[CALL TO ORDER]
[00:00:03]
>> I HEREBY CALL THE CITY COUNCIL SPECIAL MEETING TO ORDER.
IT IS DECEMBER 14TH, 2022 AT 6:00 P.M. AT THIS TIME, I WILL ASK MR. OLSEN, DO WE HAVE A QUORUM?
>> MADAM MAYOR, YOU HAVE A SUPER QUORUM.
VERY GOOD. WE WILL NOW DO THE PLEDGES OF ALLEGIANCE.
MR. STANDRIDGE, WOULD YOU LEAD US IN THE AMERICAN PLEDGE AND MS. ASTERISK, WOULD YOU LEAD US IN THE TEXAS PLEDGE?
>> I DON'T HAVE IT 100% MEMORIZED. [LAUGHTER]
AT THIS TIME, PADDY, DO WE HAVE ANY PUBLIC COMMENTS? ARE THERE ANY PUBLIC COMMENTS? ANYBODY HERE? NOT HEARING ANY.
THEN WE WILL MOVE ON TO THE WATER RIGHTS STUDY.
[WATER RATE STUDY]
>> WE HAVE DAN JACKSON WITH WELDING AND HE'S THE ONE THAT IS DOING THE PRESENTATION TONIGHT.
AND WE ALSO HAVE DENNIS GROLL. SORRY.
>> THIS IS REPEAT FOR YOU, ISN'T IT WITH CITY OF PARKER?
I'VE HAD THE PRIVILEGE OF BEING THE TOWN'S RATE CONSULTANT FOR THE BETTER PART OF THE LAST DECADE.
>> AND I VERY MUCH APPRECIATE THE CHANCE TO COME BACK BEFORE YOU TONIGHT.
I HAVE ABOUT 35 YEARS EXPERIENCE DOING WATER AND WASTEWATER RATE CONSULTING I WORK FOR ALL OF YOUR NEIGHBORS.
WE WORKED FOR ALAN PLANO MCKINNEY, FAIR VIEW.
THEN ALICE DEAN, CHAIRMAN DENNISON.
AND SO UNFORTUNATELY I CAN BE THE BEARER OF BAD NEWS TO A LOT OF DIFFERENT COMMUNITIES.
BECAUSE MANY COMMUNITIES ARE FACING THE SAME ISSUES THAT YOU'RE FACING HERE.
THAT IS THAT THE COST OF WATER SERVICE CONTINUES TO INCREASE AS WE GO THROUGH THE 21ST CENTURY.
THE CHALLENGE YOU FACE AS A UTILITY IS HOW TO PASS THROUGH THESE COSTS TO YOUR ULTIMATE RATE PAYERS IN A WAY THAT GETS YOU THE REVENUE YOU NEED WHILE, TO THE BEST EXTENT POSSIBLE MINIMIZES THE IMPACT OF ANY RATE INCREASES ON YOUR CUSTOMERS.
OBVIOUSLY, NOBODY WANTS TO PAY MORE FOR ANYTHING AT ANYTIME FOR ANY REASON.
I KNOW THAT YOU UNDERSTAND THAT.
I DON'T WANT TO DO THAT MYSELF.
BUT AS COSTS GO UP, YOU ALSO HAVE AN OBLIGATION TO ENSURE THAT YOUR UTILITY REMAINS FULLY FUNDED.
AS YOU'RE GOING TO SEE FROM THIS HOPEFULLY RELATIVELY BRIEF PRESENTATION, YOU'LL SEE THAT MANY OF THE COSTS THAT ARE INCREASING OR GOING UP FOR REASONS THAT ARE OUTSIDE OF YOUR CONTROL.
SO WHAT WE'RE GOING TO DO IS WE'RE GOING TO START BY TALKING A LITTLE BIT ABOUT YOUR RATES THEMSELVES, WHAT PEOPLE PAY, HOW IT COMPARES TO SOME OF YOUR NEIGHBORS.
THEN WE'LL TALK ABOUT YOUR CUSTOMERS AND YOUR VOLUMES, AND THEN YOUR COST OF SERVICE.
IN OTHER WORDS, HOW MUCH WATER YOU'RE PRODUCING AND HOW MUCH DOES IT COST YOU TO PRODUCE IT? THEN WE'LL GO THROUGH A COUPLE OF DIFFERENT RATE PLANS SCENARIOS.
WE SPENT A LOT OF TIME WITH STAFF DISCUSSING SOME DIFFERENT POTENTIAL ALTERNATIVE PLANS FOR FINANCING YOUR WATER AND SEWER UTILITY.
THOSE ALTERNATIVE PLANS WILL HAVE DIFFERENT IMPACT ON YOUR RATES.
WE'LL GO THROUGH EACH OF THOSE.
THEN WE'LL SUMMARIZE IT BY SOLICITING INPUT FROM YOU AND TALKING ABOUT THE NEXT STEPS.
THIS IS AN INFORMATIONAL PRESENTATION ONLY.
WE'RE NOT GOING TO BE ASKING THE COUNCIL TO MAKE ANY DECISIONS TONIGHT.
ONE OF THE MANY THINGS I'VE LEARNED IS THAT YOU DON'T THROW A BUNCH OF NUMBERS AT PEOPLE AND THEN SAY, MAKE A DECISION.
PLUS RATE-MAKING IS A POLICY DECISION.
YOU HAVE TO WEIGH THIS DATA AGAINST THE POLICIES THAT YOU WANT TO PURSUE.
WHAT WE ASK YOU TO DO IS REVIEW THIS PRESENTATION, GO OVER IT, THINK ABOUT WHAT WE TELL YOU AND THEN WE'LL COME BACK AT A LATER DATE IN WHICH TIME HOPEFULLY YOU'LL BE READY TO EMBARK ON THE PLAN OF YOUR CHOICE.
LET'S TALK A LITTLE BIT ABOUT RATES IN GENERAL.
AS I ALLUDED TO AT THE BEGINNING OF THIS, PRESENTATION, RATES ARE GOING UP, THEY'RE GOING UP ALL OVER THE COUNTRY.
THE AVERAGE UTILITY HAS BEEN INCREASING ITS RATES BY 5-6 PERCENT EVERY YEAR, AND THAT TREND IS EXPECTED TO CONTINUE.
AS A MATTER OF FACT, THE AMERICAN WATERWORKS ASSOCIATION FORECASTS THAT WATER AND WASTEWATER RATES WILL TRIPLE IN THE UNITED STATES IN THE NEXT 15 YEARS.
[00:05:02]
A LOT OF REASONS WHY IT'S HAPPENING OR DUE TO FACTORS THAT ARE BEYOND YOUR CONTROL, THE INFLATION RATE, COST TO EVERYTHING GOES UP BY 3-4 PERCENT A YEAR.AND AS WE'VE ALL SEEN, THE INFLATION RATE IS EVEN HIGHER RIGHT NOW.
THAT IMPACTS ALL BUSINESSES, AND REMEMBER, YOU TRY TO RUN YOUR WATER OPERATION LIKE A BUSINESS.
YOU HAVE COSTS, YOU'VE GOT PERSONNEL COSTS, YOU'VE GOT REPAIR COSTS, YOU'VE GOT OPERATING COSTS.
AS THOSE COSTS GO UP, YOU'VE GOT TO PASS THOSE COSTS THROUGH TO YOUR RATE PAYERS.
BUT YOU DO HAVE ONE ADVANTAGE THAT OTHER BUSINESSES DON'T HAVE.
AND THAT IS YOU'RE A NON-PROFIT ENTITY.
YOU'RE NOT IN THIS TO MAKE MONEY.
YOU DON'T HAVE STOCKHOLDERS, YOU DON'T HAVE PROFIT MARGINS.
ALL YOU'RE ASKING YOUR RATE PAYERS TO DO IS PAY WHAT IT IS COSTING YOU TO PROVIDE THAT SERVICE.
AND AS YOUR COSTS GO UP, YOU'VE GOT TO PASS THOSE COSTS THROUGH.
NOW ONE THING THAT'S VERY IMPORTANT AS WE GO THROUGH THESE NEXT COUPLE OF PAGES AND SHOW YOU HOW YOUR RATES COMPARED TO SOME OF YOUR NEIGHBORS.
KEEP THIS IN MIND. 30-40 PERCENT OF UTILITIES IN THE UNITED STATES CHARGE RATES THAT DO NOT COVER THEIR COSTS.
SO JUST BECAUSE A NEIGHBORING UTILITIES RATES MAY BE LOWER THAN YOURS, THAT DOESN'T MEAN THAT THEY RUN A MORE EFFICIENT OPERATION OR THEIR COSTS ARE LOWER.
IT MIGHT VERY WELL MEAN THAT THEY'VE DECIDED TO SUBSIDIZE THEIR WATER FUND FROM THE GENERAL FUND.
IT'S NOT NECESSARILY GOOD FINANCIAL POLICY, BUT IT'S CERTAINLY NOT ILLEGAL.
ALSO, WE WORKED FOR SOME UTILITIES HAVE INCREDIBLY LOW RATES.
THEY HAVE LOW RATES BECAUSE THEY DON'T PUT ANY MONEY INTO THEIR SYSTEM.
THEIR SYSTEM IS LITERALLY HELD TOGETHER WITH DUCT TAPE AND BAILING WIRE.
IS THAT A GOOD WAY TO RUN A WATER SYSTEM? NOT NECESSARILY.
AS I SAID EARLIER, THE CHALLENGE YOU FACE IN OPERATING AND MANAGING YOUR WATER UTILITY IS GETTING THE REVENUE YOU NEED WHILE BALANCING THAT AGAINST HOW MUCH RATE PAYERS ARE WILLING TO SPEND.
IT'S A VERY DIFFICULT DECISION AND IT'S GOING TO VARY FOR EVERY DIFFERENT UTILITY.
WE'VE TALKED ABOUT THE INDUSTRY IN GENERAL.
LET'S TALK ABOUT CITY OF PARKER IN PARTICULAR.
YOU ACTUALLY HAVEN'T RAISED YOUR RATES IN A COUPLE OF YEARS.
MOST CITIES RAISE THEIR RATES EVERY YEAR.
HOWEVER, UNFORTUNATELY, COSTS ARE CONTINUING TO GO UP.
AND AS I SAID EARLIER, WITH INFLATION AND AN 8-9 PERCENT MARGIN, THAT'S REALLY PUTTING A LOT OF STRESS ON YOUR BUDGETS RIGHT NOW.
