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12-10-2019 City Council Study Session Packet City of Grand Island Tuesday, December 10, 2019 Study Session Agenda City Council: Jason Conley Chuck Haase Julie Hehnke Jeremy Jones Vaughn Minton Mitchell Nickerson Mike Paulick Clay Schutz Justin Scott Mark Stelk Mayor: Roger G. Steele City Administrator: Jerry Janulewicz City Clerk: RaNae Edwards 7:00 PM Council Chambers - City Hall 100 East 1st Street, Grand Island, NE 68801 Grand Island Study Session - 12/10/2019 Page 1 / 77 City of Grand Island Tuesday, December 10, 2019 Call to Order This is an open meeting of the Grand Island City Council. The City of Grand Island abides by the Open Meetings Act in conducting business. A copy of the Open Meetings Act is displayed in the back of this room as required by state law. The City Council may vote to go into Closed Session on any agenda item as allowed by state law. Invocation Pledge of Allegiance Roll Call A - SUBMITTAL OF REQUESTS FOR FUTURE ITEMS Individuals who have appropriate items for City Council consideration should complete the Request for Future Agenda Items form located at the Information Booth. If the issue can be handled administratively without Council action, notification will be provided. If the item is scheduled for a meeting or study session, notification of the date will be given. B - RESERVE TIME TO SPEAK ON AGENDA ITEMS This is an opportunity for individuals wishing to provide input on any of tonight's agenda items to reserve time to speak. Please come forward, state your name and address, and the Agenda topic on which you will be speaking. Grand Island Study Session - 12/10/2019 Page 2 / 77 City of Grand Island Tuesday, December 10, 2019 Study Session Item C1 Wastewater Rate Study and Construction Update Staff Contact: John Collins, P.E. - Public Works Director Grand Island Study Session - 12/10/2019 Page 3 / 77 Council Agenda Memo From:Jon Menough PE, Wastewater Treatment Plant Engineer Meeting:December 10, 2019 Subject:Wastewater Rate Study and Construction Update Presenter(s):John Collins PE, Public Works Director Patrick Brown, Finance Director Jon Menough PE, Wastewater Treatment Plant Engineer Background The Wastewater Division of the Public Works Department is an enterprise fund with no property tax dollars used to support the division. The entire budget comes from wastewater customers through sanitary sewer bills. The sewer bill for a residential customer is based on usage and standard strength for residential sewage. The sewer bill for commercial and industrial customers is based on usage plus an extra strength component. A cost of service based rate study looks at all costs for the operation and allocates those costs of service to the customer classes according to the costs of providing service. Rates are then designed to equitably cover those costs. The current sanitary sewer rates are based on Resolution No. 2019-209, which was approved by City Council on July 9, 2019. An updated rate study was undertaken to ensure sufficient funding for planned projects, which also indicated increased rates are needed now to meet our bond covenant. Discussion The revised Wastewater Rate Study reflects anticipated cost of the planned construction program and operations, which are detailed in tonight’s presentation. With regards to rates, the Public Works Department’s primary goal is to minimize the monthly rate paid by each entity. Staffing levels, training, scheduling of projects and various other activities are done with this goal in mind. At the end of 2018 a capacity issue with the South Interceptor was identified. At the February 16, 2019 Council Retreat we estimated costs to be between $60 million and $120 million, and an urgency of a few years (3 to 5). Recognizing the impact such a high cost would have on the community we delayed all projects and maintenance activities to save money for the project and for any emergency repairs required during this time. The major delays included: Grand Island Study Session - 12/10/2019 Page 4 / 77 North Collection System Rehabilitation (Airport) $7.3 million. Conceptual design was complete; final design was put on hold. Building 2 Renovation (Lab) $4.5 million. Final design was complete; construction was put on hold. Second WWTP Entrance $1.5 million. This was tied to a maintenance project to address dewatering, drainage and paving internal to the WWTP. When restarted the paving and drainage will be combined as they must work together and are dependent on each other. WWTP Entrance Relocation $1 million. When resumed this will be performed in 2 parts: 1) moving the fence and security station; and 2) converting Museum Drive into a driveway. The preceding projects contributed to the higher than usual Cash in Bank that was discussed at the November 12th Council meeting. The “restricted” cash was in fact funds but aside for future projects (South Interceptor and other projects). The accounting term of “restricted” was improperly used in this case. The Wastewater Rehabilitation Project had a rate study task remaining which was amended to include a flow study to optimize the timeline for the South Interceptor. The resulting project schedule was used in the rate study. At the Council Retreat it was presented that the South Interceptor could be handled in 3 phases, but had not established the timeline. Since the following has been laid out: Phase 1A (the portion connecting to the WWTP) was urgent and with a cost of $10.5 million construction should start in FY 2023. Phase 1B (From Fonner Park Road at Stuhr Road where Phase 1A ends to Stolley Park Road at Bellwood Drive) would be constructed next with an estimated cost of $12 million. Phase 2 (the remaining portion out to Lift Station 28 (Highway 281 and Husker Highway) with an estimated cost of $50-$60 million could be delayed until approximately 2030, removing its impact from the rate study. Note that the flow analysis is continuing and may impact this schedule. Prior to the end of 2018 it was anticipated the South Interceptor capacity project would be 2030 or later. To minimize rate increases a restricted account was implemented to pay for this and for the collection system issues discovered during system inspections. Conclusion This item is presented to the City Council in a Study Session to allow for any questions to be answered and to create a greater understanding of the issue at hand. Grand Island Study Session - 12/10/2019 Page 5 / 77 TOTAL WWTP Entrance Relocation/Museum Drive Paving $1,000,000 Second WWTP Entrance/Internal Improvements $1,000,000 Concrete Pad Upgrade $50,000 Facility Security $100,000 Fill in Building 5 (Old Headworks)$180,000 Building 2 Renovation (Lab)$4,575,000 Collection System Office and Equipment Warm Storage $1,000,000 Process modification from MLE to A2O (BNR) Micro C Pumping Modifications $237,500 Internal Recycle Pumps & Piping $2,250,000 Aeration Basin Influent flow improvements $3,750,000 Tank Baffle in Aeration Basin $600,000 Online Monitoring $550,000 Blower Modifications $1,070,000 RAS Fermenter $4,412,500 Anaerobic Digestion Anaerobic Digestion Study $300,000 Anaerobic Digestion Pilot Project $300,000 Silo Anaerobic Digester & Digester Building $14,500,000 Biomethane Facility $13,500,000 Sludge Drying Building (Solar)$9,500,000 Chloride Reduction $8,000,000 Revise Flow & Rate Study $810,000 Downtown System Rehabilitation (2019-S-1)$750,000 South Interceptor West Dewatering Project $4,000,000 South Interceptor East Dewatering Project $2,000,000 Riverside Area Rehabilitation $1,450,000 Senior High School Area $1,000,000 Pier Park Area $1,680,000 North Collection System Rehabilitation (Airport)$7,300,000 Lift Station 6 Abandonment/6th & Market Inverted Siphon $4,800,000 Lift Station 11 Upgrade $1,400,000 South Interceptor - Phase 1A (Bismark/Fonner Park)$10,500,000 South Interceptor - Phase 1B (Bismark/Fonner Park) Wastewater CIP Capital Projects Physical Facilities Plant Operations Administration and Planning Collection System Rehabilitation Lift Stations and System Upgrades Grand Island Study Session - 12/10/2019 Page 6 / 77 South Interceptor - Phase 2 (To Lift Station 20)$50,000,000 Upgrade LS 17 - Rehab $3,600,000 Storm Sewer Upgrades Riverside Area - Sump Pump Pilot Program $600,000 Sanitary Sewer District (Willow Street)$218,000 Sanitary Sewer District (Hanover Subd)$1,350,000 Sanitary Sewer District (E 15th St)$500,000 Sanitary Sewer District (E Seedling Mile Road)$1,000,000 Sanitary Sewer District (Claude Road)$450,000 Sanitary Sewer District (Adams & Phoenix)$150,000 Sanitary Sewer District (E. Stolley Park Road)$255,000 Sanitary Sewer District (800 Lincoln, 1218 & 1204)$150,000 Sanitary Sewer District (Schroeder Sub/Husker Hwy Tap)$1,200,000 Sanitary Sewer District (Pioneer Blvd)$30,000 Sanitary Sewer District (Scheel Road)$80,000 Sanitary Sewer District (3630 S. Locust)$225,000 Sanitary Sewer District (Wetzel)$180,000 Sanitary Sewer District (Villa Mar Dee - S. Side)$50,000 Sanitary Sewer District (Doniphan)$4,000,000 Sanitary Sewer District (East Lakes)$2,000,000 Sanitary Sewer District (North Rd Capital - Hwy 2)$1,000,000 $169,603,000 Highlight indicates project completion within 5 years Totals Assessment or Tap Districts Grand Island Study Session - 12/10/2019 Page 7 / 77 FINAL REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH PROJECT NO. 199568 PREPARED FOR City of Grand Island, NE 28 OCTOBER 2019 ® ®©Black & Veatch Holding Company 2011. All rights reserved. Grand Island Study Session - 12/10/2019 Page 8 / 77 Grand Island Study Session - 12/10/2019 Page 9 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Table of Contents i Table of Contents Introduction ................................................................................................................................ 1 Purpose .................................................................................................................................................... 1 Scope ......................................................................................................................................................... 1 Summary of Findings and Recommendations ................................................................ 3 Revenue Under Existing Rates........................................................................................................ 3 Revenue Requirements ..................................................................................................................... 3 Cost of Service Allocations ............................................................................................................... 4 Proposed Rate Adjustments ............................................................................................................ 5 Revenue ........................................................................................................................................ 7 Customer Growth ................................................................................................................................. 7 Sewer Volumes ...................................................................................................................................... 7 Water Revenue Under Existing Rates .......................................................................................... 8 Other Revenue .................................................................................................................................... 10 Revenue Requirements ........................................................................................................ 11 Operation and Maintenance Expense ....................................................................................... 11 Routine Capital Outlay .................................................................................................................... 12 Major Capital Improvements ....................................................................................................... 12 Debt Service Requirements .......................................................................................................... 13 Summary of Revenue and Revenue Requirements .................................................... 15 Major Capital Improvement Financing .................................................................................... 15 System Operations ............................................................................................................................ 16 Bond Coverage Requirements ..................................................................................................... 18 Cost Allocations ....................................................................................................................... 20 Cost of Service to Allocated ........................................................................................................... 20 Functional Cost Components ....................................................................................................... 20 Allocation to Cost Components ................................................................................................... 21 Allocation of Net Plant Investment ............................................................................................ 21 Allocation of Operating Expenses .............................................................................................. 23 Distribution of Costs to Customer Classes .............................................................................. 23 Customer Classification ............................................................................................................. 24 Units of Service ............................................................................................................................. 