Memorandum

City of Lawrence

Utilities Department

TO:	David L. Corliss – City Manager Cynthia Wagner – Assistant City Manager Diane Stoddard – Assistant City Manager
FROM:	Jeanette Klamm – Management Analyst
CC:	Dave Wagner – Director of Utilities Mike Lawless – Deputy Director of Utilities Ed Mullins – Finance Director Casey Toomay – Budget Manager
DATE:	May 13, 2014
RE:	2015 Water and Wastewater Rates

For 2015 water and wastewater rates, staff has prepared 2 rate scenarios, which include Phase I and Phase II of Taste & Odor. Phase I Taste & Odor requires a 6% revenue increase for water and a 4% revenue increase for wastewater. Phase II Taste & Odor, which includes Phase I improvements, requires a 10% revenue increase for water and a 4% revenue increase for wastewater. Staff recommends Phase I Taste & Odor scenario because it is necessary for both phases and may be sufficient for meeting taste and odor treatment needs until regulatory changes require advanced treatment processes.

In March of 2013, the City Commission adopted the Water and Wastewater 2013-2017 Capital Improvement Plan (CIP) for Scenario 5 – Taste, Odor, & Microtoxins, based on the 2012 Water and Wastewater Integrated Plans. The projects included in this plan address the City’s needs for replacement and maintenance of existing infrastructure, meeting future regulatory requirements, and wastewater capacity needs with the addition of the Wakarusa Wastewater Treatment Plant. Additional capital improvement projects that have been funded within the plan include Pump Station No. 4 Force Main improvements and emergency sewer repairs on New York Street alley.

The following CIP project list includes projects that were started in 2013 or early 2014 and their expected completion date:

• UT0701 Kaw WTP Transmission Main – September 2014
• UT1201 & UT1202 Elec/Mech Contract 2 Kaw WTP Electrical and Low Service 2 Improvements; Clinton WTP MCC Replacement, Raw Water Transmission Main Repairs, Filter Influent Pipe and Master Backwash Valve Replacement – June 2014
• UT1102 Kaw WTP Intake – July 2014
• UT 1205 South Lawrence Trafficway Water and Sanitary Sewer Relocations at 31^st and Haskell and 31^st and Louisiana – November 2017.
• UT1210 K10 and Bob Billings Parkway Interchange Sanitary Sewer Relocations – Fall 2016.
• UT1202 Pumps Station PS04 Force Main – May 2014.
• UT1307 Oread Tank Replacement – 2016.
• UT1313 Mississippi Street Watermain Rehabilitation – Spring 2015
• UT1308 North Iowa Watermain Rehabilitation – June 2014.
• UT1309 23^rd Street – Phase I (Louisiana to Alabama) – August 2014
• UT1312 Bob Billings Parkway (Bob White to GWW) – Fall 2014.
• UT1305 Rapid Inflow & Infiltration Reduction Program – On-going
• UT1304 Wakarusa Wastewater Treatment Plant and Conveyance – Completion in 2018. Currently in final design phase. Anticipate starting construction of roads and site fill site in summer 2014.
• Large Valves Replacement - October 2014.
• UT1316Clinton WTP Concrete Transmission Main Assessment – May 2014.
• UT 1310 Booster Pump Stations Improvements Evaluation – Fall 2014
• UT 1403 Stratford Elevated Tank Evaluation – Fall 2014

The following CIP projects were started in 2013 or early 2014 and have been completed:

• UT1309 23^rd Street Watermain Rehabilitation – Phase III (Iowa Street to Ousdahl) – March 2014.
• UT1206 O’Connell Road Watermain Extension – October 2013.
• UT1212 2013 Cured-In-Place-Pipe (CIPP) – December 2013.
• UT1211 Clinton Filter Media Rehabilitation – September 2013.
• UT1209 Taste and Odor Study – January 2014.

The following CIP projects are planned through funding from Resolution #7062 and anticipate start up in 2014 or early 2015:

• UT1417 Clinton Intake Electrical and Mechanical Modifications
• Water Plant Structural Repairs
• UT1418 Kaw Water Treatment Plant MCC Replacement
• Phase I Taste & Odor process improvements
• UT1314 Lawrence Avenue Watermain Rehabilitation
• UT1315 Arkansas Watermain Rehabilitation
• UT1409 Avalon Road Watermain Rehabilitation
• UT1413 Homstead Road Watermain Rehabilitation
• New Wakarusa WWTP, Influent Pump Station, and Force Mains (continued funding)
• Rapid Inflow/Infiltration Reduction Program (continued funding)

In 2013, the City Commission approved a memorandum of understanding between the City of Lawrence and the Kansas Department of Health and Environment. This MOU acknowledged and formally accepted the City’s Integrated Municipal Wastewater Plan, which includes all wastewater capital projects outlined in the CIP and in the 2012 Wastewater Master Plan.

Addressing aging water and wastewater infrastructure continues to require significant investment to maintain the quality or service expected by customers and required by regulations, resulting in increasing water and wastewater rates. The planned projects for 2015 include a continuation of the adopted 2013-2017 Capital Improvement Plan. The 2015 proposed rates support these projects, as well as the multiple year projects and programs for the Wakarusa Wastewater Treatment Plant, Rapid Inflow & Infiltration Reduction Program, and the watermain rehabilitation and replacement program.

