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HomeMy WebLinkAbout2007-12-19 - MinutesCity Council Water & Sewer Meeting Minutes December 19, 2007 Page l of 11 Member Aldermen Mayor Dan Coady Ward 1 Position 1 — Adella Gray V10 Ward 2 Position l - Kyle rt Cook CityAttorney Kit Williams � 1 Ward 3 Position 2—Robert Ferrell Ward 4 Position 2 - Lioneld Jordan City Clerk Sondra Smith ARKANSAS City of Fayetteville Arkansas City Council Water & Sewer Committee Meeting Minutes December 19, 2007 A meeting of the Fayetteville City Council Water & Sewer Committee was held on December 19, 2007 at 4:30 p.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville, Arkansas. MEMBERS PRESENT: Alderman Kyle Cook, Chair; Alderman Lioneld Jordan; Alderman Robert Ferrell; Alderwoman Adella Gray STAFF PRESENT: David Jurgens; Gary Dumas; Paul Becker; Susan Thomas OTHERS PRESENT: Tom Gould, HDR Alderman Cook called the meeting to order. 1. Water and Sewer Rate Study Presentation and Discussion Alderman Cook said this meeting is basically to discuss water & sewer rates. Mr. Tom Gould from HDR is here to give the Committee an update on the study. Tom Gould said he wants to give a quick update of where we were when we left off last time he met with the Committee. We had resolved some of the policy discussion around the revenue requirements and cost -of -service. He said part of the policy direction given to him by the Committee included a couple of options of how to phase in the cost -of -service for the various customer groups at which we are looking. There was also the question about whether we should establish a low income/elderly rate for our residential customers. Mr. Gould said he has developed proposed water & sewer rate designs around the policy direction provided by this Committee. The purpose of this presentation today is to go through those options and narrow them down to the final choices to be presented to the Council for possible adoption. He reviewed the direction given to him so far by this Committee. He said we talked about multi-year rate adjustments or a transition for both the water and sewer utilities, along with a phase-in of the cost -of -service results. The Committee also wanted to establish rates by customer class of service, meaning by residential, non-residential, major industrial and irrigation (on the water utility). And of course we wanted to consider establishing a low income/elderly rate. He said he had developed two options around this rate — one is that we remain as we are currently with no lifeline or low income rate and the second is with a low income/elderly rate and a standard non- qualifying residential rate. He showed a slide of the present water rates to refresh everyone's memory. We have a single rate for inside Fayetteville customers and it has two components — a 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 2 of 11 fixed meter charge that varies by the size of the meter and a consumption charge. The consumption charge varies by the amount of water the customer consumes (it gets less expensive as you consume more). One of the things HDR has discussed is moving away from this rate design but also establishing rates by customer class of service. The starting point for that is to establish the rates over the next four years. Mr. Gould said he has developed rates for the water utility for 2008, 2009, 2010 and 2011. In 2008 the water utility is looking at an overall adjustment of 3.6%. In 2009 it is 5.8%, followed by 5.3% in 2010 and 2011. He said he has taken our present fixed charges on a monthly basis and adjusted them for these percentages, maintaining all the same relationships we currently have within the existing meter charges. This is applicable to all the inside -Fayetteville water rates options we will be looking at. He said from this point forward in the discussion he will move away from the fixed charges and focus on the consumption -based charges. With regard to the residential water rate options he developed two options for the residential customers. Option A is without a low-income/elderly rate. All residential customers are charged the same rate. Option B is to establish a qualifying, low income/elderly rate. He said we haven't yet come up with the standards to meet that qualification. That is a policy issue the Committee (or Council) will have to establish if we chose to go down this path. At this point the decision is whether or not we want to go there and if so, how we create those standards and administer that program. At this point he is assuming that the customer must be low income and elderly to qualify for the rate. The qualifying criteria will need to be determined by the City but more importantly we will need to determine how the customers will be screened to determine who qualifies (whether it is done internally or an outside resource is used). There is a cost associated with establishing a qualified low income/elderly rate. He also touched on the issue of conservation and the uniform (or flat) rates we will look at. This is not a tiered rate. He said in the proposal he is presenting it will be evident that just moving away from a declining block rate to a flat uniform rate has the same impact as the a rate in that as you consume more it will be more expensive for the customer. Ultimately