24 Customer Class Costs of Service.................................................................................................. 25 Rate Adjustment ..................................................................................................................... 29 Existing Rates ..................................................................................................................................... 29 Proposed Rates .................................................................................................................................. 29 Grand Island Study Session - 12/10/2019 Page 10 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE ii NOVEMBER 2019 Adequacy of Proposed Rates ........................................................................................................ 30 Typical Bills ......................................................................................................................................... 30 FY 2021 – FY 2024 Rate Adjustments ...................................................................................... 30 Grand Island Study Session - 12/10/2019 Page 11 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | List of Tables iii List of Tables Table A - Proposed Rates (Effective January 1, 2020 – October 1, 2023) ......................... 6 Table 1 - Historical and Projected Number of Bills .................................................................... 7 Table 2 - Historical and Projected Billable Sewer Flow ............................................................ 8 Table 3 - Existing Sewer Rates Effective September 1, 2016 ................................................. 9 Table 4 - Historical and Projected Billings Under Existing Rates ...................................... 10 Table 5 - Historical and Projected Miscellaneous Revenue ................................................. 10 Table 6 - Historical and Projected Operation and Maintenance Expense ...................... 11 Table 7 - Projected Capital Improvement Program ................................................................ 12 Table 8 - Existing and Proposed Debt Service ........................................................................... 14 Table 9 - Capital Improvement Program Financing ................................................................ 15 Table 10 - Comparison of Projected Revenue Under Existing Rates with Projected Revenue Requirements ............................................................................................... 17 Table 11 - Coverage Requirements ................................................................................................ 19 Table 12 - Total Cost of Service to be Recovered from Rates .............................................. 20 Table 13 - Allocation of Net Plant Investment to Functional Cost Components ......... 22 Table 14 - Allocation of Operation & Maintenance to Functional Cost Components 23 Table 15 - Estimated Units of Service............................................................................................ 25 Table 16 - Unit Cost of Service ......................................................................................................... 26 Table 17 - Allocation of Cost of Service to Customer Classes .............................................. 27 Table 18 - Comparison of Cost of Service with Revenue under Existing Rates ........... 28 Table 19 - Proposed Rates (Effective January 1, 2020) ......................................................... 31 Table 20 - Comparison of Allocated Cost of Service with Revenue Under Proposed Rates .................................................................................................................................... 32 Table 21 - Comparison of Typical Monthly Bills under Existing Rates and Proposed Rates ............................................................................................................... 33 Table 22 - Proposed Rates (Effective October 1, 2020 - October 1, 2023) .................... 34 Grand Island Study Session - 12/10/2019 Page 12 / 77 Grand Island Study Session - 12/10/2019 Page 13 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Introduction 1 Introduction The City of Grand Island, through the Wastewater Division, provides retail wastewater collection and treatment services to approximately 16,700 accounts. The Division’s responsibilities include planning, constructing, operating, and maintaining facilities for collection, transportation, treatment, and disposal of the sanitary and industrial wastewater generated within its service area. The Division, in recognition of the importance of financial planning for the increasing costs to replace, renew, expand, improve, and operate the wastewater utility, authorized this comprehensive study of revenue requirements, costs of service, and rates for wastewater service. PURPOSE The purpose of this report is: (1) to examine the future revenues of the wastewater utility under existing levels of charge, as well as the Division’s total operating expense and capital financing requirements, and to examine the adequacy of projected revenue to meet the total requirements through the fiscal year (FY) ending September 30, 2024; (2) to allocate the total revenue requirements, or costs of service, for a representative test year to the various customer classes in accordance with the respective service requirements that each class places on the system; and (3) to develop a suitable schedule of wastewater rates that will produce revenues adequate to meet the financial needs of the utility on a basis that recognizes customer costs of service and local policy considerations. This report reflects updated projections since the September 2016 Report on Revenue Requirements, Cost of Service and Rates for Wastewater Service (2016 Report) was prepared. SCOPE This report presents the results of a comprehensive study of projected revenue requirements, cost of service allocations, and proposed rates for wastewater service. Revenues and revenue requirements are projected for six fiscal years through 2024, recognizing anticipated growth in number of customers and projected surcharge loadings for the City’s industrial customers. The study of revenue requirements recognizes projected operation and maintenance expense, principal and interest payments on existing and proposed revenue bond issues, expenditures for routine capital additions and major capital improvements met from annual revenues, and recommended reserve fund requirements. Requirements on existing revenue bond indentures are also recognized. Allocated costs of wastewater service are developed for each class of customer and type of service based on considerations of utility revenue needs and projected customer service requirements. Wastewater rate adjustments are designed for customers in accordance with allocated costs of service and local policy and practical considerations. There are two manuals that provide water and wastewater industry accepted approaches for developing cost allocations that provide the basis for fair and equitable utility rates. For the water industry, the manual is the American Water Works Association (AWWA) ‘Manual M-1: Principles of Water Rates, Fees, and Charges’ and for the wastewater industry it is the Water Environment Federation (WEF) ‘Financing and Charges for Wastewater Systems’. The analyses summarized in this report reflect Black & Veatch’s application of these principles. Grand Island Study Session - 12/10/2019 Page 14 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 2 NOVEMBER 2019 In conducting our analyses and in forming an opinion of the projection of future operations summarized in this report, Black & Veatch has made certain assumptions with respect to conditions, events, and circumstances that may occur in the future. The methodology utilized by Black & Veatch in performing the analysis follows generally accepted practices for such projections. Such assumptions and methodologies are summarized in this report and are reasonable and appropriate for the purpose for which they are used. While Black & Veatch believes the assumptions are reasonable and the projection methodology valid, actual results may differ materially from those projected, as influenced by the conditions, events, and circumstances that may actually occur. Grand Island Study Session - 12/10/2019 Page 15 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Summary of Findings and Recommendations 3 Summary of Findings and Recommendations REVENUE UNDER EXISTING RATES 1. The Wastewater Division currently provides wastewater collection and treatment services to approximately 16,700 accounts. The number of bills issued is projected to increase from about 200,819 in FY 2019 to about 208,340 by FY 2024. This reflects an average growth rate of about 0.74 percent per year from FY 2019 through FY 2024. 2. Billable sewer volumes are projected to decrease from about 3,576,700 hundred cubic feet (Ccf) in FY 2019 to 3,516,500 Ccf by FY 2024. This is due to a projected decrease in industrial Direct Discharge flow beginning in the fall of 2019. 3. The Division’s current wastewater rates became effective September 1, 2016. These retail rates include a monthly service charge, a uniform volume charge, and extra strength surcharges for biochemical oxygen demand (BOD) in excess of 250 milligrams per liter (mg/l), suspended solids (SS) in excess of 250 mg/l, oil and grease in excess of 100 mg/l, total kjeldahl nitrogen (TKN) in excess of 30 mg/l, and nitrates in excess of 25 mg/l. Industrial customers who certify that their sewage contributions are less than normal strength wastewater pay the Industrial Four-Part Charge which consists of a reduced volume charge and extra strength surcharges for all wastewater strength discharged. All industrial customers are also charged applicable sampling and monitoring fees. 4. Revenue is derived principally from charges for wastewater service, with some revenue also obtained from sewer assessments, sewer tap fees, miscellaneous sampling and permit revenue, and other miscellaneous revenues. Revenue from wastewater service, under existing rates, is projected to increase from about $11,993,500 in FY 2019 to about $12,046,500 in FY 2024. Miscellaneous revenue is estimated to average approximately $540,000 per year. REVENUE REQUIREMENTS 5. Costs of service to be recovered from wastewater service charges include system operation and maintenance expense, debt service on existing and proposed bonds, expenditures for routine capital, and major capital improvements met from annual revenues. 6. Operation and maintenance expense includes the annual salaries and wages of personnel, costs for materials and supplies, fuel and electrical power costs, chemicals, and other costs such as employee benefits, insurance, and contract services. Future wastewater utility operation and maintenance expenses are projected to increase from about $5,984,196 in FY 2019 to about $8,361,600 in FY 2024. 7. Major capital improvement expenditures are estimated to total $24,591,100. Proposed revenue bonds totaling $8,000,000, together with existing cash reserves on hand will provide for financing a major portion of this major capital improvement program, with the balance to be funded from loan proceeds from the Clean Water State Revolving Fund (CWSRF). 8. Principal and interest costs on outstanding and proposed revenue bonds are projected to increase from $4,428,700 in FY 2019 to $5,293,800 in FY 2024. Grand Island Study Session - 12/10/2019 Page 16 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 4 NOVEMBER 2019 9. The City’s fiscal policy requires a cash reserve to provide for unforeseen fluctuations in both revenue and expenses. While a specific benchmark is not currently identified in the policy, the internal benchmark is between 90 and 120 days of operation and maintenance expense. At September 30, 2018, the wastewater utility had a balance in the operating fund of $12,934,800, or approximately 829 days. The wastewater utility must generate annual revenue to meet the existing bond covenant requirements. The revenue bond ordinance requires that net revenue shall be equal to or greater than 110 percent of the current year’s debt service requirements on all outstanding bonds. While the utility has a strong cash balance, it is projected that revenue under existing rates will not exceed 110 percent of the annual debt service requirements starting in FY 2021 and therefore, revenue increases are required. In an effort to propose the minimum revenue increases necessary, it is recommended that the City use portions of the funds on hand to finance both capital program requirements and estimated future expenses during the study period, while keeping the balance in the operating fund to at least 120 days of projected operations and maintenance expense. Based on the cash flow presented in Table 10 of this report, it is anticipated that the projected capital program requirements and estimates of future operating expenses of the wastewater utility during the FY 2019 – FY 2024 study period examined can be financed with annual revenue increases of 3.5 percent effective January 1, 2020, 3.5 percent effective October 1, 2020, 3.0 percent effective October 1, 2021 and 2022, and 2.5 percent effective October 1, 2023. These proposed revenue increases will also allow the utility to meet the annual rate covenant and additional bonds test in each year of the study period. COST OF SERVICE ALLOCATIONS 10. The annual cost of service for the wastewater system to be met from wastewater service revenue during the projected test year FY 2020 test year is as follows: TOTAL REVENUE REQUIREMENTS: Operation and Maintenance Expense $7,409,600 Debt Service Requirements 4,632,300 Capital Outlay 537,200 Cash Financing of Capital Projects 960,000 Total $13,539,100 REVENUE REQUIREMENTS MET FROM OTHER SOURCES: Other Revenue $541,500 Interest Income 182,300 Funds Available 734,700 Full Year Rate Adjustment (172,700) Total $1,285,800 Net Costs to be Met from Charges $12,253,300 Grand Island Study Session - 12/10/2019 Page 17 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Summary of Findings and Recommendations 5 11. As a basis for design of a schedule of wastewater rates, costs of service are allocated to classes of customers in accordance with respective service requirements. The resulting costs of service allocated to customer classes are summarized in Table 18 of this report. PROPOSED RATE ADJUSTMENTS 12. A schedule of proposed rates for wastewater service recognizing both cost of service and local policy considerations described in the report is shown in Table A. These rates are designed to provide for the recovery of total revenue requirements previously projected herein for FY 2020 through FY 2024. The proposed rate structure is similar to the existing structure, with the exception of the elimination of the rates for TKN and Nitrates and the addition of a rate for Total Nitrogen (TN). A rate for TN was selected to simplify the proposed rate structure while still accounting for the costs of treatment previously associated with TKN and Nitrates. 