1988-08-02 PacketY..
q!ST&"FIELM I N IA 23832-0 BOARD OF SUPERVISORS
G. H. APPLEGATE, CHAIRMAN
CLOVER HILL DISTRICT
MAURICE B. SULLIVAN, VICE CHAIRMAN
MIDLOTHIAN DISTRICT
AGENDA
MDIp A DISTRICT
HARRY G.
DALE DISTRICT
JESSE J. MAYES
MATOACA DISTRICT
LANE B. RAMSEY
COUNTY ADMINISTRATOR
DATE: AUGUST 2, 1988 COURTHOUSE TIME: 8:30 A.M.
1. Call to Order at 8:30 a.m.
Administration Building
Room 502
2. Work Session
Debris Landfill Report
3. Work Session
Utility Rate Study
4. Executive Session for Consultation
with Legal Counsel Regarding
Potential Litigation Relating
to Route 288 Pursuant to Section
2.1-344 (a) (6) of the Code of
Virginia, 1950, as Amended
5. Adjournment
i
BOARD OF SUPERVISORS
G. H. APPLEGATE, CHAIRMAN
CLOVER HILL DISTRICT
MAURICE B. SULLIVAN, VICE CHAIRMAN
MIDLOTHIAN DISTRICT
C. F. CURRIN, JR.
BERMUDA DISTRICT
HARRY G. DANIEL
DALE DISTRICT
JESSE J. MAYES
MATOACA DISTRICT
MEMORANDUM
IR
CHESTERFIELD COUNTY
P.O. BOX 40
CHESTERFIELD, VIRGINIA 23832
(804) 748-1211
TO: HoKe.
le Members, Board of Supervisors
FROM: aRamsey, County Administrator
DATE: July 28, 1988
SUBJECT: Work Session - Utilities Rate Study -
August 2, 1988
COUNTY ADMINISTRATOR
LANE B. RAMSEY
The Utilities Rate Study conducted by Camp, Dresser and
McKee (CDM) has been completed, reviewed with the Home
Builders Association of Richmond, The Developers Council and
the Board of Supervisors Rate Study Committee.
Staff will present the recommendations of the Rate Study
Committee to the full Board. The major changes from the
recommendations made by CDM are as follows:
1. Retain an installment plan for payment of water
and wastewater connection fees for existing home
owners and charge the applicant the cost of
providing this service.
2. Retain refunds for off -site extensions with
modifications to the existing policy.
3. No reduction in existing ancillary charges.
4. Reallocate the cost of extensions to existing
developments and extensions for economic
development.
Attached are the draft recommendations which are currently
undergoing final review by the Rate Study Committee. Staff
will review the rate setting concepts and present the Rate
Study Committee Recommendations.
Following the wortk session, the Home staff
Bu Buildersrward the Association lnof
al
recommendations
Richmond.
Honorable Members, Board of Supervisors
July 28, 1988
Page 2
The public hearing to consider the ordinance amendments
necessary to adopt the rate study has been scheduled for the
board meeting on September 14, 1988.
LBR/jhm
cc: Richard F. Sale
David H. Welchons
A:JULY3688.DOC
Board of Supervisors
Rate Study Committee
Recommendations
TERMINOLOGY
Below are terms that are important to understand for this report.
Equivalent Residential Unit (ERU): This unit is established as a
benchmark for comparing water and wastewater demands generated by
different classes of customers. The ERU is the "unit" of
measurement on which user fees and CCR charges are based. Based
on customer data, a single-family residence served by a 5/8-inch
meter or each unit of a duplex are both considered to be an ERU.
The other customer classes (i.e., apartments, trailers, business,
industry and government) are converted to ERU's based on their
respective usage patterns or meter size. For example, in terms
of water system use, a typical apartment uses 85 percent of the
water that a single-family residence uses (the difference is
usually attributable to family size, laundry, lawn sprinkling,
etc.). Accordingly an apartment is set equal to 0.85 ERU.
User fee: This term is one of three basic categories of customer
charges. User fees generate revenues that pay for the majority
of operating costs incurred by the County for labor, chemicals,
electricity, repairs and supplies. It is the only category of
charges that is billed to all customers in the County every two
months; the other two categories are generally one-time charges.
For the purpose of this report. user fees for water are termed
tewater are to
User fees consist of three main components. These are referred
to as the "three C's".
_ Capacity: One component of the wastewater user charge
and the water rate is based on the cost to the County to
have the system capacity available to serve each
customer. This "readiness -to -serve" component is based
on the debt service cost of the capacity component of
existing facilities. The other part of this fee includes
the estimated replacement cost of plant and equipment.
This monthly cost is a fixed amount per ERU, and is
charged regardless of actual consumption.
- Customer: This is another fixed monthly cost, and
reflects the administrative costs associated with each
account the County must manage. Together with the
capacity cost, it forms the minimum monthly bill, even
if zero gallons of water are consumed.
1
M
LWA
- Commodity: This component is the only volume -dependent
component. Conceptually, it is based on the cost
incurred by the County to obtain, treat, pump, and store
one hundred cubic feet of water or to collect, treat,
and discharge one hundred cubic feet of wastewater. It
is designed to cover operating costs for labor,
electricity, chemicals, etc.
