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03-F Water/Sewer (4/22/03)SPECIAL MEETING OF THE CITY COUNCIL WATER & SEWER SUBCOMMITTEE April 22, 2003 The City Council Water and Sewer Subcommittee met in special session, Tuesday, April 22, 2003, at 6:00 P.M., Paris Junior College, Applied Technology Building, Room 1206, Paris, Texas. Chairman Benny Plata called the meeting to order with Councilwoman Francine Neeley and Councilman Willie Weekly being present. Also present were City Manager Michael E. Malone, City Attorney Larry Schenk, Director of Finance Gene Anderson, Director of Utilities Herb Campbell, and City Clerk Mattie Cunningham. Chairman Plata announced that the first item on the agenda was a report by him and he handed out all the information that he had distributed last week at the City Council meeting. He said there is still another cost cutting measure that he would like the Committee to look at and stated that representatives ora company were present to make a presentation to the Committee. Chairman Plata said that if the Committee wanted to recommend to the City Council to hear this same presentation, then he felt that this Committee could meet one or two more times and would be able to discuss all of the recommendations that have been made. Chairman Plata called for staff reports regarding the water and sewer related matters. Gene Anderson, Director of Finance, announced that he would like to address one or two issues. He said that Chairman Plata had asked for information about the change in square mileage of the city since the newly annexed areas were added. Mr. Anderson reported that there were 28.01 square miles before the annexations and 42.89 square miles after annexation. Mr. Anderson had also been asked how many residential customers exceed the monthly minimum bill. He advised that his staff looked at the most recent 12 months and there were a total of 10,824 different residential customers and, of those, 9,845 exceeded the minimum bill at least once. Mr. Anderson said the city cannot determine if that was just one time or five times. Councilwoman Water and Sewer Subcommittee April 22, 2003 Page 2 Neeley asked what the minimum bill was . Mr. Anderson advised that the minimum bill is $27.38, which includes the water, sewer and trash pick up. Mr. Anderson said that of the 2,209 commercial customers the city has, 1,013 of those exceeded the minimum bill at least once during the last 12 months, or 45.85% of the customers. He said that the minimum bill for a commercial customer was $16.38 and no trash pick up is involved with the commercial customers. Mr. Anderson said the total personnel costs for Tyler's water and sewer related departments were $4,934,476.00. The other issue that he was asked about was the water and sewer related debt service. They have an outstanding debt service at the end of March ,2003, of $49,325,000.00 in water and sewer related debt. Mr. Anderson advised that he was also asked about the cost of the rate study. Mr. Anderson told the committee that the city had asked Jack Stowe to look at the Lamar County Water Supply purchase questions for the city in addition to the rate study. He stated that the rate study itself appears to have cost $20,876.00. He said when they originally talked to Jack Stowe, he gave the city a maximum figure of $25,000.00. Councilman Plata said when staff brought that before the City Council Mr. Anderson said it would cost $30,000.00. Mr. Anderson said that someone asked him off the top of his head what the cost would be and at that time he estimated it to be $30,000.00. Council Plata said, ~The City Council was told $30,000.00. Do you always go high like that?" Mr. Anderson said when someone asks him what something cost without him having a chance to look it up ahead of time, he has to estimate to the best of his memory. Councilman Plata said it was $30,000.00 for the water and sewer study and $50,000.00 for the water loss study. Mr. Anderson said if staff were asked approximations of what it would cost, they could very well have said those figures. Mr. Anderson advised that, depending on whether or not you run into any problems, it might run more. City Manager Malone also pointed out that the cost depends on how many times the city brings the rate consultants back and he felt sure the city will have to bring them back again. He said that the city will have to pay them to come back. Councilwoman Neeley stated this was actually Water and Sewer Subcommittee April 22, 2003 Page 3 approved almost two years ago to do this study. Mr. Anderson said it was in late December of the year 2001. Chairman Plata called for a presentation of a report from the City Finance Director on the relative impact of debt service on water and sewer system rates. Mr. Anderson advised that he went through the study and tried to extract information that would give the Committee an idea of how it is impacting the rates. Mr. Anderson said the debt service currently amounts to 32.2% of the water and sewer's budget. Over all, it will have similar impact on the rates. He said it was hard to identify how it exactly impacts the different customer classes because it impacts each differently. It impacts the contract customers one way, residential customers