fy2014-15 budget review mayor dwight c. jones byron c. marshall, cao

FY2014-15 BUDGET REVIEW

Mayor Dwight C. Jones Byron C. Marshall, CAO

Overview– Rate Setting Process– Pricing Objectives– Purpose of a Cost of Service Analysis

Water and Wastewater Rate Recommendations Gas Rate Recommendations Stormwater Rate No Change FY14 Affordability Program

Cost of Service Agenda

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Step 1 – Identify Financial & Pricing Objectives

Step 2 Identify Revenue Requirements & Demand Projections

Step 3 – Allocate Costs

Step 4 – Design Rate Structure

Step 5 – Assess Effectiveness of Addressing Pricing Objectives

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Rate Setting Process

Top Pricing Objectives

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1. Affordability

2. Cost of Service Based Allocations

3. Revenue Stability

Customer Service

Account

Residential Commercial IndustrialState & Federal

MunicipalFire

Protection

Cost Categories

Volumetric Charge Base Charge

EquivalentMeters

Admin. / General

Functional Categories

BaseExtra Cap. -Max Day

Extra Cap. -Max Hour

Admin. / General

MeterFire

Protection

Storage MeterTransmissionDistribution PumpingSource of

Supply

Customer Service

Readiness to Serve

Operating Expenses

Depreciation PILOT Return

Water Revenue Requirements

Cost of Service Analysis

Cost of service concept Allocate costs to

functional and cost components (e.g. buckets)

Classes of customers Units of service

Fixed Charges Variable Charges

Process that aligns rates and charges with pricing objectives

Rate Design

Water and Wastewater Rate Recommendations

Recommended Water RatesExisting COS $ Change

Monthly Service Charge 5/8" 19.68$ 11.56$ (8.12)$ 3/4" 29.53 15.68 (13.85) 1" 49.21 23.92 (25.29) 1.5" 98.41 44.50 (53.91) 2" 157.46 69.21 (88.25) 3" 295.24 135.09 (160.15) 4" 492.06 209.20 (282.86) 6" 984.12 415.08 (569.04) 8" 1,574.59 662.12 (912.47) 10" 2,263.47 950.35 (1,313.12)

Volumetric Charges (Ccf)Residential 1.63$ 3.21$ 1.58$ Commercial 2.26 3.21 0.95 Industrial 2.96 3.21 0.25 State & Federal 3.05 3.21 0.16 Municipal 1.90 3.21 1.31

Recommended Wastewater RatesExisting COS $ Change

Monthly Service Charge 5/8" 29.72$ 14.55$ (15.17)$ 3/4" 44.58 19.41 (25.17) 1" 74.30 29.13 (45.17) 1.5" 148.60 53.43 (95.17) 2" 237.75 82.59 (155.16) 3" 445.79 160.34 (285.45) 4" 742.98 247.82 (495.16) 6" 1,485.97 490.82 (995.15) 8" 2,377.54 782.41 (1,595.13) 10" 3,417.72 1,122.60 (2,295.12)

Volumetric Charges (Ccf)Residential 2.59$ 5.82$ 3.23$ Commercial 4.27 5.82 1.55 Industrial 4.96 5.82 0.86 State & Federal 4.75 5.82 1.07 Municipal 3.40 5.82 2.42

Residential Customer Impacts

Usage (ccf) Existing Proposed Change ($)

Low Volume 2 $57.83 $44.17 -$13.67

Mid-Level Volume 6 $74.70 $80.27 $5.58

High Volume 15 $112.64 $161.51 $48.87

*Non-residential impacts will vary based on meter size and levels of consumption.