for this particular rate class we probably do want over time to move more towards a tiered rate but he thinks this is a reasonable starting point. Alderman Jordan said he wanted to try to understand. He asked if Mr. Gould is saying the tiered rate would in essence be the same as the flat rate. Tom Gould explained that as you consume more, the percentage impacts are greater. That is simply a function of moving away from the declining block rate to a uniform rate. The more you consume, you will have some incentive to conserve under a uniform rate. Alderman Jordan asked if that would be true for everybody (residential, commercial, etc.) Tom Gould said that it would not. He said we would need to go through each one of the bill comparisons to show the impacts for specific customers. He said one of the reasons we wanted to establish rates by customer classes of service is to give the City the flexibility to deal with customers on an individual basis. So if we want to move toward more conservation -based rates over time, we have that flexibility. But his concern at this point was that moving from a steeply declining block structure to a tiered rate structure is too much too fast given the fact that we are also increasing rates at the same time. He believes we are moving in the right direction and creating the flexibility for the City to deal with things on a conservation -based approach down the road. He said he thinks we are getting the benefit of conservation -based price signals through this approach by moving away from the declining block price structure. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 3 of 11 Alderman Jordan agreed about the declining block structure. Tom Gould went on to talk about the adjustments we are assuming for the overall residential customers. He reminded the group that we had different adjustments for different classes of service. On the option that was selected for phase-in for the residential customers it was a uniform 5.5% each year. He reviewed the options for consumption (dollars per thousand gallons) charges. Option A is the option that assumes we are not going to establish a low income/elderly rate structure. With this option the volumetric charge in 2008 would be $2.81 (per thousand gallons). It would go up another 5.5% the following year, etc. Option B is what would happen if we want to establish a low income/elderly rate. A couple of assumptions have had to be made here because we don't know who is going to qualify for this rate. He has also made a policy decision about how much of a discount we should provide for that low income/elderly rate. The first assumption is that up to 25% of our customers could potentially qualify for this rate. The second assumption is that the rate would be 75% of the residential rate or a 25% discount. So if you are a non -qualifying customer the rate you would pay would be $2.94 per thousand gallons in 2008. The qualifying customer would pay 75% of whatever the standard rate is. In other words, it would be $3 for the fixed charge (the standard rate is $4) and the volumetric charge would be $2.21. He said what happens is, because we are giving a discount on the low income/elderly rate we need to make that amount up. The difference between the $2.81 and the $2.94 is the discount we are providing to the low income/elderly. We are making it up within the residential class of service. Alderman Jordan said for an extra $.13 we could provide a break for the low income and elderly. Tom Gould said that is correct. He continued to show bill comparisons for Option A versus Option B. He displayed a slide that indicated what the present bill is and what the 2008 proposed bill would be at various levels of consumption with Option A. He said the average residential customer uses about 6000 gallons a month. He pointed out that with this option the larger users are seeing the larger increases in terms of dollar impacts. Alderman Ferrell asked if Mr. Gould would let them know what the rates would be in 2009, 2010 and 2011. Tom Gould said he has not prepared bill comparisons for after 2008 but said everyone would get a 5.5% increase in 2009 through 2011. Alderman Ferrell asked if one could fairly assume that the low income/elderly would not be using a large volume of water. Tom Gould said he doesn't know if there is a direct correlation between income and consumption. He said some people would say there is no direct correlation — meaning that a low income customer may have high consumption. That might be a function of old plumbing in their home (high use toilets, leaks and various other issues). He doesn't know that we could necessarily say that low income means low consumption. Alderman Ferrell said the reason he asked is that in other utilities they have qualifiers. He explained that with the telephone company where he had worked they would have a lower rate 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 4 of 11 for basic services but if a customer went beyond a certain amount of service, the discount would get lower Tom Gould pointed out that at one point along the way we had talked about a true lifeline rate in which a certain amount of consumption is below cost and everybody gets access to it. Everything above that is at a standard cost. This isn't really a true lifeline