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Home My WebLink AboutFCS Contract Amendment - Wastewater Utility Revenue AnalysisEXHIBIT A CITY OF PORT TOWNSEND SCOPE OF SERVICES AND BUDGET SUMMARY WASTEWATER UTILITY RATE REVENUE REQUIREMENT FORECAST Scope of Services The following scope of services was planned to meet the needs expressed during the meeting at Ciry Hall on February 11, 2010 attended by Ciry and FCS GROUP representatives. The services requested 6y the City include an update of the wastewater utility revenue requirement forecast. The study schedule discussed initiates the analytical/technical process as soon as possible. FCS GROUP will proceed by sending a data request m the City to begin the data collection process. Technical analysis will be conducted in concurrence with the water Utility rate forecast update and evaluation of water supply/treatment alterna[ives currently underway. This assumes [hat that the data required to wndua the study tasks is provided in a timely fashion. Task One: Data CollectionNalidation FCS GROUP will establish a foundation for the rate study by condutting a scruaured data collection and analysis process. Task Two: Rate Forecast Update The rate Forecast or (revenue requirements) will form a complete portrayal of the system's total financial obligations and link direcdy with the operational/capital investment drivers of the system. The rare forecast will identify the total costs required to fully fund the comprehensive needs of the utility system by analyzing the following: / long-term capital investment funding (improvements, expansion and replacement projects); / expenses incurred to operate, maintain, and manage the system; / debt repayment (existing and new obligations); / cash flow needs; and / fiscal policy achievement The analysis will be designed to be flexible and stable enough to analyze multiple scenarios. The revenue requirement will be developed for amulti-year period specified by the City (will be consistent with the time frame under review for the water utility). Key task outcomes include the following: 2a. Revenues and expenses used as the basis for [he analysis will be the approved 2010 budget figures. 26. An Operating Forecast to identify future annual non-capital costs associated with the operation, maintenance, and administration of the utility system on a standalone basis - to include an analysis of operating costs associated with maintaining the system, additional staffing needs and/or the cost of initiating new or enhanced program activities as a result of Ciry objectives and/or regulatory requirements. 2c. A Capital Funding Analysis to define strategies for funding the system's Capital Improvement Program as outlined in the City's Capital Improvement Plan. The capital improvement costs should identify projects that meet growth related infrastruc[ure, existing system improvements and system March 15, 2010 Page 1 of4 replacementlreinvestment. Aker identifying total capital needs, the Consultant will develop a capital funding suategy based on different approuhes to funding long-term needs, including alternative levels of annual cash contributions from rates, use of cash reserves, appropriate and/or necessary levels of debt financing, resources from new development, etc., to ensure on-going financial health of the system and to smooth future rate impacts driven by capital funding needs. 2d. A Reserve Analysis to ensure minimum operating and capital fund balance policies are maintained. 2e. A Test of Sutlicienry to evaluate the adequary of current system revenues in meeting all system obligations, including cash uses such as operating expenses, debt service, capital outlays, and reserve wntributions. 2f. A Coverage Tesr to evaluate the sufficienry of current system revenues to meet any current or future coverage requirements associated with long-Term debt. This test will be conducted on an individual utility and joint warer/wastewater urility basis, as required by outstanding bond covenants. 2g. An Annual Rare Strategy for adjusting utility rates during the nett planning period to fully fund all system obligations. 2h. Task 2 will define the `tease case" annual revenue requirement and overall rate forecast for the multi yeazplanning period. Task Three -Rate Design This task develops rates that generate sufficient revenue to meet the revenue requirement forecast. A complete cost of service has not been included as pazt of this effort. Therefore, the revenue requirement alternative chosen will be used co generate target revenue levels. Key task outcomes include the following: 3a. Rate Development. The rate design cask for this study does not include changes to the current rate structure. Rather, the overall rate increase will be applied equally to all cusmmer classes and equally to each rate component (fixed and variable). Task Four- Rate Update Documentation FCS GROUP will document the rare study process, methodology, assumptions, findings, and recommendations as a [ethnical memorandum with full technical exhibits. Task Five - Meetings/Presentations Throughout the study it will be important to interact kequently with Ciry staff to ensure that the findings and recommendations reRect approaches that ace understood by impacted patties. In addition, on-site interaction will ensure chat the study develops work products collaboratively, reflecting the industry expertise of the Study Team and the specific needs and goals of the Ciry. FCS GROUP and Ciry staff did not include additional meetings for this task. Instead, we will discuss the details of this project as part of the existing meetings scheduled for the Warer Utility Race Forecase Update and Evaluation of Water Supply/Treatmentfllternatives. Sa. Any additional meetings/presentations requested 6ryond those fisted can be added as needed. A meeting without a presentation is generally $1,500/meeting (one attendee). A meeting that includes development of a presentation is generally $2,500/meeting (one attendee). March 15, 2010 Page 2 of 4 l~udgcr Task Six -Optional Task: Customer Statistics Validation and Rate Design Customer Statistics Validation is conducted to independently calculate and validate projected revenue with billed units. This task has proven beneficial in uncovering anomalies in customer statistics and or incorrect billing units that can impact forecast revenue. The compilation of this data offers consistenry throughout the rate study process by using the same units to calculate rate revenue in the revenue requirement and m design rate structures that generate necessary revenue levels in rate design. Task Seven -Rate Design This task gives the Ciry the opportunity to make changes [o the'v faced and variable charges while still recovering adequate revenue for the utility u a whole. For example, the residential rate currently includes a binary fixed charge structure depending on whether or not the customer exceeds a 3,000 gallon threshold. This process would make it possible to evaluate the differential established in this method and revise it if necessary according to the usage characteristics of the residential customer class. If it is necessary to revise this differential, this process will make it possible to accurately determine the impact on rate revenue resulting From such a change. Rate design also makes it possible to tailor the fixed and variable charges such that expense volatility is not greater than revenue volatility. Because each utility has expenses that are fixed (e.g. direct labor and overhead expenses), it is a best industry practice [o ensure that these expenses are recovered regardless of fluctuating customer demands. Occasional adjustment of this spli[ is impor[ant to successful financial planning when a volume Cate component is present, and reduces the exposure of [he utility to seasonal and o[her types of revenue fluctuations. March 15> 2010 Page 3 of 4 The total proposed level of effort to complete the wastewater utility revenue requirement forecast is summarized below. Our normal billing practice is to bill based on time and ma[erials actually expended, not to exceed the total budget. The estimated study fees have been listed for each major task. ~`1mt Angie Sanchez Virnoche David W. Findlay Sean Senescall Talc Sr. Project Manager Principal Sr. Analyst Administrative and Graphic Support BillinY Rate $190.00 $210.00 $120.00 $65.00 Direct mileage expenses will be billed at $0.50 per mile to the client. All ocher Direct Expenses will not be charged for ordinary Study-related costs. For any client-requested extraordinary expenses such as requiring that the consultant incur overnight lodging and meal expenses, specific costs with no additional mark-up may be billed to the Client. Such costs are not included in the Study budget. Therefore written Client approval will be required prior to expenditure and billing For such additional costs. March 15, 2010 Page 4 of 4