Loading...
HomeMy WebLinkAbout05/15/2012 04H Water Division Cost of Service and Rate Study Update; Agreement w Financial Consulting Solutions Group, Inc. . ..3s::7, "..,,,,,-.) r ...4 ) , ,,,,....4. „.„,_,,,,a.,....„.,,, k..,...„,.,,, BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT f� Item No. f ' For Meeting of: May 15, 2012 ITEM TITLE: Resolution authorizing an agreement with Financial Consulting Solutions Group, Inc., in an amount not to exceed $27,000, to develop a Water Division Cost of Service and Rate Study Update SUBMITTED BY: Joan Davenport, Acting CED Director David Brown, Water /Irrigation Manager CONTACT David Brown, Water /Irrigation Manager, 509 - 575 -6204 PERSON /TELEPHONE: SUMMARY EXPLANATION: In 2007, a cost of service and rate study ( "COS &RS ") was completed and water rate adjustments were made in 2008, 2009, 2010, 2011 and 2012. The 2007 COS &RS predicted that the rate adjustment would be adequate through 2012 and that a COS &RS update would be required in 2012 to analyze the cost of service and to determine if a rate adjustment would be needed beyond 2012. The projected revenues from the 2008 -12 rate adjustments that have been implemented have fallen significantly short of projections due to a variety of reasons, such as the downturn in the economy and better water conservation being practiced by our customers. A COS &RS is necessary to determine what rate adjustments are necessary to keep revenues in line with expenditures, fund capital improvements, and to sustain adequate reserves. City representatives have contacted Financial Consulting Solutions Group, Inc., to assist with the 2012 COS &RS update. The survey amount will not exceed $27,000. Resolution X Ordinance Other (specify) Contract: X Mail to: Karyn Johnson, FCS Group, 8201 164th Ave NE, Suite 300 Redmond, WA 98052 Contract Term: Amount: $27,000 Expiration Date: Insurance Required? No Funding Water Operating Fund 474 Phone: 425 - 867 - 1802 Source: APPROVED FOR SUBMITTAL: C Manager I STAFF RECOMMENDATION: Adopt resolution BOARD /COMMISSION RECOMMENDATION: ATTACHMENTS: Click to download ❑ Resolution ❑ Contract RESOLUTION NO. R — 2012 - A RESOLUTION authorizing the City Manager to execute a Professional Services Contract Agreement between the City of Yakima and Financial Consulting Solutions Group, Inc., in an amount not to exceed $27,000, to develop a Cost of Service and Rate Study Update. WHEREAS, the City of Yakima desires consulting services to provide a Cost of Service and Rate Study to obtain a fair and accurate assessment of the Drinking Water rate structure and charges and how it relates to projected future needs and requirements; and, WHEREAS, the consulting services provided will review the historical financial performance of the water utility, evaluate existing financial policies /practices, and recommend alternative practices that may further City goals in funding utility obligations; and, WHEREAS, the City of Yakima desires to review the existing water connection charge adequacy while remaining consistent with industry practice and Washington State guidelines RCW 35.92.025, and, WHEREAS, a strategy to fund water capital needs as identified in the adopter 2011 Water System Plan, including a forecast of the operating revenues and expenditures and an analyze of the financial performance of the water utility over the six (6) year study period with a recommendation of a rate revenue adjustment strategy; and, WHEREAS, assigning "cost shares" and establishing "equity" for utility customers based on their demands and usage of the water system will be reviewed; and, WHEREAS, rates, charges and fees imposed to recover the cost of fire suppression will be reviewed; and, WHEREAS, funding for such services was included within the 2013 authorized budget; and, WHEREAS, the City Council has determined that it is in the best interest of the City to enter into a professional services contract agreement with a consultant selected for such expertise; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: The City Manager is authorized and directed to execute a Professional Services Contract Agreement between the City of Yakima and Financial Consulting Solutions Group, Inc., in an amount not to exceed $27,000, to develop a Water Cost of Service and Rate Study, a copy of such agreement is attached hereto and by reference made a part hereof, now, therefore, ADOPTED BY THE CITY COUNCIL this 15th day of May, 2012 Micah Cawley, Mayor ATTEST: City Clerk April 24, 2012 Page 1 CONTRACT AGREEMENT BETWEEN FINANCIAL CONSULTING SOLUTIONS AND CITY OF YAKIMA GROUP, INC. Water /Irrigation Division Redmond Town Center 2301 Fruitvale Boulevard 7525 — 166 Ave. NE, Suite D -215 Yakima, WA 98902 Redmond, Washington 98052 PROJECT: 2012 DOMESTIC WATER SYSTEM RATE UPDATE THIS AGREEMENT combines all