rate but it is the approach that the Committee directed him to proceed with. It is a separate rate schedule for qualifying customers. Mr. Gould continued his presentation with Option B (for the non -qualifying customers). The bill comparison here is a little higher than with the previous option because we are making up the revenue difference for the discount being provided to the low income/elderly customers. The average customer here (around 6000 gallon usage) will see about a 4% ($1) increase overall. As you go into the larger consumption units, you'll see larger increases. He then displayed a slide for the low income/elderly rates. Across all levels of consumption the customers are getting a discount. At an average use of about 6000 gallons, these customers would see about a $4.51 or about a 21 % reduction in their bill. Paul Becker asked if Mr. Gould would like to point out the difference to the non -qualifying customer for Option B. Tom Gould said at a usage rate of about 6000 gallons the non -qualifying customer would pay $20.86 under Option A and $21.64 under Option B. The difference isn't that much. In response to a question from a member of the audience, Mr. Gould said this does balance out to the total revenue requirements of the utility but more importantly, the impacts of creating a low income/elderly rate are maintained within the residential class of service. It is not being paid for by commercial or industrial customers. He said he feels there is a strong argument that the customers who benefit from this rate are residential customers and it should stay within the residential class of service. It is not a benefit to industrial or commercial customers. That is a policy decision the Committee will make but he said it is the way most utilities handle it. Ultimately the City will have to make a decision about whether we want to have a low income/elderly rate. If we chose that, we will go with Option B for the non -qualifying and the qualifying rate. If we chose not to go with the low-income/elderly rate, we will go with Option A for the residential class of service. Moving forward, Mr. Gould talked about the non-residential water rate option. He said the non-residential customers are a grouping of commercial and governmental customers. He said again we are trying to move away from the declining block rate structure. One of the things he has tried to do is go to a uniform rate similar to what was presented for the residential class. But we still have a significant number of customers that use over 300,000 gallons of water. So as a transition, we are maintaining the differential between 0 to 300,000 gallons and over 300,000 gallons. That is to help minimize the impacts to those larger customers. He displayed a slide showing the adjustments for this class of service at 4.1% each year. He pointed out the price difference in 2008 between the first block (0-300,000 gallons) and the second block (over 300,000 gallons). He said as we go through time he has tried to narrow that block so that by the final year there is roughly a $.40 difference between the first and second blocks. He said ultimately, over time we would hopefully come back to a uniform rate for this group also. He showed bill comparisons for the non-residential class of service. He said when you get out to some of the larger customers (3 million gallons of use) the rates show about a 9% increase on the rate as a whole. Overall, the adjustments are all below 10% and in some cases there might even be a slight decrease. The next class of customers discussed is the Major Industrial User which is defined as any non -irrigation customer that uses an average of 5 million gallons or more of water per month. Right now the City has two customers who qualify for this 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 5 of 11 class. The proposed rates were displayed on a slide Mr. Gould presented. The adjustments are about 6.6% for this particular customer group. Mr. Gould also had a slide showing the bill comparisons. For the two customers who qualify for this rate (one using an average of 17,100 and 29,400) the adjustments will be in the range of 6% to 7 '/2%. In response to a question from Alderman Ferrell, Tom Gould said the increases for 2009, 2010 and 2011 would be 6.6%. That again was the policy direction provided by this Committee for how to phase-in the water cost -of -service by customer group. He continued his presentation with the irrigation water rate option. With this we have the same issue we had with the non-residential customers. We have some small irrigation customers and some very large irrigation customers. One of the things we needed to do to phase this in so we didn't have large impacts to the larger irrigation customers was to do a two -block rate structure. We are going from about a $1 difference in the first and second block in 2008 to a much narrower block in 2011, trying to come back to a rate that is more cost -based for this particular class of service. For this class of service we are doing 10% adjustments per year. They were quite a ways out from their cost of service. The next class of customers discussed was the outside -Fayetteville and Wholesale customers. One of the issues here is that HDR can't develop the outside -Fayetteville rates until we know