poly regarding water and sewer rate setting. DISCUSSION This agreement updates the 1998 water and sewer rate agreement with California Polytechnic State University. This is the second renewal of the initial 1993 agreement. The 1993 agreement established a mutually-approved methodology for calculating the University's appropriate water and sewer rates, based upon the University's owning its own source of supply and making capital contributions to the Water Treatment Plant and Water Reclamation Facility upgrade projects. The 2003 updated agreement maintains the basic methodology of recognizing the University's unique customer profile while charging the University for its fair share of water and sewer expenses. Five-year extensions to this agreement are automatic, as long as all conditions (other than updates to the applicable five year ratios)remain the same. The methodology reviews five years of financial data to determine the University's appropriate percentage of water and sewer non-residential rates,. In the proposed agreement, staff analyzed five years of financial data from fiscal years 1999-2000 through 2003-2004. In prior agreements, staff analyzed projected years of financial data; this agreement modifies the applicable fiscal years to past and current years, as well as two future years, to have more accurate information. As agreement negotiations began in fiscal year 2001-2002 for a renewal in fiscal year 2002-03, the appropriate five years of financial data analyzed in this agreement are 1999-00, 2000-01, 2001-02, 2002-03, and 2003-04. , The University's applicable ratio to be applied to the non-residential water rate changed from 53% to 61%, while the applicable ratio to be applied to the non-residential sewer rate changed from 71% to 74%. The agreement and ratio schedules are attached. The schedules define the methodology used and summarize the calculations that set the appropriate percentage of the water and sewer commercial rate applicable to the University. es -1 Council Agenda Report—Renewal of Water and Sewer Rate Agreement with Cal Poly Page 2 The agreement calls for an annual review of the applicable ratios and any major assumptions significantly changing the applicable ratios. CONCURRENCES The Finance Department concurs with the renewal of this agreement and the modification to the five fiscal years to be used in the analysis. FISCAL IMPACT This agreement modifies the applicable percentage of the water and sewer non-residential rate to be paid by California Polytechnic State University. Currently, the University pays 53% of the commercial water rate. Under the new agreement this increases to 61% of the commercial water rate. As with any other customer, water rate changes are applicable to the University; the difference is they will pay 61% of the adopted water rate. The University currently pays 71% of the non-residential sewer rate. Under the new agreement this increases to 74%. As with any other customer, sewer rate changes are applicable to the University; the difference is they will pay 74% of the adopted sewer rate. ATTACHMENT Attachment 1 - Agreement between the City of San Luis Obispo and California Polytechnic State University Regarding Water and Sewer Rates ATTACHMENT AGREEMENT BETWEEN THE CITY OF SAN LUIS OBISPO AND CALIFORNIA.POLYTECHNIC STATE UNIVERSITY REGARDING WATER AND SEWER RATES THIS AGREEMENT, made this day of 2003, 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 agree that this agreement is solely for the purpose of establishing appropriate water and sewer rate structures based on the 1993 Agreement between the City of San Luis Obispo and CaVomia Polytechnic State University Regarding Water and Sewer Rates dated January 5, 1993,. the Agreement between the City of San Luis Obispo and Califomia Polytechnic State University Regarding Optional Equity Interest in the Water and Sewer Systems dated January 5, 1993 and the Memorandum of Understanding between the City of San Luis Obispo and California Polytechnic State University dated January 6, 1993; and WHEREAS, the City and the University entered into a new methodology of calculating rates in January 1993, and recalculated the rates in 1998; and WHEREAS, the City and the University agreed at that time to a rate structure which ties the University to the City's approved Non-residential rate structure and periodic rate review, while reflecting the Un.iversity's unique differences from other City customers; and WHEREAS, it is agreed that the University is exempt from all City Water Source of Supply costs as it has its own.source of supply in the Whale Rock Reservoir and as a member agency of the Whale Rock Commission pays separately for its water supply costs; and NOW, THEREFORE, in consideration of their mutual covenants, the parties hereto agree as follows: 1. RATE STR!1CTLIRE METHODOLOGY The University's rate structure for both water and sewer shall be based on whatever the current rate is for City Non:residential 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 �3-3 Rate Agreement 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 Non-residential water rate structure shall be determined by the City. The City shall prepare a five year analysis 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). The University's rate structure will be based only on those expenses related to water treatment and distribution, less any capacity 