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HomeMy WebLinkAbout2/10/2004 - Special February 10, 2004 109 Roanoke County Administration Center 5204 Bernard Drive Roanoke, Virginia 24018 February 10, 2004 The Board of Supervisors of Roanoke County, Virginia met this day at the th Roanoke County Administration Center, 4 Floor Conference Room, 5204 Bernard Drive, Roanoke, Virginia, this being an adjourned meeting from January 27, 2004, for the purpose of a joint meeting with the City of Roanoke and the Western Virginia Water Authority (WVWA). IN RE: OPENING CEREMONIES The invocation was given by John M. Chambliss, Jr., Assistant County Administrator for Roanoke County. IN RE: CALL TO ORDER Chairman Flora called the meeting to order for the County of Roanoke at 12:42 p.m. The roll call was taken. MEMBERS PRESENT: Chairman Richard C. Flora, Vice-Chairman Michael W. Altizer, Supervisors Joseph McNamara, Michael A. Wray MEMBERS ABSENT: Supervisor Joseph B. “Butch” Church STAFF PRESENT: Elmer C. Hodge, County Administrator; Paul M. Mahoney, County Attorney; John M. Chambliss, Assistant County Administrator; Dan O’Donnell, Assistant County Administrator; Diane D. Hyatt, Chief Financial Officer; Gary Robertson, Director of Utilities; Teresa Hamilton Hall, Public Information Officer; Diane S. Childers, Clerk to the Board, Donnie Myers, Authority Coordinator February 10, 2004 110 Mayor Ralph Smith called the meeting to order for the City of Roanoke at 12:42 p.m. The roll call was taken. MEMBERS PRESENT: Mayor Ralph K. Smith, Vice-Mayor C. Nelson Harris, Council Members William D. Bestpitch, Rupert Cutler, Beverly T. Fitzpatrick, Jr., Alfred T. Dowe, Jr., Linda F. Wyatt MEMBERS ABSENT: None STAFF PRESENT: Darlene L. Burcham, City Manager; William M. Hackworth, City Attorney; Rolanda A. Russell, Assistant City Manager for Community Development; George C. “Chip” Snead, Assistant City Manager for Operations; Mike McEvoy, Director of Utilities; Jesse Hall, Director of Finance; Carol Davit, Environmental Communications Coordinator; Mary F. Parker, City Clerk Co-Chairs Michael W. Altizer, County of Roanoke, and M. Rupert Cutler, City of Roanoke, representing the Western Virginia Water Authority, recognized the following members who were present at the meeting: MEMBERS PRESENT: Co-Chairs Michael W. Altizer and M. Rupert Cutler, Committee Members Darlene L. Burcham, Elmer C. Hodge, Robert C. Lawson, Jr., H. Odell “Fuzzy” Minnix MEMBERS ABSENT: George W. Logan STAFF PRESENT: Jean M. Thurman, Acting Clerk IN RE: PRESENTATION OF RATE STUDY WITH DISCUSSION AND FORWARDING OF RECOMMENDED RATES TO THE WVWA This item was presented by Brent Reuss and Mike Mussman from Black & Veatch; Bill Aden, Randall Hancock, Lori Ott, and Scott Kroll from Draper Aden; Gary February 10, 2004 111 Robertson, Utility Director – County of Roanoke; and Mike McEvoy, Utility Director – City of Roanoke. Mr. Mussman advised that the rate study report is in an evolutionary phase and the findings are in draft format since the quality control review has not yet been conducted. He stated that the initial objectives of the study included the following: (1) equity contributions per customer determination; (2) costs for a financially viable utility authority; (3) fair and equitable general service rates for parties; (4) evaluation of rate phase-in; and (5) Virginia State Corporation Commission (SCC) support, if needed. Mr. Mussman stated that the approach used in determining equity was based on an appraisal of City and County utility fixed assets. Bill Aden advised that an inventory of the water and sewer systems in the City and County was conducted. Randall Hancock, Project Manager, stated that the appraisal involved devising quantities, age, and cost estimates of the water and sewer systems owned by the City and County. He stated that meetings were held with personnel from both localities to assess this information and spreadsheets were developed for review by City and County staffs. Some of the information was available in electronic format and this was quantified using the Geographic Information System (GIS). It was noted, however, that the City’s GIS system was not as well developed and sewer lines within Roanoke City had to be measured and quantified manually. In determining the age of the system, staff examined all the water and sewer facilities. Water facilities that were examined included lines, pump stations, fire hydrants, water meters, and water sources. Values February 10, 2004 112 were then assigned to the assets based on financial information provided by the localities and when no value existed, replacement costs were developed. This information was then provided to Black & Veatch for use in establishing values. Mr. Hancock advised that staff visited the water treatment facilities in both the City and County, but they did not conduct a site visit of every facility. Mr. Mussman stated that a critical