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HomeMy WebLinkAboutagenda.council.worksession.20230807AGENDA CITY COUNCIL WORK SESSION August 7, 2023 4:00 PM, City Council Chambers 427 Rio Grande Place, Aspen I.Work Session I.A Interviews for Boards and Commissions I.B 2024 City of Aspen Utilities Rate Consideration I.C Council Goal Work Plan: Prioritize Infrastructure and Maintenance for Aging Facilities Zoom Meeting Instructions Join from a PC, Mac, iPad, iPhone or Android device: Please click this URL to join: https://us06web.zoom.us/j/82284124455? pwd=WE5aTTVlbFczb2k1czBIb2dCZlVQdz09 Passcode: 81611 Or join by phone: Dial: US: +1 346 248 7799 Webinar ID: 822 8412 4455 Passcode: 81611 International numbers available: https://us06web.zoom.us/u/kcJYkK4bzE Board & Commission Interviews MEMO - 8.7.23.pdf Council Memo - 2023 Electric and Water Rate Study and Financial Plan - FINAL.docx Exhibit A - Raftelis Executive Summary_2023 0731.docx Prioritzed infastructure_Worksession_Memo_8-7-23.docx Exhibit A - Council Goal workplan - Infrastructure and maintenance for aging facilities.docx 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 MEMORANDUM TO:Mayor and City Council FROM:Cole Langford, Utilities Business Manager Justin Forman, Utilities Director THROUGH:Tyler Christoff, Deputy Public Works Director Scott Miller, Public Works Director Pete Strecker, Finance Director MEMO DATE:July 31, 2023 MEETING DATE:August 07, 2023 RE:2023 Electric and Water Rate Study and Financial Plan _____ REQUEST OF COUNCIL: Utilities is committed to responsible stewardship of our Water and Electric Utilities. This Rate Study supports revenue requirements to prioritize operations and replacement and maintenance of aging infrastructure and facilities. The purpose of this work session is to introduce an updated Financial Plan for the Water and Electric Utilities. We ask Council to provide feedback on our rate methodology and recommendations. PREVIOUS COUNCIL ACTION: Council approved a Rate Study and Financial Plan for Water and Electric Utilities in July of 2022, Resolution #081. The previous comprehensive financial study for the Water and Electric Utilities was performed in 2018. To ensure a continued stable, equitable, and defensible rate structure, Utilities must reexamine their financial model on a periodic basis. Periodic rate studies are an industry standard and benefit rate payers by allowing our Utility to implement rate adjustments incrementally, maintain financial viability, uphold a high level of reliable service, and be proactive in responding to industry trends and customer needs. This proposed review is especially important as emerging utility policy, program and infrastructure needs, response to changes in customer growth, technology use, and demand patterns all challenge the current paradigm of Utility operations. Recent national and international financial trends also require examination to ensure the City can continue to maintain a sustainable and resilient level of service to all customers. SUMMARY AND BACKGROUND: 2024 proposed water and electric rates represent an incremental approach to utility rate adjustments. Staff believes this transition meets the functional needs of the utility while creating sustainable change for our customers. 128 2 According to the U.S. Bureau of Labor Statistics, the average cost of Food and Beverages increased by 6.3% in 2021 and 10.4% in 2022. The average cost of Fuels and Utilities increased by 9.5% in 2021 and 13.5% in 2022 (bls.gov). For 2021 and 2022 budget years, Council approved Electric rate increases between 1% and 3%. Council approved rate increases between 5% and 7% for Water 2021 and 2022 budget years. According to the Colorado Department of Transportation Construction Cost Index (CCI), as of 3rd Quarter 2022, the cumulative change from same Quarter 2021 reflects a cost increase of 31.49% with a relative annual increase of 20.32%. A recent analysis of the annual cost of sustainable ownership for the Water Utility is now at $7.3 million with a backlog of $90 million in pipe replacement. For the Electric Utility, annual cost of sustainable ownership is now at $2.5 million with a $40 million backlog in cable replacement. Without continued management and capital investment utility services would deteriorate to a point where staff and infrastructure could not adequately meet customer needs. DISCUSSION:Based on existing economic conditions, capital needs, and emerging customer trends, the current Water Rate Study and Financial Plan is recommending an eight percent revenue adjustment. The current Electric Rate Study and Financial plan is recommending an eight and one-quarter percent revenue adjustment. ELECTRIC FUND Applying proposed financial recommendations to our rates results in changes to the average utility customer monthly bills. Tables below reflect theoretical average monthly cost impacts to the various customer classes including average residential; large residential; small commercial; and large commercial, and ‘all’ electric residential. The intent of these tables (below)is to demonstrate the formularized monthly change various customer classes may experience in this proposal. Electric Fund: Financial Overview 2024 Proposed Electric Rate Adjustments 129 3 Table 1 – Typical Electric Residential Service Table 2 – Typical Electric Large