Connection fee: This fee can generally be described as a
one-time charge to new customers for connecting either the water
or wastewater systems. The connection fee consists of several
components, the largest of which is the capital cost recovery
charge (see below).
The Connection fee consist of two main components:
- Capital Cost Recovery (CCR) Charges: To be completely
descriptive, this charge would be called a "capacity
expansion capital cost recovery charge", thereby
underscoring the important role that it plays in the total
rate structure. Essentially, the CCR charge is the cost
associated with providing future capacity to each new
customer. Existing customers pay for the provision of system
capacity' as part of their user fees, and should not be
burdened with any cost associated with providing additional
capacity to serve future customers.
- Installation Charges: This would include any and all
costs incurred by the Utility Department associated with
the physical connection to the,system for the customer
being charged.
Ancillary Charges: Miscellaneous charges for services
whose cost are identified and segregated and the benefit is
unique to the person being charged.
Virtual Meter Size: Basis for situations where certain approved
fixtures require larger meters than would other wise be required.
Charges would relate to the meter size required if the fixtures
were not installed.
2
M
LWA
BACKGROUND
The Rate Covenant of Chesterfield County's outstanding water and
wastewater revenue bonds requires that the County revise from
time to time the rates and charges for water and wastewater
service to meet all obligations of the water and wastewater
system. In July of 1987 it was determined that a rate study
should be conducted by Camp Dresser and McKee. Their
recommendations were presented to the Board in February 1988. A
committee was formed and assigned the task of presenting a final
recommendation to the full board.
The purpose of the study was to assess the sufficiency of the
existing rates through analysis of historical financial data and
establishment of future revenue requirements. The study sought to
strike an appropriate balance between the competing objectives of
equitability and administrative simplicity in establishing water
and sewer rates for Chesterfield County. The most equitable rate
structure is one in which all customers pay precisely their fair
share of system costs based on their actual usage of the water
supply or wastewater system. The simplest type of rate structure
is one in which everyone pays the same system -wide average
amount, regardless of how system usage is allocated among
customers.
To achieve absolute equity among all customers (i.e, establishing
a different charge for each customer) would place an unmanageable
and costly administrative burden on the Utilities Department, an
unnecessary burden that would result in increased costs to all
customers. To minimize administrative costs (i.e., by charging
the same amount to every customer),'would be unfair to some
users, who would essentially be subsidizing other users.
Clearly, the optimal solution in most cases will be a rate
structure that lies somewhere between these two extremes. The
recommendations that follow attempt to do just that.
The guiding principle followed in establishing the recommended
rates was that the cost of system expansion should be paid by new
customers and the cost of system upgrading, rehabilitation and
replacement should be paid by all customers. Since existing
customers benefit little from further system expansion, but do
benefit from upgrading existing facilities that serve them, this
type of cost apportionment is equitable.
The recommendations were discussed with representatives of The
Chesterfield Developers Council and the Home Builders Association
of Richmond. Because of these discussions the recommendations
that have resulted are a combination of efforts and ideas from
all those involved. It must be made clear however, that all
parties may not agree fully with all the recommendations
submitted. It is believed that these recommendations, if adopted,
will formulate a rate structure that is more equitable. The new
structure will provide the Utility Department a sound basis for
defending its rates and generate the funds required to continue
providing the quality of service our citizens deserve.
3
0
RECOMMMATIONS
Ancillary Charges
1. Increase the wastewater high -strength surcharges for BOD to
$0.214 per pound and for suspended solids to $0.090 per pound.
2. Charge a meter reinstallation charge in those cases in which
the meter has been removed from a delinquent customer's service
and subsequently reinstalled.
3. Recover the cost project inspection through connection fees
4. Charge for bacteriological testing at $13.00 per sample.
S. A temporary meter disconnect option will remain available
with the following change: The customer will pay a fee equal to
the normal minimum monthly service charge for each month the
service was disconnected to recover the cost of
"readiness -to -serve."
6. A water meter testing charge is recommended to be adopted and
charged to the customer if the meter is found to be registering
accurately.
4
RECOMMENDATIONS
TT0nr fen0
1. Revise the rate structure to have fixed monthly charges for
recovery of customer costs and capacity costs, and a uniform
volume charge for the recovery of commodity costs.
2. The existing irrigation policy is recommended to be continued;
the existing policy provides incentive for conservation.
3. The meter size based customer classes for water rates and
wastewater user charges should be continued, with the following
recommended exceptions:
Set the fixed monthly capacity costs charges for
multifamily -family residences and trailers at 85 percent of
that for single-family residences on a per -dwelling -unit
basis.
Bill all units, regardless of occupandy.
For all other customer classes, have fixed monthly charges
based upon relative meter capacities as defined by AWWA.
4. Bill the minimum user charges upon payment of the connection
fee.
5. Base minimum user charges on the "virtual" meter size for
conservation purposes when approved,water savings devices are
used.
6. Base minimum user charges on the "virtual" meter size when
fire protection fixtures are provided through the residential
service up to a maximum 2" meter size.
