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| Information |
| TITLE: |
| Consideration and Approval of Contract: Professional Services with Stantec Consulting Services, Inc. in an amount not to exceed $211,866 for a Water, Reclaimed Water, and Wastewater Cost-of-Service, Rates and Fees Study |
| STAFF RECOMMENDED ACTION: |
- Approve the Contract for Professional Services with Stantec Consulting Services, Inc. in an amount not to exceed $211,866 for a Water, Reclaimed Water, and Wastewater Cost-of-Service, Rates and Fees Study; and
- Authorize the City Manager to execute the necessary documents.
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| Executive Summary: |
The Water Services Division recommends that the City Council approve the Contract for Professional Services with Stantec Consulting Services, Inc. (Stantec) to complete a Water, Reclaimed Water, and Wastewater Cost-of-Service, Rates, and Fees Study. In accordance with the City Council adopted Principles of Sound Water Management - Water Policies, Chapter A Finance, Policy A3 Rate Design Elements: a formal rate study shall be performed every three (3) years.
The last rate and fee study for these three funds was executed in 2014 and completed in 2016, with a cost-of-service analysis completed in 2010. This next study includes both a rates/financial analysis and a cost-of-service study. A financial analysis will determine whether the existing rates are sufficient to recover utility costs and margins, incorporating unmet infrastructure needs to maintain quality and address capacity in the face of new environmental challenges. This “check-in” affords the City the opportunity to revisit and recommend any corrections to what could be subsidization among the rate classes as consumption patterns have changed since the last cost-of-service study was completed in 2010. A new cost-of-service analysis will look at different ways to allocate the utility’s costs to its customer classes proportionally and equitably based on their consumption patterns and demand or impacts on the systems. The Study ensures appropriate investment in resources and infrastructure supported by policymakers, community members, and developers. The process takes approximately 12 to 18 months, and engagement with the Water Commission, City Council, and the public will be paramount to success. The Contract for Professional Services with Stantec provides the City with the experience and expertise for a successful process. |
| Financial Impact: |
| The rate study is funded in FY 2023 CIP budgets: $187,000 in water fund 202-08-370-3179-0-4422; $25,000 in wastewater fund 203-08-375-3410-0-4421; $25,000 in reclaimed water fund 204-08-380-3416-0-4421. |
| Policy Impact: |
In accordance with the 2014 Water Services Integrated Master Plan Water Policies, Policy A.3, Rate Design Elements, Water Services will perform a formal rate study every three (3) years. The last rate study for water, wastewater, and reclaimed water was completed in 2016. The last Cost-of-Service study was conducted in 2010. A rate adjustment analysis for the Stormwater fund was performed as a separate effort with rate adjustments currently being considered by City Council.
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| Connection to PBB Priorities/Objectives, Carbon Neutrality Plan & Regional Plan: |
Priority Based Budget Key Community Priorities and Objectives
- High Performing Governance: Serve the public by providing high quality customer service; Enhance the organization’s fiscal stability & increase efficiency & effectiveness
- Safe & Healthy Community: Provide public safety services with resources, staff & training responsive to the community’s needs
- Sustainable, Innovative Infrastructure: Deliver outstanding services to residents through a healthy, well maintained infrastructure system; Utilize existing long-range plan(s) that identify the community’s future infrastructure needs & all associated costs
- Environmental Stewardship: Strengthen Flagstaff’s resilience to climate change impacts on built, natural, economic, health, & social system
Carbon Neutrality Plan
- Community Resilience: CR-1 Ensure all mitigation actions improve Flagstaff’s ability to adapt to the future; CR-2 Strengthen existing community systems to create resilience to both short-term shocks and long-term change?
- Sustainable consumption and waste management: MM-2 Encourage sustainable consumption.
Regional Plan
- Policy WR.2.2. Maintain and develop facilities to provide reliable, safe, and cost-effective water, wastewater, and reclaimed water services.
- Policy WR.3.8. Implement a water management program that creates a linkage between new growth and a minimum 100-year water supply.
- Policy WR.3.9. Identify adequate funding sources to pay for new resources for a long-term renewable water supply.
- Policy WR.4.1. Use the Regional Plan as a guide for the Utilities Integrated Master Plan to better plan for the necessary infrastructure sizing and location to accommodate planned growth and resource management.
- Policy WR.4.2. Maintain, at the City level, a financially stable utility to provide reliable, high quality utility services.