Residential Service Table 3 – Typical Electric Small Commercial Service Table 4 – Typical Electric Large Commercial Service All Electric Rate Effective January 2024, an alternative customer rate shall be available for all- electric properties zoned residential. This rate shall be available for residences with new or upgraded construction that comply with the International Energy RESIDENTIAL ELECTRIC 2023 AVERAGE BILL 2024 AVERAGE BILL kWh Charges $183.72 $202.36 Availability Charges $45.12 $46.02 Average Residential - Aspen $228.84 $248.38 200 AMP Service / 1500 kWh $19.54Monthly Adjustment LARGE RESIDENTIAL ELECTRIC 2023 AVERAGE BILL 2024 AVERAGE BILL kWh Charges $3,486.93 $3,841.17 Availability Charges $257.68 $262.80 Large Residential - Aspen $3,744.61 $4,103.97 600 AMP Service / 15,000 kWh $359.36Monthly Adjustment SMALL COMMERCIAL ELECTRIC 2023 AVERAGE BILL 2024 AVERAGE BILL kWh Charges $206.35 $228.94 Availability Charges $59.20 $60.39 Average Small Commercial - State $265.55 $289.33 200 AMP Service / 2,000 kWh $23.78Monthly Adjustment LARGE COMMERCIAL ELECTRIC 2023 AVERAGE BILL 2024 AVERAGE BILL kWh Charges $3,250.18 $3,547.18 Demand kW Charges $2,706.17 $2,951.00 Availability Charges $120.17 $122.59 Average Large Commercial $6,076.52 $6,620.77 400 AMP Service / 45,000 kWh / 130 kW $544.25Monthly Adjustment 130 4 Conservation Code 2021 edition as stated in Municipal Code 8.46, including amendments as stated in Ordinance 1, Series of 2023. The residence must meet the definition of an all-electric building, which is a building that contains no combustion equipment, or plumbing for combustion equipment, installed within the building or building site. Exceptions include backup generators and their associated plumbing, as well as wood-burning stoves and fireplaces that exist in accordance with Aspen Municipal Code Title 13. This rate will only be applied to residential electric accounts that have been reviewed and approved as a qualifying property by the Utilities Director. Table 5 – Typical Residential Service - All Electric (New Rate Category) *Increased kWh by 25% to represent move from combustible heat to electric heat Electric Community Investment Fee The City tracks overall community electric demand using a system that accounts for all amperage connected to Aspen’s electric system. Each City Electric account has an individual amperage rating based on electric appliances, lighting, climate control and other factors indicative of electrical demand. The Electric Community Investment (ECI) fee is charged to any customer requesting services for new development and expansion of existing services within the service area and is measured at each individual electric meter. The ECI provides capital to the Electric Department to fund the incremental portion of infrastructure needed to deliver electric services to new or expanded services. The proposed structure ensures ECI fees are applied proportionally; a higher fee required by customers requiring a greater share of infrastructure and resources. The table below outlines the recommended 2024 rates and associated increase. Table 6 – Electric Community Investment Charge – 2024 Fee RESIDENTIAL ALL-ELECTRIC - NEW RATE CATEGORY 2024 AVERAGE BILL kWh Charges $350.45 Availability Charges $46.02 Average Residential - Aspen - All Electric Customer $396.47 200 AMP Service / 1,875 kWh $396.47Monthly Estimate 131 5 WATER FUND Applying proposed financial recommendations to our rates results in changes to the average utility customer monthly bills. Tables below reflect theoretical average monthly cost impacts to the various customer classes including average residential (downtown); residential (pumped); and commercial. The intent of these tables (below) is to demonstrate the formularized monthly change various customer classes may experience in this proposal. Water Fund: Financial Overview Size 2024 Rates - Residential 1 Phase 120/240V 2024 Rates - Residential 3 Phase 120/208V 2024 Rates - Commercial 1 Phase 120/240V 2024 Rates - Commercial 3 Phase 120/208V 2024 Rates - Commercial 3 Phase 277/480V % Increase 100 $1,985 $3,968 $5,293 $5,952 $13,735 15% 200 $3,970 $7,936 $10,585 $11,903 $22,891 15% 300 $7,939 $12,897 $15,878 $17,855 $41,204 15% 400 $10,585 $17,196 $21,171 $23,807 $54,939 15% 600 $18,041 $29,307 $36,081 $40,573 $93,631 20% 800 $24,054 $39,076 $48,108 $54,098 $124,841 20% 1000 $30,068 $48,845 $60,136 $67,622 $156,052 20% 1200 $36,081 $58,614 $72,163 $81,147 $187,262 20% 1400 $42,095 $68,383 $84,190 $94,671 $218,472 20% 1600 $48,108 $78,152 $96,217 $108,196 $249,683 20% 1800 $54,122 $87,921 $108,244 $121,720 $280,893 20% 2000 $60,136 $97,690 $120,271 $135,245 $312,104 20% 2200 $66,149 $107,459 $132,298 $148,769 $343,314 20% 2400 $72,163 $117,228 $144,325 $162,294 $374,524 20% 2600 $75,410 $122,504 $150,820 $169,597 $391,378 20% 2800 $78,803 $128,016 $157,607 $177,229 $408,990 20% 3000 Plus $82,350 $133,777 $164,699 $185,204 $427,394 20% Electric Community Investment Fee - Proposed ECI Fees 2024 Description 2024 Projected Operating Budget $5,356,800.00 Capital & Overhead Expense $6,581,240.00 Total Revenue Requirement $11,938,040.00 Projected Revenue $12,164,175.02 Difference $226,135.02 132 6 2024 Proposed Water Rate Adjustments Table A – Typical Water Residential Service Table B – Typical Water Residential (Pumped) Service – Outside