one way, and the commercial customers one way and the debt is allocated throughout the study. Mr. Anderson said if the city had only one class and everyone paid the same rate, then it would be very simple. The outstanding debt that is water related represents 34.3% of the water portion of the budget. Debt represents 33.3% sewer related budget. The current amount of debt principle that is water and sewer related is $33,940,000.00. Mr. Anderson said of the total debt payment that the city makes annually, 61.65% of that is water related and 38.35% is sewer related. He said that even though the water related debt is higher, it has approximately the same percentage effect on the budget because the water related budget is higher. Mr. Anderson said that from looking at the study, of the water portion of the debt, 65.48% appears to be related to what you might call base cost or average usage cost, and 31.5% appears to be related to extra capacity cost, which is related to the peak flows or meeting the peak requirements of the different customer classes. Chairman Plata announced that the next item on the agenda was a presentation by OMI Management, Inc., regarding outside management of municipally-owned water and sewer systems. Chairman Plata explained that this is a water management company. Chairman Plata introduced Shirley Ross, Regional Business Manager for Project Water and Sewer Subcommittee April 22, 2003 Page 4 Development with the OMI Management, Inc. Ms. Ross came forward introducing Randy Massey, who is their Project Manager in Georgetown, Texas, where they operate the water and wastewater treatment systems. She also introduced Gregg Higgins who is the Regional Vice President for this area of the country for OMI, which means that Gregg has the responsibility of overseeing all of OMI Projects in this region. Ms. Ross informed the Committee that they have a short presentation about their company which gives a background on their experience and capabilities, what they do, where they do it, and who their clients are. They wanted to review a couple of their projects in the region and things that they were able to accomplish at these projects. Ms. Ross said their company was founded in 1980 and they are a part of a larger environmental engineering company called CH2M HILL. Their company is 100% employee-owned and American-owned. They are not traded on the stock exchange and the only way that you can own stock in OMI or CH2M HILL is to be an employee. They have grown every year by an average of 15% just by adding projects and clients like Paris, Texas. She said they have not purchased any other companies or made large acquisitions. They just grow very steadily every year by adding cities as their clients. Ms. Ross said they had 175 million dollars in revenue in 2002. They manage 180 water and wastewater systems in this country and a few overseas. They have about 1500 associates that work for OMI and the parent company. If you add all of the employees with the parent company, it is over 7,000 employees. Ms. Ross said they have approximately 125 clients; cities and industries across the country. She said they try to take all of those assets and facts and apply their business strategy; which is to give their customer the best value and world class performance. Ms. Ross advised that they have more operations and management federal, state, and local awards than any other of their competitors combined. They won the 2000 Malcolm Baldridge National Quality Award from the U. S. Department of Commerce and they were the only water industry recipient ever to receive that award. She said that what Water and Sewer Subcommittee April 22, 2003 Page 5 that means to their clients is that they have based their company on a quality system and providing quality service to their customers. Ms. Ross explained that the CH2M HILL Company was voted as one of the '~100 Best Companies to Work For", and you have probably seen other companies that share in that honor, such as Continental Airlines. Ms. Ross said that their company can provide a full range of services to their clients. They have the engineering side, which can do the designing and engineering or construction, along with the OMI side of the water and wastewater operations management. She said that most of the cities they work in do not use the CH2M HILL side of the company as their engineer although a few of them do, but they work with all types of engineers in their client cities. Ms. Ross said they had a lot of different services that they offer to their clients. She said they offer industrial waste treatment, industrial pre-treatment for cities that have industries which have to go through pre-treatment, as well as testing and sampling services. For some of their clients, they actually perform all of their public works functions for them, including streets, parks, garbage collection, and municipal water and wastewater services. Ms. Ross presented a list of OMI U. S. Project locations showing client cities across the country. She said that they have quite a large presence in the Texas and Oklahoma areas and they have had clients in this area since the early 1980's when they were first formed. They have a total of 258 on staff throughout this region. Nearby