13. Projected test year revenues under existing rates and proposed rates are compared with allocated costs of service in Table 20 of the report. 14. Typical wastewater bills for wastewater service under existing rates and rates proposed are shown in Table 21of the report. 15. It is recommended that the City of Grand Island give consideration to adopting the schedule of proposed wastewater rates shown in Table A of this report as a means of meeting the projected wastewater system revenue requirements in fiscal years FY 2020 through FY 2024. Grand Island Study Session - 12/10/2019 Page 18 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 6 NOVEMBER 2019 Table A - Proposed Rates (Effective January 1, 2020 – October 1, 2023) Proposed Rates (a) Rate Component FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Sewer Service Charge - $/Month All Customers 8.24 8.24 8.24 8.24 8.24 Volume Charge - $/Ccf Customers Using City's Collection System - Inside City 3.69 3.88 4.03 4.19 4.33 Customers Using City's Collection System - Outside City 4.43 4.66 4.84 5.03 5.20 Discharge Directly into City's Treatment Plant 1.19 1.20 1.21 1.22 1.23 Bulk Volume Rate 46.38 46.38 46.38 46.38 46.38 Excess Strength Surcharge - $/lb BOD over 250 mg/l 0.3248 0.3248 0.3248 0.3248 0.3248 Suspended Solids over 250 mg/l 0.2177 0.2177 0.2177 0.2177 0.2177 Oil & Grease over 100 mg/l 0.1908 0.1975 0.2034 0.2095 0.2147 Total Nitrogen over 25 mg/l 0.8900 0.8953 0.9222 0.9499 0.9736 Industrial Four-Part Charge Low Strength Customers Volume Charge - $/Ccf 2.72 2.91 3.06 3.21 3.35 BOD - $/lb 0.3248 0.3248 0.3248 0.3248 0.3248 Suspended Solids - $/lb 0.2177 0.2177 0.2177 0.2177 0.2177 Oil & Grease - $/lb 0.1908 0.1975 0.2034 0.2095 0.2147 (a) Effective October 1 of each fiscal year, expect for FY 2020 in which the rates are proposed to be effective January 1, 2020. Ccf - Hundred Cubic Feet lb - Pound BOD - Biochemical Oxygen Demand mg/l = Milligrams per Liter Grand Island Study Session - 12/10/2019 Page 19 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Revenue 7 Revenue The principal source of revenue for the wastewater system to meet annual costs of service is from charges for service to wastewater customers. Additional revenue is derived from sewer assessments, sewer tap fees, health insurance co-pays, miscellaneous surcharge revenue, and other miscellaneous sources. CUSTOMER GROWTH Table 1 presents a summary of the historical and projected number of bills issued by the utility for the period FY 2016 through FY 2018. The projected number of bills are also shown on the same basis for the period FY 2019 through FY 2024. Data are shown individually for each of the customer classes. Table 1 - Historical and Projected Number of Bills As indicated by Table 1, the wastewater utility has experienced an increase in the number of bills since 2016 of approximately 1.6 percent per year. The number of bills is projected to increase approximately 0.7 percent per year, increasing from 200,819 in FY 2019 to 208,340 in FY 2024. SEWER VOLUMES A summary of historical and projected wastewater billable flow is presented in Table 2. Projected quantities are based on recognition of historical usage quantities and trends. Also considered are projections of the number of customers and estimated sewer flow per customer, the latter based on analyses of historical and current rates of use per customer class. Sales volumes for this period are projected to increase at an average rate of about 0.4 percent annually beginning in FY 2019, primarily as a result of projected growth in the number of customers served. The indicated decreases in sales volume in FY 2020 and FY 2021 are related to anticipated decreases in industrial Direct Discharge flow beginning in FY 2020 and the anticipated loss of two industrial customers in FY 2020 and FY 2021. Line Historical Projected No.Description FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 1 Residential 168,252 170,484 171,696 172,917 174,146 175,384 176,631 177,886 179,151 2 Government 468 504 504 504 504 504 504 504 504 3 Commercial 25,332 25,788 26,040 26,294 26,551 26,811 27,073 27,337 27,605 4 Industrial 960 1,092 960 960 960 960 960 960 960 Manually Billed Industrial 5 Direct Discharge 0 12 12 12 12 12 12 12 12 6 All Other (a)0 120 132 132 120 108 108 108 108 7 Total 195,012 198,000 199,344 200,819 202,293 203,779 205,288 206,808 208,340 % Change 2.54%1.53%0.68%0.74%0.73%0.73%0.74%0.74%0.74% (a)Reflects anticipated loss of two industrial customers in FY 2020 and FY 2021. Grand Island Study Session - 12/10/2019 Page 20 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 8 NOVEMBER 2019 Table 2 - Historical and Projected Billable Sewer Flow WATER REVENUE UNDER EXISTING RATES The existing schedule for charges for wastewater service is presented in Table 3. The rates, which have been in effect since September 1, 2016, consist of a monthly service charge, uniform volume charges, and extra strength surcharges for biochemical oxygen demand (BOD) in excess of 250 milligrams per liter (mg/l), suspended solids (SS) in excess of 250 mg/l, oil and grease in excess of 100 mg/l, TKN (Total Kjeldahl Nitrogen) in excess of 30 mg/l, and nitrates in excess of 25 mg/l. Industrial customers who certify that their sewage contributions are less than normal strength wastewater pay the Industrial Four-Part Charge which consists of a reduced volume charge and extra strength surcharges for all wastewater strength discharged. All industrial customers are also charged applicable sampling and monitoring fees. Line Historical Projected No.Description FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Ccf Ccf Ccf Ccf Ccf Ccf Ccf Ccf Ccf 1 Residential 1,107,687 1,109,071 1,107,763 1,115,600 1,123,600 1,131,600 1,139,600 1,147,700 1,155,900 2 Government 7,703 7,914 6,222 6,200 6,200 6,200 6,200 6,200 6,200 3 Commercial 669,289 690,172 697,469 704,300 711,200 718,100 725,100 732,200 739,400 4 Industrial 192,300 205,079 181,385 181,400 181,400 181,400 181,400 181,400 181,400 Manually Billed Industrial 5 Direct Discharge (b)0 1,337,561 1,309,475 1,309,500 1,211,300 1,178,500 1,178,500 1,178,500 1,178,500 6 All Other (c)0 210,555 259,692 259,700 257,800 255,100 255,100 255,100 255,100 7 Total 1,976,979 3,560,352 3,562,006 3,576,700 3,491,500 3,470,900 3,485,900 3,501,100 3,516,500 % Change 80.09%0.05%0.41%-2.38%-0.59%0.43%0.44%0.44% (a)Excludes sewer flow included in the minimum charge. (b)Reflects anticipated decrease in flow starting in FY 2020. (c)Reflects anticipated loss of two industrial customers in FY 2020 and FY 2021. Ccf - Hundred Cubic Feet Grand Island Study Session - 12/10/2019 Page 21 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Revenue 9 Table 3 - Existing Sewer Rates Effective September 1, 2016 A summary of historical and projected billed wastewater revenues is presented in Table 4 for the period FY 2016 through FY 2024. The historical sewer billings shown in this table are summarized from detailed data provided by the City. Estimates of future sewer service billings are based on projected sewer customers and wastewater quantities shown in Table 1 and Table 2, respectively, and unit rates of charge under existing rates. Existing Rate Component Rates All Customers 8.24 Customers Using City's Collection System - Inside City 3.52 Customers Using City's Collection System - Outside City 4.22 Discharge Directly into City's Treatment Plant 1.18 Bulk Volume Rate 46.38 BOD over 250 mg/l 0.3248 Suspended Solids over 250 mg/l 0.2177 Oil & Grease over 100 mg/l 0.1519 TKN over 30 mg/l 0.0395 Nitrates over 25 mg/l 1.0299 Low Strength Customers Volume Charge - $/Ccf 2.47 BOD - $/lb 0.3248 Suspended Solids - $/lb 0.2177 Oil & Grease - $/lb 0.1519 Ccf - Hundred Cubic Feet lb - Pound mg/l = Milligrams per Liter BOD - Biochemical Oxygen Demand TKN - Total Kjeldahl Nitrogen Sewer Service Charge - $/Month Volume Charge - $/Ccf Excess Strength Surcharge - $/lb Industrial Four-Part Charge Grand Island Study Session - 12/10/2019 Page 22 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 10 NOVEMBER 2019 Table 4 - Historical and Projected Billings Under Existing Rates OTHER REVENUE Historical and projected other wastewater utility income is presented in Table 5. Projected miscellaneous revenue is based on the FY 2020 budgeted amounts and is projected to remain stable at approximately $540,000 per year. Table 5 - Historical and Projected Miscellaneous Revenue Line Historical Projected No.Description FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 $$$$$$$$$ 1 Residential 4,996,400 5,291,000 5,379,900 5,351,900 5,389,900 5,428,200 5,466,800 5,505,700 5,544,800 2 Government 28,800 31,600 26,000 26,100 26,100 26,100 26,100 26,100 26,100 3 Commercial 2,397,700 2,634,400 2,680,700 2,695,700 2,722,100 2,748,700 2,775,600 2,802,700 2,830,100 4 Industrial 633,100 725,000 646,800 646,400 646,400 646,400 646,400 646,400 646,400 Manually Billed Industrial 5 Direct Discharge (a)1,663,800 1,590,900 1,545,200 1,545,200 1,429,300 1,390,700 1,390,700 1,390,700 1,390,700 6 All Other (b)729,900 847,300 981,900 982,100 894,900 885,100 885,100 885,100 885,100 7 Surcharge (b)741,000 701,600 875,100 746,100 730,200 723,300 723,300 723,300 723,300 8 Total 11,190,700 11,821,800 12,135,600 11,993,500 11,838,900 11,848,500 11,914,000 11,980,000 12,046,500 % Change 5.64%2.65%-1.17%-1.29%0.08%0.55%0.55%0.56% (b)Reflects anticipated decrease in flow starting in FY 2020. (a)Reflects anticipated loss of two industrial customers in FY 2020 and FY 2021. Line Historical Forecast Budget Projected No.Description FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 $$$$$$$$$ 1 Sewer Assessments (a)94,789 153,626 152,781 44,500 45,000 45,000 45,000 45,000 45,000 2 Sewer Tap Fees 37,520 121,840 140,604 380,000 10,000 10,000 10,000 10,000 10,000 3 Other Intergovernment - SID #2 0 0 175,493 173,000 169,500 166,500 166,500 160,500 157,500 4 Sample Analysis 70,001 76,945 132,653 75,000 0 0 0 0 0 5 Excess Discharge Fee 43,000 128,000 374,000 300,000 200,000 200,000 200,000 200,000 200,000 6 Other Revenue (b)2,700,664 241,251 241,414 150,700 117,000 117,000 117,000 117,000 117,000 7 Total 2,945,974 721,663 1,216,945 1,123,200 541,500 538,500 538,500 532,500 529,500 % Change -75.50%68.63%-7.70%-51.79%-0.55%0.00%-1.11%-0.56% (a)Includes Interest Income on Sewer Assessments. (b)Includes TV Revenue, Donation & Contributions, Co-Pay Health Insurance, Other Revenue, Trade-in-Allowance, Sale of Fixed Assets, and Credit Card Rebate revenues. Grand Island Study Session - 12/10/2019 Page 23 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Revenue Requirements 11 Revenue Requirements The revenue required to provide adequately for the continued operation of the wastewater utility must be sufficient to meet the cash requirements for system operation and satisfy existing debt service coverage requirements. Revenue requirements include: (1) system operation and maintenance expenses; (2) debt service on existing and proposed bonds; (3) expenditures for routine capital and major capital improvements met from annual revenues; and (4) recommended reserve fund requirements. Projections of the cash requirements to meet these system expenditures for the period through FY 2024 are developed in this section. OPERATION AND MAINTENANCE EXPENSE The elements of operation and maintenance expense for the wastewater utility include the annual expense associated with wastewater collection, pumping, treatment, solids handling, solids disposal, and administration. Operation and maintenance expense includes the total annual salaries and wages of personnel, cost for materials and supplies, fuel and electrical power costs, and other costs such as employee benefits, insurance, and contract services. Annual operation and maintenance expense is met principally from annual operating revenue. A summary of historical and projected operation and maintenance expense for the period FY 2016 through FY 2024 is presented in Table 6. Table 6 - Historical and Projected Operation and Maintenance Expense Line Historical Forecast Budget Projected No.Description FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 $$$$$$$$ Wastewater Utility 1 Personnel Services 547,689 516,527 409,732 463,529 470,255 482,000 494,100 506,500 519,200 2 Operating Expense 1,333,660 911,592 1,010,814 1,049,613 1,416,455 1,451,900 1,488,200 1,525,400 1,563,600 3 Natural Gas 41,625 708 0 0 0 0 0 0 0 4 Diesel Fuel 0 0 0 0 0 0 0 0 0 5 Subtotal 1,922,973 1,428,827 1,420,546 1,513,142 1,886,710 1,933,900 1,982,300 2,031,900 2,082,800 Sanitary Sewer Collection System 6 Personnel Services 626,433 656,408 638,584 731,919 730,957 749,200 767,900 787,100 806,800 7 Operating Expense 1,157,177 