City Limits Table C – Typical Water Commercial Service Tier Enhancement and 4th Tier Conservation Multiplier Current rate study is proposing tier enhancement between second, third, and fourth tiers with goal of having at least 75 percent of customer use in the first and second tiers. The Water Utility four-tier structure was originally designed of have the following use in each of the four tiers: 50% in 1st tier, 25% in 2nd tier, 10% in 3rd tier, and 15% in 4th tier. This adjustment is meant to realign consumptive use to more closely match the original intent RESIDENTIAL WATER - DOWNTOWN 2023 AVERAGE BILL 2024 AVERAGE BILL Water Variable (Consumption)$35.00 $37.80 Water Demand $17.70 $19.11 Fire Charge $12.87 $13.91 Average Residential -- Downtown $65.57 $70.82 2.81 ECUs & 0 Pumps / 10,000 gallons $5.25Monthly Adjustment RESIDENTIAL WATER - RED MOUNTAIN 2023 AVERAGE BILL 2024 AVERAGE BILL Water Variable (Consumption)$212.54 $246.28 Water Demand $50.40 $54.40 Fire Charge $36.64 $39.60 Pump Charge $155.50 $168.00 Average Residential -- Red Mtn.$455.08 $508.28 4.0 ECUs & 1 Pumps / 50,000 gallons $53.20Monthly Adjustment COMMERCIAL WATER 2023 AVERAGE BILL 2024 AVERAGE BILL Water Variable (Consumption)$407.42 $440.06 Water Demand $66.15 $71.40 Fire Charge $48.09 $51.98 Average Commercial $521.66 $563.44 10.5 ECUS & 0 Pumps / 100,000 gallons $41.78Monthly Adjustment 133 7 of a four-tier inverted block rate structure. Tiered rate structures encourage conservation with 4th tier revenue designed to fund water conservation and efficiency programs. * Consumption Data from 2022 Water Year with 0.05% assumed growth per year Water Utility Investment Charge (Tap Fees) The City tracks overall community water demand using a system that accounts for all fixtures connected to Aspen’s water system. Each City water account has an individual equivalent capacity unit (ECU) rating based on water fixtures, irrigated area, and other factors indicative of water demand. The water tap fee is charged to any customer requesting services for new development or expansion of existing services within the service area. Payment for ECUs or tap fees represents a customer’s incremental ownership of Aspen’s water system and its associated capacity. Raftelis Financial Consultants were re-engaged in 2022 to provide a fee adjustment recommendation based on current Aspen Water Utility fixed asset replacement costs. The table below outlines the recommended 2024 rates and associated fee adjustment. Table E – Water Utility Investment Charge – 2024 Tap Fees (Per ECU) Tier Gallons 2024 Projected Consumption Between Tiers Goal for Use Between Tiers as Originally Established in 2006 Description Tier 1 430,231,000 54%50%50% of annual usage for essential interior use Tier 2 181,177,000 23%25%25% of annual usage including normal irrigation Subtotal for Essential & Normal Use 77%75% Tier 3 54,278,000 7%10%10% of annual usage including above normal irrigation Tier 4 133,477,000 17%15%15% of annual usage including excessive irrigation Subtotal for Above Normal & Excessive Use 23%25% Total 799,163,000 Billing Areas 2023 Per ECU Rate Proposed 2024 Per ECU Rate 2024 Proposed % Increase 1 $10,855 $11,730 8.06% 2 $21,710 $23,460 8.06% 3 $21,710 $23,460 8.06% 4 $13,569 $14,663 8.06% 5 $18,996 $20,528 8.06% 6 $21,710 $23,460 8.06% 7 $16,282 $17,595 8.06% Water Utility Investment Charge - Proposed "Tap Fees" 2024 134 8 FINANCIAL IMPACTS: Both the Water and Electric utility are enterprise funds supported solely by our customer base. The proposed rates in this current rate study for 2024 support the Utilities revenue stream and support the costs of utility operation, long range planning, resource development,infrastructure replacement,and sustainability programing. ENVIRONMENTAL IMPACTS: The electric and water rate structures continue to place a value on, support, and provide incentive for, conservation and efficiency practices, programs, and policies. New all-electric rate will support Council’s objective for beneficial electrification and renewable energy. ALTERNATIVES:City Council could choose to direct staff and consultants to pursue Electric and Water rate alternatives. RECOMMENDATIONS: Staff requests feedback on Electric and Water rate study. CITY MANAGER COMMENTS: ATTACHMENTS: Exhibit A: Raftelis Financial Consultants, Inc Executive Summary 135 Electric and Water Cost-of-Service Study Draft Executive Summary /August 7, 2023 CITY OFASPEN 136 137 CITY OF ASPEN DRAFT ELECTRIC AND WATER COST-OF-SERVICE STUDY 1 Executive Summary Introduction City of Aspen Utilities Department (Utilities) provides electric and water service to approximately 7,100 meters for the health, enjoyment, and benefit of community residents, businesses, and visitors to Aspen, Colorado. The organization bills its customers utilizing 346 existing charge codes, with approximately 6,100 bills going out every month. All electric customers reside within the city boundaries, while a portion of the water customers reside outside the city within greater Pitkin County. In addition to providing potable water, the city provides raw water to certain customers. Study Background The City authorized Raftelis to complete a comprehensive financial plan, cost-of-service analysis, and rate design study for its electric and water utilities. Our review consisted of the following components