projects include Stephenville, Temple, Georgetown, and Pampa, Texas, Duncan and Broken Arrow, Oklahoma, and Fayetteville, Arkansas. There are 19 projects throughout the state and region, and they have regional support and offices in Dallas, Houston, Tulsa, and Oklahoma City. Ms. Ross said they began providing operations and maintenance services to Fayetteville, Arkansas, in 1981 for a 12.4 MGD wastewater facility and they have expanded that facility and they provided some of the funding. They did the Water and Sewer Subcommittee April 22, 2003 Page 6 commissioning, and provided the start-up services for the new facility. They apply biosolids there as that is how Fayetteville disposes of their biosolids. They apply 3.5 tons per day to land application sites. Ms. Ross said that her company had provided a cost saving of $30,000.00. She said this plant project has won several EPA and state awards. Councilwoman Neeley asked over what period of time did OMI do these cost reductions. Ms. Ross said that the reduction was done in the first couple of years of their operations. Ms. Ross advised that they have served Georgetown, Texas, since 1993 and they have multiple water and wastewater facilities. They have 11 plants and they just started up two new wastewater treatment facilities and they helped them do a review of their engineering design along with helping start-up their facilities. She said they have done several plant improvements for them, and what that enabled them to do is to postpone some of the more expensive capital improvements that they had planned to do. Ms. Ross said that Temple, Texas, has a very similar size wastewater plant, from what she understands, to the wastewater plant in Paris. She advised the Committee that they have provided them service since 1994 for a 7.5 MGD facility. They have 15 lift stations and they run their industrial pre-treatment program. Ms. Ross said they were able to install a telemetry system for them on their lift stations, improve the treatment quality, and lower chemical and power demands. They also installed an Operator-10 computerized data management system so that all of the treatment plants can be tracked. It had all the history and can generate many useful reports for the public works staff and council. Ms. Ross advised that when client cities come to them and they are considering contracting their operations and maintenance services, what the prospective clients tell them they are looking for and what they value most are stable water and wastewater rates and life cycle costs, environmental stewardship, cost effectiveness, better service, world-class experience, resources and solutions that the prospective clients do not have access to, value-added service for the community, reduced risk, and uninterrupted service for customers. They also Water and Sewer Subcommittee April 22, 2003 Page 7 want employees transferred over to the private company partner and want them to be developed and have more opportunity than they have. She stated that these are the kinds of things that they as a company try to focus on giving their clients. Ms. Ross said that one of the ways they make sure they deliver on those promises has to do with their management system. Since they have been in business, they have developed an institutionalized central management system that helps them-give cities better service and be more efficient. She said that some of these management systems are the datastream maintenance management software, Operator 10 data process management that she had mentioned earlier, safety and security programs, emergency and risk management programs, permit compliance and reporting, capital improvement planning, and the communication department located in Denver, Colorado, that provides a great service for media relations or any type communication assistance. Ms. Ross said they have a very extensive training and development program at OMI in all areas. Ms. Ross advised they have community involvement programs for their client cities, so, they not only come and operate the city's water and wastewater plants, but they really like to become part of the community and invest in the things that are important to the city and in the areas in the city that need help. Ms. Ross again stressed that they are an employee owned company and they liked to take care of themselves and that means taking care of city employees. She advised that they have the best employee benefits and salaries in the industry. They have a very good training and staff development program along with a program that emphasizes safety. They operate a family friendly company that understands how important the family is and they try to balance work and family. They have so many advancement opportunities that are not currently available to the city's employees, but they would be if the city hired OMI to be the city's partner. She advised that their company has projects throughout the region and across the country so the employee's and associate's advancement opportunities have really blossomed and have become very wide spread. Ms. Ross again said that every employee can own stock in the company and they Water and Sewer Subcommittee April 22, 2003 Page 8 actually pay bonuses and incentive pay, part of which