The completion of the Taste & Odor Study resulted in a 2 phase approach to developing rate options. Phase I Taste & Odor recommends replacement of the lime slaker at the Kaw Water Treatment Plant and process optimization improvements at Clinton Water Treatment Plant, including retrofitting the existing pre-sedimentation and primary basins with tube settlers to increase sedimentation efficiency, addition of carbon dioxide, liquid lime, and ferric chemical feed systems, and rapid mix chambers to enhance the coagulation process. Phase II Taste & Odor recommendations include advanced treatment of combined ozone oxidation at the Kaw WTP and UV with hydrogen peroxide at the Clinton WTP. The study recommends Phase I Taste & Odor scenario because it is necessary for both phases and may be sufficient for meeting taste and odor treatment needs until regulatory changes require advanced treatment processes.   

Scenario 1 includes all 2015 planned projects as outlined in the 5-year Capital Improvement Plan with Phase I of the Taste and Odor. The projects included in Scenario I include:

· Clinton Intake Improvements and Back-up Generator

· Water Plant Maintenance

· Watermain Relocation, Rehabilitation, and Replacement

· Rapid I/I Reduction Program

· Sewer Rehabilitation, Assessment, CIPP, Manholes

· Wakarusa Plant/Influent Pumps Station/Force Main

· Sanitary Sewer Relocations, Pump Station and General Plant Improvements

Scenario 2 is identical to Scenario 1 but includes $11.7 million for Phase II of the Taste and Odor improvements. The 2015 rates in the attached table compare both scenarios to the existing rates. The recommended 2015 rates are in red. Scenario 1 Table and Scenario 2 Table show a comparison of typical monthly bills, as well as the costs to a typical customer, compared to the 2013-2017 Scenario 5. Scenario 1 – Phase I Taste & Odor results in a revenue increase of 6% for water and 4% for wastewater. Scenario 2 – Phase II Taste & Odor results in a revenue increase of 10% for water and 4% for wastewater.

In preparation of the rate recommendations, department staff surveyed other water and wastewater providers in the region. Most of the area utilities that were surveyed have experienced rates increases for 2014. Although most of the area utilities have not currently begun setting rates for 2015, most of them expect an increase. A summary of utility rates changes follows:

· Johnson County Wastewater approved a 6.5% revenue increase for 2014 to pay for regulatory requirements, CIP, salaries, maintenance, and rate increases for wastewater treated by KCMO. Although they have not started looking at rates for 2015, they anticipate a comparable rate increase.

· Johnson County WaterOne anticipates increase of approximately 3.8% for 2015.

· Lee’s Summit increased their water and sewer rates 8.5% on April 1, 2014. Anticipate similar increases for 2015.

· Olathe increased their water and sewer rates by approximately 5% and anticipates an increase of 5% for water and 8% for wastewater for 2015. They anticipate future annual increases for sewer and water to fund their 5 year capital plan.

· Manhattan anticipates a 4% revenue increase for water and a 3% revenue increase for wastewater for continued expansion of both water and wastewater facilities.

· Topeka has not increased water and wastewater rates for a few years, pending an overall rates and fees study. With the study completed, they are anticipating a significant increase effective in July, subject to their governing body approval.

· Independence, MO will increase the base rate for water by 7%. They anticipate similar increases for next year. Wastewater revenues are anticipated to increase by 9% next year and a similar schedule has been approved for 2015 and 2017. In addition to these increases, there is a special charge funding work mandated by the EPA wet weather consent order. This charge increased to $9.00 per month in 2014. The charge will increase to $12.00 per month in 2017.

· Unified Government, which provides wastewater services to Kansas City, Kansas, approved a 5% rate increase effective 1/1/14.

· BPU, which provides water to Kansas City, Kansas, did not increase rates in 2014, due to several years of significant rate increases prior to this year.

Graphs to compare the area’s residential utility bills for 8,000 gallon and 3,000 gallon usage are provided. The current Lawrence rates and both 2015 scenarios are included.

At this time, staff recommend Phase I Taste & Odor scenario because it is necessary for both phases and may be sufficient for meeting taste and odor treatment needs until regulatory changes require advanced treatment processes. Phase II can be added based on the optimization of the water treatment processes and evaluation findings in the future, likely for regulatory requirements.

In past years, System Development Charges are submitted for approval at this time. However no commission action is necessary for the 2015 System Development Charges. Ordinance 8847 approved the 2013-2017 System Development Charges (SDCs).On January 2, 2015, the 2015 SDCs go into effect.

Staff Recommendation

Staff recommends the City Commission approve 2015 Rate Scenario 1 – Phase I Taste & Odor for continued maintenance and replacement of current infrastructure and continued progress of the approved 5-year capital improvement plan, including the Wakarusa Wastewater Treatment Plant, currently under final design.

Action

Approve the 2015 Rate Scenario 1 for Phase I Taste & Odor and authorize staff to draft the 2015 rate ordinance accordingly to be presented for commission approval in July to coincide with the award of construction contract 3 for UT1304 Wakarusa WWTP.