- Policy WR.4.3. Development requiring public utility services will be located within the Urban Growth Boundary.
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| Has There Been Previous Council Decision on This: |
| There has not been a previous City Council decision on a contract for this Water, Reclaimed Water, and Wastewater Cost-of-Service, Rates and Fees Study. |
| Options and Alternatives: |
- Award the Contract for Professional Services to Stantec Consulting Services, Inc.; or
- Do not award the Contract for Profession Services and continue with the current rates and fees in place, impacting revenue stability and the ability to meet goals and standards set by City Council in Water Policy, PBB, and Carbon Neutrality efforts, this option is not recommended by staff.
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| Background/History: |
The Water Services Division has historically based the rates, fees, and assessments charged to customers using a financial model to predict the cost of amortized operation and upkeep of the City water, wastewater, and reclaimed water infrastructure and associated fees.
Stantec will analyze the revenue requirements for each of the three utility funds, building and using a financial forecasting model to evaluate the sustainability of the status quo as part of evaluating alternative revenue requirement scenarios. Stantec will prepare an analysis to determine the revenue required to support operations for each utility, including projected increases in operational and capital spending. As part of the analysis, Stantec will examine historical operating expenses, growth and water use trends, alternative capital spending levels, existing and proposed bond obligation and debt service coverage ratios, levels of operating and capital reserves, and other financial policies that drive the revenue requirements of the utility systems. An important aspect of this study, the cost-of-service portion will allocate the utility’s costs to its customer classes as proportionately and equitably as possible based on their consumption patterns or impact on the system. Stantec will build and use the City's financial model to develop alternative long-term financial management plans for each enterprise fund and will identify corresponding projected annual revenue requirements and projected rate revenue adjustments for water and sewer customers.
An important aspect of assigning rates, fees, and rate classes is the establishment of revenue components in a legally defensible format. Additionally, this study will use sound financial principles outlined in City Council-adopted 2014 Water Policies. This study will accomplish that goal for the Water Services Division and the City.
Purchasing staff published a Request for Proposals RFP solicitation for Water, Reclaimed Water, and Wastewater Cost-of-Service, Rates, and Fees Study services in the Arizona Daily Sun on July 3rd, 2022, and July 10th, 2022, and posted the solicitation to the City of Flagstaff’s PlanetBids Website on June 23rd, 2022. On August 3rd, 2022, the City received five (5) Proposals from Consultant Firms. A seven-member Selection Committee consisting of City staff from different key knowledge departments reviewed and evaluated the Proposals. Based upon the numerical scoring of the Proposals, the Selection Committee identified Stantec as the top proposing Consultant. Stantec demonstrated a clear recognition of the knowledge and experience to study water rates and compile the information needed for Flagstaff Water Services to move forward with the rate study. |
| Key Considerations: |
The rate study aims to ensure that Water Services and Customer Services have sufficient revenues to cover operation, maintenance, and capital costs and meet the City’s debt coverage requirements and working capital guidelines.
The financial model and analysis will evaluate the current rates and provide recommendations for fee structures that will meet cost and revenue requirements for a base fiscal year and ten subsequent years. |
| Community Benefits and Considerations: |
This rate study conducted by Stantec will assist in achieving an equitable rate structure, user fees, and capacity charges that reflect the actual cost of the operation, maintenance, repair, and replacement of the water, wastewater, and reclaimed water infrastructure and the associated fees to meet the level of service expected of our customers and community. Costs will be distributed according to the value of the user class or as the City Council ultimately decides.
The Stantec rate study will not address stormwater needs or the Stormwater Fund. |
| Community Involvement: |
Water Services staff worked with the City's Water Commission to develop a scope of work for the RFP encompassing many anticipated topics the community and City Council may wish to discuss. In their proposal, Stantec demonstrated significant knowledge in the areas recommended by Flagstaff City Council and the City's Water Commission. Stantec brings expertise through their involvement in nationwide utility financial associations and their practice in assisting on countless rate studies for communities including many that have incorporated very progressive rate structures to meet more challenging goals of the governing board or council.
Stantec demonstrated that it is accustomed to working with communities on utility rate studies. The Scope of Work requires Stantec's public outreach team to meet with the City’s Water Services Team and City's Public Affairs representatives to develop a strategic communications plan to solicit feedback from the community and other key stakeholders. Stantec's public outreach team is experienced in translating technical details into understandable information and will provide meeting materials and facilitation services during public workshops. |
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