WATER/WASTEWATER TASK FORCE MEETING

MINUTES

August 17, 2000

11:30 a.m. - 1:00 p.m.

Salem Civic Center - Room 325

1) CALL TO ORDER

The meeting was called to order by Councilor Paul Wulf.

2) INTRODUCTIONS

Introductions were made. Members, staff, and citizens were in attendance as noted below.

Staff present included Frank Mauldin (Public Works Director), Tim Gerling (Assistant Public Works Director), Jack Merritt (Finance Director), Mark Siegel (Financial Management Analyst), Paul Eckley (Chief Utilities Engineer), Pat Dodge (Management Analyst II), Keith Garlinghouse (Utilities Engineer),Yvonne Litke (Community Development), and Ken Bishop (Community Development).

Consultants Eric Rothstein and Debbie Galardi were in attendance.

Mark Fields (SES Water District), Jack Lowery (SEDCOR), Lynn Halladey (Chiquita), and Rick Stucky were also present.

3) CITIZEN INPUT

None at this time.

4) MINUTES

Approval of minutes is postponed until next meeting as there is not a quorum of members for voting approval at this meeting.

5) COSA UPDATE

Eric Rothstein from CH2M-Hill was introduced to present an update on the Cost of Service Analysis work that has been done. He presented a very general overview of the COSA process - where we've been, where we are, and where we need to go with the use of an electronic visual presentation. A number of things have happened since the City started the COSA process a couple of years ago - in particular, there have been updates to the water and sewer system development charges. Most recently there has been completion of a bond feasibility study, an element of a financing plan and the issuance of $38 million in bonds this year.

There are several parts to strategic planning, including the SDC update, bond feasibility, customer classification. SDC's are a big part of what is happening now in Oregon. There has been a significant transfer of responsibility for funding infrastructure down to local governments. There has essentially been a withdrawal of funding at the national level. EPA grants for wastewater treatment plants, in particular, are either no longer available or very limited. That responsibility is now on local communities. SDC help recover for both past and future investments. Eric briefly covered the SDC calculation process. O & M costs are not recovered by SDC's. If you collect less from SDC's, you need to collect more from something else.

The bond feasibility study is included in an official bond sale statement. What will be talked about today is a piece of an official statement that is used to market bonds. The official statement is the vehicle by which potential bond holders will look at, review, and determine if this is a good investment they want to make. What needs to be established in the official statement is that the revenues that you have projected for the system will be sufficient to cover O & M requirements and debt service requirements. The objective for the COSA for the City of Salem has been to develop adequate defensible rates and evaluate the COSA to provide a foundation for rate policy.

Eric Rothstein covered the COSA principles including: 1. Allocation of customer class based on proportionate demands; 2. Customer classes - group customers with similar usage; 3. Limit consideration of total revenue requirements; 4. Community values and policy considerations guide analysis, especially rate design.

The next issue reviewed was rate development. Eric Rothstein stated that cost allocations require engineering analysis and reflect local system characteristics. Fundamental policy issues require evaluation and community input.

Should the City change the way it classifies customers for rate setting purposes? The recommendation in the issue papers is that we should explore a desegregation of industrial and institutional classes. For wastewater, establish no classes of commercial customers based on industry reference data and/or actual data from monitored customers. Rate design requires balancing of competing objectives to reflect community values.

Should distance and elevation be considered as factors when allocating water/wastewater system costs, customer classes, etc? The recommendation is - do not use distance or elevation as specific cost allocation factors.

Wet weather cost allocation was discussed. Basically, inflow/infiltration. Basic issue is how do you assign the costs associated with inflow/infiltration. Not metered flow. Recommendation is as follows: 75 percent based on number of connections and 25 percent based on average flows. This means the residential customer class that has the vast majority of the customer accounts will get the lion's share of the inflow and infiltration costs because 75 percent of the linear mileage of the system is 8-inch and below in diameter so most of the pipes that are out there are going to residential customers. This is due to the potential for leakage from these pipe. This issue was covered by the Task Force a couple years ago.

Another issue is stormwater charges - should stormwater costs be recovered through the wastewater treatment charges or should a separate charge be developed? Basic recommendation is to look toward developing several stormwater charges. Usually residential is based on an estimate of average impervious area. There are a whole lot of issues related to how you charge stormwater service.

Rate design requires balancing of competing objectives to reflect community values. In designing preliminary rate structures, the first step is creating customer classes.

In designing customer classes, the rate for basic customer services, reading the meter, billing, etc., will be the same across customer classes and be different based on meter size. But rate for residential per unit of volume will different than commercial. Will be different from industrial. Those are the things that are going to reflect, on the water side, differences primarily in peaking characteristics. Residential customers tend to peak more than commercial. So residential customers will have a higher rate for the same volume than for commercial customers. That is how cost of service by customer class is achieved.

The next steps are: stormwater SDC's, rate transitioning, design rates, determining customer class revenue responsibility.

The shifts in customer class will be dealt with at the next meeting. There are two kinds of transitioning - transitioning of revenue responsibilities between customer classes with shares of the pie, and at the same time, how to make sure the overall increases in revenue requirements are transitioning in a way that is acceptable.

6) SEWER LATERAL REPLACEMENT FUNDING POLICY

Keith Garlinghouse was introduced to present a refinement to Sewer Lateral Funding Policy #4 (handout material attached for file copy only). Option four modified - in the option, there is a cap on the percentage of loan money that would be available. If a loan program is implemented the loan program that would guarantee financing for 80 percent below median then those funds would be available for the private property portion. There is a higher percentage of lower income people in the city. In the calculations, it came out 128 instead of 200 more. Frank Mauldin stated that he could probably say that City could cap the number of grants made for sewer laterals as is done for the positive protection program. That is capped at $880,000 and when that money is out, the program is stopped for the year. We would do the same thing for the sewer laterals - give out 128 and when that is done, they could come back next year. If we reach 128, we could go to Council and get it approved. Frank stated that he is going to assume in the option that you prefer option 7 where we are guaranteeing the estimated number of loans and may have to cap the number of grants. Council may want to change those. We are saying zero interest for about 1 percent of all customers and 3 percent for about 39 percent of all customers that are under the 80 percent median income. Anyone over the 80 percent median has to obtain their own loan. Staff is recommending to Council the existing program with three options: one is joint responsibility (the Task Force recommendation), two is stay with existing, and three is if you choose joint responsibility, we are recommending that you wait until July 1, 2001.

At this time, there was a brief discussion of the cost of a sewer lateral replacement with regard to loan payment amounts.

7) OTHER

No other business.

8) ADJOURN

Meeting adjourned at 1:00 p.m.

These minutes are transcribed from notes and the tape recording of the Task Force meeting on August 17, 2000, as an overview of the meeting. They are not verbatim. The attachments are to the file copy only. Copies of the attachments were distributed at the meeting.

Linda Nelson, Staff Assistant II
September 13, 2000

Attachments:
Attendance Sheet (file copy only)
Sewer Lateral Memorandum (file copy)

These minutes were adopted at the September 21 Task Force Meeting with a correction to attendance as noted.