FURTHERMORE, YOU HAVE PLANS TO FUND ABOUT $12.4 MILLION IN CAPITAL IMPROVEMENTS.
THAT'S NOT SURPRISING FOR A UTILITY YOUR SIZE.
UTILITY COST MILLIONS OF DOLLARS TO BUILD A WATER SYSTEM, TO BUILD THOSE PIPES THAT PUSH THAT WATER THROUGH THE CITY TO GET TO ITS ULTIMATE RATE PAYER.
WELL, LIKE ANY OTHER ASSET THEY'RE GOING TO WEAR OUT OVER TIME.
AND SO YOU HAVE TO CONTINUE TO PUT MONEY INTO IT TO ENSURE THAT IT CONTINUES TO OPERATE PROPERLY.
BUT HOW YOU FUND THAT $12 MILLION IS GOING TO BE A KEY AS TO WHAT YOUR RATES ULTIMATELY BE.
ALSO, YOU BUY YOUR WATER FROM NORTH TEXAS MUNICIPAL WATER DISTRICT.
GUESS WHAT? THEY'RE GOING TO BE RAISING THEIR RATES DRAMATICALLY IN THE NEXT 10 YEARS.
YOU HAVE TO PASS THROUGH THOSE COSTS TO THE RATE PAYERS.
LOOK, I'M NOT CRITICIZING NORTH TEXAS.
THEY HAVE PROVIDED AN INCREDIBLY VALUABLE SERVICE.
WITHOUT NORTH TEXAS MUNICIPAL WATER DISTRICT, NORTH TEXAS REGION WOULD NOT BE WHAT IT IS TODAY.
CAN YOU IMAGINE EVERY CITY IN NORTH TEXAS TRYING TO DEVELOP ITS OWN WATER SUPPLY? AND IT WOULDN'T HAPPEN. BUT THEIR COSTS ARE GOING UP AND THEY'RE PASSING THESE COSTS THROUGH TO YOU.
ALL OF THESE FACTORS TOGETHER ARE RESULTING IN THE NEED FOR A NEW RATE PLAN? YES, RATES ARE GOING TO GO UP OVER THE NEXT 10 YEARS.
IT'S JUST NOT REALISTIC TO ASSUME THAT THEY'RE NOT.
SO LET'S SEE IF WE CAN DEVELOP A PLAN THAT MINIMIZES THOSE INCREASES AND STILL GETS YOU WHAT YOU NEED.
NEXT CHART. WHAT DO PEOPLE PAY FOR SERVICE? WELL, YOU HAVE MANY MORE WATER CUSTOMERS AND YOU DO WASTE-WATER.
THE LION SHARE YOUR SYSTEM IS WATER.
YOU HAVE A RATE STRUCTURE THAT IS FAIRLY COMMON.
YOU CHARGE FOR WATER IN TWO WAYS, YOU CHARGE A MINIMUM CHARGE OF $40 AND INCORPORATES THE FIRST 4,000 GALLONS OF SERVICE.
AFTER THAT, YOU PAY WHAT'S CALLED AN INVERTED BLOCK RATE.
THE MORE PEOPLE USE, THE MORE THEY PAY.
AS YOU CAN SEE, IF YOU USE 4-15,000 GALLONS, YOU PAY $4.35 AND THAT EVENTUALLY GOES UP TO $14.85 IF YOU USE MORE THAN 70,000 GALLONS.
THE IDEA IS TO ENCOURAGE CONSERVATION BY ENSURING PEOPLE GET THE WATER THEY NEED.
BUT FOR MORE AND MORE DISCRETIONARY AMOUNTS OF WATER USAGE LIKE LAWN WATERING, CAR WASHING, AND FILLING SWIMMING POOLS, THAT WATER IS PAID FOR AT A HIGHER RATE.
WE HAVE AN OLD SAYING, IF WE ECONOMISTS, AND THAT IS IF YOU RAISE THE PRICE OF SOMETHING, YOU GET LESS OF IT.
AND SO AS GREATER USES OF WATER BECOMES MORE EXPENSIVE, IT PROVIDES PEOPLE WITH A POWERFUL INCENTIVE TO USE ONLY THE AMOUNT OF WATER THAT'S NECESSARY.
NOW IN THE WASTEWATER SYSTEM, YOU ONLY HAVE A FEW HUNDRED ACCOUNTS, BUT 400 OR SO ACCOUNTS.
YOUR MONTHLY CHARGE IS ABOUT $78.
UNFORTUNATELY, THAT IS HIGHER THAN MANY CITIES THAT HAVE TENS OF THOUSANDS OF ACCOUNTS LIKE MCKINNEY AND PLANO AND FAIR VIEW AND CITIES LIKE THAT.
[00:10:08]
THE GENERAL WAY WATER SYSTEMS WORK IS THAT THEY USE A PRINCIPLE CALLED ECONOMIES OF SCALE.THE MORE ACCOUNTS YOU HAVE, THE MORE EFFICIENT IT IS TO PROVIDE SERVICE TO THEM.
IF YOU ONLY HAVE A FEW HUNDRED ACCOUNTS AND THEY'RE SCATTERED ROUTE THROUGH THE CITY LIKE THEY ARE HERE IN PARKER, THEN IT'S GOING TO COST MORE TO PROVIDE SERVICE TO THEM.
WHAT DO PEOPLE ACTUALLY PAY FOR SERVICE? WELL, IF YOU'RE A 10,000 GALLON WATER USER, AND THAT'S ABOUT THE AVERAGE USAGE LEVEL FOR MOST CITIES IN THE UNITED STATES.
HERE IN THE CITY OF PARKER FOR WATER SERVICE ONLY, IT DOESN'T INCLUDE WASTEWATER, JUST WATER, YOU PAY $66 A MONTH FOR THAT SERVICE.
AS YOU CAN SEE, IT ACTUALLY COMPARES PRETTY FAVORABLY TO A LOT OF YOUR NEIGHBORS.
YOU ARE A LITTLE HIGHER THAN FRISCO AND ROCKWELL, BUT YOU'RE LOWER THAN MANY OF YOUR OTHER NEIGHBORS.
SO RIGHT NOW, YOUR WATER RATES COMPARE PRETTY FAVORABLY AND YOU'RE AT OR BELOW THE STATE AVERAGE AS WELL.
I CAN TELL YOU THIS, ALMOST ALL OF THOSE CITIES THAT LISTED HERE ARE GOING TO RAISE THEIR RATES IN THE NEXT COUPLE OF YEARS.
HOW I KNOW THAT, BECAUSE I'M GOING TO BE DEVELOPING THEM, DO THAT.
BUT NONETHELESS, WHILE YOUR COSTS ARE GOING UP, THEIR'S ARE TOO.
SO THE RATE PLAN THAT WE PRESENT TO YOU WILL NOT MATERIALLY CHANGE WHERE YOUR RATES FALL INTO.
LOOK, YOUR RATES ARE ABOUT WHERE YOU EXPECT THEM TO BE YOUR HIGHER THAN SOME, YOU'RE LOWER THAN OTHERS, AND YOUR RATES ARE CERTAINLY NOT OUT OF PROPORTION TO WHAT PEOPLE PAY FOR WATER SERVICE.
>> YOU'RE SHOWING THAT AS AN AVERAGE RATE? I WOULD SAY THAT BECAUSE OF THE LARGE LOT SIZE THAT WE HAVE IN PARKER, THAT OUR AVERAGE PERSON IS NOT USING 10,000. [BACKGROUND]
>> THE AVERAGE IF YOU COMBINE EVERYTHING IS ABOUT 17,000.
REALLY BIG LOAD THAT ARE USING A LOT.
>> MOST OF THEM ARE, WE'RE ONE-ACRE MINIMUM.
>> WHAT WILL HAPPEN IS YES AS YOU USE GREATER AMOUNTS, YOU WILL PAY MORE AND SO ALL THE OTHERS TOO, BECAUSE ALMOST ALL OF THESE UTILITIES ALSO HAVE AN INVERTED BLOCK RATE STRUCTURE AS WELL.
PLANO, FOR EXAMPLE, HAS A RATE STRUCTURE WHERE THEY CHARGED ONLY 60 CENT PER 1,000 GALLONS FOR THE FIRST 3,000 GALLONS.
BUT IT RAPIDLY GOES UP AND IF YOU'RE BEYOND, I THINK 25,000 GALLONS, YOU PAY $8.5.
AS YOU CAN SEE, RATES VARY GREATLY AMONG COMMUNITIES.
I'M GOING TO TURN THIS OVER TO DENNIS NOW AND HE'S GOING TO WALK YOU THROUGH SOME OF THE CUSTOMERS AND VOLUMES AND THE REVENUE REQUIREMENTS.
>> QUICK QUESTION, WOULD YOU LIKE US TO ASK QUESTIONS AS YOU GO ALONG?
>> ABSOLUTELY. PLEASE DO BECAUSE THAT WAY IT'LL STAY FRESH IN YOUR MIND.
I'LL MAN THE COMPUTER FOR YOU.
>> AGAIN, LET ME INTRODUCE MYSELF, I'M DENNIS GORY.
I'M SENIOR ANALYST AT WILDONE AND I'LL BE TALKING TO YOU ALL ABOUT THE ASSUMPTIONS WE USE TO DEVELOP THE RATE PLANS.
FIRST, WE'LL TALK ABOUT YOUR CUSTOMERS, YOUR ACCOUNTS, AND YOUR BILLING UNITS.
THEN WE'LL TALK ABOUT COST OF SERVICE AND THEN WE'LL GET TO THE RATE PLAN ITSELF.
FOR FISCAL YEAR 2022, THE TOTAL WATER ACCOUNTS ARE ABOUT 2,032.
TO NO SURPRISE, THE VAST MAJORITY OF THOSE ACCOUNTS ARE RESIDENTIAL AT ABOUT 1,895, WITH THE REMAINDER BEING SOME IRRIGATION AND ABOUT 91 OUTSIDE CITY CUSTOMERS.
FOR WASTEWATER ACCOUNTS, YOU ONLY HAVE 423 RESIDENTIAL ACCOUNTS.
THE GROWTH WE ARE USING FOR THE WATER ACCOUNTS IS ABOUT 61 NEW ACCOUNTS PER YEAR, WHICH IS A LITTLE BIT LESS THAN YOUR HISTORIC GROWTH BUT WE WANT TO STAY A LITTLE BIT MORE ON THE CONSERVATIVE SIDE.