what we are going to do with the inside -Fayetteville rates. Once we have the inside - Fayetteville rates, outside -Fayetteville rates are just simply a multiple of that rate. It is the inside rate plus a rate differential which he has calculated to be 15%. The exception to that is White River which has a $5.94 per month surcharge on all meter sizes in additional to the 15% adjustment. So once we resolve how to deal with the inside -Fayetteville rate, the outside rates will fall out of that process. The next slide shown was the rate for wholesale customers. He said there would be a 1.9% adjustment in 2008 followed by the overall adjustments, so these rates essentially come out of the cost -of -service and what we are currently doing. There are no changes in terms of structure. Alderman Ferrell asked for a clarification of outside -Fayetteville customers. David Jurgens said those are the people who live in the growth area — Farmington, Greenland, Johnson — everybody outside Fayetteville. If we have annexed them, they are inside -Fayetteville customers. Tom Gould now brought the discussion to the sewer utility. He said this is sort of the same process but a little more complicated because we have now added two options for phasing in the cost -of -service along with the issue of the lifeline. He showed the present inside -Fayetteville sewer rates. There is a fixed meter charge and a volume charge in dollars per thousand gallons. He said we had talked about moving toward rates by class of service — in this case residential, non-residential and major user. He said the policy direction this Committee provided to him based on how to phase-in the adjustments across customer class of service involved two options. In essence Option 1 would phase-in the major industrial user a little slower that Option 2. Under Option 1, the major industrial user has a 20% adjustment. As a result of this, we would need to collect a little more from residential customers to get the overall adjustment we need. Under Option 2 we would adjust the major industrial user more up front and the residential rate can be less than it would be for Option 1. He said the rates for Farmington, outside -Fayetteville and Elkins are the same under both options because those follow the cost -of -service results. He said in selecting sewer options he has provided the Committee with two options and both are designed to collect a specific level of targeted revenue. As the Committee moves forward it will have to select either Option 1 or Option 2. We cannot select Option 1 for residential and Option 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 6 of 11 2 for industrial or visa versa because we ultimately have to collect a certain level of revenue. Mixing and matching would result in either under recovering or over recovering revenue. As was done on the water side they have applied the overall adjustments to each of the components. In the first year we are looking at a 19.9% adjustment, followed by 3% adjustments thereafter. These are applicable to all inside Fayetteville sewer rate options. In looking at the residential sewer rate options, Mr. Gould said we again have the issue of the low income/elderly rate option. Therefore we will have Option 1 and 1B and then Option 2A and 2B. The A is not having a low income/elderly rate and the B is having a low income/elderly rate. Under Option 1 A the rate would be $3.67 per thousand gallons with adjustments for each year thereafter. Under Option 1B we use the same approach that we used on the water side. We have a non -qualifying rate of $3.89 to make up for the difference of providing a discount to the qualifying customers. This is based on the same assumptions as were made with the water customers. The low income/elderly customer who qualifies would be charged a rate of $9.34 (fixed charge) and the volumetric use would be at $2.92. A slide was displayed showing bill comparisons for Option 1 A and Option 1B. Under Option IA, the bill for the average customer for sewer (using about 5000 gallons) will go up about $4.94 or 19.1%. Under Option 1B (with a low income/elderly rate) the average non- qualifying customer would pay about $6.04 or an increase of roughly 23.4%. The difference is about $1 increase in cost to the average residential customer to establish the low income/elderly rate. He said the discount to the qualifying low income/elderly customer would be roughly $2 per customer. He said under Option 2A and 2B the residential option is a smaller adjustment in 2009. That is because we increased the adjustment for the major industrial customer by 30% as opposed to 20% in the previous option. Under 2A, with no low-income/elderly rate, the rate is $3.46. Under Option 2B the rate goes up a little. The average customer will see about a 15% increase. Alderman Ferrell asked for some clarification on the two ways of adjusting the rate for the large user and the impact it would have on the others. Tom Gould said the last time the Committee met and talked about this there was a lot of discussion around how to deal with the issue of the major industrial user and the trade off between jobs, business and impacts to the residential customers. The Committee didn't come to a conclusion at that time about what they wanted to do so they said let's look