is stock ownership in their company. Ms. Ross stated that when they come to a city and assume the employees, they always try to give equivalent or enhanced compensation and benefits over what they have. They would not be able to do what they do successfully if they did not do that. They have a fully funded pension program for the employees, a 401K program, and they give merit based annual increases and individual and team based performance incentives. She said that this is something that cities cannot do, but private companies can do. They are able to incentivise the employees and reward them for thinking and acting like owners and coming up with new and better ways of doing things. Ms. Ross stated that they can provide cost effective services for their clients by utilizing national purchasing agreements because they have so many clients across the country. She said they have agreements with vendors that give them better prices and they are able to pass that on to their clients. She said that they collect data from all of their operations and facilities across the country and use those figures to benchmark. When they come to a new city and take over that facility, they look at that data and where they have had experience in operating similar plants before and they are able to apply the technology and efficiencies that they have learned over the years at similar facilities. Ms. Ross told the Committee that they have chemical and energy management programs where they take a look at how much energy the plant is using, how much chemical is being consumed to accomplish the treatment and they are able to really get those working efficiently based on their experience at similar facilities. She said they use a lot of cross-training. They do not have associates that just do water or just do wastewater. They normally get employees trained and certified so that they can cross utilize them. Ms. Ross said that sometimes their clients may not have monitoring and control systems installed and they are able to help them with that and that is another way to become more efficient and possibly reduce staff. She said they were also able Water and Sewer Subcommittee April 22, 2003 Page 9 to help their clients with creative capital solutions. There may be some very expensive capital improvements that the city is looking at and considering for the future and sometimes they are able to come in and take a look at what a city has planned and consider other options, and possibly come up with more cost effective ways of accomplishing the same thing. They have been able to do that for many of their clients. Ms. Ross said regarding contractual and financing flexibility, there may be capital improvements that the city would really like to accomplish a lot on the O & M side, but the city may not have the financing or the money to do that project. She said sometimes they are able to help their clients do that by financing these projects, so, they have a lot of flexibility and a lot of ability to help the city in these areas. Ms. Ross said that some of the reasons why the City of Paris should consider this is that OMI is going to establish operations and cost efficiencies, increase service levels, and give value. It is going to give the city a guaranteed cost and performance through their contract with the city and it is going to enable the city to have management and technical resources at the city' s disposal that it does not have at this time. It is going to enrich the employees and solve administrative problems and human resource problems, such as things that the city deals with everyday. Ms. Ross said their maintenance management system that she has talked about helps protect the city' s assets and capital investments, and they take on risk such as regulatory compliance for the city. Councilwoman Neeley asked who would be responsible if there was an EPA citation and fine. Ms. Ross advised that if it is due to OMI negligence, it would be their responsibility. Ms. Ross said that OMI's commitment to the City of Paris would furnish nationwide resource support from all of their regional projects, cost effectiveness of operations, responsiveness to the city's needs, increased opportunities for employees, and best in class project. Ms. Ross said there were things to keep in mind as to what is going to make Water and Sewer Subcommittee April 22, 2003 Page 10 them a successful partnership. First and foremost, the city needs to have the consensus among the city's decision makers that this is what the city wants to do. That is why they are here tonight is to make this presentation and answer the Committee Members questions. Then the city will define what policy and process they will follow as the city moves forward with this. The City would need to focus on quality of service at a responsible price, and not necessarily the lowest price that someone could offer you. They want to share responsibility and risk and reward and define the scope of the city's projects. Ms. Ross said the city will have to make the decision if they are looking at water or wastewater treatment, whether they want them to take a look at the distribution and collection system. The City of Paris will define the scope and tell them what to look at, and define