Memorandum

City of Lawrence

Department of Utilities

 

TO:

David Corliss, City Manager

 

FROM:

Diane Stoddard, Assistant City Manager

 

CC:

Cynthia Boecker, Assistant City Manager

Dave Wagner, Utilities Director

Ed Mullins, Finance Director

Mike Lawless, Assistant Director of Utilities

Casey Toomay, Budget Manager

 

Date:

May 3, 2010

 

RE:

Utilities Department 2011 Rate Alternatives

 

 

In order to plan for the 2011 budget, staff has developed three utility rate scenarios that will provide the City Commission with a picture of various 2011 alternatives that take into consideration varying levels of maintenance and capital investment in the City’s utilities system.  Staff recommends that these alternatives be discussed at the upcoming Study Session on May 17 with the City Commission on the 2011 budget for the purpose of receiving direction from the City Commission on which scenario is preferable.

 

Rate Scenario Summary:

The three different scenarios differ only in their presumption about capital expenditures.  All three scenarios were built on the same assumptions that the City will utilize a quantity of water roughly equal to the water consumption level of 2008. 

 

Scenario 1: Full Capital Improvement Program

 

Scenario 1 assumes that the City will proceed as planned with its current Capital Improvement Program (CIP) for 2011 and future years.  While this capital project list reflects currently known necessary projects, it will likely be impacted in the future by the Wastewater Master Plan now underway and by the plan to proceed with the Water Master Plan.  It is important to note that this CIP does not include proceeding with the Wakarusa Water Reclamation Facility (WWRF) or construction of the Kaw WTP Transmission Main (also known as the Nor’easter Project). The Nor’easter Project involves installation of a new large water transmission main that will cross the Kansas River from the Kaw Plant to and through North Lawrence to the site of the new WWRF, providing a secondary water source for North Lawrence and needed supply improvements for southeast Lawrence.  At present North Lawrence is supplied by only one transmission main which crosses the Kansas River via attachment to the Vermont Street Bridge by City Hall. This winter’s main break underscores the need to addresses the lack of redundancy sooner rather than later. Included in this CIP are such projects as water supply improvements for the Kaw and Clinton Plants, the replacement of the Oread water tank, and an ongoing waterline rehabilitation and replacement program to provide systematic waterline upgrades to enhance reliability and address increasingly aging infrastructure.

 

Scenario 1 Rate Impacts:

The rate model suggests the following revenue increases would be necessary in 2011 and future years in order to provide the funding necessary for Scenario 1.  As a result of rate model adjustments in the allocation of large water mains, the rural water district rates would fall slightly from $3.83 per 1,000 gallons to $3.64 per 1,000 gallons.

 

Revenue Changes

 

2011

2012

2013

2014

2015

Water

6.00%

7.00%

7.00%

5.00%

5.00%

Wastewater

2.00%

2.00%

5.00%

4.00%

6.00%

Combined

3.80%

4.40%

6.00%

4.50%

5.50%

 

 

 

 

 

 

Rural Water Districts

$3.64

 

 

 

 

(current $3.83)

 

 

 

 

 

 

 

Scenario 2:  2010 CIP only; no 2011 or future CIP

 

Scenario 2 assumes that only the current 2010 CIP projects are completed.  This scenario does not provide for any 2011 CIP projects or future CIP projects.  However, it does provide $1.0 million annually for routine water and sewer line replacements.  It does provide funding to meet current debt obligations, along with obligations related to the completion of the 2010 CIP.  This scenario would provide a flat rate (no increase) for both water and sewer for 2011.  However, it should be noted that future rates require increases related to existing debt service obligations.  Also, this scenario defers maintenance and its associated costs into future years.

 

Scenario 2 Rate Impacts:

The rate model suggests the following revenue increases would be necessary in 2011 and future years in order to provide the funding necessary for Scenario 2.

 

Revenue Changes

 

2011

2012

2013

2014

2015

Water

0.00%

3.00%

4.00%

4.00%

4.00%

Wastewater

2.00%

0.00%

1.00%

1.00%

1.00%

Combined

1.10%

1.40%

2.40%

2.40%

2.40%

 

 

 

 

 

 

Rural Water District

$3.64

 

 

 

 

(current $3.83)

 

 

 

 

 

 

Scenario 3:  No 2010 CIP except for Master Plans and no 2011 or future CIP

 

Scenario 3 assumes that the City will not proceed with any further 2010 CIP projects or future CIP projects, except for the Wastewater and Water Master Plans and projects that were initiated in 2009 or earlier.  This scenario is meant as a baseline scenario to demonstrate existing debt obligations and the impact of 2010 projects on future rates.  This scenario significantly defers existing maintenance needs and associated costs to the future.  However, it does provide $1.0 million annually for routine water and sewer line replacements.

 

Scenario 3 Rate Impacts:

The rate model suggests the following revenue increases would be necessary in 2011 and future years in order to provide the funding necessary for Scenario 3.

 

Revenue Changes

 

2011

2012

2013

2014

2015

Water

0.00%

3.00%

4.00%

4.00%

4.00%

Wastewater

0.00%

0.00%

0.00%

0.00%

1.00%

Combined

0.00%

1.40%

1.90%

1.90%

2.50%

 

 

 

 

 

 

Rural Water District

$3.64

 

 

 

 

(current $3.83)

 

 

 

 

 

 

 

Direction Requested at May 17 Study Session:

Staff seeks direction from the City Commission regarding a preferred scenario for the 2011 budget.  The Utilities Department 2011 Budget Request has been developed using Scenario 1 capital project assumptions. However, staff believes it is important to demonstrate various options to the City Commission at this time, including options that provide for no increase in utility rates for 2011.  It is important for the City Commission to understand that there are significant existing utility needs and that deferring these needs will increase future expenses.

 

Additionally, at some point in the near-term, the City will need to proceed with major projects such as the WWRF and the Nor’easter water main, both of which are not included in any of the three scenarios.  However, it is possible, if desired, to defer 2011 CIP items and provide no utility rate increases for 2011.