Water and Wastewater Monthly Combined BillService Cost Existing Proposed Change ($)

All Customers Base Charge $49.40 $26.11 -$23.29

Impact of Recommended Rates

More Than 50% of Residential Customers Will See Their Bill Decrease

Promotes Resource Conservation and Provides Customer with More Control Over Bill

Balances Key Pricing Objectives of Affordability and Revenue Stability

Consistent with Cost of Service Principles

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Gas Rate Recommendations

Recommended Gas RatesRate Class Block Break Current Rate Proposed Rate % Change

(A) (B) (C ) (D) (E )

Residential - Rate RS

Customer Charge 11.05$ 11.36$ 2.80%

Distribution ChargeBlock 1 500 0.4700$ 0.4830$ 2.77%Block 2 0.4590$ 0.4830$ 5.23%

General Service Small - Rate GS

Customer Charge 13.43$ 13.43$ 0.00%

Distribution ChargeBlock 1 500 0.4370$ 0.43700$ 0.00%Block 2 0.3930$ 0.43700$ 11.20%

Firm, Non-Residential Large Volume Gas Sales Service - Rate LVS

Customer Charge 564.00$ 564.00$ 0.00%Demand charge (Mcf) 11.51$ 11.51$ 0.00%Transportation Charge

Block 1 15,000 0.1570$ 0.15700$ 0.00%Block 2 115,000 0.0800$ 0.08200$ 2.50%Block 3 0.0570$ 0.05800$ 1.75%

Recommended Gas RatesRate Class Block Break Current Rate Proposed Rate % Change

(A) (B) (C ) (D) (E )

Large Volume, High Load Factor Firm, Gas Sales Service - Rate LVS 2

Customer Charge 564.00$ 564.00$ 0.00%Demand charge (Mcf) 11.51$ 11.51$ 0.00%Transportation Charge

Block 1 - 0.0540$ 0.05500$ 1.85%

Municipal Gas Service - Rate MGS

Distribution Charge Block 1 - 0.4050$ 0.40500$ 0.00%

Transportation Service - Rate TS

Customer Charge 620.00$ 620.00$ 0.00%

Transportation Charge Block 1 15,000 0.1570$ 0.15700$ 0.00%Block 2 115,000 0.0800$ 0.08200$ 2.50%Block 3 0.0570$ 0.05800$ 1.75%

Residential Customer Impacts Current Rate Structure Proposed Rate Structure Richmond RS Richmond RS_New

Peak Off Peak Peak Off PeakCustomer Charge $11.05 $11.05 Customer Charge $11.36 $11.36Energy Chrg Max CCF $/CCF Energy Chrg Max CCF $/CCF

Block Peak Off Peak Peak Off Peak Block Peak Off Peak Peak Off Peak1 500 500 $ 0.47000 0.47000$ 1 500 500 0.48300$ 0.48300$ 2 - - $ 0.45900 0.45900$ 2 - - 0.48300$ 0.48300$ 3 - - -$ -$ 3 - - -$ -$ 4 - - -$ -$ 4 - - -$ -$ 5 - - -$ -$ 5 - - -$ -$

Average Cumul.Percentile Annual Current New $ % #

CCF Bill Bill Change Change Customers5% 35 149$ 153$ 4$ 2.800% 4,548 7% 69 165$ 170$ 5$ 2.800% 6,776 9% 111 185$ 190$ 5$ 2.800% 9,017

20% 283 266$ 273$ 7$ 2.800% 20,260 29% 394 318$ 327$ 9$ 2.800% 29,237 40% 519 377$ 387$ 11$ 2.800% 40,508 49% 611 420$ 432$ 12$ 2.800% 49,447 60% 727 474$ 488$ 13$ 2.800% 60,628 69% 827 521$ 536$ 15$ 2.800% 69,659 80% 979 593$ 609$ 17$ 2.800% 80,847 89% 1,157 677$ 695$ 19$ 2.800% 89,805 98% 1,596 883$ 908$ 25$ 2.800% 98,772 100% 16,989 7,997$ 8,345$ 348$ 4.354% 101,014

Annual Bill

Customer Assistance Program (CAP)

Existing Program– Provides assistance to qualifying gas customers and

funded fully through voluntary contributions and DPU fundraising

Objective– To develop a more aggressive CAP that could provide

assistance with water and wastewater bills to qualifying customers

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Proposed Structure

“Piggy Back” on Existing Virginia Department of Social Services’ Energy Assistance Program for Richmond

Establish Agreement with Richmond Department of Social Services

Simple Program Structure Initially DPU is working with the City Attorney's Office and other

City departments on the program specifics and implementation details to ensure that we will have the best program possible for Council to consider

Explore More Tailored Structure Once Database is Established

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Budget Overview Continues

New Services/Programs Proposed

Current Services/Programs Not Funded

Mandated Services/Programs

Impact on Service Delivery

Focus Area Results Aligned with Council’s Priorities

Major Budget Changes/Reasons for Changes

Budget Challenges / Issues

Major CIP Projects (if applicable)

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DPU Current Services/Programs Not Funded

None

DPU Mandated Services/Programs – Gas

Compliance with all Federal regulations associated with Natural Gas

Provide natural gas service to customers in the City of Richmond, all of Henrico County, and parts of Chesterfield and Hanover Counties.

