CITY COUNCIL REGUALR MEETING AGENDA PACKET

Financial Analysis The financial analysis will analyze the financial status of the water, recycled water and sewer systems by projecting the expenses of each utility system and determining if overall rate adjustments are needed to meet the full revenue requirements. The revenue requirements should sufficiently fund the utility’s O&M, debt service, capital expenses, and reserves. The City anticipates conducting the financial analysis with a 5-year projected time frame and on a cash basis approach. Over the next few years, the City will be updating the master plan documents for each utility system as well as implementing asset management. In 2023, the City went through the water rate process and the Council adopted the following rate revenue adjustment: 30% effective January 1, 2024, and 12% effective January 1, 2025. The Council also approved annual CPI increases for sewer effective January 1, 2024, and July 1, 2024. This rate study will include a preliminary 10-year CIP. Cost of Services The objective of the cost of services analysis is to ensure that revenue requirements are equitably distributed to ratepayers commensurate with their service requirements. The outcomes of the analysis are to have the revenue requirements determined as part of the financial analysis allocated among the customer classes and to derive average unit costs to be used during the rate design. The analysis shall utilize generally accepted methodologies such as that outlined in the American Water Works Association (AWWA) Manual M1. The consultant will review and evaluate the current connection fee program and policies compared to standard industry practice and relevant law. Rate Design The rate design shall work within legal framework and industry standards to recover expenses and best support the various City goals discussed in phase 1. During this phase, proposed rate structures will be developed for each utility system that include alternative analyses with pros, cons, and rate impacts quantified for the City’s review. The analysis will also compare proposed rates for each utility with that of neighboring and comparable cities. The rate design will be finalized based on comments and direction provided by the City. In addition to the rate design, other miscellaneous water and sewer related fees and charges imposed by the City (as shown in City’s Master Fee Schedule) will be reviewed and evaluated with recommendations for updating. The financial model used by the consultant shall be the property of the City upon completion of the project. The model shall be user-friendly, in a program currently utilized by City staff (such as Microsoft Excel), have the ability to easily analyze the impact due to changes in assumptions or rate structures, and include a written training type manual in Microsoft Word. Phase 3: Rate and Connection Fee Adoption and Additional Services A final component of this engagement will be assisting City staff with the rate and connection fee adoption process. This includes documenting the rate and connection fee studies results to serve as the City’s administrative record and a public education tool about the proposed changes, rational and justification behind the changes, and their anticipated financial impacts. Other tasks related to customer education and outreach will be defined after selection of the consultant and further development of the scope. Page 38 of 46