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 sets forth this analysis for the period beginning with the execution of this Agreement and extending until June 30, 2007, and shall serve as an example for determining any changes to the ratio in subsequent five year periods. Schedule A to this Agreement shows the current five .year expense analysis 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 Non-residential sewer rate structure shall be determined by the City. The City shall prepare a prospective five year analysis of the expenses for the City's sewer system. These expenses shall be divided appropriately according to operational, capital and debt service expenses for three components: collection, pretreatment and treatment. The University s rate structure will be based on the expenses for these components less any capacity interest in the system purchased by the University. The division of expenses in this manner will therefore appear as a matrix (three columns labeled collection, pretreatment, and treatment; three rows labeled operations and maintenance, capital outlay, and debt service as one or more rows). Schedule B sets forth this analysis for the period beginning with the execution of this Agreement and extending until June 30, 2007, and shall serve as an example for determining any changes to the ratio in subsequent five year periods. Schedule B to this Agreement shows the current five year expense analysis and related percentages as described above. In addition, the schedule provides a step by step description of the Page 2 Of 5 2/7/03.final Rate Agreement 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 analysis compared to actual expenses. Any major assumptions significantly changing the established ratio will be discussed. City will forward to University the rate report and supporting documentation no later than May of each year. City will also forward to University the ratio report and supporting documentation no later than October of each year. The parties will meet no later than January of each year to discuss in good faith any major assumptions significantly changing the established ratio. 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 Five year 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. 6. COMPLETE AGREEMENT This written Agreement, including the 1993 Agreement between the City of San Luis Obispo and California Polytechnic State University Regarding Water and Sewer Rates dated January 5, 1993, attached hereto as Exhibit A; the Agreement between the City of San Luis Obispo and California Polytechnic State University Regarding Optional Equity Interest in the Water and Sewer Systems dated January 5, 1993, attached hereto as Exhibit B; and the Memorandum of Understanding between the City of San Luis Obispo and California Polytechnic State University dated January 6, 1993, attached hereto as Exhibit C, 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. Page. 3 of 5 2/7/03.final Rate Agreement 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 Services City of San Luis Obispo Cal Poly State University 879 Morro Street San Luis Obispo, CA 93407 San Luis Obispo, CA 93401 Matthew J. Roberts, Director Contract and Procurement Services Cal Poly State University San Luis Obispo, CA 93407 8. JOINT WORK PRODUCT This agreement is the joint work product of both parties; accordingly, in the event of ambiguity no presumption shall be imposed against either party by reason of document preparation.. 9. RELATIONSHIP OF PARTIES City and the agents and employees of City in the performance of this agreement shall act in an independent capacity and not as officers or employees or agents of University. The employees of University who participate in the performance of this agreement are not agents of the City. 10. AUTHORITY TO FXE . 1TF AGRFFMFNT Both City and University 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 parry. Page 4 of 5 2/7/03.finai e3-Le Rate Agreement 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 : Lee Price, City Clerk Dave Romero, Mayor APPROVED AS TO FORM: Gil Trujillo, ing Attomey UNIVERSITY: By: Matthew Roberts, Director Contract and Procurement Services By: Ed Johnson, Energy Coordinator Facilities Services UNIVERSITY Page 5 of 5 2/7/03.fina1 C3 -�l i SCHEDULE A-1. Steps to setting Cal Poly's appropriate share of the non-residential water rate O The City shall prepare a five year schedule of expenses for the City's water system. The five year period will include the last two historical years,the current year, and two prospective years. 8 These expenses shall be divided appropriately according to operational, capital or debt service. Each of these categories will be further divided according to whether it 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 as set forth in the City's capital improvement plan. 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 treat raw water from the City's sources 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 chose to be a partner in the 1996 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 labeled"Percent Applicable to Cal Poly". ® The five annual percentages will be totaled and then divided by five to determine the average percentage of the rate applicable to Cal Poly, based on the five year schedule of expenses. This is the percentage of the Non-residential rate that will be charged to Cal Poly for the five year period. M The Non-residential rate itself will vary according to the rates set by City Council each year. 2.7.03.final C3-� WATER RATE SCHEDULE A Cal Poly State University Schedule of Applicable Ratio: Proposed Method Summary of Water Cost Components for 1999-2000 Source of Supply Treatment „ Distribution Total Operations and Maintenance 3,201,300 _ Y,120,100 ` 1;238,200 ! 