The City of Allen continues to face water and sewer fund operating cost increases from the North Texas Municipal Water District (NTMWD) as well as the need to fund water and sewer system maintenance and capital improvements internal to the City's water and sewer systems. We are also experiencing increased internal expenses that are due to City growth and requirements to comply with the wastewater Capacity, Management, Operations and Maintenance (CMOM) Program.  The City developed the CMOM program following a 2015 inspection by the Environmental Protection Agency (EPA) and the Texas Commission on Environmental Quality (TCEQ).  It is also important that the City plan water and sewer rates to assure the Water and Sewer Fund can financially support new water and sewer infrastructure, have the capital improvement funding to replace or rehabilitate the older parts of the water and sewer system reaching the end of their life cycles, and pay its debt service.

Almost all of the revenues in the water and sewer fund are from water and sewer charges to customers.  Water revenues make up about 55 percent of the total fund revenues while wastewater revenues make up about 40 percent of the total fund revenues.  Water revenues are obviously a function of water usage and this usage is susceptible to the unpredictability of the weather.  Additionally, water revenues are reduced when the area enters drought conditions and water usage for landscape irrigation becomes constrained by drought declaration.  Water revenues naturally increase in the four to five hotter, dryer months of the year.  Sewer revenues are not susceptible to unpredictable weather and droughts.

NTMWD Cost Increases:

In the FY19 projected water and sewer fund budget, NTMWD expenses to the City for water and wastewater represent about 60 percent of all fund expenses.  The District's rates are accelerating due to costs associated with providing water and wastewater services in a rapidly growing service area, to provide for the operations and maintenance (O&M) of its aging infrastructure, and to make expenditures/investments related to increasing Federal and State regulation.  A list of the key projects and related costs are provided in the table below.

For Fiscal Year 2019, NTMWD's most current projection for wholesale water rate increase (provided on August 17, 2018) is from $2.78 per thousand gallons in FY18 to $2.92 per thousand gallons in FY19.  This is a five percent rate increase. Previously NTMWD projected a ten percent water rate increase to $3.06 per thousand gallons.  The difference in wholesale cost increase allowed the city to reduce the rate increase projected for City customers from a ten percent rate increase to a seven percent rate increase.  Staff adjusted the FY19 budget to reflect the reduced NTMWD wholesale cost increase.

For Fiscal Year 2019, NTMWD's most current projection for wholesale wastewater transport and treatment rate increase is from $3.55 per thousand gallons to $3.82 per thousand gallons.  This is about an eight percent rate increase.  As FY19 sewer rate increases were not changed from NTMWD's previously projected values, the City sewer rate increase remained at the FY19 cost increase of ten percent calculated in the 2017 Rate Study.

Two actions by the Allen City Council significantly reduce required rate increases. Those two actions were:

1. In July 2017, City Council approved significant increases in both water and sewer Impact Fees.  These are fees paid by new residential and commercial developments to help mitigate the cost of development of new water and sewer infrastructure that will serve the new customers.  The cause of the impact fee increases City Council approved are largely due to NTMWD's ongoing infrastructure development.  In our 2017 Water and Sewer Rate Study we allocated 74 percent of water impact fees and 64 percent of wastewater impact fees to the Water and Sewer Fund to pay for NTMWD charges.  Between Fiscal Years 2018 and 2027, these fees will offset $15.75 million in NTMWD charges that the City would otherwise have passed along to customers as part of their annual rate increases.
2. For years, the City funded water and sewer related capital improvements on a "Pay as You Go"  basis.  The fund faces significant costs for projects to replace aging water and wastewater lines in a number of older subdivisions.  There are also costs for smaller scale projects that happen on a regular basis like the periodic painting of water tanks.  City Council approved the issuance of Revenue Bonds by the water and sewer fund to cover the costs of three large-scale capital projects with an anticipated cost of $24.2 million.  This measure allows these substantial costs to spread over a 15 or 20 year time, thereby reducing the need for near-term water and sewer rate increases.

All water and sewer rate increases are applied to both the minimum bill and the volumetric charge on water and sewer accounts.  In the Water and Sewer Rate Tables below, the current rate resolution charges that took effect November 1, 2017, are shown in the rates in the column titled "Nov 17."  The proposed rates appear in the column titled "Nov 18."  The Tables below provide a representative summary of water and wastewater billing charges by rate class and meter size.  The attached Rate Resolution provides a complete reference of all rate classes and rates.

The city uses 10,000 gallons as a benchmark for measuring the monthly cost impact of water rate increases as the average Allen residential annual monthly water use is well under 10,000 gallons. The combined monthly impact of the recommended water and wastewater rate changes on a residential account using 10,000 gallons: The current $89.95 bill would increase to $97.65, an increase of $7.70 per month.

The combined monthly impact of the recommended water and wastewater rate changes on a commercial account with a 2-inch water meter using 50,000 gallons: The current $438.88 bill would increase to $475.27, an increase of $36.99 per month.

The proposed rate resolution also establishes volumetric charges (surcharges) for periods of constrained water supply in Section 3 of the resolution. This section of the rate resolution is intended for initiation based upon the North Texas Municipal Water District requesting a drought rate surcharge to be implemented as a result of constrained water supply. Section 3 of the rate resolution reflects rate surcharges from 25 percent up to 150 percent. The surcharge amounts are not applied to inside building (domestic) uses in the non-residential rate category.  The surcharge is applied to residential consumption above 15,000 gallons; and the irrigation, fire protection, and construction (fire hydrant meter) rate classes above 1,500 gallons of usage. The resolution specifies the initiation and termination of a rate surcharge to be upon NTMWD's request; with the charge being initiated and/or terminated on billings mailed the first day of the month after NTMWD requests the charge to be initiated or terminated.

Staff recommends the City Council adopt a Resolution implementing the Water and Sewer rate increases recommended for Fiscal Year 2018-2019.

I make a motion to adopt Resolution No. _____ setting new rates for residential and commercial water and sewer services.