15 - 2020 Water & Wastewater Cost of Service StudyItem 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
encouraged that the City Council consider the recommended rate increase in the attached Study
for 2020/2021 as it will allow for the first stages of stepping in to the ultimate rate needed to
support this vital project. It must be noted that the rate study does not take in to account the
potential project as we are still too early to know enough to factor that in, but nevertheless it is
clearly known that the project will require an increase in rates to fund the financing.
I: 81-110
The rate study cost is $28,500. This is a similar cost to previous years. The funds are budgeted for
this project in the Water Billing Office budget.
Pursuant to our Policy, we strive to maintain a 1.1:1 ratio of revenue to expense in order to
adequately maintain the Water and Wastewater system via operations and reserve for unexpected
issues and replacement as needed.
OPTIONS:
1. Receive the report tonight, study it, and consider it in preparation for the June 22"d council
meeting.
2. Request additional information to be brought back at the June 22"d council meeting.
3. Provide direction on how to write the ordinance differently than what is recommended in
the study presented tonight.
RECOMMENDATION:
The staff recommends that the Council receive the report tonight, study it, and consider it in
preparation for the June 22"d council meeting. At that time, an ordinance based on the
recommendations in the study will be available for adoption unless recommendations by the
Council are made for edits to what is proposed.