for each utility: Determining the level of rate revenue from existing rates and fees for meeting annual revenue requirements Completing a comprehensive cost-of-service analysis to determine the cost to provide electric and water service to customer classes. o The electric utility’s cost-of-service analysis is based on the cost to provide service to the residential, small commercial, and large commercial classes. o The water utility’s cost-of-service components include demand, fire, pumping, variable, and raw water. Designing cost-of-service rates using 2024 revenue requirements. Definitions The following terms are used in this executive summary: Financial plan: The forecast of revenues and expenditures over the study period 2024 through 2028; also referred to as the Long-Range-Plan (LRP). Cost-of-service:the process of equitably allocating annual revenue requirements (operating expenses, capital costs, and reserve requirements) to cost components and customer classes based on their demand characteristic and customer parameters. Test year:The year in which cost-of-service rates will be implemented. Revenue under existing rates:Revenue generated from existing 2023 rates applied to 2024 through 2028 account and usage projections. Revenue requirement:Costs that include operating and maintenance expenses, debt payments, cash financed capital, reserve requirements and other costs. Electric and Water Industry Trends and Impacts on Rates Electric Industry:The electric industry is still facing the impact of recent inflationary pressures; fuel costs increases and supply chain issues due to the impact of COVID-19 and the global economic and political climate in the last few years. The industry is facing challenges with modernizing grid infrastructure, transitioning to renewal energy sources, and addressing energy storage among other things. Many sources indicate that electric rates will continue to increase, however, the level of increases will depend on location, the mix of supply sources, and other externalities. 138 CITY OF ASPEN DRAFT ELECTRIC AND W ATER COST-OF -SERVICE STUDY 2 Water Industry:The State of the Water Industry report published by the American Water Works Association provides a detailed look into those challenges based on a survey of over 4,000 water utility professionals. Aging infrastructure, maintaining a resilient water supply, and funding capital improvements rank highest on the list of 20 criteria. Costs to maintain and upgrade infrastructure and manage water supplies continue to increase for a myriad of economic reasons. These increased costs are putting upward pressure on rates. Regular rate studies and rate increases are an important part of these utilities’ financial health. Over 72% of the respondents claimed they had completed a cost-of-service study in the last five years and 78% anticipate additional rate increases in the coming year.These rate adjustments will be a primary source of funding future capital improvements; 78% of respondents will use revenue from rates to fund capital projects. Figure 1: 2023 AWWA State of the Water Utility Industry Percent of Respondents Using Various Forms of Capital Financing In a water scarce environment, conservation-focused rate structures are the norm across Colorado. Like so many others, the City has an increasing block structure to encourage the wise use of water. Rates increase as customers use more water and progress through the 4-tier structure. Indoor water use or essential use is priced at the lowest rate. Rates for tiers 2 through 4 increase for higher usage and are intended to increase customer awareness as consumption falls outside of norms. Impacts on Rates: It is important to note that there are several unique factors that impact the City’s Electric and Water Utilities. These include location, size, differing demand profiles of a destination community, sources of supply, as well as the various leading-edge initiatives such as conservation,beneficial electrification,and solar. According to the U.S. Bureau of Labor Statistics, the average cost of Fuels and Utilities increased by 9.5% in 2021 and 13.5% in 2022 while Aspen Utilities implemented electric rate increases between 1% and 3%and water rate increases between 5% and 7%, for 2021 and 2022.As a result of the lagging effects of inflationary pressures that the economy has experienced in the last few years, Aspen’s operating and maintenance costs including wholesale electric costs,transmission,and other operating and maintenance costs have gone up by an average of about 11% on electric and 15%on water from 2021 through 20231. Raftelis is recommending an 8.25%electric revenue increase and 8%water revenue increase in 2024.These revenue increases are necessary to cover operating and maintenance expenses, debt payments, cash financed capital, reserves and other costs starting in 2024. 1 These increases include budgeted operating and maintenance costs for 2023. 