at two options. The two options were Option 1 and Option 2. Those came out of specific previous presentations. Option 1 said we are willing to keep the industrial user's rate adjustment lower than the cost -of - service but the trade off is that the adjustment to the residential customers is slightly higher. Option 2 said we would move more quickly toward cost -of -service for the major industrial user and all customers. As a result, the adjustment in the first year is going to be higher (30%) with the tradeoff that the residential customer rate will not be as high as it is in Option 1. The key policy question laying on the table is if we do a 30% adjustment to the major industrial user, what potential impact might that have on jobs in the community and to those specific customers. That is information that will have to come from those customers. Mr. Gould said he is a big proponent of phasing things in and transitioning as smoothly as possible and he believes Option 1 does a good job of that. Mr. Gould continued his presentation with non-residential sewer rate options. He said there isn't much difference between the two options but because we are doing a little more up front on Option 1, the adjustments in 2010 and 2011 aren't as great as what you see under Option 2. So we are saying we'll do a little more up front on Option 1 which results in less of an increase in 2010 and 2011. The bill comparisons showed roughly 25% increase for everyone under Option 1 and about 21 % under Option 2. The next slide gave information for the major industrial user. Again there are two options with the same qualifications as for the water 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 7 of 11 utility rate. The tradeoff is the 20% versus the 30% adjustment in 2009. The bill comparison shows a 20% adjustment under Option 1 and a 30% adjustment under Option 2. He said the difference in the bill for a customer using 20,000 would be a $9,700 increase on a monthly basis under Option 1 and a $14,500 increase under Option 2. This is a fairly substantial impact on these customers. So the policy decision on the table at this point is how best to deal with the industrial customers. The next slide dealt with outside -Fayetteville and wholesale sewer rates. Mr. Gould said the rates for Farmington are contractual and based on cost -of -service. This rate would apply to all Farmington customers regardless of whether they are residential or non- residential. The outside -Fayetteville rates are established by cost -of -service and Mr. Gould displayed a slide with those rates. He also had a slide showing the Elkins wholesale sewer rate which is also based on cost -of -service. He then said we are at the point of making the decision about where to go from here. He said the Committee needs to determine whether or not to adopt a low income/elderly rate and if it is adopted, whether the 25% discount proposed by Mr. Gould is acceptable. The second policy question to be answered is whether to select Option 1 or Option 2 (regarding how quickly to phase-in the industrial customers). He said if the Committee can answer those two questions then we are close to being able to go to the Council with a proposal for rate adjustments. Alderman Cook asked the Committee if anyone had any comments or questions. There being none, he opened the floor for public discussion. David Rose said he works for one of the industrial companies in Fayetteville. He asked about the difference in the water rates between residential and industrial. Tom Gould reviewed the slide showing the existing rate as it is today. He said on the consumption charges, the more you consume the less expensive it is. But when we did the cost - of -service study (which tries to determine how much it costs to serve a customer on a per unit basis), one of the things they came back to was that those last two blocks of the rate design are probably set too low. In essence, there has been a discount provided to those largest consumers on the system. Cost -of -service says on a cost basis, we can't justify that low of a discount. In response to a further question from David Rose, Tom Gould said the declining rate structure disappears with the new rate structure and we move to a new rate design which has two blocks — usage from 0 — 300,000 gallons and over 300,000. We have also tried to bring the price up for the bottom blocks (heavier users) to get more toward cost -of -service. A member of the audience asked what will happen when industry reduces their water usage and the money that the City receives is reduced. Tom Gould said included within this study is some assumption that there will be a slight decrease in consumption over time because that is the way things work when prices go up. But what we haven't assumed is a dramatic change where suddenly the large commercial customers or industrial customers cut back their consumption by 25%. If that is the case and if the industrial customers believe that will be the outcome of this, then we need to understand that and understand how these options may impact them. However, in the past when he has looked at adjustments like this he hasn't seen those kinds of dramatic changes unless an industrial customer is on the edge of being insolvent. He said typically if you double your rates, you may see a 10 to 15% reduction in usage. We are only looking at around a 4% adjustment to the commercial customers. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 8 of 11 A member of the audience asked, regarding the sewer rate increases, if we are looking at what industry is spending on treating the wastewater. He said his facility spends a lot of money treating it and then they pay a sewer rate on top of that. Tom Gould said if they did not treat the water, the City would be charging even more because the industry would be providing the City with high-strength wastewater. So yes, that has been taken into account as costs were allocated; the assumption was made that the strength of the wastewater being provided is of a lower strength (domestic level). David Jurgens said in looking at whether or not to have a low income/elderly rate, it is important to note that it will take more administrative (staff) time to manage such a rate. He said we would have to acknowledge the additional staff cost to vet every person who comes in to get an account. Every residential customer will go through another full step and it takes an evaluation you can't do internally. In other words, the business office staff will not be able to establish whether a customer qualifies for the low income/elderly rate. That process will have to be established and it will take some staff time to accomplish. Alderman Ferrell said he thinks he can assist with that. He said there is no use in reinventing the wheel. We might want to look at what some of the other utilities do. He said the State has a brochure that lists guidelines they recommend for lifeline rates. He feels like that would be a good template for our use. He said he can get some of those brochures. Alderman Jordan said though it is probably an extra step for the City, a lot of the elderly are making maybe $850 to $1000 a month in Social Security and that is all they have. A few dollars could benefit them quite a bit even though is might be an extra step for us. He said we will have to work out the details (on how to administer it) — maybe set up some sort of committee to look into it. Alderman Cook asked the Committee if they feel this is the route we want to go. Do we want to offer a reduce rate for the low income/elderly? Alderman Jordan and Alderwoman Gray both said they would like to do this. Alderman Ferrell said when we went into this we paid the consultants to take a look at the situation. He said from what he can see in this presentation the impact this rate would have on the overall customer base doesn't seem to outweigh the good it would do. Alderman Jordan said the recommendation of the consultant is simply a recommendation. The Committee can establish whatever guidelines we wish to establish. The final direction will be from the City Council on how they want to implement the program. David Jurgens said we are a University town with a lot of low income citizens. He said the staff's assumption (and Mr. Gould's assumption) was that this rate was for a combination of both the elderly and the low income. You would have to be both low income and elderly to qualify for the rate. We don't want all the students to meet the low income rate. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 9 of 11 Alderman Ferrell said the other utilities have already thought about this. The students won't be on the low income list. He said as far as the business office is concerned, the onus will be on the applicant to furnish the information about eligibility when they come in to apply for service. Alderman Jordan said we can't sit here now and discuss exactly what we want to do (as far as who will qualify) because we don't exactly know yet. Tom Gould said the important point we are trying to get to is whether this is a concept that we like and that we want to move forward with it. If it is, we get to the point of refining it and get to the policy issues surrounding it, such as defining who qualifies. The second part of that is how we as a City go about screening those customers. A lot of cities don't want to go through the process of looking at people's income statements so they use an outside agency to do the screening for them. He said it is just important that we realize if we adopt these rates, there will need to be some kind of screening process to qualify those customers for the rate. It is not a huge hurdle to get over but the Committee needs to think it through before we adopt it. Alderman Cook said based on the Committee's comments this is something we want to explore a little more. He said he isn't sure what the next step is but he believes the Committee does want to move forward with at least gathering more information. All Committee members agreed. Tom Gould said he thinks the next logical step would be for the staff and consultant to come back with a proposed definition of who would qualify and the administrative process that we would use. David Jurgens said staff also needs to know what the Committee's intent is as far as whether we are talking about having to be both elderly and low income to qualify. Alderman Cook said Alderman Ferrell brought up a good point that there are other utilities who are offering this rate. Alderman Ferrell said he noticed on one portion of the presentation it says that these