understandings between the Parties regarding professional services for the Project named above and supersedes all prior proposals, quotations, solicitations, negotiations, representations, agreements or understandings, whether written or oral. The performance of the professional services herein described and authorized by the City of Yakima, as well as payment for such services, shall be in accordance with the terms and conditions presented in this Agreement and the following Sections and Exhibits which are attached and incorporated by reference which, taken together, shall constitute the whole Agreement. Section I - Relationship of the Parties Section II - Contract Provisions Exhibit A - Scope of Work and Task Plan Exhibit B - Fee Schedule Exhibit C - Study Schedule IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this day of ,20 APPROVED: APPROVED: FINANCIAL CONSULTING CITY OF YAKIMA SOLUTIONS GROUP, INC. KARYN JOHNSON Michael A. Morales Principal Interim City Manager Date: Date: ATTEST: CITY CLERK • FCS GROUP www.fcsgroup.com April 24, 2012 Page 2 SECTION I: RELATIONSHIP OF THE PARTIES The City of Yakima ( "Client ") desires consulting services associated with and in support of the 2012 Domestic Water System Rate Update ( "Project "). In furtherance of the Project, the Client hereby contracts with Financial Consulting Solutions Group, Inc. ( "FCS GROUP ") to perform the professional services described in Exhibit A of this Agreement. All services shall be performed under the joint supervision of the Client's Representative, Dave Brown, or a designee or designees identified in writing to FCS GROUP by the Client's Representative. This Agreement shall inure to the benefit of and be binding upon successors, assigns, and legal representatives of each of the Parties hereto. Any assignment or transfer of an interest in this Agreement by either Party without the written consent of the other shall be void. SECTION H: CONTRACT PROVISIONS 1. Scope of Work: FCS GROUP shall perform the service for the Client which as defined in Exhibit A, Scope of Work, which is attached hereto and hereby incorporated by this reference. 2. Time for Completion: The Scope of Work for the conduct of the study as set forth above is anticipated to be completed by FCS GROUP within a time frame approximating that shown by the following schedule: Notice to Proceed: On or before May 21, 2012 Completion of Draft Analysis: within 2 months of Notice to Proceed (NTP) Presentations to Council: within 4 months of NTP Completion of Project: On or before September 30, 2012. FCS GROUP agrees to perform the work described in the Scope of Work according to the contract schedule. Any delays shall be agreed upon by FCS GROUP and Client prior to the due date. Changes in the schedule caused by Client delays may require additional compensation and a change order. If FCS GROUP is delayed in the performance of services by conditions which are beyond their control, or by a change in the scope of work, the schedule showing time of performance may be revised. Any revision thereto shall be submitted in writing to the Client for review and approval by the Client Representative. If FCS GROUP's services are temporarily suspended by the Client in the interest of the Project and with written notice to FCS GROUP, and the suspensions last longer than 90 consecutive days, FCS GROUP shall be compensated for any additional labor and direct expenses incurred due to the interruption and resumption of services. 3. Payment: FCS GROUP will be paid by the Client on a time and materials basis as outlined below and in accordance with the standard billing rates attached hereto as Exhibit B. FCS GROUP agrees to perform the services as set forth in Exhibit A at a cost not to exceed $27,000. It is understood that FCS GROUP will not exceed this amount without the Client's prior written authorization. Payment to FCS GROUP for services set forth in Exhibit A shall be: an amount equal to FCS GROUP's standard billing rates as set forth in Exhibit B multiplied by the actual hours worked. Should any unforeseen project delays, not caused by FCS GROUP, and /or any requested amendments to the original scope of work, cause this contract to extend more than 90 days past the original contracted schedule date, any work and /or amendments to the work shall be billed at the standard billing rates in effect for the period of time the work is being performed. If said change in billing rates will cause the project to exceed the amount stated in the preceding paragraph, a change order will be prepared and signed by both parties. Direct expenses will not be charged except as identified in Exhibit B. Payment shall be made monthly upon receipt and approval of FCS GROUP's invoice. 