5
M
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RECOMMENDATIONS
Connection fees
1. The debt service apportionment method is recommended for
setting the capital cost recovery charges. This method has
determined the water system capital cost recovery charge per ERU
to be $1180 and a charge per ERU for the wastewater system to be
$2760.
2. Alter the refund policies as follows:
A. Oversize
Continue to refund the full cost of oversizing.
Instead of refunding through connection fees at the 75
percent level, refund water main oversizing at a rate of
55 percent, and wastewater at a rate of 40 percent of the
capital cost recovery fee to be paid.
Calculate oversizing costs by using the set schedule per
foot.
B. Offsite
Modify the calculation for off site refunds to 50 percent of
the construction cost up to 3000 feet (no off site refunds
for extensions greater than 3000 feet).
Set a maximum annual amount of refunds to be given. Refunds
will be made on a first come first served basis up to this
amount. This amount will be funded through the capital cost
recovery fees.
3. Implement pricing schedules for meter installations that
distinguish between just installation of meters themselves, and
installation of meters with full'service.
4. Promote water conservation and encourage the use of water
saving fixtures by basing the capital cost recovery charge and
the monthly capacity costs charge upon the "virtual" meter size
needed.
5. Encourage the use of sprinklers for residential fire
suppression purposes, extend the "virtual" meter size concept to
these residential installations.
0
M
In
6. Delete the $600 deduction for making application for
wastewater service within 30 days of availability.
7. Where sewer is available but no lateral has been constructed
to serve an existing lot or parcel, the connection fee will be
reduced by $800.
8. All costs of extending the system to existing subdivisions
not funded by special districts will be funded from user fees and
connection fees.
7
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NOTES:
1. The use of Special Districts for the recovery of
infrastructure costs is a viable and useful mechanism that should
be used in those situations where it is applicable. By doing so,
costs are recovered directly from those benefiting.
2. The recommended rates are for one year only. The results of
these changes shall be monitored closely and additional
recommendations and or changes are to be addressed annually
during the budget process.
3. Require the use of master metering when feasible.
4. When the "virtual" meter size is used in determining fees, a
review of the consumption pattern for the customer will be
required annually to determine if this rate is justified.
5. Any expenses funded by the Utility Department accounts or
rates for the purpose of encouraging Economic Development should
be reimbursed by the General Fund with revenues generated by
those businesses locating in the county as a result of those
expenditures. The County Administrator objects to the Utilities
Department besng reimbursed as long as the expenditure is limited
to $100,000 each for water and sewer per year.
6. Continue offering an installment payment option and begin
charging for this service. Charges are to be at a level to
recover all costs associated with providing the option.
Charge a handling fee of'3% of'loan amount plus $20
Charge customers an interest rate of 10%
7. Encouragement of low water demand landscape planning,
changing the building code to require the installation of water
saving plumbing devices for all users and including automatic
shut off fixtures in public buildings. (May require BOCA code
amendments.)
8. Discontinue escrow agreement made with Home Builders
Committee for Wastewater Connection fees. All previously
escrowed money has been expended on projects to increase
treatment capacity.
9. Increase the meter deposit on portable 3-inch meters to the
actual cost of the meter, which is approximately $550.
10. Do not implement any private fire protection charges, and
consider the costs of private fire protection a part of the costs
of public fire protection.
11. No adoption of a policy for requiring customer deposits.
�3
M
n
SUMMARY TABLES
The fees developed in this report are set at a level to meet the
next year's requirements of the water and wastewater systems.
These fees include user fees (comprised of capacity, customer and
commodity components), capital cost recovery charges, and
ancillary charges. They are presented in the summary tables that
follow.
Table ES-1 sets forth the recommended water system rate structure
projected to provide adequate revenues for Fiscal Year 1989. The
recommended wastewater user charge schedule for Fiscal Year 1989
is presented in Table ES-2. Table ES-3 presents a comparison of
the effects of the recommended rates upon various customer
classes. The recommended schedules for water and wastewater
capital cost recovery charges are given in Table ES-4 and ES-5,
respectively. Table ES-6 provides a comparison of the existing
and recommended capital cost recovery charges. Table ES-7
presents a comparison of existing and recommended ancillary
charges.
9
M
n
TABLE ES-1
CHESTERFIELD COUNTY, VIRGINIA
SCHEDULE OF RECOMMENDED MONTHLY WATER RATES FOR FISCAL YEAR 1989
CUSTOMER COSTS CHARGE: $1.77 per account per month (1)
COMMODITY COSTS CHARGE: $0.72 per hundred cubic feet (ccf)
CAPACITY COSTS CHARGES:
Recommended
Number Monthly
Meter Size Of ERUs Capacity
Customer Class (inches) Per Unit Cost Charge
Single Family Residential (2)
1.00
$ 3.58
Apartments (per Unit)
0.85
3.04
Duplexes (per Unit)
1.00
3.58
Trailers (per Unit)
0.85
3.04
All Other Customer Classes:
5/8 and 3/4
1.00
3.58
1
2.50
8.95
1-1/4
3.60
12.89
1-1/2
5.00
17.90
2
8.00
28.64
3
16.00
57.28
4
25.00
89.50
6
50.00
179.00
8
80.00
286.40
10
115.00
411.70
12
155.00
554.90
(1) For all accounts that receive water service.