FOR WASTEWATER ACCOUNTS, WE'RE ONLY USING ABOUT FIVE ACCOUNTS PER YEAR UNTIL THEY REACH BUILD-OUT PRETTY MUCH.
LET'S LOOK AT THE BILLING UNITS NOW.
IN FISCAL YEAR 2018, YOU BUILD ABOUT 397 MILLION GALLONS.
IN FISCAL YEAR 2022, YOU BUILD ABOUT 426 MILLION GALLONS AND WE'RE FORECASTING THAT FISCAL YEAR 2031, YOU'RE GOING TO REACH 541.9 MILLION GALLONS.
THAT'S AN AVERAGE ANNUAL GROWTH RATE OF ABOUT 2.7 PERCENT.
ONE THING I WANT YOU TO KEEP IN MIND, IN REALITY, THOSE BARS ARE GOING TO JUMP A LITTLE UP AND DOWN FROM YEAR TO YEAR BASED ON WEATHER PATTERNS.
THE HOTTER THE YEAR, THEY'LL USE MORE WATER, THE WETTER THE YEAR THEY'LL USE LESS WATER. YES, SIR.
>> ONE MINUTE. THAT GROWTH OF THE WAY I UNDERSTOOD THAT GRAPH IS THAT'S JUST GROWTH BASED ON THE GROWTH OF THE CITY ESSENTIALLY, RIGHT?
>> YES, SIR. THAT'S TIED TO YOUR NUMBER OF ACCOUNTS, A NEW ADDITIONAL ACCOUNTS, AND THE AVERAGE CONSUMPTION FOR THOSE ACCOUNTS.
WHAT ARE THE MAJOR FACTORS THAT ARE DRIVING THE NEED FOR RATE INCREASES? THERE ARE THREE MAJOR FACTORS THAT WE CAN SEE IN THE CITY THAT ARE GOING TO DRIVE THE NEED FOR RATE INCREASES.
FIRST FACTOR IS NORTH TEXAS MUNICIPAL WATER DISTRICT.
FOR WATER, NORTH TEXAS MUNICIPAL WATER DISTRICT IS PROJECTING ABOUT 11-13 PERCENT PER YEAR UNTIL 2024.
[00:15:05]
AFTER THAT, THEY'RE GOING TO DO ABOUT 5-9 PERCENT.THAT'S A LOT HARDER THAN THEY'VE DONE IN THE PAST 10 YEARS.
FOR WASTEWATER, IT'S EVEN HIGHER OF 12-20 PERCENT PER YEAR TO 2025, WHATEVER THE LOWER INCREASES AFTER 2025.
WHEN THEM BEING SUCH A BIG PART OF YOUR COST OF SERVICE AND WE'LL GET INTO THAT AS WELL.
WHEN THEY'RE DOING DOUBLE-DIGIT INCREASE, IT'S A LITTLE BIT DIFFICULT TO NOT PASS ON THE COST.
ALSO, THE SECOND FACTOR IS INFLATION.
INFLATION HAS BEEN AS HIGH AS EIGHT PERCENT IN THE LAST YEAR.
RIGHT NOW IT'S AROUND SEVEN PERCENT, BUT WE ARE ASSUMING A LITTLE BIT HIGHER INFLATION IN OUR MODEL IN 2023 AND 2024.
BUT THEN WE'RE REDUCING THAT BACK TO THREE PERCENT AND WE'RE ALL HOPING THAT IN TWO YEARS INFLATION RATE IS GOING TO BE ABOUT THREE PERCENT.
THE THIRD FACTOR IS YOUR CAPITAL IMPROVEMENT PLAN.
WE'RE ASSUMING ABOUT $12.4 MILLION IN THE NEXT 10 YEARS THAT YOU'RE GOING TO NEED TO INVEST IN YOUR FOREIGN CAPITAL IMPROVEMENTS.
HOW DID THAT FIGURE COME ABOUT?
>> OF COURSE, THERE'S A CHART RIGHT AFTER THIS THAT WE'LL BREAK IT DOWN AND I'LL EXPLAIN WHERE THE MAJOR CAPITAL IMPROVEMENTS THAT IS.
RIGHT AFTER THIS CHART, THERE IS A CAPITAL IMPROVEMENT CHART WE'LL GO OVER.
AFTER I PRESENT THE COST OF SERVICE, WE'RE GOING TO PRESENT YOU WITH THREE DIFFERENT RATE PLANS.
SCENARIO 1, WE'RE GOING TO ASSUME THAT MAJORITY OF THAT $12.4 MILLION IN CIP IS GOING TO BE FUNDED THROUGH DEBT.
FOR SCENARIO 2, WE'RE GOING TO ASSUME THAT THERE IS NOT GOING TO BE ANY DEBT ISSUED ON THE MAJORITY AND ALL THE CIP IS GOING TO BE FUNDED JUST THROUGH RATE REVENUE.
IN SCENARIO 3, WE ARE GOING TO ASSUME THEY'RE GOING TO ISSUE A MAJORITY IN DEBT, BUT YOU DO NOT CHANGE YOUR MINIMUM CHARGE THAT $40 THAT EVERYBODY PAYS, YOU ONLY INCREASE THE VOLUMETRIC CHARGE, WHICH WILL HELP A LOT MORE LOW USAGE CUSTOMERS.
LET'S GO TO THE NEXT CHART. HERE'S THE CIP.
SO 12.4 MILLION, AS YOU CAN SEE, THERE'S NOT A LOT OF MAJOR PROJECTS OTHER THAN 2025 AND 2029.
THE 2025 PROJECT IS A REPLACEMENT OF A WATER LINE, WHICH IS GOING TO COST ABOUT SIX MILLION.
IN 2029, IT'S A NEW WATER TOWER, IS GOING TO COST ABOUT SIX MILLION AS WELL.
FOR SCENARIO 1 AND 3, WHERE WE ARE ASSUMING THAT YOU ARE ISSUING DEBT, YOU'RE GOING TO ISSUE SIX MILLION IN 2025 AND SIX MILLION IN 2029, WITH THE REMAINDER JUST BEING FUNDED THROUGH RATES. NEXT CHART, PLEASE.
>> I'M SCRATCHING MY HEAD ON THAT SIX MILLION IN 2029 FOR ANOTHER WATER TOWER BECAUSE WHERE WE ARE CURRENTLY RIGHT NOW WAS WITH ONE AND WE'RE ADDING A SECOND ONE AND THAT SHOULD TAKE US TO BUILD OUT.
I DON'T UNDERSTAND WHAT THE THIRD 2029 TOWERS ON THAT.
>> THAT'LL BE OUR SECOND WATER TOWER, ELEVATED STORAGE TOWER.
THE CITIES ALREADY GOT IT, IT'S IN WHITESTONE.
THE PROPERTY IS ALREADY THERE, IT'S ALREADY BEEN PLANNED FOR OUR SYSTEM.
>> THAT'S GOING TO BE ANOTHER SIX MILLION DOLLARS EVEN THOUGH WE HAVE ALL THE INFRASTRUCTURE ALREADY IN PLACE?
>> YES, SIR. JUST THE TOWER ITSELF IS GOING TO BE VERY EXPENSIVE.
>> [INAUDIBLE] NEW ELEVATED, IS THAT THE ONE?
>> YEAH. THEN WE ALSO HAD SOME SIX MILLION IN THERE FOR THE DUBLIN ROAD AND SOME OTHER PROJECTS THAT WE KNOW PROBABLY GOING TO BE COMING UP WITH.
>> THE WATER LINES I'M NOT OVERJOYED ABOUT.
I UNDERSTAND THAT OTHER ONE CAUGHT ME BY SURPRISE.
MAYBE I'M THE ONLY ONE BUT THAT SEEMS HIGH TO ME.
>> ACTUALLY, I THINK IT'LL BE LOW.
>> BY THE TIME IT'S ALL SAID AND DONE, IT MIGHT BE 9, 10 BY TIME WE GET TO THAT POINT.
>> WE DON'T WANT TO HEAR THAT PART. [LAUGHTER]
>> WE DON'T WANT YOU TO BE SURPRISED BY THAT.
>> YEAH. THIS IS JUST A PRELIMINARY NUMBER THAT WE GOT FROM JOHN BASED ON SOME TOWERS THAT WOULD BE GOING IN RIGHT NOW.
>> THAT'S TODAY'S RATES A WHILE BACK.
>> I DO WANT TO MENTION IN THIS PAST YEAR, CAPITAL COSTS HAVE BEEN INCREASING BY ABOUT 30 PERCENT.
WE NEVER KNOW HOW IT'S GOING TO BE IN 2029.
>> LET'S LOOK AT YOUR TOTAL COST OF SERVICE AND THAT REVENUE REQUIREMENT FOR THE WATER SIDE.
YOUR TOTAL COST OF SERVICE IN FISCAL YEAR 2022 IS ABOUT 3.2 MILLION.
WE'RE FORECASTING THAT TO INCREASE TO ABOUT 7.1 MILLION IN FISCAL YEAR 2031.
THAT'S ALTOGETHER JUST A LITTLE UNDER FOUR MILLION DOLLARS INCREASE.
NOW, I WANT YOU TO PAY ATTENTION TO THAT NORTH TEXAS MUNICIPAL WATER DISTRICT COLUMN.
IN FISCAL YEAR 2022, IT'S ABOUT 1.7 MILLION AND THEY PUT OUT THE RATE INCREASES GUARANTEED FOR NEXT FIVE YEARS AND THEN THEY HAVE ESTIMATES FOR THE LAST FIVE YEARS.
WITH THOSE RATE INCREASES, THAT'S GOING TO GO UP TO ABOUT $4.4 MILLION IN 2031.
WHICH BY ITSELF OVER HERE IS JUST A LITTLE BIT UNDER THREE MILLION DOLLARS, WHICH IS BIG MAJORITY OF YOUR TOTAL COST OF SERVICE INCREASE.
NOW, LET'S TAKE A LOOK AT THE FUTURE DEBT SERVICE.
>> DO THOSE PRICES INCLUDE WASTEWATER OR JUST WATER?
[00:20:05]
>> NEXT CHART IS THE WASTEWATER. [NOISE] YES, MA'AM.