139 CITY OF ASPEN DRAFT ELECTRIC AND WATER COST-OF-SERVICE STUDY 3 Electric Utility Findings CURRENT REVENUES The 2022 actual revenue for the electric utility was $11,823,877, with $11,287,904 coming from monthly utility bills: energy/usage charge (kWh); availability charge; and a demand charge (kW) for large commercial. The target reserve for the electric utility is 25% of total uses. CURRENT RATE STRUCTURE A single electric billing area covers the original Aspen townsite plus additional city facilities and affordable housing projects such as Burlingame, the ARC, and the Aspen Golf Department. Electric rates consist of a fixed customer charge plus a variable consumption charge. The variable consumption charge is dependent on a monthly meter reading and is tiered by level of use. Current electric utility rates cross five customer segments, with one additional segment being recommended in this rate study: 1.Residential 2.Small commercial 3.Large commercial 4.Qualified seniors 5.All electric residential affordable housing prior to 2023 6.All electric residential effective 2023 COST-OF-SERVICE PROCESS The electric cost-of-service process consists of the following steps: Development of rate revenue for the 2024 test year using detailed billing records. Development of the test year revenue requirements to determine the revenue required from rates. Functionalize and classify revenue requirements to: o System functions (e.g., production/ generation, supply, distribution, customer, street and area lighting, etc.) o Classification components (e.g., energy, demand, customer etc.) Distribute costs to customer classes based on their proportionate share of energy usage, demands, and customers. TEST YEAR REVENUE REQUIREMENT The test year revenue requirement is based on the City’s LRP and projected 2024 rate revenues based on an analysis of detailed billing records. Table 1 on the following page summarizes the revenue requirement. 140 CITY OF ASPEN DRAFT ELECTRIC AND WATER COST-OF-SERVICE STUDY 4 Table 1: Electric Utility Test Year Revenue Requirement ($) Description 2024 Operating Expenses $8,440,000 Capital Costs 3,155,000 Transfers Out 1,341,000 Debt Service 352,000 Gross Revenue Requirement $ 13,288,000 Less: Adjustments Change in Fund Balance $12,000 Non-rate Revenues (277,000) Total Adjustments ($265,000) Net Revenue Required from Rates [1]$13,023,000 [1] Includes the proposed 8.25% rate increase ALLOCATION OF REVENUE REQUIREMENT TO COST COMPONENTS Working with City staff, Raftelis categorized the detailed line-item revenue requirements to functionalization and classification categories. The functionalization and classification step allocates the revenue requirements to the various functions the utility performs. This step involves assigning the components of the revenue requirement to those facilities that are associated with providing service related to production/generation, supply, distribution, customer, street and area lights, community benefit, etc. Collectively, each of these facilities are designed and operated to meet customers’ daily energy needs, peak demands, and customer-related functions. The Production/Generation and Supply functions include costs associated with power generation and purchased power. These facilities are designed to meet daily energy demands measured in kilowatt-hours (kWh) and peak demands measured in kilowatts (kW). These costs are typically classified as energy or demand-related costs. The Distribution function includes costs associated with distributing energy to customers under average day load and peak demand conditions. Distribution also contains the customer-related costs. The Customer function contains costs associated with individual customers and includes meters, meter reading and billing, etc. Other functions are used to assign certain costs directly to a specific class or costs that are not covered by the above-mentioned functions, such as assigning street and area lighting, community benefit, etc. COMPARISON OF COST-OF-SERVICE TO REVENUE AT CURRENT RATES The cost of each function and classification from the above step is driven by different types of customer demand on the system. The proportion of the revenue requirement that can be attributed to each type of customer demand is based on customer class allocation factors such as energy, demand, and customer-related factors. The energy allocators are typically based on energy sales. Raftelis developed the demand allocations based on load factors provided by City staff. Load factors measure the utilization rate, or efficiency of energy usage by comparing a customer class’s average demand to peak demand over a specified period of time. The number of accounts and bills and customer meter and amperage size are used in developing the customer-related allocation factors. These allocation factors were then applied to each cost-of-service function/classification and multiplied by the test year net revenue requirement. 