342,652 434,914 327,524 463,254 474,800 486,700 663,700 670,300 8 Utility Services 0 0 0 0 206 200 200 200 200 9 Diesel Fuel 13,651 14,407 13,758 14,500 23,690 24,300 24,900 25,500 26,100 10 Subtotal 1,797,261 1,013,467 1,087,256 1,073,943 1,218,107 1,248,500 1,279,700 1,476,500 1,503,400 Wastewater Treatment Operations 11 Personnel Services 817,353 694,756 603,951 691,074 894,243 916,700 939,600 963,100 987,200 12 Operating Expense 1,020,582 435,574 446,997 393,044 500,635 513,100 526,000 539,200 552,600 13 Utility Services 505,448 539,040 588,699 577,667 627,335 643,000 659,100 675,600 594,100 14 Diesel Fuel 12 14,383 16,519 21,020 30,900 31,700 32,500 33,300 34,100 15 Chemicals (Micro-C)34,150 28,720 89,915 80,000 123,600 126,700 129,900 133,100 136,400 16 Subtotal 2,377,545 1,712,473 1,746,081 1,762,805 2,176,713 2,231,200 2,287,100 2,344,300 2,304,400 Wastewater Treatment Maintenance 17 Personnel Services 121,391 499,356 621,500 536,318 571,075 585,300 599,900 614,900 630,300 18 Operating Expense 289,793 427,622 517,170 363,323 970,665 916,500 528,200 541,400 555,000 19 Diesel Fuel 13,612 1,405 1,668 1,808 2,575 2,600 2,700 2,800 2,900 20 Chemicals 49,879 2,326 4,643 1,500 2,575 2,600 2,700 2,800 2,900 21 Subtotal 474,674 930,709 1,144,981 902,949 1,546,890 1,507,000 1,133,500 1,161,900 1,191,100 Wastewater Environmental Resources 22 Personnel Services 0 167,269 277,715 280,723 247,245 437,100 448,100 459,300 470,800 23 Operating Expense 0 101,777 132,638 164,700 333,935 340,100 346,300 352,600 359,100 24 Subtotal 0 269,046 410,353 445,423 581,180 777,200 794,400 811,900 829,900 Sanitary Sewer Construction 25 Operating Expense 74,415 206,685 535,275 0 0 0 0 0 0 26 Subtotal 74,415 206,685 535,275 0 0 0 0 0 0 27 Capital Outlay 16,145 536,887 73,208 285,934 537,210 221,500 39,000 40,000 450,000 28 Total O&M 6,663,014 6,098,094 6,417,700 5,984,196 7,946,810 7,919,300 7,516,000 7,866,500 8,361,600 % Change -8.48%5.24%-6.75%32.80%-0.35%-5.09%4.66%6.29% Grand Island Study Session - 12/10/2019 Page 24 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 12 NOVEMBER 2019 Operation and maintenance expense projections for FY 2019 and FY 2020 reflect the FY 2019 forecast and the adopted FY 2020 budget. Projections for the years FY 2021 through FY 2024 are based on budgeted FY 2020 expense amounts adjusted to recognize allowances for known cost increases, the estimated effects of inflation, and anticipated system growth. Future wastewater utility operation and maintenance expense is projected to increase from about $5,984,196 in FY 2019 to about $8,361,600 in FY 2024. ROUTINE CAPITAL OUTLAY Expenditures for routine capital outlay includes those costs that tend to be routinely incurred each year for normal replacements such as vehicles and equipment, and minor improvements or repairs. Since the costs of these improvements are a continuing expense to be met each year, the utility appropriately finances these expenditures from current wastewater revenues. Routine capital outlay is projected to average approximately $262,300 during the study period and is shown on Line 27 of Table 6. MAJOR CAPITAL IMPROVEMENTS A summary of the projected major capital improvement program for the period FY 2019 through FY 2024 is presented in Table 7 which is based on estimated improvement program scheduling and cost data supplied by utility staff. The six-year improvement program costs are estimated to total $30,005,500 in today’s costs or $32,464,900 when adjusted to include an allowance for inflation. Table 7 - Projected Capital Improvement Program Major capital improvements related to Sewer Mains, shown on Line 1, make up almost 81 percent of the proposed CIP and include rehabilitation and replacement projects within the existing collection system to maintain reliable conveyance of wastewater to the treatment plant. The two largest projects are the North Collection System Rehabilitation project with an estimated cost of $7,300,000 and the South Interceptor Phase 1A with an estimated cost of $10,500,000 Projects included in FY 2019 include rehabilitation on mains in the downtown area. Future projects include rehabilitation on mains in the Riverside area and phase 1A of the South Interceptor project. Line Projected No.Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Total $$$$$$$ 1 Sewer Mains 987,400 1,404,500 6,181,500 5,385,100 6,072,400 6,193,900 26,224,800 2 Lift Stations 1,428,000 0 0 0 0 0 1,428,000 Wastewater Treatment 3 Raw Water Pumping 0 0 0 0 0 0 0 4 Preliminary Treatment 0 0 0 2,164,900 0 0 2,164,900 5 Primary Sedimentation/Clarifiers 0 0 0 0 0 0 0 6 Aeration Basins 0 0 0 0 0 0 0 7 Aeration Equipment 0 0 0 0 0 0 0 8 Corrosion/Odor Control Facilities 0 0 0 0 0 0 0 9 Final Clarifiers 306,000 0 955,100 0 0 267,500 1,528,600 10 Disinfection 0 0 0 0 165,600 0 165,600 11 Sludge Handling 0 0 0 0 0 0 0 12 General Plant 326,400 322,500 0 0 0 304,100 953,000 13 Lab 0 0 0 0 0 0 0 14 Vehicles 0 0 0 0 0 0 0 15 Administration & General 0 0 0 0 0 0 0 16 Total 3,047,800 1,727,000 7,136,600 7,550,000 6,238,000 6,765,500 32,464,900 Grand Island Study Session - 12/10/2019 Page 25 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Revenue Requirements 13 Lift Station projects shown on Line 2 reflects improvements to Lift Station 11 in FY 2019. The costs shown for Preliminary Treatment on Line 4 of Table 7 reflect the Anerobic Digestion Pilot Study in FY 2022. Improvements associated with Final Clarifiers on Line 9 consist of the costs associated with the plant operations process modification from MLE to A20. Disinfection costs shown on Line 10 reflect improvements to the UV system. General Plant costs associated with miscellaneous repairs, equipment replacement, and studies are shown on Line 12. Major capital improvements are typically financed through long term debt obligations and available reserves as such improvements are normally nonrecurring on an annual basis and debt financing permits the cost burden to be shared by both present and future users of the facilities. However, due the amount of existing cash reserves on hand, it is anticipated that the majority of this this major capital improvement program will be cash financed. DEBT SERVICE REQUIREMENTS Existing debt service requirements, shown in Table 8, consist of principal and interest on the Series 2013 Revenue Bonds. In addition, the City issued loans through the CWSRF program in 2014, 2015 and 2017. The City issued a new loan through the CWSRF program in FY 2019 to finance the upgrade to Lift Station 11. The FY 2019 CWSRF loan has a 20-year term and an annual interest rate of 2.50 percent which includes a 1 percent administrative fee. As previously indicated, the issuance of future revenue bonds is anticipated to help finance major capital improvement projects. The proposed revenue bond financing schedule, described more fully in a subsequent section, provides for the issuance of $8,000,000 in FY 2021 to fund the North Collection System Rehabilitation project. The total annual debt service requirement is projected to increase from $4,428,700 in FY 2019 to $5,293,800 in FY 2024. Grand Island Study Session - 12/10/2019 Page 26 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 14 NOVEMBER 2019 Table 8 - Existing and Proposed Debt Service Line Annual Debt Service Requirements No.Description FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 $$$$$$$ Revenue Bonds 1 Series 2013 Revenue Bonds 32,605,000 2,517,000 2,513,000 2,513,500 2,412,100 2,518,300 2,518,100 2 Description 0 0 0 0 0 0 3 Description 0 0 0 0 0 0 4 Description 0 0 0 0 0 0 5 Total Existing Debt 32,605,000 2,517,000 2,513,000 2,513,500 2,412,100 2,518,300 2,518,100 Proposed Revenue Bonds 6 FY 2019 0 0 0 0 0 0 0 7 FY 2020 0 0 0 0 0 0 8 FY 2021 8,000,000 179,800 539,500 539,500 539,500 9 FY 2022 0 0 0 0 10 FY 2023 0 0 0 11 FY 2024 0 0 12 Total Proposed Debt 8,000,000 0 0 179,800 539,500 539,500 539,500 CWSRF Subordinate Debt 13 Series 2014 Project No. C317867 6,200,000 423,600 420,800 417,900 414,900 411,900 408,900 14 Series 2014 Project No. C317981 22,526,500 1,324,900 1,428,200 1,420,500 1,412,800 1,404,900 1,396,900 15 Series 2015 Project No. C317984 2,138,800 144,100 143,600 142,600 141,600 140,700 139,700 16 Series 2017 Project No. C317990 3,100,000 11,600 104,300 207,500 206,200 204,800 203,400 17 Description 0 0 0 0 0 0 18 Total Existing Debt 33,965,300 1,904,200 2,096,900 2,188,500 2,175,500 2,162,300 2,148,900 Proposed Subordinate Debt 19 FY 2019 1,500,000 7,500 22,500 22,500 43,650 87,300 87,300 20 FY 2020 0 0 0 0 0 0 21 FY 2021 0 0 0 0 0 22 FY 2022 0 0 0 0 23 FY 2023 0 0 0 24 FY 2024 0 0 25 Total Proposed Debt 1,500,000 7,500 22,500 22,500 43,650 87,300 87,300 26 Total Debt Service 4,428,700 4,632,400 4,904,300 5,170,750 5,307,400 5,293,800 Original Loan Amount Grand Island Study Session - 12/10/2019 Page 27 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Summary of Revenue and Revenue Requirements 15 Summary of Revenue and Revenue Requirements Total revenue requirements for the wastewater utility recognized for purposes of this report include operation and maintenance expense, debt service costs on existing and proposed bonds, expenditures for routine capital and major capital improvements met from annual revenues, and recommended reserve fund requirements. Table 9 examines the financing of the major capital improvement program from bond and loan proceeds, interest earnings, the transfer of operating revenues, and other sources. Table 10 shows the application of estimated future revenues under existing rates and estimated additional revenue from proposed rate increases to meet projected obligations for the period FY 2019 through FY 2024. Subsequently, Table 11 examines the ability of projected net earnings from the wastewater utility to satisfy existing debt service coverage requirements. MAJOR CAPITAL IMPROVEMENT FINANCING Table 9 presents the capital improvement financing plan which summarizes the projected source and application of funds over the six-year study period. This plan anticipates that proposed capital improvements will be financed from a combination of available funds on hand, bond sale proceeds, CWSRF loan proceeds, annual operating revenues, and interest earnings. Table 9 - Capital Improvement Program Financing A FY 2019 beginning of year balance of $6,436,400 in unencumbered cash and investments is projected to be available to assist in the financial plan as shown on Line 1. This balance includes approximately $2,236,400 in unspent loan proceeds from the 2017 CWSRF loan proceeds. The remaining balance is restricted investments to be used for construction costs. It is anticipated that the capital costs associated with the North Collection System Rehabilitation project will be funded from a revenue bond in the amount of $8,000,000 as shown on Line 2. It is anticipated that the capital costs associated with the upgrade to Lift Station #11 will be funded by a $1,500,000 loan from the Clean Water State Revolving Fund (CWSRF). The anticipated drawdown from this loan for 2019 is shown on Line 3 of Table 9. Line Fiscal Year Ending September 30, No.Description 2019 2020 2021 2022 2023 2024 Total $$$$$$$ Sources of Funds 1 Funds Available at Beginning of Year (a)6,436,400 4,944,000 4,222,800 8,490,300 5,007,800 2,808,900 6,436,400 2 Revenue Bond Proceeds 0 0 8,000,000 0 0 0 8,000,000 3 Subordinate Debt Proceeds 1,500,000 0 0 0 0 0 1,500,000 4 Cash Financing of Capital Projects 0 960,000 4,000,000 4,000,000 4,000,000 4,000,000 16,960,000 5 Interest Income 56,900 45,800 63,600 67,500 39,100 14,300 287,2000 6 Total Funds Available 7,993,300 5,949,800 16,286,400 12,557,800 9,046,900 6,823,200 33,183,600 Application of Funds 7 Major Capital Improvements 3,047,800 1,727,000 7,136,600 7,550,000 6,238,000 6,765,500 32,464,900 8 Issuance Expense 1,500 0 120,000 0 0 0 121,500 9 Reserve Fund Requirement 0 0 539,500 0 0 0 539,5000 10 Total Application of Funds 3,049,300 1,727,000 7,796,100 7,550,000 6,238,000 6,765,500 33,125,900 11 End of Year Balance 4,944,000 4,222,800 8,490,300 5,007,800 2,808,900 57,700 57,700 (a)Beginning balance includes Restricted Investments and remaining loan proceeds. Grand Island Study Session - 12/10/2019 Page 28 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 16 NOVEMBER 2019 Cash financing of capital improvements from annual revenues is expected to total $16,560,000 for the study period as indicated on Line 4 of Table 9. Other potential sources of funds available to meet capital improvement expenditures includes interest income on the capital fund and capital reserve. Interest earnings recognize an assumed 1.0 percent average annual interest rate on short term investments such as funds held for improvements and long-term investments such as the capital reserve. Line 5 indicates the estimated annual funds from this source and Line 6 shows the total of all funds available to finance the capital improvement program. The application of funds shows that $32,464,900 in total major capital improvements expenditures (inflated) are projected over the planning period, as previously summarized in Table 7. Line 8 of Table 9 shows the debt issuance costs associated with any projected bond or loan issues. These costs are estimated to be 1.5 percent of the total principal amounts for revenue bonds and 0.1 percent for CWSRF loans. Line 9 indicates the amount of revenue bond reserve payments required by current bond covenants. These amounts are assumed to be funded from proceeds and are set to maintain a reserve fund equal to the maximum principal and interest payment on all outstanding bonds. Line 10 shows the total of all fund applications and the resulting end of year balance is shown on Line 11. SYSTEM OPERATIONS Table 10 shows the application of estimated future revenues under existing rates and estimated additional revenue from proposed rate increases to meet projected obligations for the period FY 2019 through FY 