>> CAN YOU HELP ME UNDERSTAND HOW THE NORTH TEXAS RATE ARE CHARGED? AS YOU LOOK AT NORTH TEXAS' SITE AND IT'S SAYS IT'S WHAT, $3.44 PER 1,000 GALLONS OF WATER.
BUT IF YOU TAKE THE CONSUMPTION THAT WE'VE GOT, IT DOESN'T WORK TO THE NUMBER THAT'S HERE.
IS THERE ANOTHER PIECE THAT'S IN?
THEY CHARGE BASED ON WHAT'S CALLED THE TAKE-HOME PAYMENT.
>> YOU HAVE A MINIMUM THAT YOU HAVE TO PURCHASE.
NOW, THE THING ABOUT PARKER IS YOU'RE PROBABLY GOING TO BE EXCEEDING YOUR TAKER PAY MOST YEARS BECAUSE YOU GROW BUT THEY'RE GOING TO BE CERTAIN YEAR THAT ARE, SAY WET YEARS, WHERE YOU DON'T USE YOUR TAKER PAY.
YOU DON'T ACTUALLY BUY AS MUCH WATER BUT YOU'RE STILL PAYING FOR IT ANYWAY.
THAT TENDS TO SKEW THE NUMBERS A LITTLE BIT, THAT MAKES IT NOT A ONE-TO-ONE COMPARISON OF A UNIT RATE AND THE AMOUNT OF ACTUAL DEBT.
>> OKAY. WE'LL DISCUSS IT A LITTLE FURTHER LATER BECAUSE IT SEEMS TO BE QUITE A BIT DIFFERENT IF YOU TAKE THE CONSUMPTION TIMES THE THREE-POINT FOR THE CURRENT YEAR, 3.0, 4 EVEN.
>> THERE'S ONE OTHER THING NEEDS TO BE KEPT IN MIND AND THAT IS THAT YOU'RE PAYING FOR WATER PRODUCED.
>> THERE'S SOMETHING CALLED DISTRIBUTION LOSS.
THE AMOUNT OF WATER THAT IS BUILT TO THE CUSTOMER IS LESS THAN THE AMOUNT OF WATER THAT IS ACTUALLY METERED AT YOUR TAPE POINT FROM NORTH TEXAS.
WHAT HAPPENS IS WATER GETS LOST WHEN IT GOES THROUGH THE SYSTEM.
THE MAIN REASON IT GETS LOST IS METERS THAT ARE UNDER REGISTERED AND END USERS METER.
THE OLDER THOSE METERS GET THOSE CUSTOMERS, THREE-QUARTER INCH METERS GET, THE OLDER THEY GET, THE MORE UNRELIABLE THEY BECOME.
THEY BECOME LESS ACTIVE, THEY GET OLD.
I CAN TELL YOU FROM PERSONAL EXPERIENCE WHEN YOU GET OLDER THINGS JUST DON'T WORK AS WELL.
[LAUGHTER] YOU'VE WATCHED MY GOLF GAME.
BUT WHAT HAPPENS IS THE METERS GET OLD AND THEY UNDER-REGISTER, SO THE WATER GOES THROUGH AND PEOPLE STILL USE IT, BUT THEY JUST END UP NOT GETTING CHARGED FOR IT.
METERS ARE CASH REGISTERS, THAT'S WHY IT'S ALWAYS VERY BENEFICIAL TO HAVE THOSE METERS AS UP-TO-DATE AS POSSIBLE.
ALSO, THERE CAN ALSO BE SOME LEAKAGE.
WATER SYSTEMS DO, WITH THE PARKER, I DON'T REALLY THINK THAT'S ALL [INAUDIBLE]
>> I THINK WE GOT IT DOWN PRETTY GOOD.
>> ALL WATER LOSSES IS LOW IN PARKER, WE'RE LESS THAN 10 PERCENT, WHICH IS VERY GOOD.
ANY SYSTEM THAT'S UNDER 10 PERCENT IS EXCEPTIONAL.
WE DEAL WITH WATER SYSTEM WITH VERY SOPHISTICATED COMMUNITIES THAT HAVE WATER LOSSES OF 25-30 PERCENT.
BUT WHAT THAT MEANS IS THAT CONSUMED WATER CAN'T BE MULTIPLIED BY THE NORTH TEXAS RATE [INAUDIBLE] CHARGES.
>> I NEED TO KNOW THE PRODUCED NUMBER, CORRECT?
>> IS THE TAKER PAY BASED ON THE PRODUCED NUMBER?
>> IN YOUR ASSUMPTIONS, YOU'RE ASSUMING, WELL, SINCE THE TAKER PAY RESETS IF WE GO OVER THE TAKER PAY, IT WOULD BE THAT NUMBER FOR THE NEXT YEAR?
>> WHICH IS WHERE WE ARE RIGHT NOW IF I RECALL?
>> WE DON'T METER ALL OF OUR WATER.
.>> [INAUDIBLE] CHARGE OURSELVES.
CONSERVATION WATER LOSS, BUT GREG AND I HAD A CONVERSATION.
THERE'S A COMPANY THAT WE'RE GOING TO TALK TO YOU-ALL ABOUT THAT COMES IN AND EVALUATES OUR WATER LOSS SYSTEM.
SO WE'LL BRING THAT UP AT A DIFFERENT TIME.
>> BUT THE AMOUNT OF PRODUCED SEEMS TO BE IMPORTANT LOOKING AT THE DIFFERENCE IN JUST A SIMPLE CALCULATION OF WHAT WE'RE CHARGING FOR VERSUS WHAT WE'RE PAYING FOR.
I STILL HAVE MORE QUESTIONS, BUT THEY'RE MORE DETAILED ORIENTED.
>> THE WATER PRODUCED NUMBER, WHERE'S THAT DETERMINED? AT WHAT POINT? IS IT AT OUR PUMP STATION?
>> THERE'S A METER AT THE EAST END PUMP STATION THAT ALL THE WATER THAT NORTH TEXAS GIVES US COMFORT.
>> WHEN WE GET ANOTHER CONNECTION AT THE NEW PUMP STAGE, THERE'LL BE ANOTHER ONE THERE.
>> I WANTED TO MAKE SURE THAT WE'RE LOSING IT ON THE WAY HERE.
>> ONE LAST THING I WANT YOU TO PAY ATTENTION TO HERE ON THE WATER COST OF SERVICES, THE FUTURE DEBT SERVICE PORTION.
YOU CAN SEE YOU'RE GOING TO ISSUE DEBT IN 2025.
FIRST PAYMENT IS GOING TO BE IN 2026 OF ABOUT 454,000.
[00:25:04]
THEN YOU'RE GOING TO ISSUE NEXT ONE IN 2029 AND FIRST PAYMENT FOR THAT IS GOING TO BE IN FISCAL YEAR 2030 FOR A TOTAL OF 909,000.SO IF YOU COMBINE THE INCREASE OF 909,000 IN YOUR FUTURE DEBT AND THE INCREASE IN NORTH TEXAS, THAT ACCOUNTS FOR ABOUT 3.9 OUT OF YOUR $4 MILLION INCREASE IN TOTAL COST OF SERVICE AND THAT'S COMPLETELY OUTSIDE OF YOUR CONTROL.
SO LET'S LOOK AT WASTEWATER RIGHT NOW.
WASTEWATER, YOU DON'T HAVE ANY DEBT FOR WASTEWATER AND ALL YOUR CAPITAL IMPROVEMENTS ARE FOR WATER SO THAT YOU'RE NOT GOING TO ISSUE ANY FUTURE DEBT FOR THAT.
BUT YOUR TOTAL COST OF SERVICE FOR WASTEWATER IS 415,000 ABOUT AND THAT'S GOING TO REACH 818,000 BY FISCAL YEAR 2031.
I WANT YOU TO PAY ATTENTION TO THE NORTH TEXAS HERE AGAIN, BECAUSE HERE IT'S EVEN A HIGHER PERCENTAGE.
IT'S ABOUT 80 PERCENT OF YOUR TOTAL COST OVER 368,000 IN FISCAL YEAR 2022 AND THAT'S GOING TO PRETTY MUCH DOUBLED TO 757,000 IN FISCAL YEAR 2031, WHICH IS PRETTY MUCH 90 PERCENT OF YOUR TOTAL INCREASING YOUR COST OF SERVICE JUST FROM THAT.
>> WHAT'S THEIR INCREASE IN THE CURRENT YEAR 23 WOULD PERCENT INCREASE RATE?
>> IT'S 15-20 PERCENT IN THE NEXT THREE YEARS.
>> THAT'S CHARGED. THEY HAVEN'T TRANSPORTATION CHARGE, AND THEN THEY HAVE THE ACTUAL WASTEWATER CHARGE.
SO IT'S CHARGED WITH TWO DIFFERENT RATES WITH THAT.
THIS CHART RIGHT HERE SHOWS YOU THE COMBINED WATER AND WASTEWATER COST OF SERVICE.
THE RED PORTION IS NORTH TEXAS MUNICIPAL WATER DISTRICT.
THE BLUE PORTION IS YOUR OPERATING, YOUR GREEN PORTION IS THE CURRENT DEBT, AND THE PURPLE PORTION IS YOUR FUTURE DEBT.
AS YOU CAN SEE RIGHT NOW, YOUR TOTAL COST OF SERVICE IN FISCAL YEAR 2022 IS ABOUT 3.7 MILLION, AND THAT'S GOING TO GO TO ABOUT 8 MILLION IN FISCAL YEAR 2031.
LOOK HOW MUCH BIGGER THAT RED PORTION GETS ON EVERY YEAR ON YEAR.
RIGHT NOW IT'S ABOUT 60 PERCENT OF YOUR TOTAL COST OF SERVICE.
BY FISCAL YEAR 2031 IS GOING TO BE ABOUT 68 PERCENT OF YOUR TOTAL COST OF SERVICE.
A MAJORITY OF YOUR COST IS ABOUT 60-68 PERCENT AND THEY'RE INCREASING DOUBLE-DIGIT TO THEIR RATES.
THEY ARE THE ONES PROVIDING THE WATER AND THAT'S WHAT WE NEED TO KNOW.
>> I WOULD LIKE TO SEE THAT GRAPH IN 2022-27 [LAUGHTER]
>> SO NOW LET'S GET INTO THE RATE PLAN.
WE'RE GOING TO PRESENT YOU WITH THREE DIFFERENT RATE PLANS.