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DPU Mandated Services/Programs – Water

Compliance with all State regulations associated with purification, storage and delivery of potable water

Provide potable water service to customers in the City of Richmond on a retail basis

Provide potable water service to the Counties of Chesterfield, Hanover, and Henrico on a wholesale basis

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DPU Mandated Services/Programs – Wastewater

Compliance with all State regulations associated with collections and treatment of wastewater

Compliance with all State regulations associated with CSO collection systems

Provide wastewater service to customers in the City of Richmond on a retail basis

Provide wastewater service to Goochland County on a wholesale basis

Provide wastewater service to customers in Chesterfield and Henrico Counties on a direct billing reciprocal basis

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DPU Mandated Services/Programs – Stormwater

Compliance with all Federal and State regulations associated with stormwater collections

Compliance with all Federal and State regulations associated with Clean Water

Compliance with all Federal and State regulations associated with flood protection

Continuation of current Stormwater programs

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DPU Mandated Services/Programs – Electric

Compliance with all Federal and State regulations associated with Streetlight installation and maintenance

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DPU Mandated Services/Programs – Customer Service

Compliance with all Federal and State regulations associated with Natural Gas and Water

Compliance with all Federal and State regulations associated with credit & collections, credit reporting, billing, and customer confidentiality

Compliance with all Federal and State regulations associated with banking and electronic payment processing

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Impact on Service Delivery

There should be no impact on service delivery Review – customer behavior if the proposed water

and wastewater rate changes are adopted

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Focus Area Results Aligned with Council’s Priorities

Neighborhood Vitality– Neighborhoods are safe, clean, and well maintained

Water utility for sanitation Wastewater utility for sanitation and floodwall , levee Stormwater utility for pollution prevention and drainage Natural gas utility for pollution prevention Electric (streetlight) utility for safety

Economic and Business Opportunities - Richmond is a city of choice for successful businesses – Richmond’s regulatory environment is streamlined

Process improvements in the Call Center, Water Resources, Energy Management, Developmental Services, Wastewater and Natural Gas for permits issued for services and regulatory permits

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Major Budget Changes/Reasons for Changes

Increased salary & benefit costs ($1.6M) – 2% raise and increases in retirement and health care costs

Assistance program for qualifying City Water and Wastewater customers ($1.0M)

Increased cost for contracted services ($0.7M) due to Consumer Price Index increases

System (eg: CIS, CRM, MicroFocus) upgrades and/or replacement costs ($0.6M)

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Major Budget Changes/Reasons for Changes

Increased plant operating/maintenance supplies ($0.6M) due to escalation and aging infrastructure

Increased training costs ($0.5M) driven by DPU employee pride and ownership program

Increased temporary labor ($0.5M) primarily driven by non-recurring (post FY15) professional services provided for federally mandated Gas Distribution Integrity Management Program (DIMP)

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Budget Challenges / Issues

Unfunded mandates Revenue sufficiency – changing rate structures Employee recruitment and retention Aging infrastructure (plants, pumping stations,

floodwalls, mains)

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Major CIP Projects (if applicable)

Gas System Replacements Gas New Business Water Distribution System Improvements Transmission Main Improvements Water Plant & Pumping (eg: Byrd Park Reservoir) Wastewater Treatment Plant (eg: Biological Nutrient

Removal Project) Sanitary Sewers Stormwater Facilities Improvements

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New Services/Programs Proposed

Assistance program for qualified City Water and Wastewater customers ($1.0M)

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DPU New Services/Programs Not Funded

LED Streetlight Replacement Program (engineering analysis in FY14)