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03-G Water&Sewer (2/18/03)SPECIAL MEETING OF THE CITY COUNCIL WATER & SEWER SUBCOMMITTEE February 18, 2003 The City Council Water and Sewer Subcommittee met in special session, Tuesday, February 18, 2003, at 6:00 P. M., in the City Hall West Annex Conference Room, 150 1 st SE, Paris, Texas. Chairman Benny Plata called the meeting to order with Councilwoman Francine Neeley being present. Also present were City Manager Michael E. Malone, City Attorney Larry Schenk, Director of Finance Gene Anderson, Director of Utilities Herb Campbell, Director of Public Works Terry Townsend, and City Clerk Mattie Cunningham. Others in attendance were Charles Waldrum, Steve Pearson, and Zane Hanna representing Tenaska, Jay Guest, Jim Bell, and Don Wilson ,citizens, Marilyn Davidson representing Sara Lee, and Richard Quarles and Bob Johns representing Campbell Soup. Chairman Plata announced that Herb Campbell, Director of Utilities, had produced a handout with information on the city's water and sewer system and asked Mr. Campbell for an explanation regarding the handout. Mr. Campbell said that page one of the handout is a 1987 process flow diagram of the City of Paris's Water Treatment Plant. He said that page two is a flow diagram showing it as it is today. Mr. Campbell pointed out that everything in red on page two has been added since 1987. He pointed out that four filters had been added which are large items along with two large basins, and a new rapid mix streaming current monitor. Mr. Johns asked if land had been purchased. Mr. Campbell replied that land was purchased for the spray fields. Mr. Campbell said that mainly these expansions were done in order to meet the water quality standards, and the expansion was above and beyond that because once they met a certain level, then there was the next level that the city could go to, which would be a lot cheaper and that is where the city is at this time. Mr. Campbell directed attention to the top of the page so that everyone would see facilities which serve Lamar Power Partners, showing pumps, lagoon, meter and control valves. He stated that this equipment is all new. Mr. Campbell explained that the water comes in from the lake and goes into the lagoon and City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 2 Lamar Power Partners' pumping station picks it up and pumps it around the plant and to their plant. Mr. Campbell said that the city will be maintaining this whole system. Lamar Power Partners bought it, paid for it, installed it and they are giving it to the City of Paris and the city will maintain the system. Mr. Johns asked for the capacity of the Water Treatment Plant. Mr. Campbell said it was up to contention. It was designed to go up to 36 million gallons back in 1996, but with the new rules and regulations that have come in since that time, they did not know. Mr. Johns asked with the new water standards, if they have lowered the capacity. Mr. Campbell advised that he feels they will, but right at this time, City Attorney Schenk is finishing up a contract with Freese and Nichols to perform a study of the city's Water Treatment Plant. Mr. Campbell said the 36 million gallons is the plant's peak flow, but 21 million gallons is all they have ever produced. Mr. Campbell advised that this was designed in 1994 and built in 1996 to meet the rules that were in effect at that time, but the rules have changed since then. The plant was designed to go to a .5 turbidity unit and now regulations require a .3 turbidity. Due to the new mandates, Mr. Campbell felt that regulations lowered the plant's capacity to about 32 million gallons a day, in his opinion. He said they are averaging 11 million gallons, with the flow peaking at 22 million. He said that these flows represent ideal situations. Mr. Campbell said that page three is a simple diagram of the ground storage and distribution process flow diagram in 1987. He said water was produced and pumped straight from the Water Treatment Plant to the distribution system and to the two elevated tanks. The plant was modified in 1994 and in 1996 they changed that capability to pump high pressure in this fashion to one pump, opting for a plan to pump under low pressure to ground storage where the water would be distributed by smaller low pressure pumps. He stated that last week, when they had a major water leak, they switched back to this pumping scheme; otherwise, the whole city would be out of water if they had not retained that one pump. Mr. Campbell said that page four shows how the ground storage/distribution City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 3 process is designed today. He said they have added a four million gallon ground storage tank, four additional pumps, and a meter and they have totally reconditioned those two tanks. Mr. Campbell pointed out the meters for Tenaska III, Lamar County Water Supply, Campbell Soup, one that feeds back to the Water Treatment Plant, one meter that goes to Lake Crook Park, and