2024. This table summarizes the financing of operation and maintenance expense, debt service costs on existing and proposed debt, routine capital outlay, and the transfer of operating funds for major improvement financing. Line 1 of Table 10 shows projected revenue under existing rates as previously presented in Table 4. Lines 2 through 6 show indicated increases in revenues associated with rate increases assumed to be in effect the number of months shown. The date and magnitude of increase shown for each year were selected based on consideration of three principal criteria, which include: (1) total revenue necessary to meet cash requirements, (2) total revenue required to provide minimum bond coverage requirements, and (3) maintain a 120-day balance in the operating reserve fund, and (4) establishment of rate increases on a generally levelized basis intended to “phase in” or otherwise minimize the impact of burdensome rate adjustments required in any single year. Projected revenue from the indicated revenue increases assume a one-month lag before the rates become fully effective. Other revenue available for system operations, shown on Lines 8 through 10, consists of Other Revenue and interest income. Other revenue reflects projected revenue previously shown in Table 5. Interest income includes earnings on the operating fund and bond reserve fund and recognizes an assumed 1.0 percent annual interest rate. Projected total revenue from system operations is shown on Line 11. Operation and maintenance expense previously projected in Table 6 is shown on Line 12. Debt service requirements on currently outstanding revenue bonds are presented on Line 13 and reflect the Series 2013 bonds. Estimated debt service requirements on the proposed FY 2021 $8,000,000 revenue bonds projected to be issued to help finance major capital program expenditures are shown on Line 14 and are assumed to be 25-year, 4.5 percent fixed interest rate bonds with equal annual Grand Island Study Session - 12/10/2019 Page 29 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Summary of Revenue and Revenue Requirements 17 payments of principal and interest. Debt service on currently outstanding CWSRF loans are shown on Line 16 and estimated debt service on the proposed FY 2019 $1,500,000 CWSRF loan is shown on Line 17. Capital outlay for routine capital additions to be financed from revenue is shown on Line 20 of Table 10. Line 21 reflects the projected transfer of accumulated net earnings from system operations to assist in major capital financing. Table 10 - Comparison of Projected Revenue Under Existing Rates with Projected Revenue Requirements Line 23 indicates the estimated net annual balance from operations remaining at the end of each year. A FY 2019 beginning of year balance of $12,934,800 in unencumbered cash and investments is projected to be available to assist in the financial plan as shown on Line 24. The cumulative end of year balance is shown on Line 25. Line Fiscal Year Ending September 30, No.Description 2019 2020 2021 2022 2023 2024 $$$$$$ 1 Revenue Under Existing Rates 11,993,500 11,838,900 11,848,500 11,914,000 11,980,000 12,046,500 Increased Revenue 2 3.50% Effective January 1, 2020 241,700 414,700 417,000 419,300 421,600 3 3.50% Effective October 1, 2020 393,400 431,600 434,000 436,400 4 3.00% Effective October 1, 2021 351,000 385,000 387,100 5 3.00% Effective October 1, 2022 363,500 398,700 6 2.50% Effective October 1, 2023 313,700 7 Total Revenue from Rates 11,993,500 12,080,600 12,656,600 13,113,600 13,581,800 14,004,000 8 Other Revenue 1,123,200 541,500 538,500 538,500 532,500 529,500 9 Interest Income - Operations 145,000 157,100 134,500 101,800 72,500 44,500 10 Interest Income - Reserve Funds (a)25,200 25,200 27,900 30,600 30,600 30,600 11 Total Revenue 13,286,900 12,804,400 13,357,500 13,784,500 14,217,400 14,608,600 12 Operation & Maintenance Expense 5,698,300 7,409,600 7,697,800 7,477,000 7,826,500 7,911,600 Debt Service Requirements 13 Existing Revenue Bonds 2,517,000 2,513,000 2,513,500 2,412,100 2,518,300 2,518,100 14 Proposed Revenue Bonds 0 0 179,800 539,500 539,500 539,500 15 Total Revenue Bond Debt Service 2,517,000 2,513,000 2,693,300 2,951,600 3,057,800 3,057,600 16 Existing Subordinate Debt 1,904,200 2,096,800 2,188,500 2,175,500 2,162,300 2,148,800 17 Proposed Subordinate Debt 7,500 22,500 22,500 43,700 87,300 87,300 18 Total Subordinate Debt Service 1,911,700 2,119,300 2,211,000 2,219,200 2,249,600 2,236,100 19 Total Debt Service 4,428,700 4,632,300 4,904,300 5,170,800 5,307,400 5,293,700 20 Routine Capital Outlay (b)285,900 537,200 221,500 39,000 40,000 450,000 21 Cash Financing of Capital Projects 0 960,000 4,000,000 4,000,000 4,000,000 4,000,000 22 Total Revenue Requirements 10,412,900 13,539,100 16,823,600 16,686,800 17,173,900 17,655,300 23 Net Balance 2,874,000 (734,700)(3,466,100)(2,902,300)(2,956,500)(3,046,700) 24 Beginning Fund Balance (c)12,934,800 15,808,800 15,074,100 11,608,000 8,705,700 5,749,200 25 End of Year Balance 15,808,800 15,074,100 11,608,000 8,705,700 5,749,200 2,702,500 26 Number of Days - Actual 779 715 567 406 265 122 27 Number of Days - Target 120 120 120 120 120 120 (a)Includes interest earnings on the Principal and Interest Account, Bond Reserve Fund, and Operating Reserve. (b)Cash financing of Machinery & Equipment and Vehicles. (c)Reflects Operating Cash on hand at beginning of year. Grand Island Study Session - 12/10/2019 Page 30 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 18 NOVEMBER 2019 The wastewater utility maintains a cash reserve to provide for unforeseen fluctuations in revenues and expenses. The minimum required balance in the cash reserve has been set at 120 days of operation and maintenance expense. At September 30, 2018, the utility had a balance equal to approximately 829 days. The projected number of days of cash on hand is shown on Line 26 of Table 10 and is based on the end of year balance shown on Line 25 and projected operation and maintenance expense shown on Line 12. In an effort to propose the minimum revenue increases necessary, it is recommended that the City use portions of the funds on hand to finance both capital program requirements and estimated future operation expenses during the study period while keeping the number of days of cash on hand to at least 120 days of projected operations and maintenance expense. BOND COVERAGE REQUIREMENTS An additional consideration in measuring the adequacy of revenues is the provision of sufficient debt service coverage to meet the bond covenant requirements for the issuance of parity revenue bonds. The revenue bond ordinance provides that rates shall be maintained such that net revenue available for debt service each year shall be equal to or greater than 110 percent of the current year’s debt service requirements on all outstanding revenue bonds. Furthermore, additional parity bonds may be issued provided that one of the following conditions is met: (1) the net revenue available for debt service for the fiscal year next preceding the issuance of additional bonds is equal to or greater than 125 percent of the average annual debt service requirements on all outstanding revenue bonds and the proposed additional bonds; or (2) the net revenue available for debt service in each of the three full fiscal years after the issuance of the proposed additional bonds will be equal to or greater than 125 percent of the average annual debt service requirements on all outstanding revenue bonds and the proposed additional bonds. The City is required to have an independent consulting engineer prepare a projection to verify that the second test is met. The ability of the wastewater utility revenues to meet the rate covenant and additional bonds test is shown in Table 11. The utility meets the rate covenant and the additional bonds tests in each year of the study period. Grand Island Study Session - 12/10/2019 Page 31 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Summary of Revenue and Revenue Requirements 19 Table 11 - Coverage Requirements Line No.Description 2019 2020 2021 2022 2023 2024 $$$$$$ Rate Covenant Coverage 1 Projected Net Revenues 7,588,600 5,394,800 5,659,700 6,307,500 6,390,900 6,697,000 2 Annual Debt Service (a)4,428,700 4,632,300 4,904,300 5,170,800 5,307,400 5,293,700 3 Projected Actual Net Revenue as a Percent of Debt Service (b)171.4%116.5%115.4%122.0%120.4%126.5% Additional Bond Coverage (c) 4 Preceding Year Projected Net Revenues 4,500,000 7,588,600 5,394,800 5,659,700 6,307,500 6,390,900 5 Average Annual Debt Service 3,968,483 3,947,564 3,813,676 3,768,233 3,707,257 3,634,525 6 Projected Actual Net Revenue as a Percent of Debt Service (d)113.4%192.2%141.5%150.2%170.1%175.8% 7 Projected Net Revenues 7,588,600 5,394,800 5,659,700 6,307,500 6,390,900 6,697,000 8 Average Annual Debt Service 3,968,483 3,947,564 3,813,676 3,768,233 3,707,257 3,634,525 9 Projected Actual Net Revenue as a Percent of Debt Service (e)191.2%136.7%148.4%167.4%172.4%184.3% (a)Includes Revenue Bonds and CWSRF Loans. (b)The Bond Ordinance requires net revenue to equal or exceed 1.10x actual debt service. (c)The City shall comply with one or the other of the two additional bonds tests. (d)The Bond Ordinance requires net revenue to equal or exceed 1.25x average annual debt service. (e) Fiscal Year Ending September 30, The Bond Ordinance requires net revenue to equal or exceed 1.25x average annual debt service in each of the three full fiscal years after the issuance of the proposed Additional Bonds. Grand Island Study Session - 12/10/2019 Page 32 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 20 NOVEMBER 2019 Cost Allocations Cost of service allocations provide a means of determining the proportionate responsibility of each customer class for the service provided. Cost responsibilities are based upon allocations of various elements of costs of service according to the relative service requirements of respective customer classes. Factors considered in determining service requirements include the volume of wastewater contributed, strength of wastewater, and the number of customers. COST OF SERVICE TO ALLOCATED The cost of service to be allocated to the various customer classes consists of the total revenue requirements less income received from other sources. For allocation purposes, this cost of service is expressed as an annual requirement for a specific test year. For purposes of this study, the fiscal year ending September 30, 2020 has been selected as generally typical of conditions anticipated during the study period. This cost, totaling $12,253,300, consists of $6,706,900 of net operation and maintenance expense and $5,546,400 of net capital costs. These costs are derived from Table 10 and summarized on Line 12 of Table 12. Table 12 - Total Cost of Service to be Recovered from Rates FUNCTIONAL COST COMPONENTS The various cost elements of wastewater service are assigned to functional cost components as the first step in the subsequent distribution of the costs of service to customer classes. The principal functional cost components consist of volume related costs, strength related costs, and customer related costs. Volume costs are those which vary directly with the quantity of wastewater contributed. They consist of capital costs related to investment in system facilities which are sized on the basis of, or required because of, wastewater volume. This also includes operation and maintenance expense related to those facilities and the expense of volume related treatment chemicals and purchased power. Line O&M Capital No.Description Expense Costs Total $$$ Revenue Requirements 1 Operation & Maintenance 7,409,600 7,409,600 Debt Service Requirements 2 Existing Debt Service 4,609,800 4,609,800 3 Proposed Debt Service 22,500 22,500 4 Capital Outlay 537,200 537,200 5 Cash Financing of Capital Projects 960,000 960,000 6 Total 7,409,600 6,129,500 13,539,100 Revenue Requirements Met from Other Sources 7 Other Revenue 161,500 380,000 541,500 8 Interest Income 139,800 43,700 183,500 9 Funds Available 401,400 332,100 733,500 10 Full Year Rate Adjustment (172,700)(172,700) 11 Total 702,700 583,100 1,285,800 12 Net Costs to be Met from Charges 6,706,900 5,546,400 12,253,300 Grand Island Study Session - 12/10/2019 Page 33 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Cost Allocations 21 Wastewater strength costs consist of the operation and maintenance expense and capital costs related to system facilities which are designed principally based on the projected strength concentrations of the wastewater. The strengths recognized in this study include biochemical oxygen demand (BOD), suspended solids (SS), oil and grease (O&G), and total nitrogen (TN). Costs associated with each of these strengths are those costs of wastewater treatment which tend to vary according to the quantity of each strength in the raw wastewater. Customer costs are defined as costs which tend to vary in proportion to the number of customers connected to the system. These include billing, collection and accounting costs. The separation of costs of service into these principal categories provides the means of further allocating such costs to the various customer classes based on the respective total wastewater volume, strength, and customer service requirements of each customer class. ALLOCATION TO COST COMPONENTS In establishing the costs associated with each functional cost component, the net capital portion of the test year cost of service is distributed to cost functions based on an allocation of the estimated test year value of wastewater system facilities. The test year net operating expense is similarly allocated to cost functions based on the projected test year expense estimated for each wastewater system component. ALLOCATION OF NET PLANT INVESTMENT The estimated test year net plant investment in wastewater facilities consists of net plant in service as of September 30, 2018 and