(2) For a residence with a 5/8-inch meter. Residences
served by larger size meters pay in accordance with the
schedule shown for All Other Customer Classes, except
where virtual meter size policies apply.
Revised: July 28, 1988
M
n
TABLE ES-2
CHESTERFIELD COUNTY, VIRGINIA
SCHEDULE OF RECOMNDED MONTHLY WASTEWATER USER CHARGES
FISCAL YEAR 1989
CUSTOMER COST CHARGE: $1.77 Per account per month (1)
UNIFORM VOLUME CHARGE: $0.94 per hundred cubic feet (ccf)
CAPACITY COST CHARGES:
Recommended
Number Monthly
Meter Size Of ERUs Capacity
Customer Class (inches) Per Unit Cost Charge
Single Family Residential (2)
Apartments (per Unit)
Duplexes (per Unit)
Trailers (per Unit)
All Other Customer Classes:
5/8 and 3/4
1
1-1/4
1-1/2
2
3
4,
6
8
10
12
1.00
$ 7.45
0.85
6.35
1.00
7.45
0.85
6.35
1.00
7.45
2.50
18.65
3.60
26.80
5.00
37.25
8.00
59.60
16.00
119.20
25.00
186.25
50.00
372.50
80.00
596.00
115.00
856.75
155.00
1,154.75
(1) For wastewater -only service accounts.
(2) For a residence with a 5/8-inch meter. Residences
served by larger size meters pay in accordance with the
schedule shown for All Other Customer Classes, except
where virtual meter size policies apply.
Revised: July 28, 1988
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TABLE ES-4
CHESTERFIELD COUNTY, VIRGINIA
SCHEDULE OF RECOMMENDED WATER SYSTEM CAPITAL COST RECOVERY CHARGES
Recommended
Number
Capital Cost
Meter Size
Of ERUs
Recovery
Customer Class
(inches)
Per Unit
Charge
Single Family Residential (1)
1.00
$ 1,180
Apartments (per Unit)
0.85
1,003
Duplexes (per Unit)
1.00
1,180
Trailers (per Unit)
0.85
1,003
All Other Customer Classes:
'
5/8 and 3/4
1.00
1,180
1
2.50
2,950
1-1/2
5.00
5,900
2
8.00
9,440
3
16.00
18,880
4
25.00
29,500
6
50.00
59,000
8
80.00
94,400
10
115.00
135,700
12
155.00
182,900
(1) For a residence with a 5/8-inch meter. Residences served by
larger size meters pay in accordance with the schedule shown for
All Other Customers, except where virtual meter size policies
apply.
Revised: July 28, 1988
TABLE ES-5
CHESTERFIELD COUNTY, VIRGINIA
SCHEDULED OF RECOLRNDED WASTEWATER SYSTEM
CAPITAL COST RECOVERY CHARGES
Recommended
Number Capital Cost
Meter Size
Of ERUs
Recovery
Customer Class
(inches)
Per Unit
Charge
Single Family Residential (1)
1.00
$ 2,760
Apartments (per Unit)
0.85
2,346
Duplexes (per Unit)
1.00
2,760
Trailers (per Unit)
0.85
2,346
All Other Customer Classes:
5/8
and 3/4
1.00
2,760
1
2.50
6,900
1-1/2
5.00
13,800
2
8.00
22,080
3
16.00
44,160
4
25.00
69,000
6
50.00
138,000
8
80.00
220,800
10
115.00
317,400
12
155.00
427,800
(1) For a residence with a 5/8-inch meter. Residences
served by larger size meters pay in accordance with the
schedule shown for All Other Customer Classes, except
where virtual meter size policies apply.
Revised: July 28, 1988
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= TABLE ES-7
CHESTERFIELD COUNTY, VIRGINIA
COMPARISON OF EXISTING AND RECOMMENDED
ANCILLARY CHARGES
Percent
Existing Recommended Increase/
Type Charge Charge _ (Decrease
General
1. Account initiation $ 15.00 $ 15.00 0
Charge
2. Late Payment Charge $1.50 minimum 0
or 5% + 1%/mo. Same as Existing
3. Project Inspection
Fee
4. Customer Deposits
5. Project Plan Review
3% of final cost Included in CCR
Charge
None None
None Included in CCR
Charge
Water System
6. Meter Installation
Charge
(a) With Service Line
-5/8 inch Part of connection fee
-1 inch Part of connection fee
-1-1/2 inch Part of connection fee
-2 inch Part of connection fee
(b) Without Service Line
-5/8 inch Part of connection fee
-1 inch Part of connection fee
-1-1/2 inch Part of connection fee
-2 inch Part of connection fee
7. Bill Collection Prior
to Disconnect $10.00
8. Service Reconnection
Fee $25.00
(Table continued on next page)
$ 430.00
$ 640.00
$ 975.00
$1,100.00
New fee
New fee
New fee
New fee
$ 35.00
New
fee
$ 90.00
New
fee
$ 205.00
New
fee
$ 260.00
New
fee
$ 10.00
0
$ 25.00
0
✓ Na
TABLE ES-7
(CONTINUED)
CHESTERFIELD COUNTY, VIRGINIA
COMPARISON OF EXISTING AND RECOMMENDED
ANCILLARY CHARGES
Percent
Existing
Recommended
Increase/
Type
Charge
Charge
(Decrease)
9.