a meter that go to some homes on Lake Crook Road. Mr. Campbell went back to page three pointing out that if they wanted to put water in those two storage tanks they had to open a little valve called a CV and they actually let water out back down to ground storage for storing water so they could pump it back up. He stated that was not the best way to operate. He said this process was changed in 1994. Now it is pumped at low pressure and to all three of those tanks at ground storage and then, it takes six pumps to pump it to the distribution system. Mr. Campbell advised that they have a total of eight million gallons of storage at ground level. It is then pumped to the two elevated storage tanks. One is a one million gallon tank which is located on 25th NE and the other is a half million gallon storage tank that is on 5th NW. Mr. Campbell advised that there is a two and one-half million gallon elevated storage tank under construction on Bonham Street. Mr. Campbell further explained that in the old days every time people wanted more water all they had to do is turn the pumps up at the Water Treatment Plant. They would pump up and pump down and that is not good for the filters, because every time the flow is increased it surges the filters and lets more dirt come through. At that time, there were more turbidity units allowed by regulations and it was not a real problem. He said when regulations were changed to require a half of a turbidity unit, turbidity became a bigger problem; now it is down to three tenths which is a real problem. A turbidity unit is a measure of the clarity of the water. Mr. Campbell explained that page five has a chart showing the average daily flow. He advised that the bottom line is the billion gallons per year that they pumped and it has been over four billion since 1987. Mr. Johns questioned the seven meters that go to Lamar County Water Supply District. Mr. Campbell said that Lamar has an option to take their water at City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 4 different points in the system. They pay different prices depending where in the system they take the water that they use. If they take water at the very bottom they use a lot more of the system that they would if they take water directly from the plant. Mr. Bell asked Mr. Johns if the quality of their water had gone down. Mr. Johns stated no, that the quality of Campbell Soup's water has improved. Mr. Johns stated that they filter the water that comes from the city and the filters can be checked and the backwash water sampled, which has improved. Mr. Johns felt that it had a lot to do with the standards that the city has to operate with today verses ten or fifteen years ago. Mr. Bell said that it would be an advantage to Campbell Soup to have better quality water with it being that much more expensive to have .3 verses. 5 turbidity. Mr. Johns stated that from the standpoint of cost, it really does not do anything for them, because they filter their water. Mr. Campbell explained that the state requires the city to go to .3 whether or not Campbell Soup does anything or not. Mr. Johns said that their standards require them to refilter the water. It has to go through a charcoal bed, which takes any flavors out of the water and the life of the charcoal could be extended by the quality of the water. Mr. Campbell said page six has a budget comparison for the Water Treatment Plant, Wastewater Treatment Plant, and the Lift Stations by fiscal year, number of employees, personnel cost, supplies, contractual, building maintenance, equipment maintenance, and the total budget with the electricity, chemical pumps/motors and maintenance machinery cost broken out separately. Mr. Wilson questioned Mr. Campbell regarding the increase in the number of employees in the Wastewater Treatment Plant in 1988-89. Mr. Campbell stated there were two reasons. One was when he came to Paris the Wastewater Treatment Plant was in an atrocious condition. They did not have enough people to properly maintain the plant and he had to start increasing the number of employees. The next reason was they had to start meeting all of the new rules and regulations on wastewater. He pointed out that after all of that was City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 5 accomplished, the number of employees became stable and they have not changed. Chairman Plata questioned the increase of chemicals in the Lift Station's budget in 1997-98. Mr. Campbell explained that the city did an $800,000.00 study by ADS because the EPA told the City to do it. He said that personnel in Terry Townsend's departments and some contractors repaired a lot of leaks in the pipelines. The city had an inflow/infiltration problem. Due to these repairs cutting out the water that was getting in the system, the sewer system started slowing down and it started developing sewer gas in the system. Chemicals were purchased to pump into the system to negate the odor. Chairman Plata gave the Committee and those present a handout