FOR FIRST OF ALL, WITH EACH RATE PLAN, WE RECOMMEND THAT YOU'RE GOING TO TAKE A FIVE-YEAR RATE PLAN THAT'S GOING TO GO INTO EFFECT ON OCTOBER 1ST OF EVERY YEAR, AUTOMATICALLY.
OF COURSE, YOU CAN ALWAYS GO BACK AND CHANGE IT, BUT THEN DO NOTHING APPROACH IS THAT IT DOES GO INTO EFFECTING TOTALLY RECOVERS THE MONEY IT NEEDS EVERY YEAR.
FIRST SCENARIO IS GOING TO ASSUME NO CHANGE IN YOUR RATE STRUCTURE.
YOU'RE GOING TO HAVE THE SAME PERCENTAGE TO YOUR BASE AND VOLUME.
AND IT ALSO ASSUMES THAT $12 MILLION OF YOUR CAPITAL IMPROVEMENT IS GOING TO BE FUNDED WITH LONG-TERM DEBT.
HOW DOES THAT AFFECT YOUR RATES? LET'S TAKE A LOOK.
SO YOUR CURRENT RATE OF $40 IS GOING TO GO UP TO 43.60 PERCENT IN FISCAL YEAR 2023.
YOUR VOLUME RATE OF YOUR FIRST TIER OF $4.35, IT'S GOING TO GO UP TO ABOUT $4.74 FISCAL YEAR 2023 AND SIMILAR PERCENTAGE ARE GOING TO BE FOR EVERY SINGLE TIER.
WE FORECAST THAT BY THE YEAR OF 2027, YOUR BASE CHARGE IS GOING TO BE 5932 AND YOUR VOLUME CHARGE IS GOING TO GO 435-645.
THIS IS GETTING A LITTLE HARD TO SEE.
LAST THING WE ALSO RECOMMEND IF YOU GO BACK, IS THAT YOU'RE OUTSIDE SET OF PREMIUM IS GOING TO BE 10 PERCENT STARTING FISCAL YEAR 2023.
YOUR WASTEWATER RATES, WE RECOMMEND THAT YOU RAISE THEM FROM $78.98-$86 AND I WANT YOU TO GO TO THE EYE, DOCTOR. HERE WE GO.
THAT'S GOING TO GO UP ALL THE WAY TO $123.75 IN FISCAL YEAR 2027.
LET'S LOOK HOW THAT IMPACTS YOUR BILLS.
THAT'S YOUR RATES THEMSELVES, BUT HOW DOES THAT ACTUALLY IMPACT YOUR BILLS? SO LET'S TAKE A LOOK AT THAT 10,000 GALLON USER.
A 10,000 GALLON WATER USER, HIS BILL RIGHT NOW IS $66.10.
THAT'S GOING TO GO UP BY ABOUT $5.95 TO $72.05, OR ABOUT A NINE PERCENT INCREASE.
WE RECOMMEND THAT IN FISCAL YEAR 24, YOU DO ANOTHER EIGHT PERCENT INCREASE, ANOTHER EIGHT PERCENT IN 25, EIGHT PERCENT IN 26 AND EIGHT PERCENT IN 27,
[00:30:03]
TO A TOTAL OF ABOUT $98.02 FOR YOUR 10,000 GALLON USER.OF COURSE, IF YOU USE LESS, THE PERCENTAGE WILL REMAIN THE SAME, BUT THE NUMBER WILL BE A LITTLE BIT LOWER.
IF YOU USE MORE, THE PERCENTAGE WILL REMAIN THE SAME, BUT THE ACTUAL DOLLAR AMOUNT WILL BE A LITTLE BIT HIGHER.
NOW, LET'S TAKE A LOOK AT SCENARIO.
THIS IS HOW YOU WILL COMPARE IT TO YOUR SURROUNDING CITIES IF YOU DO THIS RATE PLAN.
YOUR PROPOSED RATES FOR SCENARIO 1, IT'S GOING TO BE $72.05, WHICH MAKES YOU STILL VERY COMPETITIVE WITH YOUR SURROUNDING CITIES AND WAY BELOW THE SAMPLE AVERAGE.
ONE THING TO NOTE HERE, MANY OF THESE PEOPLE ARE ALSO NORTH TEXAS CUSTOMERS, NORTH TEXAS MUNICIPAL WATER DISTRICT.
SO THEY'RE GOING TO HAVE TO ADJUST THE RATES ACCORDINGLY AS WELL.
>> THAT RICH STRUCTURE THAT YOU'RE ON THE WELL, ON THAT ONE.
>> YEAH, HERE YOU HAVE, THIS IS JUST WATER, CORRECT?
>> CORRECT. BECAUSE THE WASTEWATER IS GOING TO GO UP JUST BY THE BASE CHARGE AMOUNT.
THERE'S NOT GOING TO BE A DIFFERENCE, BUT HOW MUCH CONSUMPTION YOU USE AND YOU HAVE ABOUT ONLY 400 WASTEWATER ACCOUNT. THIS IS JUST WATER.
>> I ALSO WANT TO MAKE SURE WASTEWATER IN WATER ISN'T COMBINED FOR ALL CUSTOMERS.
>> GO BACK TO THE SLIDE 1. THAT ONE.
PERCEPTION WAS, FIRST OF ALL, IT'S BEEN A 10,000 GALLONS [INAUDIBLE] IT'S HARD FOR ME TO FIGURE THAT OUT THE EVERYTHING.
>> PERSONALLY I DON'T USE THAT MUCH, BUT PERCEPTION WISE FOR THE RESIDENT, DO YOU FIND THAT RAISING THE RATES EVERY YEAR IS PERCEIVED AS A NEGATIVE THING VERSUS RAISING IT EVERY TWO YEARS AND RAISING IT AT A HIGHER AMOUNT?
>> OUR EXPERIENCE BASED ON MANY YEARS OF DOING THIS IS THAT RATE PAYERS TEND TO PREFER GRADUAL ANNUAL ADJUSTMENTS.
MOST RATIONAL RATE PAYERS UNDERSTAND THAT COSTS GO UP OVER TIME.
YOU DON'T PAY THE SAME FOR MCDONALD'S BIG MAC TODAY THAT YOU DID 10 YEARS AGO.
BY IMPLEMENTING AN ANNUAL ADJUSTMENT, YOU'RE REALLY MINIMIZING THE IMPACT ON HOUSEHOLD BUDGETS EACH YEAR.
WHERE SOME CITIES RUN INTO DIFFICULTIES IS THAT, THEY THINK THEY'RE DOING THE RATE PAYERS A FAVOR BY HOLDING RATES DOWN FOR SEVERAL YEARS, THEN THEY'VE GOT A BIG CAPITAL PROJECT THEY HAVE TO DO OR A BIG LINE OR A BIG NEW TOWER AND THEY'VE GOT TO ISSUE A BUNCH OF DEBT AND THEY HAVE TO DO A BIG RATE INCREASE.
WHAT HAPPENS IS RATE PAYERS FORGET ABOUT THE FACT THAT THE RATES HAVE AN INCREASE FOR THE LAST SEVERAL YEARS AND THEY JUST FOCUS ON THE FACT THAT THEIR BILL IS A LOT HIGHER NOW THAN IT WAS LAST MONTH.
I'VE HEARD THIS HAPPEN AND THE IRONIC THING IS, WHAT RATE PAYERS WILL SAY TO CITIES IS, "WHY DIDN'T YOU JUST RAISE MY RATE A LITTLE BIT EACH YEAR, THEN IT WOULDN'T HAVE BEEN SO BAD?" IF YOU'RE ONLY RAISING THE BILL A COUPLE OF DOLLARS A MONTH EACH YEAR, THEN PEOPLE HAVE A MUCH EASIER WAY OF ABSORBING THAT INTO THEIR HOUSEHOLD BUDGETS.
BUT IF YOU WAIT THREE YEARS AND DO A $25 A MONTH INCREASE, THEN THAT'S GOING TO IMPACT PEOPLE A LOT HARDER.
OUR RECOMMENDATION TO A CITY IS GRADUAL ANNUAL RATE ADJUSTMENTS.
ULTIMATELY, YOU AS THE COUNCIL WILL DECIDE WHAT THE BEST POLICY IS, BUT WE CAN JUST TELL YOU WHAT OUR EXPERIENCE HAS BEEN.
>> I HAVE ANOTHER QUESTION REGARDING THE GRADUATED RATES.
AS IT GETS IN THE HIGHER USAGE RATES YOU HAVE MUCH PUNITIVE, IF YOU WILL, TO TRY TO DETER THAT AND HAVE CONSERVATION.
HOWEVER I'VE LOOKED AT THIS AND I'VE LOOKED AT THIS AT A NUMBER OF CITIES ACROSS THE COUNTRY.
WHAT NORMALLY HAPPENS WHEN YOU DO THAT IS, YOU GET EXACTLY WHAT YOU HAVE INCENTIVIZED.
IT'S THAT YOU WILL GET PEOPLE TO USE LESS WATER.
THEN WHAT IN TURN HAPPENS IS THAT, YOUR REVENUE IS LESS.
THEN YOU'RE IN THE SAME BOAT AGAIN, IS THAT YOU HAVE A RATE WHERE YOU'RE COMING IN AND YOU PROJECTED THAT IT WAS GOING TO BE AT A CERTAIN LEVEL.
BUT IN FACT WHAT HAPPENS IS THAT, YOU'RE NOT WHERE YOU NEED TO BE AND NOW YOU NEED TO INCREASE RATES FURTHER.
I THINK THOSE POLICIES ARE BAD.
IN OUR CASE I KNOW THAT OUR TAKER PAY WERE ON THE UPPER END OF THAT AS WE GROW.
HOWEVER, IN SOME CASES IT ALMOST SEEMS BETTER TO INCENTIVIZE THOSE PEOPLE WHO USE THAT WATER BECAUSE THEY'LL ACTUALLY PAY THAT RATE THEN.
I JUST WANT TO KNOW WHAT YOUR THOUGHTS ARE THERE, BECAUSE I'VE STUDIED A NUMBER OF CASES ACROSS THE COUNTRY AND THIS HAPPENS ALL THE TIME.
WE PUT A HIGHER RATE IN AND YOU PUT A PUNITIVE RATE AND THE HIGHER LEVEL ON THE HIGHER RATE USERS.