Meter Reinstallation
$ 50.00
$ 50.00
0
Charge
10.
Portable Water Meter
$100.00
$ 550.00
450%
Deposit
11.
Fire Protection Fee
None
None
12.
Bacteriological
Testing
None
$ 13.00
New fee
13.
Meter Testing Charges
(a) 5/8 inch
None
$ 30.00
New fee
(b) 1 inch
None
$ 30.00
New fee
(c) 1-1/2 inch
None
$ 40.00
New fee
(d) 2 inch
None
$ 40.00
New fee
14.
Meter Turn-off
Charges
None
None
15.
Meter Re -read
Charges
None
None
16.
Temporary Meter
Disconnect Fee
Part of Service
Customer cost
charge ---
Reconnection Fee
plus capacity
costs
(Item 8)
charge each billing
period, plus
Service
Reconnection
Fee
(Item 8)
Wastewater System
17.
Wastewater Surcharge
$0.04/lb BOD(1)
$0.214/lb BOD
453%
$0.04/lb SSW
$0.09/lb SS
125%
(1) This surcharge is not currently being used by the County since there
are no users to which it applies.
JUNE1388.DOC
TABLES ES-8
CHESTERFIELD COUNTY, VIRGINIA
COMPARISON
OF REVENUE PROJECTIONS FOR FISCAL YEAR 1989 USING EXISTING
AND RECOMMENDED RATES AND CHARGES
Percent
Revenue Budgeted Estimated Revenues
Revenue
Increase/
Fee Category
at Existing Fee at Recommended Fee
Differential
(Decrease)
Water System:
Water Rates
Revenue
$10,000,000 $9,929,000 (6)
(;71,000)
-1%
Capital Cost
Recovery Charges
2,943,000 (1) 4,834,000 (4)
1,891,000
64%
Ancillary Charges
and Other Income
985,900 774,900 (7)
(;211,000)
-21%
Total Water
13,928,900 (3) 15,537,900
$1,609,000
11.6%
Wastewater System:
Wastewater User
Charge Revenue $10,150,000 $11,748,000 (8) $1,598,000 16%
Capital Cost
Recovery Charges
8,409,000 (2)
9,500,000 (5)
1,091,000 13%
Ancillary Charges
and Other Income
3,065,100
2,885,100 (9)
(;180,000) -6%
Total Wastewater
$21,624,100
$24,133,100
;2,509,000 12%
Grand Total:
$35,553,000
$39,671,000
$4,118,000 12%
(1) Includes $60,000 of installments.
(2) Includes $200,000 of installments.
(3) Excludes $415,000 of Sale of Services and Supply Revenue for Inventory.
(4) Taken from Table 7-5.
(5) Taken from Table 7-15.
(6) Taken from Table 7-4.
(7) Taken from Table 7-3.
(8) Taken from Table 7-12.
(9) Taken from Table 7-11.
Revised: July 21, 1988
' � `0
2? vs'
H BARICHMOND
HOME BUILDERS ASSOCIATION of RICHMOND
5803 STAPLES MILL ROAD
POST OFFICE BOX 6521
RICHMOND, VIRGINIA 23230
804 264-2821
Michel R. Dumont
President
June 13, 1988
R Michael Pierce
President -Elect
Barry L. Bishop Mr. David H . Welchons
Vice President Budder Director of Utilities
P. O. Box 40
GaryByrd
VicePresident Associate Chesterfield, Virginia 23832
Vice P
Philip N DuHamel Dear Dave:
Secretary
The Chesterfield Legislative Committee of the Home
M M. "Mike' Gompf Builders Association of Richmond has, once again, devel-
Treasurer oped some specific recommendations with regard to the pro -
Susan R. S
posed connection fee increases and the Water/Wastewater
ice
Executive Vice President study. In addition, we would like to present some
observations, as well as reiterate some questions which
came up during the discussion process, which we believe
should be addressed at some time in the future.
Our first observation is that the Water/Wastewater
study assumes growth will continue at the same level it
has for the past few years (the study uses 6% increase in
growth per year over 6 years). HBAR feels this may be an
overzealous presumption. Building and development are
directly tied to the economy and are generally cyclical in
nature. This year alone, economists have predicted that
home building will decrease by at least 10%. Although it
is too early to tell whether the economists' predictions
will come true, it is safe to state that growth will not
be constant. Whether or not there is a net increase or
decrease in growth over the next six years, it is evident
certain utility projects will be undertaken. Therefore,
it seems unwise for the County to attempt to finance such
necessary projects with an unreliable and inconsistent
source of revenue like connection fees.
This leads us to our second observation; that
necessary inprovements, extensions and other miscellaneous
expenses should be paid for with a reliable and constant
source of revenue, such as user fees. After reviewing the
different utility systems throughout the Richmond area, it
HBAR Recommendations
Page 2
appears that Henrico's policy of using connection fees
only for future capital improvements, and otherwise using
user fee revenues to fund other necessary utility
projects, is both fiscally wise and good management. We
hope your department will consider this when putting
together future budgets.