for them the cost that it is costing the city to do those services right now so they will have a benchmark to go by. Ms. Ross also said the city should go into this with a partnership type of approach and it will be a successful procurement. Chairman Plata asked Ms. Ross if they were able to save Temple, Texas, any money. Mr. Gregg Higgins advised Chairman Plata that they were able to save Temple money, and on the second renewal that their cost was reduced. Ms. Ross said they were able to offer their clients from 10% to 30% savings for the current or the same amount of services that they are receiving right now. Sometimes when cities go through procurement, they may add services and ask for additional services. She said that in some cases, it is hard to compare their savings, but usually it is from 10% to 30%. Ms. Ross also stated they would be responsible for the maintenance of the facilities. Mr. Higgins did advise that there are some facilities that all they do is maintain the equipment for that facility, and in other cases, they do everything. Councilwoman Neeley asked what happens when a mandate comes down while OMI is managing a facility. Ms. Ross advised that would be an increase in the scope of their contract. They would do research and go over exactly what those increases in regulations would mean. Sometimes the direct costs, such as chemical or energy, would go up to accomplish an expanded level of treatment. Water and Sewer Subcommittee April 22, 2003 Page 11 Sometimes they might have to add staff to accomplish the mandates. She said they would try to stay ahead of those regulations and let the city know what is coming down the pipe and what the affect would be. Councilwoman Neeley questioned the length of the contract and if they had a standard that they go by. Ms. Ross advised that it does vary and sometimes it varies from state to state depending on state regulations. She said in the past most of their contracts were for five years; but more and more of the contracts are 10 years up to 20 years. Ms. Ross said that long term contracts enable the cities to save more money. If there are capital investments that need to be made, it allows the cities to amortize the investments over a longer contract period. Chairman Plata asked whether, assuming on an average if the City of Paris would contract with them for five years, after that five years, does it really spike up or how does it generally average out, because people are scared of privatization. Ms. Ross advised that what they do is provide the city with an annual flat fee cost and in their contract they stipulate what situations would make that cost increase each year. They would like to get an increase each year like any business does for CPI. Also, other things that could cause it to increase would be the water treatment plant's flow increase, or the amount of water produced that city has to increase. Those items and chemical and energy consumption would be considered when they would come to the city at the end of the year with documentation showing how that effected those direct costs and negotiate that increase with the city. The way the price is increased will be clearly stipulated in the contract such as increase in services, cost of living increase, and any additional services that the city wanted them to take on that they were not previously providing. Councilwoman Neeley asked about their compliance record and whether it varies from city to city. Ms. Ross advised that they take great pride in their compliance record because that is the business they are in. They cannot be violating their permits and getting citations from regulators. They have a whole infrastructure within the company that makes sure that they keep their clients in Water and Sewer Subcommittee April 22, 2003 Page 12 compliance; which means they have management programs, laboratories, and quality assurance staff within the region who pay attention to regulatory compliance. She advised that, from time to time, there might be minor violations, but they are usually due to delayed capital investment in many cases where they are actually operating treatment plants that are beyond their design capacity and the capital improvements are in the works, but they have not been implemented. So, they do have those type situations. Other situations may be weather related or possible electrical outages; but through their management system and experience, they are able to react quickly to those situations and correct the problem. Mr. Higgins said their company finds that one of the drivers for particular cities is that the city is out of compliance and they say the state tells them what they have to do. He said, a lot of times, what they can do with their services is to make a system get as close to compliance as possible, but sometimes that does not mean it is always in compliance. He said they would get it as close as they can get it before capital investment must be made. Councilwoman Neeley questioned whether the firm does all the reporting and permitting. Mr. Higgins advised that they do not get involved in the permitting but they will work with regulatory authorities and see if the city' s permits are in compliance and make recommendations on the permit review. They