Title
Incorporated County of Los Alamos Code Ordinance No. 02-299; An Ordinance Amending Chapter 40, Article III, Sections 40-171, 40-173 and 40-175 of the Code of the Incorporated County of Los Alamos Pertaining to Potable and Non-Potable Water Rates and Bulk Delivery Rates
Recommended Action
I introduce, without prejudice, Incorporated County of Los Alamos Code Ordinance No. 02-299; An Ordinance Amending Chapter 40, Article III, Sections 40-171, 40-173 and 40-175 of the Code of the Incorporated County of Los Alamos Pertaining to Potable and Non-Potable Water Rates and Bulk Delivery Rates, and ask staff to assure that it is published as provided in the County Charter.
Utilities Manager Recommendation
The Utilities Manager recommends Council introduce the ordinance as presented
Board, Commission or Committee Recommendation
The Board of Public Utilities recommends Council introduce the ordinance as presented.
Body
The ten-year forecast for the water utility presented with the FY2020 budget included a series of incremental rate increases to generate revenues needed for current operations and to build cash reserves necessary for future infrastructure needs. In 2018 several alternative long-term scenarios were prepared by staff and presented for Board consideration. After discussion, scenarios were selected that were intended represent the most reasonable balance between increased rates and necessary system expenditures and have been the foundation upon which the ten-year budgetary projections have been based. That approach helps consumers adjust to increasing costs over time but provides adequate funding for planned initiatives in each year. The rate trajectory was considered in the long-range proposals discussed in 2018 and has been reviewed and adjusted each year since as appropriate to account for adjustments in capital planning, actual project costs, and to reflect actual operational experience since first implemented. In the presentation attached and presented this evening we show those adjusted long-range plans and highlight the rate trajectories included in our budgets, and the resulting cash position in relation to adopted cash targets. Staff now feels confident the short to mid-term rate trajectory proposed in the FY2020 budget are appropriate for the three-year horizon at least and is thus proposing a multi-year rate adjustment at this time. Three years projected rate increases are included in the ordinance proposed.
The advantages to implementing the multi-year proposal are numerous. Importantly, it provides for the rate adjustments to be programmed with county's budget cycle and certainty of when the rate increases will occur over the next couple of years. With the current rate adjustment process, that is difficult to accomplish, and rates typically have been enacted several months after the beginning of a fiscal year, which means that projected revenues for those first several months are not realized. Doing a multi-year incremental rate adjustment also allows planned revenues to match the timing of planned expenditures, rather than accumulating excess cash early on for expenditure in a later period. Further, it allows our customers to plan and budget for future anticipated utilities costs, rather than experience the “rate shock” of unanticipated rate increases on a more frequent basis. Enacting a multi-year ordinance in no way limits the Board from later proposing another ordinance to change rates, either up or down, during that three-year period if operational experience necessitates such action. Should it become apparent that the rates proposed are either not achieving the revenue requirements of the systems, or are exceeding them, there is no reason why they could not be adjusted in the interim. This multi-year proposal simply provides for seamless and timely implementation of the rate projections should future results tie within reasonable variation to budget projections.
Included in the presentation attached as Exhibit A are the rate comparisons with neighboring and similar communities, costs as a percentage of median household income, and long-term utilities costs projections normally presented with proposed rate adjustments. These continue to demonstrate that even with the challenges of our complicated system and mountainous terrain, consumer costs for water services remain competitive and reasonable for our community.
The proposed rates should restore cash flow to an acceptable level within the projected time frame in the water system. While it may take some additional time to reach our target levels in the Water Utility overall, this plan will provide adequate funding for necessary repairs and replacements and continuing operations and provide for movement toward our long-term cash reserve goals. Once achieved, it is anticipated that rate adjustments simply to account for inflation will suffice for the foreseeable future.
In the weeks since the initial Board discussion, staff has conducted considerable public outreach. In addition to the public notices required for consideration of an ordinance, a 90-minute documentary produced by Penn State Public Broadcasting, “Liquid Assets - The Story of our Water Infrastructure” was advertised and aired six times on PAC-8. This documentary highlights the critical role water, sewer and storm water infrastructure plays in safeguarding quality of life nationwide. While the documentary doesn’t specifically address Los Alamos, it is relevant to our community. In addition, staff hosted two public meetings, one in White Rock and one in Los Alamos, at which an abbreviated, sixteen minute version of the documentary was presented, as well as numerous “story boards” showing our condition assessment, historical system maintenance and upgrade expenditures, and the status of our financial position in relation to targets, and how and why those targets were determined. We also covered “frequently asked questions” and took notes of other questions that came up for further discussion. The materials presented at those meetings, as well as the “FAQ” are attached herewith as Exhibits B and C. Also, the FAQ's include information on the Utility Assistance Program for households that qualify for this assistance.
The Proposed ordinance is attached as Exhibit D.
Alternatives
Several alternative financial scenarios were presented and discussed by the Board in previous discussions. In addition, Jack Richardson, Deputy Manager of Gas, Water and Sewer, has updated some of the information previously presented for presentation to the Board here this evening. Any of those paths forward could be considered as an alternative to the proposal presented here. As noted above, in all the scenarios discussed a series of rate increases are going to be needed to fund necessary operations and replacement of facilities through rates. Other scenarios could be considered with more significant rate increases being implemented to fund more rapid system upgrades, or funding sources other than rates could be considered. If no action is taken, we would have to continue to curtail maintenance and replacements and system reliability will suffer.
Fiscal and Staff Impact
The budgeted increases are expected to generate $258,029 additional revenue in Water Distribution in FY20, $230,291 additional revenue in FY21, and $225,956 additional revenue in FY22. In Water Production additional revenue for wholesale sales to external parties is projected at $67,500; $60,000; and $60,000 for FYs 20, 21, and 22 respectively, and approximately $14,000 additional Non-Potable revenue annually.
Attachments
A. Staff presentation - FY2020 Proposed Water Rate Adjustments
B. Story Boards from Public Meetings
C. Frequently Asked Questions and Answers
D. Code Ordinance 02-299 - Water Rates