THEY MAY BE DOING BETTER FINANCIALLY WHERE THEY CAN AFFORD TO DO THAT THING, BUT WHEN IT GETS PUNITIVE, THEY SAY,
[00:35:01]
NO WAY AM I GOING TO DO THAT AND YOU IN FACT LOSE REVENUE.>> YOU'RE ABSOLUTELY RIGHT ABOUT THE IMPACT OF HIGHER RATES AND PARTICULARLY IN THESE HIGHER BLOCKS.
YOU WILL GET PEOPLE TO USE LESS WATER WHEN YOU PUT IN A GREATER FINANCIAL DISINCENTIVE.
IN OUR MODEL, WE HAVE WHAT'S CALLED AN ELASTICITY FACTOR THAT WE TRY TO FACTOR IN TO TAKE THAT INTO CONSIDERATION.
WE SHOW WATER USAGE IN THE HIGHER TIERS GOING UP AT A LESSER RATE DUE TO THESE RATE ADJUSTMENTS BEING IMPLEMENTED.
IT'S A BIT OF AN EDUCATED GUESS.
YOU'RE PREDICTING HOW PEOPLE ARE GOING TO BEHAVE SEVERAL YEARS IN THE FUTURE, BECAUSE ONE OF THE INTERESTING THINGS ABOUT WATER IS, WATER IS SOMETHING WE LITERALLY CAN'T LIVE WITHOUT.
WHAT'S THE PRICE YOU'RE WILLING TO PAY FOR IT? HOWEVER, THERE ARE CERTAIN ASPECTS OF WATER USAGE THAT YOU CAN LIVE WITHOUT.
I DON'T WANT MY LAWN TO BE BROWN, BUT AT THE SAME TIME THERE'S ONLY SO MUCH I'M WILLING TO PAY TO KEEP IT GREEN.
WHAT YOU DO IS, YOU PUT IN THE ELASTICITY FACTORS, YOU MAKE THE BEST EDUCATED GUESS BASED ON PRIOR USAGE HISTORICAL RECORDS AND YOU SEE WHERE YOU COME OUT.
THAT'S WHY WE ALSO RECOMMEND THAT EVEN IF YOU PUT IN A FIVE YEAR PLAN, THEN AT ABOUT MAYBE THREE YEARS OR SO YOU GO BACK IN AND TAKE A LOOK AT WHERE YOU ARE AS OPPOSED TO WHERE YOU THOUGHT YOU'D BE AND BE PREPARED TO ADJUST AS NECESSARY, BUT WE DO TRY TO TAKE INTO CONSIDERATION THE FACT THAT IT WILL NEGATIVELY IMPACT USERS AND PEOPLE WILL HAVE AN INCENTIVE TO USE LESS WATER.
>> WHEN YOU DID THIS CHART, I KNOW THAT OUR AVERAGE USER IS NOT AT 10,000.
IN FACT YOU SAID WHEN YOU DID IT, IT WAS 17. EASY MATH.
I'M GOING TO GO CLOSER TO THE 20,000 BECAUSE YOU HAVE THAT ON HERE.
THAT PUTS US AT 12,519 FOR OUR AVERAGE RESIDENT BASED ON THAT ROUGHLY.
ON THESE OTHERS ARE 10,000, IS THAT ACTUALLY THEIR AVERAGE OR DID YOU JUST THROW OUT A RANDOMIZED NUMBER?
>> WE LOOKED AT THEIR RATE SCHEDULE AND IF A USER IN ROY CITY USES 10,000 GALLONS, THAT'S WHAT THEY PAY.
>> BUT IS THAT THE AVERAGE USAGE IN THOSE CITIES? IS THAT THE AVERAGE RATE THAT THE RESIDENTS RECEIVE?
>> HERE IN THE NORTH TEXAS CORNER, A LOT OF THESE CITIES USE PRETTY CONSISTENT AMOUNTS, 8-10,000 GALLONS A MONTH.
IT'S WHAT YOU'LL SEE WITH A LOT OF THEM.
IN OTHER PARTS OF THE COUNTRY, YOU'LL SEE LESS USAGE, IN OTHER PARTS OF THE COUNTRY YOU'LL SEE MORE USAGE, BUT HERE IN THE NORTH DALLAS CORRIDOR, 8-10,000 GALLONS IS A GOOD BENCHMARK.
>> WE ARE ABOVE AVERAGE OF EVERYBODY ELSE.
>> YOU'RE DEFINITELY ABOVE AVERAGE.
>> THIS $103.60 IS BASED ON THEIR CURRENT RATES NOW, NOT THEIR PROPOSED RATES IN THE FUTURE.
LIKE I SAID I'M USING 20,000 [NOISE] GALLONS BECAUSE YOU HAD IT CALCULATED OUT HERE EASY FOR ME, $114.
IN THEORY, OUR AVERAGE USER DOES PAY MORE PER CAPITA THAN ANY OF THE OTHER CITIES AROUND ALREADY.
>> WELL, THAT IS TECHNICALLY CORRECT, BUT YOUR AVERAGE USER USES MORE OF THE PRODUCT.
>> ABSOLUTELY, BUT THEY HAVE TO KEEP THEIR GRASS SLIGHTLY MORE GREENER [OVERLAPPING].
>> IF WE STAY ON PAUSE ON LAND SIZE.
IF YOU HAVE A QUARTER ACRE LANDS AND MELON ARE PLANTED ON A LOT OF IT.
FOUR LOTS WOULD REALLY BE EQUIVALENT TO ONE LOT PARKER, BUT EACH INDIVIDUAL IS PAYING THAT.
IT'S ANOTHER THING ON THE CONSERVATION, IT'S ANOTHER CHALLENGE.
I KNOW THAT'S NOT YOUR PROBLEM, BUT THEY DO THE SAME THING AND THAT WE'RE REALLY NOT USING FOUR TIMES AS MUCH WATER.
WE'RE USING MAYBE 70 PERCENT MORE, BUT YET WE GET LOOKED UPON AS IF WE'RE USING FOUR TIMES MORE.
>> LUCAS IS RIGHT AT 17,000 ALSO, LOOKING AT THEIR REPORT.
THEY JUST RECENTLY ISSUED A REPORT.
>> THEIR AVERAGE IS ABOUT 17,000.
>> THAT MAKES SENSE BECAUSE THEY HAVE SIMILAR SITUATION TO WE DO IN THE LOT SIZES, BUT WHEN WE COMPARE THE PLAN OF OUR LAND WITH MCKINNEY, IT'S A TOTALLY DIFFERENT BALL GAME.
>> LET'S LOOK AT SCENARIO 2 RIGHT NOW.
SCENARIO 2 ASSUMES THAT YOU SHOULD KNOW THAT AT ALL TO FUND YOUR CAPITAL IMPROVEMENT PLAN, STILL CONTINUES TO FIVE-YEAR RATE PLAN IMPLEMENTATION ON OCTOBER OF EACH YEAR.
HOW DOES THIS WORK? THIS RESULTS IN HIGHER WATER RATE THAT YOU NEED EARLIER, LET'S LOOK AT THE RIGHT PLAN RIGHT NOW.
LET'S LOOK AT THE COST OF SERVICE FIRST BECAUSE THIS SHOWS A GREAT PICTURE.
FOR THE TOTAL COST OF SERVICE IN SCENARIO 1, LET'S LOOK AT FISCAL YEAR 2023.
IT'S GOING TO BE ABOUT 3.9 MILLION.
IF YOU DO NOT ISSUE DEBT, YOU NEED TO START PUTTING MONEY ASIDE FOR THE SIX MILLION DOLLAR PROJECT.
WHICH MEANS IF YOU ARE IN SCENARIO 2 IN 2023, YOU NEED $5.2 MILLION AS YOUR TOTAL COST OF SERVICE.
THIS DIFFERENCE BETWEEN SCENARIO 1 AND SCENARIO 2 IS
[00:40:04]
MUCH BIGGER AT THE BEGINNING BECAUSE YOU HAVE TO PUT A LOT MORE MONEY ASIDE AT THE BEGINNING, BUT IT GROWS MUCH SMALLER BY THE FISCAL YEAR 2031.AS YOU CAN SEE, FISCAL YEAR 2031 FOR SCENARIO 2 WILL BE ABOUT $8.3 MILLION COST OF SERVICE.
FOR SCENARIO 1, IT'S ABOUT 7.9.
SO IT'S A MUCH SMALLER DIFFERENCE COMPARED TO THE BEGINNING YEAR.
>> LET ME STOP YOU FOR A SECOND AND THEN MY QUESTION IS, WHY IS IT NOT LINEAR? WHY ARE WE BUILDING IT UP FRONT? WHY WOULD YOU NOT HAVE TO MAKE IT MORE OF A LINEAR?
>> WELL, IT IS LINEAR BECAUSE YOU TAKE THE SIX MILLION THAT YOU NEED IN 2025 AND SIX MILLION IN 2029.
IF YOU WAIT UNTIL 2025 TO START PUTTING MONEY ASIDE, YOU'LL HAVE TO PUT SIX MILLION ASIDE.
WE START BUILDING THAT WITH TRANSFERS LITTLE BIT MONEY SO WE CAN PUT IT ASIDE ON AVERAGE EVERY YEAR SO WE DON'T HAVE TO DO A HUGE JUMP OF SIX MILLION OR FIVE MILLION IN ONE YEAR.
>> I'M 100 PERCENT IN FAVOR OF PUTTING MONEY ASIDE FOR CAPITAL IMPROVEMENTS.
BUT THIS IS NOT A HARD AND FAST.
IN 2025, WE'RE GOING TO SPEND SIX MILLION DOLLARS.
THAT IS MORE OF A PROJECTED THAT WE DO HAVE THESE PROJECTS COMING UP.
WE WILL HAVE TO SPEND MONEY, THE SAME ON THE TOWER.
WE KNOW WE HAVE IT, BUT WE ALSO KNOW WHAT HAPPENS WITH OUR PUMPS STATIONS [LAUGHTER] SO IT MIGHT BE A WHILE BEFORE WE HAVE A TOWER THAT'S WORTH BUILDING INACTIVE.
SO THESE ARE PROPOSED THEORETICAL AT THIS POINT.
>> YES. BUT IT ASSUMES THAT YOU PUT ASIDE BASICALLY $12 MILLION OVER A 10-YEAR PERIOD TO FUND CAPITAL IMPROVEMENTS.
WILL YOU SPEND ALL OF IT IN 2025? MAYBE, MAYBE NOT, WE CAN'T PREDICT THE FUTURE WITH PERFECT CERTAINTY.
