Regional Water System
title
Resolution Establishing a New Customer Rate and Premium Methodology for the Regional Water System; Resolution 24-52
end
SUBJECT
recommendation
Adopt Resolution 24-52 establishing a new customer rate and premium methodology for the Regional Water System
end
PURPOSE
Following the findings of the 2021 Independent Financial Report and subsequent rate study, the Board supported NTMWD staff to engage with Members and Customers to develop a new methodology to calculate the Customer Premium for the Regional Water System. After months of engagement, a consensus was achieved around a methodology as referenced in the accompanying resolution.
RECOMMENDATION
The Executive Director, NTMWD staff, Carollo Engineers, Inc. and Lloyd, Gosselink, Rochelle & Townsend, P. C., recommend the Board of Directors adopt Resolution 24-52 that includes the customer rate methodology.
DRIVER(S) FOR THIS PROJECT
Strategic Objective: |
2.3 Rigorous Financial Management 3.2 Engaged Members, Customers and Stakeholders |
☐ Regulatory Compliance |
☐ Asset Condition |
☐ Capacity |
☐ Redundancy/Resiliency |
☐ Relocation or External Requests |
☐ Operational Efficiency |
☐ Safety |
☒ Administrative |
☐ Policy |
☐ Other _____________ |
BACKGROUND
PURPOSE
• NTMWD adopted a water rate in 1970, applicable to non-member customers of the Regional Water System (Customers) in the amount of 5 cents plus the Member City Rate per 1,000 gallons of water. The Customer Rate has not been revised or changed since its adoption and the value of the differential between the Customer Rate as a percentage of the Member City Rate has declined since 1970;
• NTMWD executed a 2020 Settlement Agreement to resolve a dispute and related litigation among the Member Cities over the Member City Contract that includes a requirement for NTMWD to engage a third party to perform a financial management review every three years, including an examination of the collection and application of system revenues including the Customer Rate (Independent Review).In November 2021, the Independent Review recommended NTMWD perform a detailed cost of service and rate study to refine and document the basis for a long-term Customer Rate.
• Following that recommendation, the District contracted with Carollo Engineers to conduct a study in accordance with accepted industry standards and utility rate-setting principles. Carollo’s study indicated that the use of accepted industry standards and utility rate-setting principles led to unacceptable levels of rate volatility.
• The Board determined that an opportunity for negotiation of a Customer Rate methodology was in the best interest of NTMWD and the region, and representatives of Member Cities and Customers were willing to engage in such negotiations.
• Member Cities and Customers engaged in a working group of Member Cities’ city managers and Customer city managers and expressed a desire to incentivize conservation through a negotiated Customer Rate methodology. The majority of the Work Group recommends the negotiated Customer Rate methodology be commensurate with the 2.8% historical average premium paid by the Customers. The Work Group also recommends a tiered approach to establishing a new Customer Rate methodology, allowing for a lower premium on existing volumes.
COMPONENTS OF THE CUSTOMER CONTRACT TEMPLATE
• NTMWD shall make available to Customers until July 31, 2028 a new Customer contract template that phases in the new Customer Rate methodology by establishing a legacy annual minimum volume and applying a cap as follows:
o Legacy Premium Component: For that portion of Customer’s annual minimum equal to its Fiscal Year (FY) 2028 annual minimum plus 5% (“Legacy Volume”) the Customer Rate applied shall be the Member City Rate plus 5 cents (“Legacy Charge”);
o Growth Premium Component: For that portion of the Customer’s annual minimum greater than the Legacy Volume (“Growth Volume”), the Customer Rate applied shall be the Member City Rate plus 10% (“Growth Charge”); and
o Effective Premium Cap: For the purposes of this calculation, “Effective Rate” means the amount to be paid by the Customer per 1,000 gallons resulting from the calculation of the Legacy Premium Component and the Growth Premium Component. If the Customer’s calculated Effective Rate exceeds the Member City Rate plus 2.8%, the Customer Rate shall be adjusted to result in payment by the Customer that equals the Member City Rate plus 2.8% (“Effective Premium Rate”). After a Customer reaches the Effective Premium Cap, the Customer Rate cannot fall below the Effective Premium Rate.
o This phased approach will only be available to Customers executing the new Customer contract template prior to July 31, 2028.
• The new Customer Rate methodology and upcoming Customer contract template described are of benefit to Customers and the region in that it:
o Provides certainty on the Customer Rate for years to come;
o Incentivizes conservation; and
o Allows a reasonable phase-in for Customers through recognition of the Legacy Premium Component and Effective Premium Cap.
• NTMWD will honor existing Customer Contract terms for those Customers that do not chose to move to the new Customer contract template, but NTMWD anticipates many Customers will find the new template to be of benefit.
• Current Customers entering into a new contract after July 31, 2028, will have their rate set at 2.8% above the member rate.
FUNDING
N/A