141 CITY OF ASPEN DRAFT ELECTRIC AND WATER COST-OF-SERVICE STUDY 5 Raftelis determined the units of service that relate to each cost component by analyzing the customer energy usage and demand data and calculated a unit cost of service by cost component. We distributed these costs to customer classes by multiplying the applicable unit cost for each component of demand by each customer class’s units of service. The outcome is an understanding of each customer class’s responsibility for the overall revenue requirement based on their energy, demand, and customer-related characteristics. Based on our analysis and detailed discussions with staff, the availability charge, energy charge (kWh), and demand charge (kW) for large commercial customers for 2024 satisfactorily recover their proportionate cost to provide service. Table 2: Electric Utility Comparison of Revenue Under Proposed Rates to Revenue Under Existing Rates ($) Rate Component 2024 Revenue Under Existing Rate 2024 Revenue at Proposed Rates % Change Availability $2,830,000 $2,886,000 2.0% Energy (kWh)8,324,000 9,180,000 10.3% Demand (kW)878,000 957,000 9.0% Total $12,032,000 $13,023,000 8.25% The executive summary outlines a comprehensive financial plan, cost-of-service analysis, and rate design study conducted by the City of Aspen Utilities Department (Utilities) for its water and electric utilities. The study highlights several industry trends impacting rates such as aging infrastructure, maintaining a resilient water supply, and funding capital improvements for the water industry and recent inflationary pressures, fuel costs increases and supply chain issues for the electric industry. Raftelis recommends an 8% water revenue increase and 8.25% electric revenue increase in 2024 to cover operating expenses, debt payments, capital projects, and reserves. The cost-of- service analysis for both utilities ensures that cost components recover their proportionate share of costs and the proposed rates will maintain equitable distribution among customer classes and allow for funding future capital improvements. Water Utility CURRENT REVENUES The 2022 actual revenues for the Water Utility was $12,916,651, with $9,988,840 coming from monthly utility bills—demand charge; fire charge; variable usage charge, pumping charge; and, raw water charge. The target reserve for the water utility is 25% of one year’s total expenditures. CURRENT RATE STRUCTURE The two major components of the water rates are a fixed charge and a variable use charge. Fixed charges are based on an Equivalent Capacity Unit (ECU) rating that is unique to each water customer and are calculated using a water fixture inventory and other factors applicable to the account. The fixture rating is updated when customers apply for utility connection permits at the time of building or remodeling. ECU value calculations are maintained as a permanent record for each customer. The fire charge and demand charge are assessed on a per ECU basis. These values do not vary with the amount of water usage. The variable and pumping charges vary with the amount of water usage. A separate weighting factor is calculated for each of the seven billing areas. The weighting factor is dependent on the fixed assets within each billing area. For instance, the weighting factor is 1.00 for the original Aspen townsite, 142 CITY OF ASPEN DRAFT ELECTRIC AND WATER COST-OF-SERVICE STUDY 6 where water service is gravity fed, and is as high as 2.00 for outlying mountainous areas with pump stations and storage tanks utilized to deliver water service. Variable water rates consist of a charge for metered usage plus a charge for pumped service, if applicable. COST-OF-SERVICE PROCESS The cost-of-service process consists of the following steps: Determine the test year revenue requirements. Allocation of detailed revenue requirement line items (operation and maintenance expense, capital improvement projects, non-rate revenues and changes in reserves) to functional rate components — demand, variable, fire, pumping. Calculate the unit cost of service by rate component. Each rate component has an associated unit of service. For example, the demand and fire charge components are related to the total number of ECUs. Similarly, the variable and pumping charge components are related to the amount of water usage. The rate component costs and their units of service are used to develop the unit cost of service between each rate component. The ECU unit cost and the variable rate component unit cost is shown below. The pumping and fire unit costs are calculated in a similar manner.? ?? ??? ? ??? ??? ?????? ????÷ ?????? ?? ?= $??? ? ??? ??????? ? ??? ??? ?????? ????÷ ?????? ????(1,000 ???????) = $???1,000 ??????? TEST YEAR REVENUE REQUIREMENT The test year revenue requirement is shown in Table 3. The revenue requirement is based on the City’s LRP and projected 2024 rate revenues based on an analysis of detailed billing records. Table 3: Water Utility Test Year Revenue Requirement ($) Description 2024 Operating Expenses $5,360,000 Capital Costs 4,003,000 Transfers Out 2,550,000 Gross Revenue Requirement $11,940,000 Less: Adjustments Change in Fund Balance 230,000 Non-Rate Revenues [1](3,630,000) Total Adjustments ($3,410,000) Net Revenue Required from Rates [2]$8,530,000 [1] Includes raw water revenue [2] Includes the proposed 8.0% rate increase COMPARISON OF REVENUE AT PROPOSED RATES TO REVENUE AT CURRENT RATES Raftelis completed a cost-of-service analysis to ensure that the cost components recover their proportionate share of costs. We used the cost allocation process based on the industry standard methodologies published in the AWWA’s Manual M1, Principles of Water Rates, Fees, and Charges to ensure an equitable distribution of costs to each rate component. 