comparing Paris with Denison, Sulphur Springs, Sherman, Mt. Pleasant, and Greenville. He said his perception of the comparison is that Paris had a little bit too many employees in these departments. Mr. Campbell explained that not all of those people in the sewer treatment plant are out there, like the Environmental Division which has four people in it. There is a laboratory with four people in it and those are all included in that department. Mr. Campbell advised that the cities that have been compared with the City of Paris do not put out the amount of water that this city does. Mr. Campbell drew the attention of the Committee to page nine which is a comparison data sheet taken from the website of the Texas Commission on Environmental Quality. He said this commission inspects plants and then gives details about the plants. He said page seven needs to be discussed with the Committee. Mr. Wilson wanted to know on the average daily flow how much of that is taken by Campbell Soup and how much is taken by Lamar County Water Supply District. Mr. Campbell said that Campbell Soup uses 3.5% of the daily flow, Lamar County Water Supply about 2.2%, citizens take 3.5% and leakage accounts for 17%. Mr. Johns questioned the 17% being leakage instead of City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 6 meters not working properly. Mr. Anderson advised that during the past ten years the city has replaced every retail and commercial meter in the ground and that now they are checking them again. Mr. Anderson felt this was happening on the industrial side instead of the residential side, but Mr. Campbell thinks it is just the opposite. Mr. Campbell explained that Carter-Burgess has done a water loss study where they did leak detections and found out where water was leaking. He said they gave Mr. Townsend a long list of leaks to repair, and all of that has been done. Mr. Campbell said the Lost Water Study is saying that the City of Paris has leaky lines. Mr. Jim Bell referred to the City Council minutes of January 21, 2003, page 4, middle paragraph, ~'Mr. Campbell said the cost for raising the water rates is not in the production end of it, it is in the debt service". Mr. Bell said we are talking about a lot of production cost and that Mr. Campbell made that statement about debt service. Mr. Campbell said he was talking about the price of the water which has gone up $0.30 per thousand gallons as a production cost has increased since he has been with the city, of that 47% is inflation, which leaves $0.15 per thousand gallons that the production cost of water that has gone up. Mr. Bell said Mr. Campbell further said that the cost of raising the water rates is not in the production end, but in the debt service and in the old system that the city has. Mr. Campbell said that is correct. Mr. Bell said a minute ago Mr. Campbell said we have a capability today to produce 32 million gallons under the new standards and the city is producing water .09 turbidity when we are only required to produce at .3 turbidity. Mr. Campbell advised that the state wants the city to do this even though the law says .3 turbidity, they want you to maximize on the turbidity because of Giardia and Cryptosporidium. Councilwoman Neeley explained that in terms of that sentence, at the beginning of the meeting last month, each member of the committee was asked to state their goals of what they wanted from this committee and she said that most of you in this room knew what happened last time. The rates were increased in order to repair the sewer system. Mr. Campbell advised that in the City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 7 past sixteen years the cost of water has gone up $0.30 per thousand per gallons and if you totally cut that out, what affect does that have on the water rates. It is insignificant. Mr. Jim Bell said we need to be looking at our debt services. Mr. Campbell went to page nineteen of his handout and stated that this is not Campbell Soup's water rates; they are all contractual. He said he had gone back to 1985 and looked at the water rates and compared for 5,000 gallons, which is a typical user in the City of Paris, and in sixteen and a third years the water rate has gone up $5.61 or $0.34 per month per year on the water. He said that is not even keeping up with inflation on the water side. Mr. Campbell said on the wastewater end, the sewer increase in that time is $12.10 or $0.74 per month per year, which is a 139% increase, which really does not mean a lot. He said the over all increase in the lower right hand corner for water and sewer has gone up $17.70 which is $1.08 per month per year for the last sixteen and a third years, and he did not think that is going to kill anyone in this town. Mr. Bell said that needs to be looked at because when you look at that, you will have to turn around and tell the people they have to face a rate increase. Chairman Plata felt there is a way to try to get leaner that would drive the water and sewer cost down. Mr. Johns wanted to