proposed capital improvements up to the fiscal year 2020. Table 13 shows the allocation of the wastewater utility’s total estimated plant value less contributions on an original cost less depreciation value basis. Total plant investment is estimated to be $102,422,600 as indicated by Line 19 of the table. Each item of plant investment is allocated to a functional cost component, or components, primarily in accordance with the function which determines the amount of investment. One of the City’s industrial customers discharges wastewater volume from two discharge points. One point is used for sanitary waste and discharges into the City’s sanitary sewer system. The second discharge point is from the customer’s lagoon which flows directly to the treatment plant via a dedicated main. All industrial waste is pre-treated and discharged to the treatment plant through the discharge from the lagoon. In recognition of the fact that a portion of the contributed flow that enters the plant does not enter the City’s sanitary sewer system, a functional cost component for only contributed flow that does enter the sanitary sewer system has been designated as City Collection System Users volume. Collection system facilities and lift stations are designed to meet anticipated flow and are therefore allocated to the City Collection System Users volume component. Liquid oxygen, methanol system, raw water pumping, preliminary treatment, corrosion/odor control facilities, and disinfection facilities are designed based on anticipated flow and are applicable to all flow entering the treatment plant therefore, costs are assigned to the Common to All volume component. Grand Island Study Session - 12/10/2019 Page 34 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 22 NOVEMBER 2019 Table 13 - Allocation of Net Plant Investment to Functional Cost Components Primary sedimentation/clarifiers are designed to remove BOD, SS, and oil and grease from influent flow, therefore, the costs associated with this equipment is allocated to those strength components. Aeration basins and equipment, as well as final clarifiers are sized based on the BOD, SS, and TN loadings therefore, costs are assigned to each of these strength cost components as shown on Lines 8, 9 and 11 of Table 13. The costs associated with Sludge Handling are allocated 50 percent to the BOD strength component, 45 percent to the SS component, and 5 percent to the oil and grease component. General Plant costs are allocated to the cost components on the basis of the subtotal of all other treatment plant functions. Costs associated with the Lab are allocated to the wastewater strength cost components based on the estimated number of hours spent performing lab tests for each strength component. Vehicles and Administration & General facilities are allocated to all cost components on the basis of all other net plant investment. Land shown on Line 18 of Table 13 is allocated to the Common to All volume component. Test year net capital costs, shown on Line 12 of Table 12, are assigned to the functional cost components on the basis of net plant investment and are shown on Line 20 of Table 13. Line Total Volume No.Description Expense Related $$$$$$$ 1 Sewer Mains 58,532,700 0 0 0 0 0 58,532,700 2 Liquid Oxygen 2,800 2,800 0 0 0 0 0 3 Methanol System 8,600 8,600 0 0 0 0 0 4 Lift Stations 6,615,300 0 0 0 0 0 6,615,300 Wastewater Treatment 5 Raw Water Pumping 11,600 11,600 0 0 0 0 0 6 Preliminary Treatment 21,306,500 21,306,500 0 0 0 0 0 7 Primary Sedimentation/Clarifiers 565,900 84,800 169,800 226,400 84,900 0 0 8 Aeration Basins 5,090,800 0 1,527,200 1,018,200 0 2,545,400 0 9 Aeration Equipment 141,800 0 42,500 28,400 0 70,900 0 10 Corrosion/Odor Control Facilities 0 0 0 0 0 0 0 11 Final Clarifiers 371,600 0 148,600 185,800 0 37,200 0 12 Disinfection 127,200 127,200 0 0 0 0 0 13 Sludge Handling 6,828,200 100 3,414,000 3,072,700 341,400 0 0 14 General Plant 1,972,400 1,232,900 303,600 259,500 24,400 152,000 0 15 Lab 6,100 3,500 600 600 400 1,000 0 16 Vehicles 94,200 21,200 5,200 4,400 400 2,600 60,400 17 Administration & General 106,300 23,800 5,900 5,000 500 2,900 68,200 18 Land 640,600 640,600 0 0 0 0 0 19 Total Net Plant 102,422,600 23,463,600 5,617,400 4,801,000 452,000 2,812,000 65,276,600 20 Net Capital Costs 5,564,400 1,274,700 305,200 260,800 24,600 152,800 3,546,300 Common to All City Collection System BOD Suspended Solids Oil & Grease Total Nitrogen Extra Strength Grand Island Study Session - 12/10/2019 Page 35 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Cost Allocations 23 ALLOCATION OF OPERATING EXPENSES Table 14 presents the allocation of operation and maintenance expense to the functional cost components. Total test year operation and maintenance expense amounts to $6,688,900 as shown on Line 22. The allocation of each element of operating expense to cost components shown in Lines 1 through 16 is performed in a similar manner to the allocation of net plant investment previously described. Table 14 - Allocation of Operation & Maintenance to Functional Cost Components Other operating revenue and interest income available to meet a portion of these expenditures reduces the level of operation and maintenance to be recovered by wastewater service charges to $6,688,900. Other Operating Revenue associated with sewer assessments is allocated to the City Collection System Users volume component. Other Revenue associated with lab samples and discharge fees are allocated to the wastewater strength components in the same manner as the allocation of capital costs associated with the Lab. All other miscellaneous revenue is allocated to the Common to All volume component. Revenue from Interest Income and Change in Funds Available is allocated to the cost components on the basis of total operation and maintenance expense and shown on Lines 19 and 20. DISTRIBUTION OF COSTS TO CUSTOMER CLASSES As a basis for determining the cost of wastewater service to each customer class, the elements of cost of service previously allocated to functional cost components are distributed among the classes in proportion to their respective service requirements. Estimates of these requirements, or units of service, reflect the average number of accounts, annual wastewater volume, and wastewater strength. Line Total Volume No.Description Expense Related $$$$$$$$ 1 Sewer Mains 1,310,800 0 0 0 0 0 0 1,310,800 2 Micro C 123,600 0 0 0 0 123,600 0 0 3 Lift Stations 463,300 0 0 0 0 0 0 463,300 4 Subtotal 1,897,700 0 0 0 0 123,600 0 1,774,100 Wastewater Treatment 5 Raw Water Pumping 287,100 287,100 0 0 0 0 0 0 6 Preliminary Treatment 289,000 289,000 0 0 0 0 0 0 7 Primary Sedimentation/Clarifiers 302,500 45,300 90,800 121,000 45,400 0 0 0 8 Aeration Basins 218,600 0 65,600 43,700 0 109,300 0 0 9 Aeration Equipment 507,600 0 152,300 101,500 0 253,800 0 0 10 Corrosion/Odor Control Facilities 236,200 236,200 0 0 0 0 0 0 11 Final Clarifiers 237,800 0 95,100 118,900 0 23,800 0 0 12 Disinfection 282,700 282,700 0 0 0 0 0 0 13 Sludge Handling 518,500 0 259,300 233,300 25,900 0 0 0 14 General Plant 256,700 160,400 39,500 33,800 3,200 19,800 0 0 9 Subtotal 3,136,700 1,300,700 702,600 652,200 74,500 406,700 0 0 15 Lab 488,500 278,500 46,800 47,700 35,700 79,800 0 0 16 Administration & General 1,886,700 509,500 212,600 206,900 37,100 129,100 291,600 499,900 17 Total O&M Expense 7,409,600 2,088,700 962,000 906,800 147,300 739,200 291,600 2,274,000 Less Offsetting Revenues: 18 Other Operating Revenue 161,500 59,300 6,000 10,500 5,200 23,200 0 57,300 19 Interest Income 157,100 44,300 20,400 19,200 3,100 15,700 6,200 48,200 20 Change in Funds Available 402,100 113,400 52,200 49,200 8,000 40,100 15,800 123,400 21 Total Offsetting Revenues 720,700 217,000 78,600 78,900 16,300 79,000 22,000 228,900 22 Net Operating Expenses to be Recovered 6,688,900 1,871,700 883,400 827,900 131,000 660,200 269,600 2,045,100 BOD Suspended Solids Oil & Grease Billing City Collection System Users Volume Total Nitrogen Extra Strength Common to All Grand Island Study Session - 12/10/2019 Page 36 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 24 NOVEMBER 2019 Analysis of resulting costs of service to each class and comparison of allocated costs with revenues under existing rates provide a basis for future wastewater rate adjustments. Customer Classification The customers of the wastewater utility are separated into groups having similar service requirements and ownership status. The new utility billing system classifies accounts into the following customer classes: Residential, Government, Commercial, and Industrial. Units of Service Derivation of the responsibility of customer classes for costs of service require that each class be allocated a portion of the volume, strength, and customer costs of service according to their respective service requirements. The cost of service responsibility for volume costs, which vary with the volume of wastewater contributed to the wastewater system, is distributed to customer classes on that basis. Strength costs are principally related to the function of removing wastewater BOD, suspended solids, oil and grease, and total nitrogen. Customer costs, which consist of billing and collection costs, are allocated on the basis of the number of customer bills. The estimated test year service requirements or units of service for the various customer classes are shown in Table 15. Wastewater collected and treated consists of two elements: (1) sanitary wastewater flow and (2) infiltration/inflow (I/I) of ground and surface water into the sewers. Contributed wastewater flow is the billable annual water use of each customer class estimated to enter the sanitary wastewater sewer system. Estimates of the contributed volume of each class are based upon wastewater utility billing records. The balance of the wastewater flow processed by the treatment plant is assumed to comprise I/I. Based on historical data, it is estimated that the test year amount of flow entering the sewers as I/I will average approximately 40 percent of the total volume transported by the sanitary sewer system which does not include the contributed flow discharged from industrial Direct Discharge. Each customer class should bear its proportionate share of the costs associated with I/I, as the wastewater system must be adequate to convey and process the total wastewater flow. Recognizing that the major cost responsibility for I/I is allocable on an individual connection basis, two-thirds of the projected I/I volume associated with the sewer collection system is allocated to customer classes based on the number of customers with the remaining one-third allocated on the basis of contributed volume entering the treatment plant through the sanitary sewer system. The I/I attributable to interceptors is allocated to all customer classes based on the total flow contributed to the wastewater system. Estimated total strength quantities shown for each customer class are based on an average BOD concentration of 240 milligrams per liter (mg/l), average suspended solids concentration of 180 mg/l, average oil and grease concentration of 25 mg/l and average total nitrogen concentration of 25 mg/l. Estimated BOD, suspended solids, oil and grease, and total nitrogen responsibilities of each customer class shown in Table 15 are based on the respective indicated average strength concentrations and contributed wastewater and I/I volumes for each class. Customer billing and collection costs are distributed to classes on the basis of the number of bills for each customer class. Grand Island Study Session - 12/10/2019 Page 37 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Cost Allocations 25 Table 15 - Estimated Units of Service CUSTOMER CLASS COSTS OF SERVICE Unit costs of service are developed by dividing the total cost allocated to each functional cost component by the total applicable units of service. The customer class responsibility for service is obtained by applying unit costs of service to the number of units for which the customer class is responsible. Table 16 shows the development of the unit costs of service applicable to each cost function. Lines 1 through 3 summarize the units of service developed in Table 15. Total allocated costs or investment shown on Lines 4 and 6 were previously developed in Table 14 and Table 13, respectively. Units of service for each component are determined simply by dividing the allocated cost of investment by the total units of service and are shown on Lines 5 and 7 of Table 16. Applying the total unit cost of service shown on Line 9 to the units of service shown on Lines 1 and 2 produces the total cost of service shown on Lines 10 and 11. The costs of service allocated to customer classes are summarized in Table 17. Total costs of service for each class are based on unit costs of service from Table 16 and units of service from Table 15. Table 18 shows allocated cost of service by customer class from Table 17, revenue under existing rates, and the indicated additional revenue required for each class. The additional revenue will be recovered from a 3.5 percent increase effective January 1, 2020. Wastewater Volume Line Contributed No.Description Volume Total Bills Ccf Ccf Ccf Pounds Pounds Pounds Pounds Bills 1 Residential 1,123,600 1,124,000 2,247,600 2,033,000 1,963,000 280,400 175,200 174,146 2 Government 6,200 3,900 10,100 10,500 9,400 1,400 1,000 504 3 Commercial 711,200 290,200 1,001,400 1,155,400 979,700 138,100 110,900 26,551 4 Industrial 181,400 44,700 226,100 285,500 231,600 32,500 28,300 960 Manually Billed Industrial 5 Direct Discharge 1,211,300 0 1,211,300 1,813,700 1,360,300 188,900 188,900 0 6 All Other 257,800 57,400 315,200 403,900 325,300 45,600 40,300 132 Surcharge 7 Direct Discharge 0 445,057 0 240,000 8 All Other 894,964 468,489 129,825 16,405 9 Total 3,491,500 1,520,200 5,011,700 6,596,964 5,782,846 816,725 801,005 202,293 Ccf - Hundred Cubic Feet