BUT THE POINT OF THIS EXERCISE IS TO MAKE A VERY IMPORTANT DISTINCTION HERE.
IF YOU ISSUE LONG-TERM DEBT, TO FUND THESE PROJECTS, YOU PAY LESS UPFRONT, BUT YOU PAY OVER A LONGER PERIOD OF TIME.
THE ADVANTAGE IS YOUR RATE INCREASES DON'T HAVE TO BE AS HIGH IN THE EARLY YEARS BECAUSE YOU ONLY PAY THEM THE ANNUAL PRINCIPAL AND INTEREST.
THE DISADVANTAGES IS THAT YOU PAY IT OFF OVER 20 YEARS AND YOU'RE PAYING INTEREST.
NOW IF YOU PAY FOR IT ALL UPFRONT, THEN THE ADVANTAGE IS YOU'RE NOT PAYING ANY INTEREST AND YOU'RE NOT IN ANY DEBT.
BUT THE DISADVANTAGE IS YOU GOT TO HAVE A LOT MORE MONEY AVAILABLE A LOT MORE QUICKLY.
THERE ARE ADVANTAGES AND DISADVANTAGES TO EACH.
RATE-MAKING IS LIKE ANY HOUSEHOLD BUDGET.
I MEAN, EVERYBODY MANAGES THEIR FINANCES DIFFERENTLY.
SOME PEOPLE USE MORE CREDIT CARD DEBT.
SOME PEOPLE WILL TAKE OUT THE MORTGAGES ON THEIR HOMES.
OTHER PEOPLE LIKE TO PAY OFF ALL THEIR STUFF UPFRONT.
I MEAN THERE'S NO RIGHT ANSWER HERE.
BUT ALL WE CAN TELL YOU IS THAT YOU CAN USE DEBT TO MINIMIZE EARLY YEAR RATE INCREASES.
BUT IT ALSO MEANS YOU'RE PAYING THE DEBT OFF IN 20 YEARS.
>> I HAVE A QUESTION IN BOTH OF YOUR SCENARIOS, YOU DON'T CONSIDER THE EXISTING FUND BALANCES THAT ARE AVAILABLE?
>> I MEAN, ONE OF THE FUNDS IS THE IMPACT FEE, WHICH IS ABOUT $1.7 MILLION.
THEN THE OTHER I KNOW IS JUST THE GENERAL FUND BALANCE WITHIN THE PROPRIETARY FUND OF OVER SIX MILLION, WHICH OBVIOUSLY WE WOULD NEED SOME FOR OPERATIONS, BUT SOME OF THAT YOU WOULD ANTICIPATE COULD BE USED TO BUY DOWN OR TO LESSEN THE AMOUNT OF THAT 12 MILLION DOLLAR DEBT.
WHY HAVE WE NOT CONSIDERED THOSE NUMBERS IN THESE SCENARIOS?
>> BECAUSE THAT IS A [NOISE] THE CITY COUNCIL NEEDS TO MAKE.
IT'S NOT OUR ROLE TO TELL YOU TO DRAW DOWN YOUR FUND BALANCE.
YOU CAN USE THE FUND BALANCE IF YOU WANT.
THE ADVANTAGE OF THAT IS THAT IT MINIMIZES RATE INCREASES.
THE DISADVANTAGES OF THAT IS THAT IT PUTS YOUR FUND AT GREATER RISK BECAUSE, FUND BALANCES ARE IN SAVINGS ACCOUNT. IS A RAINY DAY FUND.
IF YOU DRAW IT DOWN TO PAY OFF THESE ASSETS, AND THEN YOU HAVE A CATASTROPHIC OCCURRENCE, A TORNADO OR SOMETHING LIKE THAT, IT DESTROYS YOUR SYSTEM IN THREE YEARS.
YOU WOULDN'T HAVE FUND BALANCES TO PAY FOR.
YES, WE CAN CERTAINLY RUN A SCENARIO THAT THE COUNCIL TELLS US TO ASSUME WE'RE GOING TO DRAW DOWN THREE OR FOUR MILLION DOLLARS IN FUND BALANCE OR HOWEVER MUCH YOU WANT TO DRAW DOWN.
WE CAN RUN IT. I ALREADY TELL YOU IT MEANS THE LESSER RATE INCREASES, BUT IT ALSO MEANS A GREATER AMOUNT OF RISK ON UTILITY ITSELF.
THAT'S REALLY A DECISION THAT YOU GUYS MAKE.
WE'RE GIVING YOU THE DATA OF WHICH YOU CAN EVALUATE WHETHER OR NOT YOU THINK IT'S A GOOD IDEA.
>> NOW, LET'S TAKE A LOOK AT THE ACTUAL RATE THEMSELVES.
AS I SAID, THE WATER RATE INCREASES WILL NEED TO BE HIGHER THAN SCENARIO 1.
ONE THING I WANT TO MENTION IS THAT THE WASTEWATER DOES NOT CHANGE BETWEEN THE SCENARIOS BECAUSE WE'RE TRYING TO FUND THE WATERSHED, THE WASTEWATER INCREASES ARE GOING TO BE THE SAME FOR EACH SCENARIO.
BUT FOR SCENARIO 2, WE'RE ESTIMATING THAT YOUR CURRENT RATE OF $40 FOR YOUR MINIMUM CHARGE IS GOING TO
[00:45:01]
GO UP TO ABOUT $46 IN FISCAL YEAR 2023.THAT'S GOING TO GO UP TO $70.81 IN FISCAL YEAR 2027.
YOUR VOLUME CHARGED FOR THE FIRST YEAR OF $4.35 THAT'S GOING TO GO UP TO FIVE DOLLARS IN FISCAL YEAR 2023.
IT'S GOING TO GO ALL THE WAY UP TO $7.70 BY FISCAL YEAR 2027 WITH SIMILAR PERCENTAGE INCREASES FOR EACH OF THE TIERS.
NOW LET'S SEE HOW DOES THAT AFFECT YOUR ACTUAL RATE PAYERS.
>> LET'S LOOK AT THAT 10,000 GALLON WATER USER AGAIN.
RIGHT NOW THEY'RE PAID $66.10.
IF YOU CHOOSE SCENARIO 2, THAT RATE PAYER IS GOING TO HAVE TO PAY ABOUT $3.96 MORE IN FISCAL YEAR 2023.
AS YOU CAN SEE EVERY YEAR, SINCE YOU NEED TO PUT ASIDE MORE MONEY, THAT DIFFERENCE GROWS AND GROWS TO ABOUT $18.99 BY FISCAL YEAR 2027.
SIMILAR PERCENTAGES ARE FOR THE LOWER USERS AND FOR THE HIGHER USERS AS WELL.
IT'S JUST THE DOLLAR AMOUNT IS DIFFERENT BECAUSE THEY'RE USING MORE.
NOW LET'S TAKE A LOOK AT SCENARIO 3.
>> WE ARE GOING BACK TO THAT [OVERLAPPING] IT'LL BE A DOLLAR AMOUNT, $3.96 IS NOT AN INCREASE OVER WHAT IT IS TODAY ON SCENARIO 2, THAT IS IN FACT AN INCREASE OVER SCENARIO 1 TO SCENARIO 2 IN THE FIRST YEAR.
>> YES, SIR. THAT'S HOW MUCH MORE, SCENARIO 2 YOU WOULD HAVE TO PAY.
>> I WANTED TO CLARIFY BECAUSE ACTUALLY $10 IS MORE THAT THAT PERSON PAYS FROM WHAT THEY ARE NOW, OBVIOUSLY NOT EXACT, BUT IT LOOKS ABOUT $10 PER YEAR, ALMOST THEN IT GOES UP EXCEPT BETWEEN THREE AND FOUR, IT'S 13 BUCKS.
>> NOW LET'S LOOK AT SCENARIO 3.
FOR SCENARIO 3, WE ARE ASSUMING THAT YOU'RE GOING TO ISSUE $12 MILLION OF DEBT TO FUND THE CAPITAL IMPROVEMENTS.
BUT THE BIG CHANGE AND ASSUMPTION HERE IS THAT YOU'RE NOT GOING TO INCREASE YOUR BASE CHARGE AT ALL, YOU'RE GOING TO KEEP THAT AT $40.
YOU'RE ONLY GOING TO INCREASE YOUR VOLUME METRIC RATES.
LET'S SEE HOW THAT AFFECTS YOUR RATES.
YOUR MINIMUM CHARGE FOR WATER IS GOING TO STAY $40 THROUGHOUT THE FORECAST PERIOD, YOUR VOLUME CHARGE FOR THE FIRST TIER OF $4.35 IS GOING TO GO UP TO $5 IN THAT FISCAL YEAR 2023, AND ALL THE WAY UP TO $7.59 BY FISCAL YEAR 2027 WITH SIMILAR PERCENTAGES AND THE OTHER TIERS AS WELL.
WASTE WATER DOESN'T CHANGE THE SCENARIO AS WELL.
LET'S TAKE A LOOK AT HOW THAT ACTUALLY AFFECTS YOUR RATE PAYERS.
HERE I WANTED TO INCLUDE A COUPLE OF MORE RATE PAIRS BECAUSE HERE'S WHERE YOU SEE THE BIG DIFFERENCE.
IF YOUR RATE PAIR IS USING ABOUT 10,000 GALLONS OR LESS, UNDER SCENARIO 3, THEY WILL PAY LESS MONTHLY EVERY YEAR.
IN FISCAL YEAR 2023 IF WE LOOK AT THAT 10,000 GALLON USER, THEY WILL PAY ABOUT $2.04 LESS THAN SCENARIO 1.
THAT INCREASE IS GOING TO GO UP TO ABOUT $12 AND $46 LESS THAN SCENARIO 1 IN FISCAL YEAR 2027.
BUT NOW LET'S TAKE A LOOK AT YOUR HIGHER END USERS.
A GOOD ONE TO LOOK AT AS YOU'RE 100-GALLON WATER USER.
UNDER SCENARIO 3 THEY WOULD PAY 1,103 IN FISCAL YEAR 2023 WHICH IS ABOUT $51.86 MORE THAN SCENARIO 1.
THAT COMES TO THE POINT THAT YOU WERE TALKING ABOUT WHEN YOU INCREASE ON THE HIGHER END USERS, THIS CAN EFFECT A LITTLE BIT MORE OF THE USAGE AS WELL.