know what the percentage of labor and benefits were. Mr. Anderson advised that on the water side labor and benefits are 20.4%, and on the wastewater side labor and benefits are 33.3%, which includes the Lift Stations. Chairman Plata stated that he did not want anyone to lose their job, but he felt that too many people have been hired out there. He did not see how other cities are doing the same thing with a lot less personnel. Mr. Campbell said they are not doing the same thing that the City of Paris is doing. Mr. Campbell said no city on that list is producing 11.6 million gallons a day. Mr. Anderson stated that they were asked at the last meeting to produce a City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 8 breakdown, just as a percentage, what the budget costs were, and this somewhat goes back to what Mr. Bell was asking about the debt service. Mr. Anderson advised that on the water side the debt service represents 34.3% of the rate and on the wastewater side the debt service represents 29.3% of the rate. Mr. Anderson said to answer the question of what is driving the cost and why a rate increase is needed, in 2001 the city was under an EPA administrative order and the city was required to do an $800,000.00 study. The City Council issued 9.5 million dollars worth of debt in 2001 to address the problems that were revealed in that study. Mr. Anderson said there has not been a rate increase since January of 2000, so part of this increase that is going to be recommended is going to be addressing that debt that has been issued and the rates that have not been adjusted to cover it. Mr. Wilson stated that the impression that Mr. Campbell has given him tonight is that production costs does not matter. He then stated that we have a 20% cost for personnel and felt that the city could reduce personnel by two or three people and cut the personnel cost by 2%. Mr. Wilson said the city needs to attack this a little at a time. Mr. Bell said the debt service and personnel is 58% of the total cost of production not including electricity, transfers, maintenance, chemicals, etc. Mr. Wilson pointed out that nothing can be done with the debt service and the only thing that can be looked at is personnel. Mr. Campbell said that if your production cost is only $0.54 and you cut out 10% you are only cutting a nickle off of $3.19. Mr. Campbell said he keeps the water quality up and the health of the people up and that is what they are obligated to do to maintain water quality and safe water. He stated that if we cut out people we might be jeopardizing the citizens. Mr. Campbell pointed out that the plant has doubled in size since he came to Paris and personnel has not been increased in nine or ten years, and that occurred before the plant size was doubled. Mr. Johns said that this situation is very similar to what they have at Campbell Soup - that there is too much capacity at the Water Treatment Plant and we have to work around that issue. Mr. Johns said the way they would do it is like Mr. Wilson said. You cannot use the debt service because it is fixed, and they City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 9 were told to reduce their cost by 10%, then 10% means we have compensate for the debt service. Mr. Johns said they were told there are two given things, safety of the people and quality of the product, but you have do it, you have to come up with a way to do it. Mr. Quarles questioned the possibility of cutting other costs before rates are raised. Mr. Campbell said one thing that the city is doing to improve the efficiency is building another elevated storage tank. Mr. Quarles said you were increasing the debt load with that. Mr. Campbell said yes. Mr. Quarles said you are not cutting cost, why would you do that, you already have the quality of water below what the state mandates. So, why would the city do anything that would increase cost or debt? City Manager Malone explained that this last debt issuance was to meet the EPA Administrative Order and there was a list of projects provided by that engineering study that the city was forced to do. City Manager Malone said the study identified all of the elements in the system that needed to be replaced or repaired and the EPA determined that the city would be given three years to get it done. The City Manager said the city attacked these projects with local contractors doing work by the day and direction from the engineering inspectors to try to save money. He said the debt was issued in anticipation of being able to assure the EPA that we had the funds available to fix all of these things that they were telling us to fix in this period of time. City Manager Malone advised that the city was successful in working our way out of the EPA Order much cheaper than what the consultants estimated. He said the city took the savings from these projects and is using the money to build the elevated storage tank. The money is already in the debt service. He said they were shifting what they would have spent on these repairs