do the monthly compliance report for the cities. Chairman Plata asked if every year OMI keeps up with their costs and if they have rate increases, do they have to go back and look at staff or anything else and do cost cutting and operate as lean as possible when they come in and take over a city. Mr. Higgins said their goal is to work for the city as a service provider. They do not want to go away and the only way they can do that is to be as efficient as they can. If that means they have to reduce cost in some operation and try and find a more efficient operation, it may involve capital improvement or the cross-training in trying to get full utilization from the staff plus that provides opportunity for staff where they might want to move to another OMI Water and Sewer Subcommittee April 22, 2003 Page 13 location. He said that they do look at it and decide what they think would be the best way to run the operation and that may mean involve staffing or process changing, or look at electrical rate charges. Councilwoman Neeley asked if OMI would use the current employees as much as possible. Ms. Ross advised that, yes, they would. She said they do not have a lot of extra employees sitting somewhere on payroll waiting until they get the next city. The employees of the city have all of the experience and knowledge of the system and they need that, so they assume the employees that are currently working for the city. She said that some cities require them to offer employment to all of the employees and some cities leave it up to OMI as to how they would staff the project. Ms. Ross said they will work with the city as to how they want to work with the employees. She said other cities have openings in other departments of the city where some of the water and wastewater staff may be transferred, or there may be some training required and they will work with the city to help accomplish that and reduce staff that way. In speaking with City Attorney Schenk regarding fee schedules and standard contracts, Ms. Ross said that each contract is evaluated separately and then negotiated. What they will do is bring in an evaluation team and spend several days on site and look at the city's facilities and the condition, type of equipment, all of the records, amount of chemicals, and electrical bills and then, through their management system they will decide how much it is going to cost them to run the treatment plants and that is how they come up with the cost for the city. City Attorney Schenk mentioned that the city belongs to a consortium which has come together to purchase power more cheaply after deregulation, and questioned Mr. Higgins about whether the savings in power that he referred to was from buying power more cheaply or consuming less power by changing the operation. Mr. Higgins responded that it was sometime both. He said they were sometimes able to put in systems and monitors and equipment to run more efficiently and save power consumption. Sometimes they were able to work with the power companies and question the rates and negotiate more favorable rates. Water and Sewer Subcommittee April 22, 2003 Page 14 He said that sometimes they were able to run the operation on different schedules and operate when it was not peak demand for power, thereby saving power cost. He said that if the city already has the best cost for power, we might want to set up some benchmarks in the contract for kilowatt hour usage. After further discussion about possible contract details, City Attorney Schenk asked for samples of their contracts with other clients. Gene Anderson, Director of Finance, asked if OMI could provide the city with a list of clients who have not renewed their contract with OMI. Ms. Ross and Mr. Higgins agreed to both requests. Ms. Ross advised Councilwoman Neeley that the city would still be responsible for doing rate studies and setting the rates, but what they hoped they can do is bring to the city a more efficient and cost effective O & M service. The city will have to decide how those savings and efficiencies will effect their budget and resources, and therefore, how that would affect the rate. The rate setting is up to the City. Mr. Higgins said they could help the city look at a rate because they have a staff in their company that can assist with whatever the city wants with a rate study. They cannot set the rate, but they can help the city. Chairman Plata asked if OMI ever gives two cost proposals, one the way the city wants it, and one the way that they would do the proposal. Ms. Ross said they could do it that way and if they wanted that, they would be glad to do that. They could give the city a cost proposal under stipulation that they hire everybody and under the scenario where you let OMI decide on how they would staff the plant from day one. It was the consensus of the Committee for this presentation to be made before the City Council and Chairman Plata asked that it be placed on the May 12, 2003, agenda. Discussion was had regarding the Campbell's Soup contract along with establishing the rates for water and wastewater. Water and Sewer Subcommittee April 22, 2003 Page 15 There being no further business the meeting was adjourned. ATTEST: BENNY PLATA, CHAIRMAN MATTIE CUNNINGHAM, CITY CLERK