143 CITY OF ASPEN DRAFT ELECTRIC AND WATER COST-OF-SERVICE STUDY 7 The cost-of-service analysis is a multi-step process. For the City of Aspen, this includes developing the revenue requirement and identifying and assigning the costs based on the activities or how system operations incur costs. The City’s water system has four primary cost drivers, (rate components)—demand; fire; pumping; and, variable. Most costs are allocated to all four activities encompassing how the expenses relate to the four primary cost drivers. For example, storage tank and pump system maintenance costs are mainly allocated to pumping, but this operational activity also helps serve the system's fire, variable, and demand components. As a result, a smaller portion of costs are allocated to the remaining three rate components. Based on our analysis and detailed discussions with staff, the demand, fire, pump, and variable for 2024 satisfactorily recover their proportionate cost to provide water service. Table 4: Water Utility Comparison of Revenue Under Proposed Rates to Revenue Under Existing Rates ($) Rate Components 2024 Revenue at Existing Rates 2024 Revenue at Proposed Rates % Change Demand $1,860,000 $2,010,000 8.0% Fire 1,360,000 1,470,000 8.0% Pump 720,000 780,000 8.0% Variable 3,960,000 4,270,000 8.0% Total $7,900,000 $8,530,000 8.0% Study Findings and Conclusions The City completes an electric and water utility cost of service study approximately every five years. This time period is very typical among utilities of this size and maturity. Over a 9-month period, Raftelis worked closely with Staff and developed comprehensive cost of service models complete with an in-depth analysis of financial data, capital projections, water and electric customer usage characteristics as well as operational data for each system. The results presented in this report are based on a thorough analysis of the data and multiple stress tests to test the validity of the data, assumptions, and results. Based on our industry experience and previous experience with the City, we find the revenue requirement has been equitably distributed between rate components and customer classes. It is recommended that the City review these assumptions annually to ensure equity is maintained in each utility. 144 MEMORANDUM TO:Mayor Torre and Aspen City Council FROM:Tyler Christoff, Public Works Deputy Director Pete Strecker, Finance Director Phillip Supino, Community Development Director MEMO DATE:July 26, 2023 MEETING DATE:August 7th, 2023 RE:Council Goal – Prioritize infrastructure and maintenance for aging facilities REQUEST OF COUNCIL: Staff is requesting City Council review and feedback on the new infrastructure and maintenance for aging facilities workplan. SUMMARY AND BACKGROUND: City Council adopted its 2023 to 2025 Goals in June 2023, including prioritizing infrastructure and maintenance for aging facilities Goal. This work plan details the milestones to be undertaken by staff to support City Council in reaching its articulated goal. Importantly, due to the scope and scale of the activities in this work plan, only some of these items can be completed within a two-year timeframe; many will take much longer. Much of the effort outlined in the attached work plan is both on-going initiatives that demonstrates action around our organizational values and programs that staff believe best meet Council’s goal. Importantly, the actual work discussed in the attached Prioritizing Infrastructure and Maintenance for Aging Facilities workplan has been and continues to be performed by the cross-departmental team of staff identified on the “By” line above. DISCUSSION: Staff would like City Council to consider the following for this work session: Are there any edits City Council would like to make to the draft Customer-Focused Government Work Plan? In particular, staff asks that City Council pay particular attention to the Project Description for each milestone, as that is a staff interpretation of City Council’s intent. 145 Page 2 of 2 Council Goal Work Plan – Customer Focused Government ENVIRONMENTAL IMPACTS: Maintaining and improving the City’s infrastructure creates a more efficient and resilient systems for the community that relies on these important services. These improvements ultimately assist the community in their use and access to this important but finite resource. Infrastructure reinvestment allows the community to minimize losses and continue to provide a high-level of customer service to the community. The city provides core and elective functions intended to assist the community in meeting its goals outlined in the Aspen Sustainability Action Plan. FINANCIAL/BUDGET IMPACTS: Each milestone in the Customer Focused Government work plan includes discussion of resources required, including financial resources. CITY MANAGER COMMENTS: EXHIBITS: Exhibit A - Council Goal Work Plan – Infrastructure and Maintenance for Aging Facilities 146 Exhibit A – Council Goal Workplan – Infrastructure and Maintenance for Aging Facilities Prioritize infrastructure and maintenance for aging facilities: To continue to provide efficient and reliable water, stormwater and electrical services; safe roads and bridges; and ADA accessible pedestrian improvements for the community, the city commits to prioritizing and advancing infrastructure projects.  