Our third observation is that infrastructure has tra-
ditionally been paid for by the "present generation" for
the "next generation." which has also been the case in
Chesterfield County. The study, however, assumes that
this new rate and fee structure will start at ground zero,
when in fact, existing residents will continue to pay for
the existing debt. Should these current residents decide
to buy a new home in Chesterfield County, they would still
be required to pay on existing debt for past infrastruc-
ture and also pay for the new infrastructure through
increased connection fees. Consequently, new home buyers
will be double -taxed. We will follow up on this point
later in our recommendations.
Our final observation is that the Water/Wastewater
study neglects to recognize that existing customers will
benefit from expansions and modifications/improvements to
the utility systems. Therefore, just as the study assumes
new residents should pay something toward existing debt,
we believe current residents should also pay something
toward new debt for expansions.
HBAR would like to reiterate the following questions
for consideration by your department:
1. Are existing users on the water and wastewater systems
presently paying their fair share?
2. How efficient are our utility systems?
3. Has the study taken into consideration that commercial
and industrial development will increase over the next
six years? This is important because if commercial
and industrial development increases significantly,
and residential development decreases significantly,
then clearly two things will happen under the study's
proposal:
1. There will be a shortfall of funds, due to a
decrease in residential growth, and
2. There will be a significant increase in
stress on both water usage and wastewater
treatment due to unexpected increase in
these larger users.
HBAR Recommendations
Page 3
4. Finally, will the Utility Department's future budgets
reflect the higher cost of treating BOD, nitrogen,
etc...? If so, who will pay for this additional cost?
We hope your department will consider these questions when
developing future budgets.
We have offered the above observations and questions
because HBAR believes these point out some of the problems
with the basic philosophy and premises of the Water/
Wastewater study. The following HBAR recommendations are
a result of an in depth analysis of the study and the
Utility Department's CIP, as well as several meetings with
you and your staff. The recommendations address some of
the problems and/or inconsistencies we have found in the
study.
HBAR RECOMMENDATIONS:
1. The following expenses included in the $131 million
CIP should be removed from new growth expenses:
-$6 million for extension of water lines to existing
development.
-$5.4 million for extension of sewer lines to
existing development.
-$600,000 to sewer highway projects.
-$1.2 million for economic development
Total: $13,200,000 should be removed from the $131 million
CIP for new development projects, and Connection Fees
should be adjusted (-$139) in Water, and (-$165) in
Wastewater. These expenses should come from one of three
sources: Special Assessment Districts (especially for
extensions of water and sewer lines to existing
developments), General Funds, and/or user fees.
2. HBAR is strongly opposed to the elimination of rebates
for developer installed off -site extensions. It is our
opinion that developer installed off -site extensions saves
the County money in the long run because:
1. County does not have to spend its money or pay
interest on such money to construct and install these
lines.
2. County does not have to plan for or execute the
construction of these lines, which clearly would need
to be done at some point in the future.
HBAR Recommendations
Page 4
In addition, there is no information in either the study's
text or tables that clearly indicates that the off -site
rebate program is causing the County to lose money - cash
flow from the rebates is not shown in the study. HBAR
would recommend that the County do one of the following:
a. Continue the off -site rebate program, with an
annually determined maximum refund amount and allow
the connection fees to be increased an adjusted
amount to help pay for the refunds. (Your department
suggested $600,000 for 1989, which would amount to an
increase in the Water connection fee of $42, and an
increase in the Wastewater connection fee of $100.)
b. Or, discontinue the current rebate program, and
replace it with a credit program, similar to the pro-
gram that Henrico County uses. This program does not
require any exchange of money on the County's part,
but instead, gives credits against the connection
fees for the property where the improvements have
been completed, until the amount of the improvements
has been met. This alternative will not cost the
County's budget additional dollars in refunds, nor
will it increase the cost of connection fees.
3. The study recommends reducing costs to existing
customers by decreasing the cost for existing developments
to tie into the County sewer system from the current rate
of $3,600 to the recommended rate of $2,700. HBAR would
argue that reducing these costs is clearly inefficient.
There is an obvious cost to the County to extend these
lines, and HBAR would argue that realistically, the
present fee of $3,600 probably does not cover the actual
cost. Therefore, HBAR would respectfully recommend that:
1. The County not decrease the present fee of
$3,600. These existing developments should not be
subsidized by either new development or existing
users, but rather, they should pay their own fair
share. They will clearly benefit by both better
service and appreciated property values, and
consequently, it is fair for them to pay their
share to tie into the system.
2. HBAR would, in fact, recommend increasing this
connection fee to an amount that is clearly represen-
tative of the cost to extend these lines to existing
developments. This cost would need to be determined
by the County Utility Department. If this initial
HBAR Recommendations
Page 5
cost is too great for the residents to bear upfront,
we would recommend the use of Special Assessment
-Districts, which spread the cost out over a period of
time in an amount which is easier to handle. Once
the improvements are paid for, the District is
removed.
