HomeMy WebLinkAbout05/21/2002, 2B - 2002 SEWER FUND REVIEW council M.
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CITY OF SAN LUIS OBISPO
FROM: John Moss,Utilities Direct
Prepared By: Sue Baaseh,Administrative alyst
SUBJECT: 2002 SEWER FUND REVIEW
CAO RECOMMENDATION
Review and file the 2002 annual sewer fund financial review.
DISCUSSION
This annual rate review for the sewer fund reviews our 2001-03 Financial Plan assumptions and
confirms the sewer fund can maintain fiscal health in 2002-03 with the currently approved 3.0%
rate increase. Last year Council adopted a two-year sewer rate resolution setting rates for both
2001-02 and 2002-03. The analysis shows that the proposed 2002-03 sewer operations and
capital projects can be supported by the projected revenues, and that the sewer fund is fiscally
healthy and compliant with all City policies.
Issues on the horizon
Regulatory demands for increased process control monitoring and facility performance will
continue to have a large financial impact on the sewer fund. By the time.Council reviews this
report, they will have heard staff's recommendations on the negotiations for the renewal of the
City's NPDES permit, a very complex document that sets the monitoring and discharge
requirements for the Water Reclamation Facility. This permit has very significant operational
and financial implications for the sewer fund. Any new requirements and costs resulting from a
revised NPDES permit will be included in the 2003-05 Financial Plan and next year's fund
analysis.
Rate Review Exhibits
Financial schedules providing detail for the sewer fund .analysis are provided in Exhibits A.1
through A.3. These include an analysis showing changes in working capital from 1999-00 to
2004-05; summary of key assumptions by year; and the proposed three year capital improvement
plan.
Rate Setting Methodology
In determining sewer revenue requirements and setting recommended rates, the following general
methodology is used:
Step 1: Determine Sewer Fund revenue requirements for:
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Council Agenda Report-2002 Sewer Fund Review
Page 2
■ Operations and maintenance
® Capital improvements and replacements
0 Debt service obligations (existing and projected)
Step 2: Subtract from this amount "non-rate revenues" such as:
■ Interest earnings
■ Connection fees
■ Other service charges (lateral installations and abandonments, etc.)
Step 3: Identify sewer rate requirements:
® Revenue needed to be generated from sewer rates is the difference between
sewer revenue requirements (Step 1) and "non-rate" revenues (Step 2).
Step 4: Determine new rates:
■ Model the rate base(consumption and customer account assumptions) against
the existing rate structure and rate requirements identified in Step 3.
Because this analysis is performed over a multi-year period, other factors are considered, such as
working capital available to support capital projects, debt service requirements, and minimum
working capital policy.
Summary of Key Assumptions
The following is a summary of key assumptions for expenditures and revenues:
1. Operations and maintenance costs are based on the preliminary 2002-03 Budget With an
inflation rate of 3%thereafter.
2. Sewer customer growth rate is projected at 1%.
3. Sales to Cal Poly are based on historic use and the 1998 Agreement with Cal Poly. This
agreement set the proportion (71%) of the commercial rate the University pays to account for
the University's difference from other customers (ownership percentage in the collection
system and at the Water Reclamation Facility). This agreement is currently under review as
its five year time frame will end June 3, 2002.
4. Capital improvement charges(development impact fees) are estimated based on inflation and
customer growth assumptions. This analysis assumes a varying percentage collection of these
fees (see Exhibit A-2). Development occurring under maps vested prior to impact fee
establishment pays only those fees in place at the time of approval.
S. Annual debt service payments of $2,135,700 are to repay the State Revolving Loan Funds
received by the City for the construction of the Unit 3 and 4 improvements to the Water
Reclamation Facility and collection system improvement("Relief Sewer Main").
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Council Agenda Report-2002 Sewer Fund Review
Page 3
6. Annual debt service is increased by $337,500 in 2004-05 to pay for the $4.5 million Tank
Farm Lift Station project.
Conclusion
This review concludes that no changes are necessary to the currently adopted rate resolution,
which increases rates by 3.0 percent in July 2002.
FISCAL IMPACT
In July 2002, the previously adopted three percent sewer rate increase establishes monthly sewer
service charges of$25.24 for single family dwellings. This is an increase of$0.74 per month
over the 2001 single family charges.
EXHIBITS
A. Sewer Fund Review
1. Changes in financial position
2. Assumptions for fund projections
3. Capital improvement plan
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