4. Supplemental Agreements: Supplemental Agreements may be entered into upon mutual written agreement that would increase or decrease the scope and associated costs and payment. 4) FCS GROUP www.fcsgroup.com April 24, 2012 Page 3 5. Work to be Accomplished: All work accomplished will be performed under the direction of the Client Representative or his /her Designee. 6. Termination: This contract may be terminated by the Client by giving FCS GROUP written notice of such termination no fewer than fifteen (15) days in advance of the effective date of said termination. FCS GROUP shall be entitled to terminate this agreement only in the case of a material breach by the Client, and upon failure of the Client to remedy said breach within fifteen (15) days of said notice. In the event that the contract is terminated before completion, FCS GROUP shall be paid for the services to date on the basis set forth in Paragraph 3, plus 10% of the total compensation earned to time of termination to compensate for FCS GROUP's rescheduling adjustments, reassignment of personnel, and related costs incurred due to termination. The Client shall notify FCS of termination or abandonment in writing. 7. Indemnity: FCS GROUP shall comply with all Federal Government, State and local laws and ordinances applicable to the work to be done under this Agreement. FCS GROUP hereby agrees to hold the Client harmless from and shall process and defend at its own expense, specific claims, demands or suits at law or equity, arising from FCS GROUP's negligent performance of the provisions of this Agreement; provided that if the Client and FCS GROUP are concurrently negligent, FCS GROUP shall be required to indemnify and defend only in proportion to negligence of FCS GROUP. These indemnity provisions shall not require FCS GROUP to defend or indemnify the Client against any action based solely on the alleged negligence of the Client. 8. All Work Produced is Joint Property of FCS GROUP and the Client: The materials, computer programs, reports, calculations, analyses, etc., generated by FCS GROUP under this contract including the final report shall be the joint property of the Client and FCS GROUP. FCS GROUP may retain copies thereof for work paper documentation and their own use unless specifically restricted in writing by the Client as to use. Computer models use generally available software, such as Microsoft Excel (TM), and FCS GROUP does not intend or imply any warranty of those programs. 9. Financial Forecasts: Neither FCS GROUP's name nor the report and its financial projections may be referred to or included in any prospectus or as a part of any offering or representation made in connection with the sale of securities or participation interests to the public, whether through a public or private offering. The information used in developing the forecast assumptions will be derived from published information and other sources FCS GROUP considers appropriate. However, FCS GROUP cannot assume responsibility for the accuracy of such material. Moreover, forecasts are subject to many uncertainties as to the future; therefore, FCS GROUP cannot represent that the projected financial statements will be representative of the results that actually occur. FCS GROUP will endeavor to include appropriate comments drawing the readers' attention to these matters. 10. Integrated Agreement: This agreement together with attachments or addenda, represents the entire and integrated agreement between the Client and FCS GROUP supersedes all prior negotiations, representations, or agreements written or oral. This agreement may be amended by written instrument signed by both the Client and FCS GROUP. 11. Independent Contractor: The parties intend that an independent Contractor /Client relationship will be created by this agreement. No agent, employee, or representative of FCS GROUP shall be deemed to be an agent, employee, or representative of the Client for any purpose. FCS GROUP shall be solely responsible for all acts of its agents, employees, representatives, and subcontractors during the performance of this contract. 12. Equal Opportunity: FCS GROUP is committed to the principles of providing equal employment opportunities for all employees. The performance and diversity of our employees will help us meet the challenges of the present and the future in serving our clients. This policy statement is a reaffirmation of our • FCS GROUP www.fcsgroup.com April 24, 2012 Page 4 long- standing commitment to provide equal opportunity on the basis of individual merit and personal qualifications to employees and applicants for employment without regard to race, color, religious creed, sex, sexual orientation or preference, gender identity, genetic characteristics or information of employee or family, age, national origin, ancestry, marital status, citizenship, the presence of sensory, mental, or physical