3. If, however, the County feels responsible for the
majority of this cost, we would recommend that it be
paid for out of the General Funds. These residents
do contribute, through their taxes, to the General
Fund, and therefore, it would be most appropriate to
use dollars which these residents have contributed
to pay for such extensions. This'seems to be a more
appropriate and fair method of paying for these
extensions rather than to require current users or
new home buyers to subsidize these costs.
4. It is our understanding from both the study and
Utility Department staff that the current user rates are
sufficient to repay all existing debt. If the County were
to follow the study's recommendations with regard to new
users, these customers would, in effect, be paying double,
i.e., they would be paying for new development through
higher connection fees and they would still be required to
pay the same user rates, which is, supposedly, to be used
to pay for old debt. This is clearly unfair and
inequitable. Therefore, HBAR recommends that you reduce
the connection fee by an amount representative of that
portion of the user fee used to retire existing debt. We
will concur with your department that new customers should
contribute something toward existing debt, just as we
believe existing customers should contribute to
expansions. We have taken your figures and re -worked them
to determine what HBAR believes would be a fair amount for
new customers to pay toward existing debt. (See Chart)
The resulting overpayment needs to be adjusted in the
connection fee by (-$68.18) for water and (-$287) for
wastewater.
5. Your department has informed us that peak demand
creates the most strain on the system and occurs primarily
on the weekends in the spring and summer by residential
users for irrigation of lawns. We therefore recom-
mend that -the County institute a spring/summer water
surcharge, similar to what Virginia Power does, to
accomplish two things:
HBAR Re&4wtmendations
Page 6
a. The surcharge will help to finance the additional
strain this overusage puts on the system and any
costs attributed to this additional usage.
b. Higher rates will discourage unnecessary usage
and encourage water conservation.
6. Before we offer our final recommendation, we would
like to summarize the connection fees, from the originally
proposed $600 increase, to the newly figured amounts:
Current Fees:
Proposed Fees:
Adjustment for
non -growth CIP
expenses - Rec.
Water
$ 800
$ 1,200
#1: (-$139)
Adjustment to con-
tinue Rebate pro-
gram - Rec. #2:* (+$42)
Wastewater
$2,500
$2,700
(-$165)
(+$100)
Adjustment for
double payment by
new users - Rec. #4: (-$68) (-$287)
New adjusted fee: $1,035. $2,348 = $83 Increase
*If we choose the Credit Program over the current Rebate
Program, the fees will need to be adjusted even further.
Although the above figures indicate only a minimal
increase in the connection fees, we will accept the
proposed $600 increase, but ask that this increase be
graduated over a four year period. This would help
make the increase easier to swallow and would help to
keep the price of housing more affordable. The short
fall should be covered by an increase in user rates.
We believe we have shown where certain expenses need
to be removed from the new customers' tally, and
should be attributed, in part, to existing users. We
have also shown that the new customer is paying
double, and the adjustment should be paid for by
existing users. We believe, however, that it is
only fair to graduate the user fee increase over the
four year period as well.
We believe that a shared increase in both connection fees
and user fees is appropriate and equitable.
Ili' 1440
HBAR Recommendations
Page 7
HBAR believes that these positions are both reason-
able and equitable, and we hope that your department will
consider them as you prepare your recommendations for the
Board of Supervisors.
Once again, we have appreciated this opportunity to
work together with your department in developing efficient
and equitable policies for the County's utility systems.
We look forward to our continued cooperative efforts in
the future.
Respectfully yours,
(e i
lw
stance K. Harrison, Vice Chair
Chesterfield Legislative Committee
CC: Mr. John Bragg
Board of Supervisors
blb
Equitable Amount of Existing Debt
To Be Paid By New Customers
Average number of ERU's
Water
Wastewater
connecting estimated
for next six years
Annually
4763
4001
Six year period
28578
24006
Existing ERU's in
the systems each year
68285
57364
Existing Debt Service
$1,922,000
$8,442,000
Debt service capacity
charge per ERU per year
First year
1922000/68285
8442000/57364
= $28
= $147
Sixth year
1922000/96863
8442000/81370
= $20
= $104
Period Average
$24
$126
Revenue added by new
customers from debt
service portion of
100023
68017
capacity charge
x24
x126
$2,400,552
$8,570,142
Annual Contribution
by new customers to
2400552/6
8570142/6
pay existing debt
= $400, 092
= $1,428,357
Further Breakdown
By HBAR
Cmmaltive total of
new ERU's represented
by new customers over
next six years
100,023
68,017
Cumualtive total of
existing ERU's over
next six years (68,285 x
6)
+409,710
+344,184
509,733
412,201
New customers as a
percentage of total
100,023/509,733
68,017/412,201
ERU's in systems
= 19.62%
= 16.5%
M
M
• Existing Debt paid by
new customers breakdown Continued
Page 2
Determined percentage of
present debt service new
customers should pay
New customers' percen-
tage of existing debt
Annual amount contrib-
uted by new homeowner
toward existing debt
Excess contrubution
per year
Adjustment needed
Water
20%
20% x 19.62%
= 3.92%
1,922,000 x .0392
_ $75,342
400,092 - 75,342
= $324,750
- $68.18
Wastewater
20%
20% x 16.5%
= 3.3%
8,442,000 x .033
$278,586
1,428,357 - 278,586
_ $1,149,771
$287.00
Z
41 r
n
E5
Good morning my name is John Bragg. I am the Assistant Director
of Utilities for Finance and Administration.