Wastewater Strength Total Nitrogen Infiltration / Inflow BOD Suspended Solids Oil & Grease Grand Island Study Session - 12/10/2019 Page 38 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 26 NOVEMBER 2019 Table 16 - Unit Cost of Service Common to All Retail Sewer Customers Line Volume No.Description Total Related $Ccf Pounds Pounds Pounds Pounds Bills Ccf Number of Units 1 City Collection System Users 3,800,400 4,783,264 3,977,489 627,825 372,105 202,293 3,800,400 2 Direct Discharge 1,211,300 1,813,700 1,805,357 188,900 428,900 0 0 3 Total 5,011,700 6,596,964 5,782,846 816,725 801,005 202,293 3,800,400 Costs of Service Net Operating Expense 4 Total - $6,688,900 1,871,700 883,400 827,900 131,000 660,200 269,600 2,045,100 5 Unit Cost - $/unit 0.3735 0.1339 0.1432 0.1604 0.8242 1.3327 0.5381 Net Capital Costs 6 Total - $5,564,400 1,274,700 305,200 260,800 24,600 152,800 0 3,546,300 7 Unit Cost - $/unit 0.2543 0.0463 0.0451 0.0301 0.1908 0.0000 0.9331 8 Total - $12,253,300 3,146,400 1,188,600 1,088,700 155,600 813,000 269,600 5,591,400 9 Total Unit Costs of Service 0.6278 0.1802 0.1883 0.1905 1.0150 1.3327 1.4713 Total Cost of Service 10 City Collection System Users 10,354,800 2,385,900 861,800 748,800 119,600 377,700 269,600 5,591,400 11 Direct Discharge 1,898,500 760,500 326,800 339,900 36,000 435,300 0 0 12 Total - $12,253,300 3,146,400 1,188,600 1,088,700 155,600 813,000 269,600 5,591,400 Ccf - Hundred Cubic Feet City Collection System Users VolumeBillingBOD Suspended Solids Oil & Grease Total Nitrogen Strength Costs Grand Island Study Session - 12/10/2019 Page 39 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Cost Allocations 27 Table 17 - Allocation of Cost of Service to Customer Classes Common to All Retail Sewer Customers Line Volume No.Description Total Related Ccf Pounds Pounds Pounds Pounds Bills Ccf 1 Total Unit Cost - $/unit 0.6278 0.1802 0.1883 0.1905 1.0150 1.3327 1.4713 Residential 2 Units 2,247,600 2,033,000 1,963,000 280,400 175,200 174,146 2,247,600 3 Costs - $5,916,600 1,411,100 366,200 369,500 53,300 177,800 232,000 3,306,700 Government 4 Units 10,100 10,500 9,400 1,400 1,000 504 10,100 5 Costs - $26,900 6,300 1,900 1,800 300 1,000 700 14,900 Commercial 6 Units 1,001,400 1,155,400 979,700 138,100 110,900 26,551 1,001,400 7 Costs - $2,668,900 628,700 208,200 184,400 26,300 112,600 35,400 1,473,300 Industrial 8 Units 226,100 285,500 231,600 32,500 28,300 960 226,100 9 Costs - $605,800 141,900 51,400 43,600 6,200 28,700 1,300 332,700 10 Subtotal - $9,218,200 2,188,000 627,700 599,300 86,100 320,100 269,400 5,127,600 Manually Billed Industrial Direct Discharge 11 Units 1,211,300 1,813,700 1,360,300 188,900 188,900 0 0 12 Costs - $1,571,100 760,500 326,800 256,100 36,000 191,700 0 0 All Other 13 Units 315,200 403,900 325,300 45,600 40,300 132 315,200 14 Costs - $845,600 197,900 72,800 61,300 8,700 40,900 200 463,800 15 Subtotal - $2,416,700 958,400 399,600 317,400 44,700 232,600 200 463,800 Surcharge Direct Discharge 16 Units 0 445,057 0 240,000 17 Costs - $327,400 0 83,800 0 243,600 All Other 18 Units 894,964 468,489 129,825 16,405 19 Costs - $291,000 161,300 88,200 24,800 16,700 20 Subtotal - $618,400 0 161,300 172,000 24,800 260,300 0 0 21 Total Cost of Service - $12,253,300 3,146,400 1,188,600 1,088,700 155,600 813,000 269,600 5,591,400 Ccf - Hundred Cubic Feet BillingBOD Suspended Solids Oil & Grease City Collection System Users Total Nitrogen Strength Costs Grand Island Study Session - 12/10/2019 Page 40 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 28 NOVEMBER 2019 Table 18 - Comparison of Cost of Service with Revenue under Existing Rates Indicated Line Allocated Cost Revenue Under Revenue No.Customer Class of Service Existing Rates Increase $$% 1 Residential 5,916,600 5,389,900 9.77 2 Government 26,900 26,100 3.07 3 Commercial 2,668,900 2,722,100 (1.95) 4 Industrial 605,800 646,400 (6.28) 5 Subtotal 9,218,200 8,784,500 4.94 Manually Billed Industrial 6 Direct Discharge 1,571,100 1,429,300 9.92 7 All Other 845,600 894,900 (5.51) 8 Surcharge 618,400 730,200 (15.31) 9 Subtotal 3,035,100 3,054,400 (0.63) 10 Total 12,253,300 11,838,900 3.50 Grand Island Study Session - 12/10/2019 Page 41 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Rate Adjustment 29 Rate Adjustment The principal consideration in establishing wastewater rate schedules is the establishment of equitable charges to customers, commensurate with the cost of providing that service. The only method of assessing entirely equitable rates for wastewater service would be the determination of each customer’s bill based upon their particular service requirements. Since this is impractical, schedules of rates are normally designed to meet average conditions for groups of customers having similar service requirements. Practicality also dictates the use of a rate schedule which is simple to apply, reasonably recovers costs proportionately from all classes, and is subject to as few misinterpretations as possible. The revenue requirements and cost of service allocations described in this report provide the basis for adjusting wastewater rates. The revenue requirements section shows the need for adjustment and the level of revenue required. The allocations section provides the unit costs of service used in the rate design process and gives a basis for determining whether resultant rates will develop revenues which recover costs of service from customer classes in proportion to service required and provide the total level of revenue required. EXISTING RATES The existing schedule for charges for wastewater service became effective September 1, 2016. The rates consist of a monthly service charge, normal strength and low strength uniform volume charges, and extra strength surcharges for biochemical oxygen demand in excess of 250 mg/l, suspended solids in excess of 250 mg/l, oil and grease in excess of 100 mg/l, TKN in excess of 30 mg/l, and nitrates in excess of 25 mg/l. Industrial customers who certify that their sewage contributions are less than normal strength wastewater pay the Industrial Four Part Charge which consists of a reduced volume charge and extra strength surcharges for all wastewater strength discharged. All industrial customers are also charged applicable sampling and monitoring fees. PROPOSED RATES The cost of service study described in preceding sections of this report provides a basis for the design of a schedule of wastewater rates to meet total costs of service. As previously indicated in Table 10, wastewater revenues shown for test year 2020 are anticipated to be recovered under an adjusted rate schedule that would generate revenues that exceed revenues recoverable under existing rates by 3.5 percent. In developing proposed schedules of rates, it must be recognized that the cost of service studies are the result of engineering estimates, based to some extent upon judgment and experience, and detailed results should not be used as literal and exact answers but as guides to the necessity for and nature of rate adjustments. Judgment must enter into the final choice of rates and factors such as previous rate levels, economic impact on the customer, public reaction to the extent of changes, and local practice in the past are commonly recognized in making rate adjustments. It is emphasized that all factors beyond cost of service considerations are strictly a matter of local policy. Considerations recognized in the derivation of the proposed schedules of wastewater rates subsequently presented herein, developed based on discussions with utility representatives, include the indicated desire to: (1) develop rate modifications so that the total revenues recovered from wastewater charges will be at least adequate to recover the respective revenue requirements of the utility, and (2) recover test year revenues from each class of wastewater customer approximately equal to the allocated Grand Island Study Session - 12/10/2019 Page 42 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 30 NOVEMBER 2019 costs of providing service. In attempting to meet these policy criteria, and as a result of the collaborative efforts of the utility staff, proposed schedules of rates for wastewater service are presented and discussed in the following paragraphs. The existing schedule of rates for wastewater service includes charges based on the quantity of water used, with a service charge. This form of rate is common among wastewater utilities and generally can be designed to recover revenue from system customers reasonably commensurate with the cost of service. Schedules of proposed wastewater rates, designed to recover revenue requirements generally in accordance with the preceding cost allocation and other practical considerations for each year of the study period, are shown in Table 19. The proposed rate schedule for is similar to the existing structure, with the exception of the elimination of the rates for TKN and Nitrates and the addition of a rate for Total Nitrogen (TN) rate. A rate for TN was selected to simplify the proposed rate structure while still accounting for the costs of treatment previously associated with TKN and Nitrates. ADEQUACY OF PROPOSED RATES A comparison of estimated test year revenue under the proposed rates with allocated costs of service for each customer class is shown in Table 20. This comparison indicates that the proposed rates will recover revenues from customer groups reasonably commensurate with the cost of service and practical considerations previously noted. TYPICAL BILLS To better reflect the total effect the proposed rates will have on customer’s bills, a comparison of typical bills under existing rates and the proposed rates is shown in Table 21. FY 2021 – FY 2024 RATE ADJUSTMENTS In addition to the Table 19 schedule of rates proposed for application effective January 1, 2020, schedules of rates proposed for implementation effective October 1, 2020 through October 1, 2023 are presented in Table 22. These rates are designed to provide for the recovery of total revenue requirements previously projected herein for FY 2021 through FY 2024. It is recommended that the City Council adopt the schedule of rates shown in Table 19 and Table 22. Grand Island Study Session - 12/10/2019 Page 43 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Rate Adjustment 31 Table 19 - Proposed Rates (Effective January 1, 2020) Proposed Rate Component Rates Sewer Service Charge - $/Month All Customers 8.24 Volume Charge - $/Ccf Customers Using City's Collection System - Inside City 3.69 Customers Using City's Collection System - Outside City 4.43 Discharge Directly into City's Treatment Plant 1.19 Bulk Volume Rate 46.38 Excess Strength Surcharge - $/lb BOD over 250 mg/l 0.3248 Suspended Solids over 250 mg/l 0.2177 Oil & Grease over 100 mg/l 0.1908 Total Nitrogen over 25 mg/l 0.8900 Industrial Four-Part Charge Low Strength Customers Volume Charge - $/Ccf 2.72 BOD - $/lb 0.3248 Suspended Solids - $/lb 0.2177 Oil & Grease - $/lb 0.1908 Ccf - Hundred Cubic Feet lb - Pound BOD - Biochemical Oxygen Demand mg/l = Milligrams per Liter Grand Island Study Session - 12/10/2019 Page 44 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 32 NOVEMBER 2019 Table 20 - Comparison of Allocated Cost of Service with Revenue Under Proposed Rates Indicated Revenue Under Additional Line Allocated Cost Proposed Revenue Under Revenue No.Customer Class of Service Rates Existing Rates Required $$$$ 1 Residential 5,916,600 5,581,000 5,389,900 191,100 2 Government 26,900 27,000 26,100 900 3 Commercial 2,668,900 2,843,100 2,722,100 121,000 4 Industrial 605,800 677,300 646,400 30,900 5 Subtotal 9,218,200 9,128,400 8,784,500 343,900 Manually Billed Industrial 6 Direct Discharge 1,571,100 1,441,400 1,429,300 12,100 7 All Other 845,600 940,100 894,900 45,200 8 Surcharge 618,400 742,500 730,200 12,300 9 Subtotal 3,035,100 3,124,000 3,054,400 69,600 10 Total 12,253,300 12,252,400 11,838,900 413,500 Grand Island Study Session - 12/10/2019 Page 45 / 77 City of Grand Island, NE | REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE BLACK & VEATCH | Rate Adjustment 33 Table 21 - Comparison of Typical Monthly Bills under Existing Rates and Proposed Rates Water Existing Proposed Rates Description Use Rates Amount Increase Increase Ccf $$$% Residential Small 5 25.84 26.69 0.85 3.3% Medium 7 32.88 34.07 1.19 3.6% Large 15 61.04 63.59 2.55 4.2% Government Small 15 61.04 63.59 2.55 4.2% Medium 25 96.24 100.49 4.25 4.4% Large 50 184.24 192.74 8.50 4.6% Commercial Small 15 61.04 63.59 2.55 4.2% Medium 40 149.04 155.84 6.80 4.6% Large 75 272.24 284.99 12.75 4.7% Industrial Small (a)50 353.23 361.73 8.50 2.4% Medium (b)500 2,101.35 2,189.39 88.03 4.2% Large (c) 5,000 21,855.57 22,796.60 941.03 4.3% (a) Assumes 150 mg/l BOD and 25 mg/l SS (b) Assumes 250 mg/l BOD, 100 mg/l SS and 25 mg/l O&G (c) Assumes 250 mg/l BOD, 200 mg/l SS and 75 mg/l O&G Grand Island Study Session - 12/10/2019 Page 46 / 77 REPORT ON REVENUE REQUIREMENTS, COST OF SERVICE AND RATES FOR WASTEWATER SERVICE | City of Grand Island, NE 34 NOVEMBER 2019 Table 22 - Proposed Rates (Effective October 1, 2020 - October 1, 2023) Proposed Rates (a) Rate Component FY 2021 FY 2022 FY 2023 FY 2024 Sewer Service Charge - $/Month All Customers 8.24 8.24 8.24 8.24 Volume Charge - $/Ccf Customers Using City's Collection System - Inside City 3.88 4.03 4.19 4.33 Customers Using City's Collection System - Outside City 4.66 4.84 5.03 5.20 Discharge Directly into City's Treatment Plant 1.20 1.21 1.22 1.23 Bulk Volume Rate 46.38 46.38 46.38 46.38 Excess Strength Surcharge - $/lb BOD over 250 mg/l 0.3248 0.3248 0.3248 0.3248 Suspended Solids over 250 mg/l 0.2177 0.2177 0.2177 0.2177 Oil & Grease over 100 mg/l 0.1975 0.2034 0.2095 0.2147 Total Nitrogen over 25 mg/l 0.8953 0.9222 0.9499 0.9736 Industrial Four-Part Charge Low Strength Customers Volume Charge - $/Ccf 2.91 3.06 3.21 3.35 BOD - $/lb 0.3248 0.3248 0.3248 0.3248 Suspended Solids - $/lb 0.2177 