component of determining equity is the current value of the assets. Some of the information obtained from Draper Aden was the original, historical cost and there were some situations where historical data did not exist and current data was used. He advised that a reproduction cost less the depreciation value as of June 30, 2003 was developed. The reproduction value indicates that what is in the system will be duplicated taking into account the historical technology that existed at the time it was put in place. If replacement cost values were used, current technology would have to be taken into account. A trend analysis of the historical information through 2003 was performed and used to determine total accumulated depreciation. These findings serve two purposes: (1) they are used in the equity calculations; (2) they are used in the utility fixed asset records to provide a basis for assigning costs to utility functions and customers served; and (3) they meet the Governmental Accounting Standards Board (GASB) 34 reporting requirements. Mr. Mussman reported that equity is defined as current property value less associated outstanding debt principal plus cash contributions to the Authority. Equity per customer is the equity value divided by the number of customers. There is some February 10, 2004 113 debate as to whether the number of customers should include only the current number of customers or recognize the capacity built into the system to serve customers. Mr. Mussman advised that both numbers were used in this analysis. The calculations of customer equity were based on asset value less debt and the current number of customers served. At the time the analysis was conducted, the City had not made a decision regarding the amount of available funds within the utility fund that would be transferred to the Authority so this was not included in the initial report. During the rate study, it was determined that phasing in the rates is feasible and cost of service allocations were used as a guide. The sum of the years digit method of analysis was used and it was determined that unit revenues would be equal for both the City and County after six years. Black & Veatch recommended that a service charge be implemented to recover customer costs such as billing, collections, meter reading, maintenance, etc., and a volume charge would be used to capture the remaining dollars. Mr. Mussman stated that any rate form can be utilized during the transition period as long as the unit revenue guides are used. Mr. Mussman advised that following the initial analysis, the City and County provided Black & Veatch with updated fiscal year 2004 budget data and it was agreed that the City would contribute the available funds in the utility fund. Information was already available for the County’s portion of available contributed funds. The County also agreed to use the City’s rate form which is a base charge graduated by meter capacity ratios to recover some of the costs plus a volume charge. The City and February 10, 2004 114 County also requested a feasibility study of three rate merger scenarios: 3 years, 6 years, and 10 years. The County promoted the use of linear changes which would involve annual changes of the same dollar amount. The City preferred specified annual changes to certain types of rates. Equity per customer was calculated for fiscal year 2005 for both water and wastewater combined. Mr. Mussman reviewed the results which are outlined in the chart below: Exceptions City County Current Ownership (a) $12,200 $ 8,900 w/o City Land (b) $11,600 $ 8,900 w/o Land, w/Capacity (c) $10,400 $11,200 w/o Land, Capacity, Growth (d) $10,400 $10,900 w/Land, Capacity, Growth $11,000 $10,900 (a) Value of fixed assets, minus debt, plus cash prior to Authority transfer. (b) City plans to retain 82.2% of its Water Utility land. (c) Capacity means County’s reservation of WWTP Capacity. (d) Customer growth reflects County’s increase in accounts over 10-years. In response to an inquiry from Supervisor Minnix, Mr. Mussman advised that equity per customer – current ownership (a) does not include the recent upgrades to the wastewater treatment plant. In response to an inquiry from Council Member Bestpitch, Mr. McEvoy advised that the equity per customer decreases from $11,600 to $10,400 when capacity is factored into the equation, as shown in item (c) above, because in items (a) and (b), the total value of the wastewater treatment plant is credited to the City. In item (c), the County is given credit for its share of the February 10, 2004 115 wastewater treatment plant and this value, as well as the interest of all the other participating localities, is subtracted from the City’s value. Mr. Mussman provided the following data which illustrated the 3-year rate phase-in: Monthly Charges Fiscal Year 2005 Fiscal Year 2006Fiscal Year 2007 Water: County Base (a) $9.08 $6.17 $3.25 County Volume (b) $2.35 $2.65 $2.95 City Base (a) $3.25 $3.25 $3.25 City Volume (b) $2.43 $2.69 $2.95 Sewer: County Base (a) $7.08 $5.17 $3.25 County Volume (b) $2.00 $2.47 $2.95 City Base (a) $1.08 $2.17 $3.25 City Volume (b) $2.71 $2.83 $2.95 (a) Per 5/8” meter equivalency each bill (b) Per 1,000 gallons Mr. Mussman advised that the benefits of this plan are that rates will be equalized earlier and the operations of the Authority will be more fully integrated. The February 10, 2004 116 disadvantage is the impact to large water users due to the limited time frame in which to plan for these changes. Mr. Mussman reviewed the chart below which illustrates the projected impact on customer’s monthly bills in fiscal year 2005 under the 3 year phase-in plan: Meter Size/Usage Fiscal Year 2004 Fiscal Year 2005 Change Water: County 5/8” – 5,000 gallons $22.12 $20.83 ($1.29) City 5/8” – 5,000 gallons $14.15 $15.40 $1.25 Sewer: County 5/8” – 5,000 gallons $16.48 $17.08 $0.60 City 5/8” – 5,000 gallons $12.97 $14.63 $1.66 (a) Monthly water bills do not include City and County utility tax With respect to the above data, Mr. Robertson clarified that these same changes will occur in fiscal years 2006 and 2007 as well, until rates are eventually equalized in 2007. Mr. Mussman reviewed the six year phase-in plan outlined below: February 10, 2004 117 Monthly Charges Fiscal Year 2005 Fiscal Year 2007Fiscal Year 2010 Water: County Base (a) $10.54 $7.63 $3.25 County Volume (b) $2.20 $2.50 $2.95 City Base (a) $3.25 $3.25 $3.25 City Volume (b) $2.30 $2.56 $2.95 Sewer: County Base (a) $8.04 $6.13 $3.25 County Volume (b) $1.76 $2.24 $2.95 City Base (a) $0.54 $1.63 $3.25 City Volume (b) $2.65 $2.77 $2.95 (a) Per 5/8” meter equivalency each bill (b) Per 1,000 gallons Mr. Mussman advised that this plan smoothes out the rate changes over a longer period of time. The impact on customers’ monthly bills for fiscal year 2005 under the six year phase-in reflects a slight decrease for the County and a slight increase for the City, as outlined below: February 10, 2004 118 Meter Size/Usage Fiscal Year 2004 Fiscal Year 2005 Change Water: County 5/8” – 5,000 gallons $22.12 $21.54 ($0.58) City 5/8” – 5,000 gallons $14.15 $14.75 $0.60 Sewer: County 5/8” – 5,000 gallons $16.48 $16.84 $0.36 City 5/8” – 5,000 gallons $12.97 $13.74 $0.77 (a) Monthly water bills do not include City and County utility tax Mr. Mussman advised that the advantage of a six year phase-in is that it allows large water users to implement conservation efforts to minimize the impact of the rate changes. It also allows the localities time to identify funding for utility capital projects. The disadvantage is that it extends the time frame until a fully integrated Authority is achieved. Mr. Mussman reviewed the ten year phase-in plan outlined below: February 10, 2004 119 Monthly Charges Fiscal Year 2005 Fiscal Year 2010Fiscal Year 2014 Water: County Base (a) $11.13 $6.75 $3.25 County Volume (b) $2.14 $2.59 $2.95 City Base (a) $3.25 $3.25 $3.25 City Volume (b) $2.25 $2.64 $2.95 Sewer: County Base (a) $8.43 $5.55 $3.25 County Volume (b) $1.66 $2.38 $2.95 City Base (a) $0.33 $1.95 $3.25 City Volume (b) $2.63 $2.81 $2.95 (a) Per 5/8” meter equivalency each bill (b) Per 1,000 gallons Mr. Mussman advised that this plan takes longer to achieve rate equalization. The advantage is that annual rate changes are miniscule (approximately 1% to 2% per year), but this significantly delays the full integration of the Authority. Ms. Burcham clarified that when Mr. Mussman refers to a “fully integrated Authority”, he is referring to rate equity because all other aspects of the Authority will already be fully integrated. Mr. Mussman stated that the impact on customers monthly bills in 2005 under the 10 year phase-in plan is as follows: February 10, 2004 120 Meter Size/Usage Fiscal Year 2004 Fiscal Year 2005 Change Water: County 5/8” – 5,000 gallons $22.12 $21.83 ($0.29) City 5/8” – 5,000 gallons $14.15 $14.50 $0.35 Sewer: County 5/8” – 5,000 gallons $16.48 $16.73 $0.25 City 5/8” – 5,000 gallons $12.97 $13.48 $0.51 (a) Monthly water bills do not include City and County utility tax Mr. Mussman advised that the conclusions reached from the study show that all the rates for the proposed merger scenarios will do the following: (1) maintain the financial health of the Authority; (2) generate more revenue than the target revenue; (3) provide a cushion for major capital financing; and (4) result in fair and equitable rates. He stated that the longer phase-in periods will minimize the impact on customers’ bills and will allow time to react to the changes, but it will also delay the length of time until rate equity exists. In conclusion, Mr. Mussman stated that it is Black & Veatch’s recommendation that the six year phase-in period be implemented. The three year time frame does not allow sufficient time for customers to react to the changes. In response to an inquiry from Supervisor Minnix, Mr. Mahoney