5,559,600 Capital Outlay 121,700 [ 0 2,475,2001 2,596,900 Debt Service 60,300 784,800 36,7001 881,800 Total 3,383,300 1,904,900 F----3,750,100-i 9,038,300 Pe Applicable to Cal Poly - - 129/0 41'/a 54%) Summary of Water Cost Components for 2000-2001 Source of Supply Treatment Distribution Total Operations and Maintenance 1,370,600 ( 1,501,400 1,382,5001 4,254,500 Capital Outlay 312,800 0 22632001 2,576,000 Debt Service 59,800L _ 937,400 . . .216,106 i 1,213,300 Total 1,743,200 2,438,800 l _ 3;861,800.1 8,043,800 Percent Applicable to Cal Poly _ - Summary of Water Cost Components for 2001-2002 Source of Supply Treatment Distribution Total Operations and Maintenance 1,820,700 1,624,500- 11493,1 , 4,938,300 Capital Outlay 1,552,700 'L 236,600 3,967,9001 5,757,200 Debt Service 52,900 914,800 € 191,3004 1,159,000 Total 3,426,300 2,775,900 1 5,652,300; 11,854,500 Percent Applicable to Cal Poly 16% 48%° 631/6 Summary of Water Cost Components for 2002-2003 Source of Supply Treatment Distribution Total Operations and Maintenance 1,732,800 1650,800 1,551,1001 4,934,700 Capital Outlay 460,000E 0 1,535,000 ? 1,995,000 Debt Service 404,600_ 910,700 1 182,000._1 1,498,200 Total . 2,597,400 2;561,500 s.. .3,269,000'1. 8,427,900 Percent Applicable to C__.. _Ppr_ - ._. ry m 20% 39%° 58%l Summary of Water Cost Components for 2003-2004 Source of Supply Treatment Distribution Total Operations and Maintenance 1,784,800 1 1,700,400- 1,597,6001 5,082,800 Capital Outlay 2,017,100 L 3,266,600. 1,781,3001 7,065,000 Debt Service 404,500 907,700 _ . .182,600-1 1,494,800 Total -4,206,400 - 5,874,700 c 3,56-1-,5001 13,642;600 Percent.Applicable to Cal Poi -- -_: 36° 26% - '-63%l 0,3-q SCHEDULE B-1. - Steps to setting Cal Poly's appropriate share of the non-residential sewer rate © The City shall prepare a five year schedule of expenses for the City's sewer system. The five year period will include the last two historical years, the current year, and two prospective years.. e These expenses shall be divided appropriately according to operational, capital or debt service. Each of these categories will be further divided according to whether it 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 Operatfons and Maintenance The portion of the budget that pertains to daily operations and delivery of basic governmental services. The four sewer program budgets in the City's financial.plan form the Sewer 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 as set forth in the City's capital improvement plan. 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 Non-residential and industrial sources. Treatment The cost to 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 chose to be a partner in the 1996 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 labeled"Percent Applicable to Cal Poly'. © The five annual percentages will be totaled and then divided by five to determine the average percentage of the rate applicable to Cal Poly, based on the five year schedule of expenses. This is the percentage of the Non-residential rate that will be charged to Cal Poly for the five year period. The Non-residential rate itself will vary according to the rates set by City Council each year. 2/7/03.final G3-lD` SEWER RATE SCHEDULE.B Cal Poly State University Schedule of Applicable Ratio: Proposed Method 00 - 04 740/6 Summary of Sewer Cost Components for 1999-00 Collection Pretreatment Treatment Total Operations and Maintenance 716;700 236,200 2,569,000 3,521,900 Capital Outlay 696,000 13,200 202,000 911,200 Debt Service 249,800 0. _ 1,885,900 2,135,700 Total 1,662,5001 249,4001 4,656,900 6,568,800 Percent Applicable to Cal Poly - 22% --- 40/6 - 42% 67%� Summary of Sewer Cost Components for 2000-01 Collection Pretreatment Treatment Total Operations and Maintenance 791,700 267,200 2;997;700 4,056,600 Capital Outlay 1,476,000 0 129,500 1,605,500 Debt Service 249,800 0 1 1,885,900 2,135,700 Tota_ I 2,517,500 1 267,200 1 5,013,100 7,797,800 Percent Applicable to Cal Poly 29% 3% 40% 73% Summary of Sewer Cost Components for 2001-02 Collection Pretreatment Treatment Total Operations and Maintenance 852,900 273,100 316%,800 4,785;800 Capital Outlay 2,430,600 0 1,749,700 4,180,500 Debt Service 24000 0 1,885,900 2,135,700 Total 3,533,5001 -273,1001 7;295,400 11,102,000 ,Percent Applicable to Cal Poly 30% -- 2% 490/6-- - -81'%1 Summary of Sewer Cost Components for 2002-2003 Collection Pretreatment Treatment Total Operations and Maintenance 875,800 285,800 3,732,600 4,894,200 Capital Outlay 675,000 0 460,000 1,135,000 Debt Service- Prepaid 249,800 0 1,885,900 2,135;700 Total 1,800,6001 285,800-1 6,078,500 81-164,900 Percent Applicable to Cal Poly 19% 4% - 51% '74%) Summary of Sewer Cost Components for 2003-2004 Collection Pretreatment Treatment Total Operations and Maintenance 902,000 294,300 3,844,600 5,040;900 Capital Outlay 140,000 0 340,000 1,080;000 Debt Service - Prepaid 249,800 0 1,885,900 2,135,700 Total 1,891,800 i 294,300 6,070,500 8,256,600 Percent Applicable to Cal Poly ---20% - - - 4% o 0 _ 51 ! 74/o► C3-l