Our task today is to discuss the recommendations of the Rate
Study Committee.
This discussion will highlight the primary objectives these
recommendations hope to achieve.
Most of the recommendations were presented to you during the
initial work session by representatives of CDM. Many are not of
substance or it is felt will not create much concern.
The majority of this presentation will focus on those
significant recommendations that have the potential to create
concern among your constituents.
We will end this presentation by illustrating how these
recommendations will affect some of our customers.
r
Slides 2,3,and 4
The primary objectives these recommendations hope to achieve are
as follows.
1.To provide the Department of Utilities with the necessary funds
to operate, maintain, and expand the system.
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2.To develop a rate structure that charges all customers for the
expense of operating and maintaining the system and charges new
customers for the expense of expanding the system.
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and when a need arises to justify and defend
4
Slides 6 and 7
The recommendations whose affect is material and could cause some
concern are as follows. Those that will affect the monthly bill
and the largest number of residents are first on the list.
1.Revise the rate structure to include fixed monthly charges for
recovery of customer costs and capacity costs, and a uniform
volume charge for the recovery of commodity costs.
Customer charges are those that pay for meter reading,
account servicing and bill processing functions.
Capacity charges are those that pay the existing
debt service and set aside reserves for maintaining
and replacing the system.
Commodity charges are those that pay the cost to transport,
store and treat water and wastewater used by the
customer.
The minimum monthly charges are necessary to pay expenses
that will be incurred whether water is used or not. These
charges are the primary reason the monthly bill will rise
for the average customer under the proposed structure.
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2. Bill customers the minimum monthly charges immediately after
the connection fee has been paid.
This will mean sending out monthly bills to two to three hundred
existing customers that were not receiving bills in the past.
It will result in monthly bills being mailed to builders of homes
that have been completed but not sold.
51
The next recommendations to be discussed are those that affect
the connection fees.
This area consumed most of the time in our discussions with the
various groups that were included in the negotiations.
These fees affect mostly new home buyers. They are one time fees.
1.The debt service apportionment method is recommended for
setting the capital cost recovery fee.
Capital cost recovery fee is a charge to recover the cost
associated with providing future capacity to each new customer.
This method estimates how much will be spent for expanding the
system over a six year period.
It assumes this amount will be borrowed. It then calculates the
debt service for the loan over a specified period at an assumed
rate.
It estimates how many Equivalent Residential Units will be added
each year during this period and charges each customer its pro
rata share of the debt service.
7
Let me repeat this recommendation.
The debt service apportionment method is recommended for setting
the capital cost recovery fee.
This method estimates how much will be spent for expanding the
system over a six year period.
It assumes this amount will be borrowed. It then calculates the
debt service for this loan over a specified period at a given
rate.
It estimates how many Equivalent Residential Units will be added
each year during this period and charges each customer its pro
rata share of the debt service.
M
15
Slides 8 and 9
The assumed period is twenty two years and the interest rate is
8.7%
This method pays for the next six years expenses with revenues
received from anticipated new customers over the next twenty two
years.
The method generates a fee that is lower than it would be if we
were going to pay for those expenses as we go.
If capital cost recovery fees received each year are less than
expenses incurred for expansion the debt will increase therefore
we will need to increase the fee.
If the growth rate declines faster than we are able to reduce the
expansion expenses the fee will need to be increased.
This method places a high weighting on the accuracy of the growth
rate estimate.
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2.The recommended rates are for one year only.
These recommendations represent a significant change from the
present structure and therefore we should move slowly.
The results of these changes shall be monitored closely to insure
objectives stated previously are being met.
All issues brought forward during the negotiations with the other
groups have not been addressed in these recommendations.
Additional recommendations are being studied to be presented
later in the year.
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3.Refunds for off site extensions will be continued with the
following modifications to our present policy.
Refunds for off site will return 50% of the construction
expense to extend a line a maximum of 3000ft.
Set a maximum annual amount of refunds to be given and
adjust the capital cost recovery fee accordingly
11
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4.The use of Special Districts for the recovery of infra-
structure costs is a viable and useful mechanism that should be
used in those situations where it is applicable.
By doing so, costs are recovered directly from those benefiting.
All costs of extending the system to existing subdivisions not
funded by special districts will be funded from user fees and
connection fees.
This subject also consumed considerable time during discussions
with the various groups.
The expense to extend the system to existing sub divisions does
not benefit the existing customers or the new residents buying a
new home. It was made clear during those meetings that neither
party wishes to pay for those costs.
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The next few overheads will illustrate how these recommendations
will affect the budgets of some of your constituents.
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We have now discussed the objectives that these recommendations
hope to achieve. We have analyzed those recommendations that are
of substance and may create concern. We have illustrated how our
customers will be affected financially. Let us now open the
session for discussion.
14