advised that when the County undertook a debt refinancing in fall 2003, some of the covenants and restrictions that previously existed were removed. Ms Hyatt reported that all of the February 10, 2004 121 City debt and 95% of the County debt is with the Virginia Resources Authority (VRA). She stated that one additional step must be completed and that is for VRA to perform a credit study on Roanoke County based on the final rate structure which is established in order to ensure that sufficient revenue exists to cover the debt and that the debt can be transferred to the Authority. Council Member Cutler requested that the utility staff clarify what is meant by the statements that the six year plan allows a “breathing spell” for the capital program. Mr. McEvoy stated that two issues exist with the capital program: (1) the current capital plan needs to be revised to reflect that the City and County utilities will be merged (i.e., plans for separate facilities may need to be re-examined); (2) the Department of Environmental Quality (DEQ) may issue additional requirements for cities and counties regarding upgrades to sewer lines and this capital cost is unknown. Mr. Robertson stated that DEQ has informed all the localities that participate in the wastewater treatment plant (Botetourt and Roanoke Counties, Salem and Roanoke Cities, and the Town of Vinton) that a consent order may be issued. The localities have been asked to submit plans for the wastewater system to DEQ and a decision will be made based on the information submitted. In addition, Mr. Robertson advised that in 2002, approximately 4 million gallons per day (MGD) of water was transferred between the City and County systems. In the long term, staff has determined that a capacity of 7 MGD needs to be reached. This will require additional interconnections between the systems and the capital for these should be included in the Authority’s capital budget. February 10, 2004 122 Mr. Robertson stated that $2 million per year has been allocated in the Authority’s budget but has not been designated for a specific purpose. Mr. Mussman advised that major capital projects were not factored into the analysis. Supervisor McNamara noted that in the presentation, it was mentioned that the base rate was to cover fixed costs such as billing. He stated that it was his understanding that the base rate covered the fixed capital costs of the water and sewer system, and the variable rate was a volume charge based on processing costs. He questioned if this method is the industry standard. Mr. McEvoy responded that both localities currently use some of this formula, and recently the biggest difference between the County’s base rate and the City’s is the level of debt carried by the County. Mr. McEvoy noted that the City does not have a base charge on their wastewater and that it has been built into the volume charge. Council Member Cutler questioned whether future jurisdictions that join the Authority will be given a phase-in period for rate changes. Mr. Robertson stated that this would be an issue to be decided by the WVWA Board. Ms. Burcham advised that this decision would involve an asset evaluation of any future jurisdictions, and she noted that in the case of the City and County, the assets being contributed to the Authority are approximately equal. Supervisor Minnix questioned whether the Black & Veatch recommendation to implement a six year phase-in plan is a decision to be made by the governing localities or the WVWA Board. Mr. Hodge stated that staff is requesting February 10, 2004 123 feedback from the Board and Council regarding the data provided by the rate study. He noted, however, that the time frame for developing a budget for the Authority is narrowing. He suggested that at a subsequent meeting, the City Council and County Board of Supervisors take action to recommend a specified phase-in period to the Authority. He advised that the rates will, however, be set by the Authority. Ms. Burcham advised that the steering committee supports the Black & Veatch recommendation of a six year phase-in period. Council Member Fitzpatrick moved that the City of Roanoke approve the six year rate phase-in plan and forward this recommendation to the WVWA Board. Council Member Harris seconded the motion. Council Member Bestpitch inquired what changes, if any, might be made before the draft report is finalized and what the time frame is to complete the changes. Mr. Mussman stated that the rate calculations have not been thoroughly examined by City and County staffs and the written text in the report is not yet complete. He estimated that reports should be ready to send out on Tuesday, February 17 for review. Based on the feedback received, a final report will be issued. Council Member Dowe voiced concerns about possible exponential changes that could result in the future due to the deterioration of sewer lines in Roanoke