options are designed to provide a specific level of targeted revenue. He interprets this to mean the City is saying how much revenue we need and we are now making the attempt to plug in to those figures. Tom Gould explained that the consultant has gone through a process which basically defines what the expenses are to operate. HDR has gone through this process with the Committee and reviewed the numbers in the past. He said this is a cash flow analysis. Alderman Ferrell said the reason he is asking is if we are looking at a specific amount of revenue to cover where we need to be, we probably included some kind of discounted rate for the low income/elderly in the calculations. Tom Gould said when you add all the numbers for the Option 1's it will produce a 19.9% increase on the total sewer revenues. He said he wanted to bring up something he had forgotten to highlight earlier. He said the rates for the sewer utility will not be effective until 2009. We 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 10 of 11 have an assumption that we will have adjustments on the water utility in 2008, 2009, 2010 and 2011. There is still a year to go before the proposed adjustments on sewer would take affect Alderman Ferrell asked when the citizens of Fayetteville suffer a rate hike if all the other people that we serve suffer a rate hike or does the contractual obligation with Farmington keep them from suffering it. Tom Gould said the contract trumps whatever we do inside the City. That does not mean they would not potentially have a rate increase but ultimately the contract controls what we charge Farmington. David Jurgens said the contract does not set numbers. It is based on cost -of -service. So if the cost -of -service goes up, they will have a rate increase. What this does is make inside the City rates more consistent with the cost -of -service like the outside -City rates already are. Tom Gould said it also doesn't mean if the inside -City rates go up 5%, Farmington's rates will go up 5%. What it basically says is we will take the same cost -of -service and allocate it on the basis of what the contract says. Gary Dumas said he thinks the numbers we are looking at on the rates assume that 25% of the population will qualify (for the low income/elderly rate). That is probably pretty close to the demographics for the elderly poor population in the community. If you expand the definition to qualify more than 25% of the population then that rate differential between qualifying and non- qualifying might be different. As soon as we determine what the qualifiers are, then we can verify if that 25% is accurate. Tom Gould said the other part of that discussion is although we might determine that 25% of the population qualifies, that doesn't mean that 25% of the population will take the time to do the paperwork and do everything they need to do to properly qualify. David Jurgens said one other base assumption on water is that we do not capture the full revenue requirements in the first year or two. Based off what was presented here, there is a deficit in 2008 and in 2009 and we will have to use cash reserves for those years. Alderman Cook said he is asking that staff bring forward something to the Committee about what options we have as far as implementing this low income/elderly rate. Alderman Jordan and Alderman Ferrell said they will also bring some information to the Committee. Alderman Cook asked the Committee to take the time before the next meeting to study the options in the study that has been presented and come prepared at the next meeting to discuss some of the policy decisions. Paul Becker said that Tom Gould won't be available on the date of the next meeting but he doesn't believe he will be needed until some decisions are made. It was determined that the next Water & Sewer Committee meeting to discuss the water & sewer rate study will be held on Wednesday, January 16, 2008 at 4:30 p.m. 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org City Council Water & Sewer Meeting Minutes December 19, 2007 Page 11 of 11 2. Elkins Sewer Contract Amendment Alderman Cook asked if the Committee has had the chance to look over this amendment or if there were any issues with it. He reminded the Committee that it is just to clean up 2007. David Jurgens said we have two choices. We can either walk this on to the City Council agenda for next Thursday night (December 27) or schedule it for the next City Council meeting after that. He said Elkins would like to get some guidance because they would like to close their books this year and write a check this year. Alderman Cook suggested we put it on the Thursday night agenda. In response to a question from Gary Dumas, David Jurgens said if we have consensus from this Committee, Fayetteville will send Elkins the bill and close the books based on this Committee's guidance. Alderman Jordan moved that this contract amendment be approved. Alderman Ferrell seconded the motion and it passed unanimously. 3. The Next Rater/Sewer Committee Meeting The next Water & Sewer meeting for general topics was scheduled for Tuesday, January 8, 2008 at 5:15 p.m. (following Agenda Session). There being no further business, the meeting was adjourned 113 West Mountain 72701 (479) 521-7700 (479) 575-8257 (Fax) accessfayetteville.org