disability, pregnancy /childbirth or related condition, medical condition, membership in the military service, veteran's status, political ideology or any other basis protected by applicable federal, state, or local laws. 13. Notices: Notices to the Client shall be sent to the following address: City of Yakima Water/Irrigation Division Attention: Dave Brown, Water /Irrigation Manager 2301 Fruitvale Boulevard Yakima, WA 98902 Notices to FCS GROUP shall be sent to the following address: FCS GROUP. Attention: Karyn Johnson, Principal Redmond Town Center 7525 — 166`'' Ave. NE, Suite D -215 Redmond, Washington 98052 • FCS GROUP www.fcsgroup.com April 24, 2012 Page 5 EXHIBIT A: SCOPE OF WORK The following Scope of Work (SOW) identifies the activities that FCS GROUP will perform for the Project: Task 1 Revenue Requirement Analysis 1.1 Data Collection/Review — Prepare an initial data request identifying specific data to be collected from the City for the rate update, including such items as financial statements, operating budgets, capital improvement program, debt service schedules, fixed assets listing, customer data, rate ordinances, and water system plan. Once the data has been received, we will review the data and make requests for any additional items or explanations as necessary. 1.2 Financial /Economic Assumptions — Initialize the model for the current budget year and update model input sections to reflect current information for the following: • Customer growth, inflation rates, interest rates, and debt issuance terms. • Customer billing records (water consumptions, number of customers /meters, etc.) for year ending 2011. City to provide updated customer statistics in the City's Rbillcon.xls spreadsheet. • 2011 actual performance and 2012 operating budget, including detail revenues, expenditures, and fund balances. • Six -year capital improvement program. 1.3 Capital Financing Plan — Identify potential funding sources for the current CIP and develop alternative financing strategies for the water utility. We will project capital funding needs, borrowing requirements, and associated cash flows and fund balance for the six -year study period. We expect to consider such funding options as bonded debt, state grants and loans (SRF /PWTF), and /or cash financing from rates. The budget provides for up to three (3) alternative capital financing plans. 1.4 Operating Forecast — Forecast ongoing operating & maintenance expense, debt service, and other cash obligations of the utility over the study period. Incorporate economic assumptions, additional O &M expense, if any, resulting from the CIP, and /or other known changes in operational requirements. 1.5 Revenue Needs Assessment — The revenue needs assessment identifies the total rate revenue to be collected from customers. Incorporate results of Subtask 1.1 through 1.4 and develop alternative operating cash flows for the water utility. Compare projected cash requirements against projected revenue under existing rate levels to determine annual rate adjustments needed to satisfy projected cash obligations. The proposed budget provides for up to three (3) alternative scenarios. 1.6 Assess Utility Tax Application — Evaluate and calculate alternative approaches to applying the City's current utility tax. Options include continuation of the practice of imbedding the costs in the water rates or adding the tax on top of the water bills to show the components separately. Task 2 — Calculate Fire Protection Costs within Water Rates Traditional ratemaking typically included the recovery of fire protection costs from water user rates. The State Supreme Court (Lane vs. Seattle) ruled that fire hydrant costs (and potentially all fire protection related costs) cannot be recovered through rates. Under their logic, this is a general government service, the charges for which would be considered a tax, and must have statutory or voter approval. • FCS GROUP www.fcsgroup.com April 24, 2012 Page 6 2.1 Identify Fire Protection Costs — Working with the most recent Water System Plan, and based on input from the City, determine the portion of the water system's operation attributable to fire hydrant maintenance and the provision of fire related services and remove those costs from the updated water rates. 2.2 Determine Strategies for Recovering Costs — Work with the City to establish policy objectives and potential strategies for the recovery of those fire protection costs through other means. The Court upheld that an increase to the utility tax on the water utility to recovery those costs is valid and within statutory authority. We will calculate the percentage increase needed in the current utility tax to recover the identified fire protection costs should the City wish to move in that direction. As an alternative, a direct payment can be made from the General fund to the water utility to recover those costs. Task 3 — Cost of Service Allocations 3.1 Customer Statistics — Review /evaluate summary water system and customer billing histories and statistics, as provided by the City, to determine whether changing usage patterns indicate a need to revise current customer class designations or peaking requirements. 