City. Mr. McEvoy advised that a study has been commissioned but it will take two years to complete the process. Ms. Burcham stated that any future requirements by DEQ will February 10, 2004 124 be issued regardless of whether the Authority is in place, and the advantage of the Authority is there will be a larger customer base to be responsible for the improvements. The six-year phase-in rate plan was outlined as follows: Roanoke City 2004 2005 2006 2007 2008 2009 2010 Water-Base $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 $3.25 Water-Volume $2.17 $2.30 $2.43 $2.56 $2.69 $2.82 $2.95 Water Bill $14.10 $14.75 $15.40 $16.05 $16.70 $17.35 $18.00 Sewer-Base $0.00 $0.54 $1.08 $1.63 $2.17 $2.71 $3.25 Sewer-Volume $2.59 $2.65 $2.71 $2.77 $2.83 $2.89 $2.95 Sewer Bill $12.93 $13.78 $14.62 $15.47 $16.31 $17.16 $18.00 Total W&S Bill $27.03 $28.53 $30.02 $31.52 $33.01 $34.51 $36.00 Net Monthly Increase --------- $1.49 $1.49 $1.49 $1.49 $1.49 $1.49 Roanoke County 2004 2005 2006 2007 2008 2009 2010 Water-Base $12.00 $10.54 $9.08 $7.63 $6.17 $4.71 $3.25 Water-Volume $2.05 $2.20 $2.35 $2.50 $2.65 $2.80 $2.95 Water Bill $22.25 $21.54 $20.83 $20.13 $19.42 $18.71 $18.00 Sewer-Base $9.00 $8.04 $7.08 $6.13 $5.17 $4.21 $3.25 Sewer-Volume $1.52 $1.76 $2.00 $2.24 $2.47 $2.71 $2.95 Sewer Bill $16.60 $16.83 $17.07 $17.30 $17.53 $17.77 $18.00 Total W&S Bill $38.85 $38.38 $37.90 $37.43 $36.95 $36.48 $36.00 Net Monthly Increase --------- ($0.48) ($0.48) ($0.47) ($0.48) ($0.48) ($0.47) Mr. Hodge stated that the articles of incorporation have been sent to the State Corporation Commission (SCC) and this is the base on which to build the rest of the program. In addition to providing input into the rate plan, the other issue which needs to be addressed is the operating agreement between the City and County. The motion of Council Member Fitzpatrick to approve the six year rate phase-in plan and forward the recommendation to the WVWA Board was approved by the following recorded vote: February 10, 2004 125 AYES: Council Members Bestpitch, Cutler, Dowe, Fitzpatrick, Harris, Wyatt, Smith NAYS: None Supervisor Altizer moved that the County of Roanoke approve the six year rate phase-in plan and forward the recommendation to the WVWA Board. The motion carried by the following recorded vote: AYES: Supervisors McNamara, Wray, Altizer, Flora NAYS: None ABSENT: Supervisor Church IN RE: CLOSING REMARKS Ms. Burcham congratulated the Council and Board and stated that they have demonstrated tremendous support of the staffs. She expressed appreciation for this support, and advised that this is a significant decision that will allow the localities to move forward on many other issues that need to be addressed. Mr. Hodge expressed appreciation to the staffs and stated that an examination was conducted to determine what was necessary to establish a strong utility system. He stated that the result is a system which shows equal strength between the partners. IN RE: BOARD AND COUNCIL MEMBER COMMENTS AND QUESTIONS Chairman Flora thanked the staffs for their efforts. He noted that politics is the art of compromise and these two bodies are to be commended for their far- February 10, 2004 126 sightedness. The result is a stronger utility system that will provide for future generations. Mayor Smith expressed thanks to the staffs and citizens for their support of this project. IN RE: OTHER REMARKS Brent Reuss thanked the staffs for their assistance in meeting the deadlines established by a very aggressive and daunting schedule. He expressed appreciation for their efforts. Mr. Robertson noted that there are in excess of 20 teams working on the integration of the Authority, and he distributed a team activity status report that outlined the status of the issues being addressed by these teams. He recognized Donnie Myers, Authority Coordinator, who has worked with the functional teams. Authority Member Minnix stressed the importance of keeping the citizens informed of the status of the Authority’s implementation. He suggested providing briefings at meetings and informational announcements on RVTV Channel 3. Council Member Wyatt stated that there are hundreds of individuals who have worked on this project and at some time in the future, she would like to recognize the employees on the functional teams for their work. Council Member Fitzpatrick stated that this is an important opportunity to better understand each other and to serve the citizens of the Roanoke Valley. He commended Mr. Robertson and Mr. McEvoy for their knowledge and cooperation. February 10, 2004 127 IN RE: ADJOURNMENT Mayor Smith adjourned the Roanoke City Council meeting at 1:49 p.m. Chairman Flora adjourned the Roanoke County Board of Supervisors meeting at 1:49 p.m. Submitted by: Approved by: ________________________ ________________________ Diane S. Childers Richard C. Flora Clerk to the Board Chairman February 10, 2004 128 This page intentionally left blank