that were demanded by the EPA because the city was able to do them more efficiently than what the engineering study suggested. The City Manager advised that the city is able to use that savings towards other needs and we are taking the highest priority needs. Mr. Wilson wanted to know if the city can pay for it in savings on pumping cost and in electricity. The City Manager pointed out that is not the only element, it is also an element if you look at these other cities and see the capacity of overhead storage for fire protection. He said the city has been City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 10 inadequate in overhead storage for fire protection for many years. He concluded his answer by saying that you have accomplished energy savings as well as having water available for fire protection needs. Mr. Campbell said that at one time, depending on the situation, if the city lost power at the pumping station downtown and it was at the low level at the tank where we operate, he would have fifteen minutes to call every industry to shut them down before they reached minimum fire protection level and that is totally inadequate for a city this size. Councilwoman Neeley asked what did transfers mean as shown on the breakdown of budget costs. Mr. Anderson explained that these are expenses paid for out of the General Fund that benefit the Water and Sewer Fund such as management, legal, finance, computer system and engineering. Mr. Wilson said that the Water and Sewer Fund is paying 1.1 million dollars in overhead to the General Fund and wanted to know how that was allocated. Mr. Anderson advised that number is looked at in the rate study each time. Mr. Anderson explained that what the city anticipates doing in terms of the rate study, they want the consultant to come down and talk to the City Council about preliminary numbers. They want local industry brought in to look at the rates as they apply to their company. The city wants to meet with big industrial users as well, before thinking about finalizing anything. Councilwoman Neeley stated that it is actually the purpose of this committee to examine facts and exchange information - that the rate study does not just appear with out any warning to everyone. She said that it was the intention of the Mayor when he put the committee together that they could serve as a conduit of information. Mr. Anderson felt that it was a profitable and a valid way of doing it is to have industry input before it is finalized. If they have questions, those questions get answered. Chairman Plata asked Mr. Campbell to prepare a history of breakdown of equipment and maintenance for all of his departments and have it available for the next meeting of the committee. City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 11 Chairman Plata said he was handed a study at the last meeting which was the City of Paris WaterAVastewater Cost of Service and Rate Design Study, October 1999, from a company called Navigant Consultants. This study said that the metered water consumed by Toco, and any consumption of 178, 571 gallons, will be charged at $0.84 per gallon. It goes on to say that the contract guarantees minimum rates and there is a way to provide a minimum charge. Further, their recommendation was to deem the contract null and void and to start charging Toco the right amount for wastewater. Mr. Plata asked if this had been done. Mr. Anderson advised that they did have some meetings to look at that and that was at the time that City Attorney Schenk had his accident and at this time, it has not been done. City Attorney Schenk explained that part of the problem is the city is not going to escape their obligation to provide the wastewater service. Chairman Plata said the study states that in 1969 the city was currently charging a rate of $0.84 per thousand gallons of metered water for service in excess of minimum charge. Mr. Campbell said that is the sewer charge also. Chairman Plata said the study recommended that the city begin charging Toco the residential wastewater volume exit rate of $3.57 per thousand gallons. He said the current contract does not have a definite termination date. Chairman Plata stated he does not want to be subsidizing Toco. City Attorney Schenk advised they have had negotiations to do with several entities over the outside city services, which he hopes to turn to the city' s advantage. The City Attorney said they have been focusing primarily on the Lamar County situation because they are the largest, single entity and generally what is going to happen is the city is going to establish whatever the city' s policy is going to be for that entity and the others will have that expectation that the city will follow that same policy with regard to them. He said his primary concern, from a legal standpoint, is the folks in Lamar County, because they have brought a number of issues that Mr. Anderson has spent months going through trying to resolve charges that we City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 