CITY COUNCIL STAFF REPORT
MEETING DATE: June 17, 2015
PREPARED BY: Karl Bjarke, Public Works Director/Public Works Department
APPROVED BY: City Manager
Title
CONSULTANT AGREEMENT WITH NBS GOVERNMENT FINANCE GROUP FOR WATER AND WASTEWATER COMPREHENSIVE RATE STUDY
END
RECOMMENDATION(S)
RECOMMENDATION
Adopt resolution approving and authorizing the City Manager to execute a Consultant Agreement for Water and Wastewater Comprehensive Rate Study with NBS Government Finance Group (NBS) for not to exceed amount of $74,290 to assess and evaluate the current rates and establish a new rate structure.
BODY
COUNCIL PRIORITIES, GOALS & STRATEGIES:
Ongoing Priorities
Protecting the environment
Maintaining fiscal responsibility
2015 Focus Areas
Impacts of Drought Conditions
REPORT NARRATIVE:
As California enters the fourth year of an unprecedented drought, water purveyors across the state are assessing the severity of their own water supplies and strategizing how best to meet the needs of their water customers now and into the future. Morgan Hill is no exception and in January 2015, the Council adopted the goal of having Morgan Hill continue to be a leader in responding to drought conditions and ensuring that the City's water enterprise remains reliable and balances environmental and financial sustainability.
On April 1, 2015, the City Council received a "Comprehensive Water Report" describing the City's water enterprise system, rate structure, water consumption, conservation, recycled water, and drought response activities. On May 20, 2015, a Council Water Workshop was conducted to further discuss the water utility system and drought effects, recycled water, conservation, and drought response. As illustrated in the report and at the workshop, the following conclusions were supported resulting from the drought conditions.
· Moving forward, the cost of producing water will be greater than previously anticipated
· Morgan Hill community's water stewardship has significantly reduced consumption
· Reducing community-wide water consumption by 30% has been established as a goal for 2015, which meets the State mandate
· Investment in water recycling should be evaluated by Council
· The City's current rate structure does not adequately balance short term and long term financial and environmental sustainability
· A new comprehensive water rate study should commence immediately
As a result of the drought conditions, the City's Water Fund has been significantly impacted. From a financial perspective the City will be required to utilize over $1.4 million of the fund's $2.7 million fund balance to cover operating expenses in FY 2015-16. This is in addition to $0.5 million of fund balance required in the current fiscal year 2014-15. This is not sustainable and immediate changes to the City's water rate structures and rates must be implemented prior to the fund exhausting its reserves in FY 2017-18, as projected. The impact on the Wastewater Fund has been minimal due to the fact that customer rates are established based on the three month average of water consumption during the winter months. However, as the drought continues and customer household wastewater habits continue to change, the financial stability of the wastewater enterprise must be monitored closely.
To address this serious issue, the City initiated a water and wastewater comprehensive rate study that will lead to a Proposition 218 election in 2015. The goal is to develop a long term financial plan and strategy that ensures customer rates are set at a level that is fair to the public and ensures both financial and environmental stability.
On April 24, 2015, the City issued the Request for Proposal (RFP) for the Water and Wastewater Comprehensive Rate Study to five (5) qualified firms. Three (3) proposals were received from Bartle Wells Associates, NBS Government Finance Group (NBS), and Raftelis Financial Consultants, Inc. A panel of City staff evaluated and scored each proposal based on the evaluation/selection criteria set forth in the RFP. Two (2) firms with the highest scores were interviewed to further evaluate their qualifications to perform the service. Following the review and the subsequent interviews, NBS was found to be the most qualified. NBS demonstrated a broad experience with water and wastewater rate studies, the dedication and willingness to complete the project timely and to ensure the City's success in developing rate structures that balance the environmental and financial sustainability.
Some key aspects of the water and wastewater comprehensive rate study that will be performed by the consultant include the following:
· Water rate structure and rates that balance both environmental and financial sustainability.
· Ensure that the revenues generated by the utility rates are adequate to maintain the required level of service and maintenance standards during reduced demand conditions.
· Affirm the appropriateness of existing usage tiers and develop a new rate structure to encourage conservation, and adequately balance short and long term financial and environmental sustainability.
· Update sewer surcharges and develop new elevation-related water surcharges (i.e., lift station charges).
· Address the capital maintenance, improvement, and replacement needs by incorporating reasonable projections in revenue requirements and rate calculations.
· Ensure that the proposed rates are in conformance with all applicable laws, including the provisions of Proposition 218.
COMMUNITY ENGAGEMENT: Involve
At the April 1, 2015 City Council meeting, City staff presented the "Comprehensive Water Report" Council report. At the May 20, 2015 Council Water Workshop, the Council and the public heard the discussion on the water system and drought effects, recycled water, conservation, and drought response. Members of the public were present at both the Council meeting and the workshop, and they participated in the discussion. Supplemental items were also received from the community members at the workshop.
At the conclusion of the rate study, City staff will engage the community, through public meeting and workshop, to present the report findings and recommendations and to receive feedback and input from the community. Ultimately, utility customers will conclude the process with a Prop 218 ballot.
ALTERNATIVE ACTIONS:
The City Council could choose not to approve the Consultant Agreement. This could have significant impact to the financial sustainability of the water and wastewater enterprises.
PRIOR CITY COUNCIL AND COMMISSION ACTIONS:
On April 1, 2015, the City Council received a "Comprehensive Water Report" describing the City's water enterprise system, rate structure, water consumption, conservation, recycled water, and drought response activities. On May 20, 2015, a Council Workshop was conducted to further discuss the water utility system and drought effects, recycled water, conservation, and drought response.
FISCAL AND RESOURCE IMPACT:
The total not to exceed amount for this Consultant Agreement is $74,290. Of this amount, $50,000 is included in FY 2015-16 Recommended Budget, in the Contract Services account in Water Operations Fund (650) and Sewer Operations Fund (640); the balance of $24,290 is available in FY 2014-15.
CEQA (California Environmental Quality Act):
Not a Project
LINKS/ATTACHMENTS:
Resolution
Consultant Agreement