0.2177 0.2177 0.2177 Oil & Grease - $/lb 0.1975 0.2034 0.2095 0.2147 (a) Effective October 1 of each fiscal year. Ccf - Hundred Cubic Feet lb - Pound BOD - Biochemical Oxygen Demand mg/l = Milligrams per Liter Grand Island Study Session - 12/10/2019 Page 47 / 77 Current Situation •The utility currently has a strong cash balance but insufficient annual revenues to meet key financial metrics •Key financial metrics with no future revenue increases: •Potential Impact: •The City will not be able to issue future debt due to low coverage and no revenue increases in place •The cash balance will be depleted by FY 2023 to fund the capital program •Future revenue increases will be larger if revenue increases are delayed Financial Metric FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Days of Cash on Hand 763 597 266 -22 -350 Minimum Requirement 120 120 120 120 120 Annual Rate Covenant Coverage 120%110%119%108%108% Minimum Requirement 110%110%110%110%110% Grand Island Study Session - 12/10/2019 Page 48 / 77 Current Recommendation •Small, annual revenue adjustments to increase rate revenue while using cash on hand to fund the majority of the capital program •Key components •*FY 2021 – 2024 projected O&M has been revised to remove $400k one-time cost in FY 2020 budget, thereby reducing the proposed revenue increases •All financial metrics are met •Cash will be used to fund the majority of the CIP •Future debt will be issued for the North Collection System Rehab project Financial Metric FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Proposed Revenue Increases*2.5%2.5%2.25%2.25%2.25% Cash Financing of Major Capital $0.96M $4.0M $4.0M $4.0M $4.5M Days of Cash on Hand 772 627 459 310 131 Minimum Requirement 120 120 120 120 120 EOY Balance of Cash on Hand $15.4M $12.1M $9.3M $6.4M $2.7M Annual Rate Covenant Coverage 124%119%124%120%125% Minimum Requirement 110%110%110%110%110% Grand Island Study Session - 12/10/2019 Page 49 / 77 Partial Call of 2013 Revenue Bonds Option •$9,995,800 cash is placed in escrow account to defease a portion of the 2013 bonds •Potential Impacts: •Funds in escrow account cannot be accessed for any reason other than debt defeasement •There are no savings from defeasing debt early •Additional debt will need to be issued to fund future capital projects •Higher revenue increases are necessary to meet coverage on additional debt Financial Metric FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Proposed Revenue Increases 2.5%2.5%2.5%2.5%2.5% Cash Financing of Major Capital $0.96M $2.0M $2.0M $2.0M $1.5M Days of Cash on Hand 283 246 216 181 143 Minimum Requirement 120 120 120 120 120 EOY Balance of Cash on Hand $5.6M $4.8M $4.4M $3.7M $3.0M Annual Rate Covenant Coverage 130%130%136%127%123% Minimum Requirement 110%110%110%110%110% Grand Island Study Session - 12/10/2019 Page 50 / 77 Current Recommendation – 1 Year Delay •Small, annual revenue adjustments to increase rate revenue while using cash on hand to fund the majority of the capital program Financial Metric FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Proposed Revenue Increases 0.0%3.5%3.5%3.5%3.5% Cash Financing of Major Capital $0.96M $4.0M $4.0M $4.0M $4.5M Days of Cash on Hand 763 608 438 294 129 Minimum Requirement 120 120 120 120 120 EOY Balance of Cash on Hand $15.2M $11.7M $8.9M $6.0M $2.7M Annual Rate Covenant Coverage 120%115%123%122%131% Minimum Requirement 110%110%110%110%110% Grand Island Study Session - 12/10/2019 Page 51 / 77 Current Recommendation – 2 Year Delay •Small, annual revenue adjustments to increase rate revenue while using cash on hand to fund the majority of the capital program Financial Metric FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Proposed Revenue Increases 0.0%0.0%6.0%6.0%5.5% Cash Financing of Major Capital $0.96M $4.0M $4.0M $4.0M $4.5M Days of Cash on Hand 763 558 412 275 131 Minimum Requirement 120 120 120 120 120 EOY Balance of Cash on Hand $15.2M $11.4M $8.3M $5.6M $2.8M Annual Rate Covenant Coverage 120%107%120%125%139% Minimum Requirement 110%110%110%110%110% Grand Island Study Session - 12/10/2019 Page 52 / 77 Partial Call of 2013 Revenue Bonds Option – 1 Year Delay •$9,995,800 cash is placed in escrow account to defease a portion of the 2013 bonds Financial Metric FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Proposed Revenue Increases 0.0%3.0%3.0%3.0%3.0% Cash Financing of Major Capital $0.96M $2.0M $1.5M $1.5M $1.5M Days of Cash on Hand 274 224 210 191 146 Minimum Requirement 120 120 120 120 120 EOY Balance of Cash on Hand $5.5M $4.3M $4.2M $3.9M $3.1M Annual Rate Covenant Coverage 126%124%131%123%120% Minimum Requirement 110%110%110%110%110% Grand Island Study Session - 12/10/2019 Page 53 / 77 Proposed Rates – Current Recommendation Rate Component Existing Proposed Jan 1, 2020 Proposed Oct 1, 2020 Proposed Oct 1, 2021 Proposed Oct 1, 2022 Proposed Oct 1, 2023 Service Charge - $/Month $8.24 $8.24 $8.24 $8.24 $8.24 $8.24 Volume Charge - $/100 gallons Collection System Users $3.52 $3.64 $3.77 $3.88 $3.99 $4.11 Direct Discharge Users $1.18 $1.19 $1.205 $1.22 $1.235 $1.25 Low-Strength Industrial Users $2.47 $2.67 $2.80 $2.91 $3.02 $3.13 Strength Surcharge - $/lb BOD $0.3248 $0.3248 $0.3248 $0.3248 $0.3248 $0.3248 Suspended Solids $0.2177 $0.2177 $0.2177 $0.2177 $0.2177 $0.2177 Oil & Grease $0.1519 $0.1908 $0.1956 $0.2000 $0.2045 $0.2091 TKN $0.0395 Nitrates $1.0299 Total Nitrogen $0.8900 $0.8866 $0.9065 $0.9269 $0.9478 Grand Island Study Session - 12/10/2019 Page 54 / 77 Typical Bill Comparison – Current Recommendation Description Existing Proposed Jan 1 , 2020 Proposed Oct 1, 2020 Proposed Oct 1, 2021 Residential 500 cubic feet $25.84 $26.44 $27.09 $27.64 700 cubic feet $32.88 $33.72 $34.63 $35.40 1,500 cubic feet $61.04 $62.84 $64.79 $66.44 Commercial 2,500 cubic feet $96.24 $99.24 $102.49 $105.24 4,000 cubic feet $149.04 $153.84 $159.04 $163.44 7,500 cubic feet $272.24 $281.24 $290.99 $299.24 Industrial 5,000 cubic feet $353.23 $359.23 $365.73 $371.23 50,000 cubic feet $2,101.35 $2,164.39 $2,229.76 $2,285.11 500,000 cubic feet $21,855.57 $22,546.60 $23,207.83 $23,768.13 Grand Island Study Session - 12/10/2019 Page 55 / 77 Wastewater Rate Study November 12, 2019 Grand Island Study Session - 12/10/2019 Page 56 / 77 Agenda Purpose of Presentation Background Information Rate Study Process & Results 2 Grand Island Study Session - 12/10/2019 Page 57 / 77 Purpose of Presentation and Background Information 3 John Collins Public Works Director Grand Island Study Session - 12/10/2019 Page 58 / 77 Purpose of Presentation 1.Provide the City Council with background information related to wastewater rates 2.Present the results of the rate study update 3.Respond to questions 4.Gain the City Council’s understanding of the proposed rate increases 4 Grand Island Study Session - 12/10/2019 Page 59 / 77 Background Information •Most recent comprehensive wastewater rate study was completed in October 2013 •Council approved 4 revenue increases (12%, 12%, 6%, 5%) from FY 2014 –FY 2017 •Financial plan was updated in 2014 to reflect revised CIP and SRF funding •FY 2014 –FY 2017 CIP increased $9,432,100 •Proposed $37M SRF Loan •No change in Council approved revenue increases •Rates have not been increased since FY 2017 •2019 comprehensive wastewater rate study develops proposed rates for FY 2020 –FY 2024 5 Grand Island Study Session - 12/10/2019 Page 60 / 77 Rate Study Process & Results 6 Anna White Principal Consultant / Project Manager Grand Island Study Session - 12/10/2019 Page 61 / 77 Purpose of the Rate Study Perform independent wastewater rate study that will accomplish the following: 7 Establish operating and capital financing plans that fully fund activities Perform a cost of service analysis to determine if cost allocations are fair and equitable among customer classes Review the existing rate structure and design proposed rates that provide adequate revenues Grand Island Study Session - 12/10/2019 Page 62 / 77 Industry Financial Planning / Rate Setting Best Practices 8 What are the Industry’s Rate Setting Best Practices? Define financial performance standards that support financial resiliency Develop annually a 5 to 10 year financial plan to achieve financial performance Perform a cost of service study review every 3 to 5 years Establish rates to ensure self-sufficiency to meet all revenue requirements Grand Island Study Session - 12/10/2019 Page 63 / 77 Building Blocks of Rate Setting 9 Revenue Requirements Cost of Service Rate Design Compares the revenues of the utility to its expenses to determine the overall level of rate adjustment Equitably allocates the revenue requirements between the various customer classes of service Design rates for each class of service to meet the revenue needs of the utility, along with any other rate design goals and objectives Grand Island Study Session - 12/10/2019 Page 64 / 77 Rate Making Process 10 Grand Island Study Session - 12/10/2019 Page 65 / 77 Financial Planning •Objective: •Provide adequate funding for future utility operating and capital program needs •Set a path for timely revenue adjustments •Considerations: •Factors that impact revenue generation •Factors that impact revenue requirements •Appropriateness of operating and capital reserves •Financial performance targets to be achieved 11 Benefit to You: An optimized Financial Plan that allows you to understand the impacts of Operating and Capital Requirements on Existing Rates Grand Island Study Session - 12/10/2019 Page 66 / 77 Revenue and Revenue Requirements 12 $- $2 $4 $6 $8 $10 $12 $14 $16 $18 $20 2019 2020 2021 2022 2023 2024Millions Operation & Maintenance Expense Cash Financing Debt Service Revenue Under Existing Rates Revenue Under Proposed Rates 3.5% 1/1/2020 3.5% 10/1/2020 3.0% 10/1/2021 3.0% 10/1/2022 2.5% 10/1/2023 Drawdown of Funds on Hand Grand Island Study Session - 12/10/2019 Page 67 / 77 Wastewater Fund Balance 13 Assumes 3.5% revenue increases in FY 2020 and FY 2021, 3.0% in FY 2022 and FY 2023 and 2.5% in FY 2024 -200 0 200 400 600 800 1000 2019 2020 2021 2022 2023 2024 Days Cash without Revenue Increase Days Cash with Revenue Increase Minimum Fund Balance - Days Drawdown of Funds on Hand Number of DaysGrand Island Study Session - 12/10/2019 Page 68 / 77 Debt Service Coverage –Additional Bonds Test 14 The Utility must comply with one of the Additional Bonds Tests 0% 50% 100% 150% 200% 250% 2019 2020 2021 2022 2023 2024 Preceding Year Test - Revenue Under Existing Rates Preceding Year Test - Revenue Under Proposed Rates Current Year Test - Revenue Under Existing Rates Current Year Test - Revenue Under Proposed Rates Minimum Requirement Grand Island Study Session - 12/10/2019 Page 69 / 77 Debt Service Coverage –Annual Coverage Test 15 Revenue under existing rates will not provide sufficient net revenue to meet annual coverage requirements beginning in FY 2021 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 2019 2020 2021 2022 2023 2024 Revenue Under Existing Rates Revenue Under Proposed Rates Minimum Requirement Grand Island Study Session - 12/10/2019 Page 70 / 77 Cost of Service Methodology •Objective: •Recognize the cost-of-service responsibility for each customer class •Industry Accepted Methodology: •Water Environment Federation, Financing and Charges for Wastewater Systems 16 Benefit to You: An equitable and defensible approach to allocate costs amongst all customer groups served by you Grand Island Study Session - 12/10/2019 Page 71 / 77 Rate Design •Rate Setting Principles: •Equitability •Revenue Stability •Provides Appropriate Price Signals •Recognizes Customer Usage Patterns & Demands •Easy to Understand and Administer •Customer Acceptance •Consistent with City Policies •Legally Acceptable / Defensible 17 Benefits to You: A schedule of proposed rates that are defensible, appropriately recover costs, and easy to understand by stakeholders Grand Island Study Session - 12/10/2019 Page 72 / 77 Proposed Rates Rate Component Existing Proposed Jan 1, 2020 Proposed Oct 1, 2020 Proposed Oct 1, 2021 Proposed Oct 1, 2022 Proposed Oct 1, 2023 Service Charge -$/Month $8.24 $8.24 $8.24 $8.24 $8.24 $8.24 Volume Charge -$/100 gallons Collection System Users $3.52 $3.69 $3.88 $4.03 $4.19 $4.33 Direct Discharge Users $1.18 $1.19 $1.20 $1.21 $1.22 $1.23 Low-Strength Industrial Users $2.47 $2.72 $2.91 $3.06 $3.21 $3.35 Strength Surcharge -$/lb BOD $0.3248 $0.3248 $0.3248 $0.3248 $0.3248 $0.3248 Suspended Solids $0.2177 $0.2177 $0.2177 $0.2177 $0.2177 $0.2177 Oil & Grease $0.1519 $0.1908 $0.1975 $0.2034 $0.2095 $0.2147 TKN $0.0395 Nitrates $1.0299 Total Nitrogen $0.8900 $0.8953 $0.9222 $0.9499 $0.9736 Grand Island Study Session - 12/10/2019 Page 73 / 77 Typical Bill Comparison Description Existing Proposed Jan 1 , 2020 Proposed Oct 1, 2020 Proposed Oct 1, 2021 Residential 500 cubic feet $25.84 $26.69 $27.64 $28.39 700 cubic feet $32.88 $34.07 $35.40 $36.45 1,500 cubic feet $61.04 $63.59 $66.44 $68.69 Commercial 2,500 cubic feet $96.24 $100.49 $105.24 $108.99 4,000 cubic feet $149.04 $155.84 $163.44 $169.44 7,500 cubic feet $272.24 $284.99 $299.24 $310.49 Industrial 5,000 cubic feet $353.23 $361.73 $371.23 $378.73 50,000 cubic feet $2,101.35 $2,189.39 $2,284.91 $2,360.37 500,000 cubic feet $21,855.57 $22,796.60 $23,762.28 $24,526.08 Grand Island Study Session - 12/10/2019 Page 74 / 77 FY 2020 Typical Bill Comparison 500 cubic feet $5.63 Difference Average $30.62 Grand Island Existing $25.84 Grand Island Proposed $26.69 Comparison rates reflects rates currently in effect and not necessary rates that will be in effect in 2020 Grand Island Study Session - 12/10/2019 Page 75 / 77 Average $38.56 Grand Island Existing $32.88 Grand Island Proposed $34.07 Comparison rates reflects rates currently in effect and not necessary rates that will be in effect in 2020 $5.28 Difference FY 2020 Typical Bill Comparison 700 cubic feet Grand Island Study Session - 12/10/2019 Page 76 / 77 Grand Island Study Session - 12/10/2019 Page 77 / 77