12 have assessed them verses what their claim is and should have been charged. City Attorney Schenk said they were at a point where they have finally resolved all of those discrepancies and now they are going to talk about long term as to what is the city' s obligation to them in regard to the amount of water they should receive and what they should pay for the water. He anticipated going to the smaller entities and using that basis in dealing with them. Mr. Anderson advised that Toco is only sewer and it is an insignificant amount, and they get their water from Lamar County Water Supply. He said the city does not bill those people individually. Lamar County Water Supply pays for their water, and the sewer volume is based on the assumption number that Lamar County supplies the city. It is something that needs to be addressed, but if it was a bump in the road you would never feel it if you drove over it because it is so small. Mr. Campbell said this is another mandate from the EPA. They told the city we had to take sewage from Toco and that cost is for sewer not water. The City Attorney explained that the city' s problem is with legislation that has been on the books in Washington for some time and some changes in state legislation, the city's problem is that it did an annexation in the service area of Lamar County Water Supply. Unless the city can enter into a contract that is reasonable to both the City of Paris and Lamar County Water Supply District, the city will end up paying an enormous price to obtain Lamar County's infrastructure. The infrastructure may be a substandard infrastructure, but that is what the city has to do because of the certification process. Mr. Johns advised that since 1985, Campbell Soup rates have tripled, residential rates have gone up 56%, and they are on a cost of service contract and asked if the cost of service has gone up 300% or 56%. Mr. Quarles said when you say cost of service contract, that means Campbell Soup pays cost of that water, and asked how has that water increased 300% at the same time the residential rates have gone up 56%? Mr. Campbell said he can show them by looking at the first diagram of his handout. City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 13 Mr. Anderson explained that the City of Paris has a certain amount of infrastructure in place to provide water to Campbell Soup and the city allocates a certain percentage of that cost, based on where Campbell Soup is on the system, to them. If Campbell Soup takes a million gallons that gives Campbell Soup the yields revenue requirement the city has to have to pay the cost yield rate per gallon. If on the other hand, Campbell Soup conserves and reduces consumption by half the city still has the same fixed cost to allocate to Campbell Soup. Their rate is going to go up because the city has fixed costs that belong to Campbell Soup. Mr. Campbell went back to pages three and four of his handout and explained the process of pumping the water to Campbell Soup and where they are taking their water. Chairman Plata asked if any one had questions they wanted answered or information that they wanted to be available at the next meeting. Councilwoman Neeley asked for a breakout of the total overhead budget. Mr. Quarles said he would like to see the transfer figure broken down. Ms. Davidson said even if they can't make cuts in your transfers that are specific to the water department, there may be other places that the city might make cuts to lower the cost that will help curb the cost in the transfers to the water department. After further discussion, Chairman Plata announced that the next meeting for the Committee will be scheduled for March 18, 2003, at Paris Junior College Applied Technology Building, Room 1206. Mr. Bell wanted to know if they could look at some of the debt service and see City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 14 if there is a chance of refunding. Mr. Anderson advised that he is working with Dan Almon of Southwest Securities to see if this is possible. Mr. Wilson wanted to know if he was remembering correctly that, at some point three or four years ago, the city delayed paying anything on the principal or interest of a debt issuance in order to avoid a rate increase. Mr. Anderson explained that during the first or second year the principal payment was not made. The city paid the interest payment and by structuring it this way a rate increase was avoided. Mr. Anderson said there has never been a time when the city did not pay either interest, or both principal and interest. He said he would look up what debt issue that was. Chairman Plata asked Mr. Campbell to bring back the number of employees that he is short in his departments. Chairman Plata also asked Mr. Townsend to bring back the number of employees that he is short in his departments. There being no further business, the meeting was adjourned. BENNY PLATA, CHAIRMAN ATTEST: MATTIE CUNNINGHAM CITY CLERK City Council Water & Sewer Subcommittee Feb. 18, 2003 Page 15