This will be accomplished through: Goal Owner: Tyler and Pete S.  a.Prioritizing funding for projects in the 5-year capital improvement plan;   Milestone: Capital Improvement Plan Prioritization Project Description: On an annual basis Finance and the City manager’s office provides each department/fund specific guidance, templates, and review process to develop and present a 5 year+ capital plan. Previous planning efforts serve as a foundation for the development of the subsequent year’s long range capital plan. As community needs change, plans are updated to reflect the new paradigm. These plans are developed, reviewed, and assessed against budgetary limitations, capital needs, and organizational values. Final recommendations are compiled and presented to City Council in a work session setting. Timeline: Capital project development typically begins at a department level early in the 2nd quarter of each year. These plans are review and complied by the Finance department before City manager/Agency director review late in the 2nd quarter. Final department/fund review occur in August before Council review during work sessions in October. Resource Needs:The process utilizes internal resources. Council Engagement: Council will be provided opportunities in the month of October to review each of these plans by department in a work session setting. Financial and individual project detail will be aggregated and presented by fund.Council’s review and input will serve as the foundation for the final 2024 (and beyond) budget ordinance b.Exploring any necessary debt issuance for goal completion Milestone:Exploration of debt issuance 147 Project Description: Competing community priorities and aging infrastructure have the potential to overwhelm existing revenue streams either on an annual basis or for a finite period. The City of Aspen currently carries an excellent bond rating and has the capacity to contemplate debt as a tool to address these short-term needs. Staff will review the aggregated and fund level capital requests and weigh these against current revenues and funding mechanisms. Timeline: Staff will review funding needs to support current and proposed capital expenditures during the 2024 budget development and review process. These findings will be presented to City Council during October 2023 budget work sessions. Depending on the funding mechanism(s) chosen, staff will return to City Council or City of Aspen voters as needed for debt issuance. Resource Needs: This project as the potential to utilize outside bond council or other financial advisory services to assess mechanisms for potential debt service Council Engagement: City Council will be a critical decision maker on ‘if’ or ‘when’ these types of financial resources are appropriate to reach community goals. Staff will provide context for decision making during October’s budget work sessions. Additional resources and review will occur based on Council direction. c.Implementing recommendations from rate studies Milestone: Rate Studies Implementation Project Description: On a periodic basis staff review market data, revenue needs, infrastructure condition and other factors to ensure alignment between revenues and expenditures for specific funds. Utilizing outside experts ensures an un-bias, defensible, rate structure that maintains the health of specific funds while providing pricing sensitivity for rate payers. Staff believe this frequent, professional, and comprehensive review provides community value while avoiding extreme rate changes that can be impactful to customers. Timeline:Staff will review funding needs to support current and proposed capital expenditures during the 2024 budget development and review process. These findings will be presented to City Council during October 2023 budget work sessions. Final adoption of recommended rates would occur in November in parallel with 2024 budget ordinance. Resource Needs: Staff have engaged with rate consultants specializing in utility rate development. Recommendations from this consultant will be reviewed by City staff an integrated into each funds long range plan. 148 Council Engagement:Council will be provided opportunities in the month of October to review rates by fund in a work session setting. Council’s review and input will serve as the foundation for the final 2024 (and beyond) budget ordinance d.Establishing the allocation for the short-term rental tax revenues. Milestone:Allocation for Short-term rental tax revenues Project Description: Following the successful ballot question approval of a new STR tax in November 2022, voters gave Council oversight authority around the allocation of up to 30% of all collections to be applied to either infrastructure maintenance and repair items or new environmental initiatives. Staff therefore required direction from Council on the priority projects within these two buckets, to determine how to receipt tax revenue into the City budget. Timeline: Collections of the new tax commenced May 2023. While not imperitive to have the allocation determined by the end of this first month, having understanding of the distribution of tax early is helpful to post these dollars into the City’s financials appropriately. Ultimately, having direction prior to setting the 2024 budget proposal is critical in order to develop a spending plan that reflects Council and Community goals. Resource Needs: No additional resources are needed to accomplish this milestone. Council Engagement: Staff requires Council to set priorities between previously identified capital and climate projects (such as Armory remodel, Aspen Sustainability Action Plan, New Castle Creek Bridge Project) to help inform tax allocation recommendations.     149