15 - 2020 Water & Wastewater Cost of Service Study

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Item No. 15 TO: Mayor & City Council Grayson Path, City Manager FROM: Gene Anderson, Finance Director SUBJECT: 2020 WATER & WASTEWATER COST OF SERVICE STUDY DATE: June 8, 2020 BACKGROUND: The City of Paris currently has treated water contracts with four local industries (Campbell Soup, PGEN (Paris Generation, LP), Lamar County Water Supply District, and Daisy Farms). One of the requirements of these contracts is for the City to have an independent rate consultant conduct a cost of service study each year. The study determines what the contract customer water rates should be according to the contract terms. A by-product of the study is that water and wastewater rates are also determined for all other water and wastewater customer classes (residential, commercial, and industrial customers). This study is the basis for any non -contract rate changes recommended to the City Council. The study is an important financial tool enabling the City to maintain the financial integrity of the Water & Sewer (Wastewater) Fund. This annual rate study and the City's rate maintenance policy are looked upon favorably by Moody's and other credit rating agencies when the City is attempting to issue bonded indebtedness. Adjusting the rates in accordance with our 2010 Policy is also critical in attempting to fulfill the basic care and maintenance to our Water and Wastewater system needed for the citizens and businesses of Paris. STATUS OF ISSUE: The 2020 study has been completed. The contract rates determined by the study automatically become effective June 1St per the contract terms — therefore no action is necessary by the City Council on those four specific accounts. The current water and sewer rates for non -contract customers were determined to be insufficient to generate the revenue required to operate the system. A representative from NewGen Strategies & Solutions, LLC has a brief presentation to make and will answer any questions you may have. Setting the utility rate is an important decision, therefore an ordinance on this matter will be brought back to City Council at the next meeting, giving the council some time to consider the findings in the study. It must also be noted that the City has been working towards building a new Wastewater Treatment Facility. A presentation regarding an option to take to design will be brought to the City Council in the near future. This project will require long term financing which will need to be supported by the Wastewater Utility Rate. Staff, Engineer, and Rate Consultant would of course look at all options for stepping in to the rate increase to help acclimate our community, but it is highly