3.2 Cost Allocations — Update model to reflect current fixed asset records. Review existing plant and O &M cost allocation factors and distribution of costs to customer classes to determine if existing parameters remain valid. Update or revise as warranted. 3.3 Rate Design — Update rates to reflect necessary rate adjustments, cost of service findings and other policy considerations. The phase in strategy from a declining block rate to a uniform rate was accomplished in year. We do not anticipate the need to prepare alternative rate structures at this point. Rate forecast options will include applying the indicated rate increases across- the -board to existing rates and /or incorporating the cost of service findings for the fixed and variable rate components. The budget provides for up to two (2) alternative rate scenarios. 3.4 Typical Bills — Prepare sample customer bills consistent with the rate forecast options and selected utility tax application. Task 4 — Connection Charges 4.1 Update Domestic Connection Charges — Based on current general benefit water system infrastructure, eligible capital projects and system capacity estimates, update the current schedule of domestic connection charges. 4.2 Update Base Irrigation Charge - Based on current general benefit water system infrastructure, eligible capital projects and system capacity estimates, update the current schedule of base irrigation connection charges. 4.3 Update Local Distribution Connection Charges — Based on current local distribution system infrastructure, eligible capital projects and capacity estimates, update the schedule of local connection charges. Task 5 — Meetings & Documentation 5.1 Staff Meetings — Prepare for and attend up to two (2) onsite meetings with Division staff to collect data and review interim findings. 5.2 Presentations — Prepare materials for and attend up to two (2) work sessions or City Council meetings to present study results. ':;� FCS GROUP www.fcsgroup.com April 24, 2012 Page 7 5.3 Reports — Prepare a project report, similar in format to the City's previous water rate study report. It is anticipated that the City will provide input regarding historical accomplishments, future goals, etc. One (1) draft and one (l) final report will be submitted electronically to the City. • FCS GROUP www.fcsgroup.com April 24, 2012 Page 8 EXHIBIT B: FCS GROUP STANDARD FEE SCHEDULE Effective February 1, 2012 LABOR Position/Title Billing Rate President Standard Rate $225 David Findlay Program Director/Principal Standard Rate $225 Edward Cebron John Ghilarducci Karyn Johnson Principal Standard Rate $200 Peter Moy Angie Sanchez Virnoche Senior Project Manager Standard Rate $195 Todd Chase Don Ganer Robb Grantham Senior Special Projects Manager Standard Rate $185 Pam Bissonnette Dean Ritchhart Project Manager II Standard Rate $175 Gordon Wilson Project Manager I Standard Rate $155 Nihat Dogan Project Consultant Standard Rate $140 Courtney Black Chris Gonzalez Nathan Reese Sergey Tarasov Doug Gabbard Senior Analyst Standard Rate $120 N/A • FCS GROUP www.fcsgroup.com April 24, 2012 Page 9 LABOR - Continued Position/Title Billing Rate Analyst Standard Rate $100 Ryan Blake Tyler Lee Catherine Often Tage Aaker Krista Shirley Administrative and Technical Support Public Relations $120 Taree Bollinger Scott Lester Technical. Writer /Editor $ 90 Debbie Gere Marketing /Graphics /Administrative Support $ 70 Cindy Cornell Administrative Support $ 70 Diane Harmon Kathy Lyons DIRECT EXPENSES Major direct expenses, such as travel and lodging, will be charged at cost plus 5 %. Other expenses will not be directly charged unless by mutual agreement of the client and FCS GROUP and specific terms will be established in advance prior to expenditure and billing. SUBCONSULTANTS When applicable, subconsultants will be charged at invoiced cost plus 10 %. •:;? FCS GROUP www.fcsgroup.com April 24, 2012 Page i0 EXHIBIT C: PROJECT SCHEDULE Performance of the Scope of Work described in Exhibit A will begin immediately upon notice to proceed. Major milestones are estimated as follows: • Notice to Proceed (NTP): Expected mid -May, 2012 ® Review Draft Study Findings with Division Staff: Within 2 months of NTP (mid -July, 2012) ✓ Submit Draft Report: Within 3 months of NTP (mid- August, 2012) ▪ Presentations to City Council: Within 4 months of NTP (mid- September, 2012) . Submit Final Report: Within 4.5 months of NTP (September 30, 2012) • FCS GROUP www.fcsgroup.com