BY FISCAL YEAR 2027, THAT 100,000 GALLON WATER USER IS GOING TO PICK $223.38 MORE THAN SCENARIO 1 USER WOULD.
>> IN OTHER WORDS, SCENARIO 3, HERE'S EXACTLY WHAT YOU EXPECT IT TO DO.
IF YOU PUT ALL THE RAIN INCREASE IN THE VOLUME METRIC CHARGES, IT MEANS PEOPLE USE MORE WATER ARE GOING TO PAY DISPROPORTIONATELY MORE.
THE BREAK EVEN LEVEL IS ABOUT 20,000 GALLONS.
IF YOU USE 20,000 GALLONS, OR LESS YOU PAY LESS UNDER SCENARIO 3 THAN YOU DO UNDER SCENARIO 1.
BUT NOW LET'S TALK ABOUT WHAT THE REAL IMPACT IS.
WHAT WILL HAPPEN IS, LET'S SAY YOU WENT WITH SCENARIO 3, YOU'RE PROBABLY NOT GOING TO GET A LOT OF CALLS FROM PEOPLE THANKING YOU IN SCENARIO 3[LAUGHTER], BECAUSE THEIR RATE IS STILL GOING UP, THEY ARE GOING UP A LITTLE BIT LESS.
YOU KNOW WHAT? THOSE HIGH-VOLUME USERS, THEY'RE GOING TO GET TAGGED PRETTY HARD UNDER SCENARIO 3.
THEY'RE NOT GOING TO BE HAPPY ABOUT IT AND THEY'RE PROBABLY GOING TO LET YOU KNOW THAT THEY ARE NOT HAPPY ABOUT IT.
[LAUGHTER] THAT'S A VERY IMPORTANT THING.
WITHIN BLOCK RATES, THE BENEFIT OF AN IMPACT BLOCK RANGE IS IT DOES EXACTLY WHAT YOU WANTED TO DO, IT PUTS A DISINCENTIVE ON A HIGHER VOLUME USERS.
THE PROBLEM WITH AN INVERTED BLOCK RANGE IS THAT THE PEOPLE WHO GET THE DISINCENTIVE AREN'T HAPPY ABOUT THE DISINCENTIVE, AND THEY TEND TO REACT VERY NEGATIVELY TO IT.
CAVEAT EMPLOYEE, IF YOU DO SCENARIO 3, UNDERSTAND WHAT IT IS YOU'RE DOING AND WHAT THE IMPACT IS GOING TO BE ON THESE REGULATORS.
I'M NOT SAYING DON'T DO IT, ALL I'M SAYING IS, UNDERSTAND WHAT THE CONSEQUENCES ARE IMPLEMENTING THAT PARTICULAR SCENARIO.
>> WELL, I THINK IF YOU JUST LOOK AT IT PRAGMATICALLY, JUST TO AT LEAST MY OPINION ON THIS IS THERE'S NO WAY I WOULD DO IN
[00:50:05]
THE THIRD SCENARIO BECAUSE IF 17,000 IS OUR AVERAGE USE, OBVIOUSLY YOU CAN HAVE A PARABOLIC DISTRIBUTION ON THAT.BUT OBVIOUSLY, EVERYONE'S GOING TO BE PAYING LESS ON THE AVERAGE USE, WHICH MEANS THAT YOU ARE OBVIOUSLY AT FINANCING THAT FROM THE HIGH PAY PEOPLE.
WHAT WILL HAPPEN, AS I SAID, I'VE SEEN THIS [LAUGHTER] HAPPEN DOZENS OF TIMES OF STUDIES THAT I'VE LOOKED AT ON THIS PARTICULAR TOPIC BECAUSE I'VE RESEARCHED IT, WHAT HAPPENS IS EXACTLY WHAT YOU SAID, IS THAT ALL THOSE PEOPLE THEY GET FRUSTRATED, THEY DON'T USE THE WATER AND NOW IT WAS UP GOING IS YOU HAVE TO GO WITH ANOTHER RATE BECAUSE YOU DID NOT GET ANY INCREMENTAL VOLUME USE AND REVENUE.
YOU ACTUALLY GOT LESS REVENUE AND YOU GET LESS REVENUE AND YOU'D HAVE TO CHANGE IT.
>> YOU'RE PUTTING YOURSELF MORE AT RISK, BECAUSE AS YOU SAID, IF PEOPLE REACT MORE NEGATIVELY THAN YOU EXPECT AND THEY USE LESS WATER, YOU RUN THE RISK OF REVENUE SHORTFALLS.
AGAIN, OUR MODEL IS AN EDUCATED GUESS BASED ON 35 YEARS EXPERIENCE, SO WE'RE PRETTY COMPETENT, BUT WE'RE NOT GOING TO GUARANTEE YOU.
IF YOU RAISE THE VOLUME METRIC RATE AS MUCH AS YOU ALL WILL A SCENARIO 3, YOU CAN END UP WITH PEOPLE USUALLY SUBSTANTIALLY LESS WATER.
IF THAT HAPPENS, YOU COULD END UP WITH A REVENUE SHORTFALL.
THAT'S WHY IT'S GREAT TO HAVE A MINIMUM CHARGES.
A MINIMUM CHARGE HAS A GUARANTEED REVENUE SOURCE.
>> THAT'S ANOTHER THING I WANTED TO BRING IT UP THAT'S IMPORTANT.
WHEN YOU ONLY PUT THE INCREASES IN THE VOLUME METRIC CHARGE, YOUR REVENUE IS A LOT MORE VARIABLE.
IF IT'S A WET YEAR AND PEOPLE NOT USING AS MUCH WATER, THAT MIGHT AFFECT YOUR REVENUES BECAUSE BASE CHARGE IS YOUR FIXED REVENUE AND YOU GET IT FROM EVERY SINGLE CUSTOMER.
>> WE ARE GOING TO SAY WE HAD THAT SCENARIO HAPPEN BACK IN 2021 GRANT WHEN WE WERE, I THINK FOR SEPTEMBER THAT WE HAD A REAL DRY SEPTEMBER BECAUSE WE WERE IN THE NEGATIVE AT THAT POINT.
>> ON THE OTHER SIDE OF THE EQUATION, [OVERLAPPING] WE HAVE THE TAKE AND PAY THING TO CONSIDER TOO.
>> WHAT THAT WAS, WAS THE TAKE AND PAY BECAUSE WE HAD ONLY USED SO MUCH WATER AND WE WERE GOING TO BE IN THE NEGATIVE AND REVENUES FOR THAT WATER PURCHASE.
WE NEEDED TO MAKE THAT MONEY UP.
SEPTEMBER WAS A DRY MONTH [LAUGHTER] AND REALLY HOT BECAUSE THAT'S WHEN WE MADE ALL OF OUR MONEY BACK.
>> IN REALITY BEFORE YOU CAME ON, SINCE 2000-2012, OR 2013, THERE WAS MANY YEARS WHERE WE HAD TAKE OR PAY WHERE WE WERE NEVER TAKING IT ALL.
RATES CONTINUED TO GO UP AND PEOPLE WERE USING LESS AND LESS, AND IT WAS REALLY UPSIDE DOWN.
BEFORE WE WERE IN THE BUILD-OUT MODE BECAUSE I DEFINITELY REMEMBER ALL OF THAT.
>> WHAT INTEREST RATE WERE YOU USING WHEN YOU WERE CALCULATING THE
>> WE'RE OPTIMIST, WE USE FOUR PERCENT MODEL.
IT'S TRADING A LITTLE HIGHER THAN THAT RIGHT NOW, BUT AGAIN I BELIEVE INFLATION IS GOING TO COME DOWN AND THEN NEXT COUPLE OF YEARS, I BELIEVE THE CURRENT INFLATION RATE IS UNSUSTAINABLE.
[LAUGHTER] I COULD CERTAINLY BE WRONG, BUT THE REASON WHY INFLATION GOT BACK WAS BECAUSE OF ALL OF THE CODES, IT'S WHEN YOU CREATE BY $5 BILLION AND INJECT IT INTO AN ECONOMY, YOU CAUSE INFLATION.
WE'RE NOT GOING TO DO ANY MORE OF THESE CODE, RESCUE PLANS, AND SO HOPEFULLY THE MONEY SUPPLY WILL STABILIZE. THAT'S A BIG HOPE.
GOVERNMENTS LOVE TO SPEND MONEY.
GOVERNMENTS, AND THERE'S NO EASIER WAY TO SPEND MONEY THAN THE PRINT FLIPS.
THERE IS A POWERFUL INCENTIVE ON THE PART OF THE GOVERNMENT TO KEEP DOING IT.
I MAY BE WRONG, BUT I BELIEVE RATIONALITY AT SOME POINT TAKE OVER AND INTEREST RATES AND INFLATION WILL COME BACK DOWN.
>> WELL, THE OTHER THING THAT WE HAVE TO TAKE INTO CONSIDERATION IS THAT WHEN WE TAKE OUT A BOND, IT AFFECTS OUR CREDIT STANDING.
ALSO, WE'LL PROBABLY HAVE TO TAKE OUT BONDS FOR OTHER THINGS, SO YOU HAVE TO TAKE ALL THAT STUFF INTO CONSIDERATION, NOT JUST LOOK AT WATER IN A VACUUM.
>> ALL OF THAT IS THE PART OF THE DYNAMICS OF THE DECISION [INAUDIBLE].
RATE MAKING IS MUCH MORE THAN JUST THE FINANCIAL DECISION; SOCIAL DECISION, COMMUNITY DECISION, CODE DECISION BECAUSE WHATEVER PLAN YOU CHOOSE, IS GOING TO IMPACT DIFFERENT REPAIRS DIFFERENTLY, AND IT'S GOING TO IMPACT YOUR FINANCES DIFFERENTLY.
THERE'S NO RIGHT OR WRONG ANSWER HERE, IT'S JUST A MATTER OF WHAT YOU BELIEVE IS IN THE BEST INTERESTS OF THE COMMUNITY.
[00:55:02]
WE HOPE THAT THE INFORMATION WE'VE GIVEN YOU HERE TONIGHT WILL BE IN GOOD FIRST STEP IN HELPING YOU, OR DON'T PERMANENTLY ARRIVE AT THAT DECISION.IF WE RECOMMEND THAT YOU EVALUATE IT, LOOK AT ALL OF THEM, COME UP PLANS, WE HAVE OUR EMAIL ADDRESSES HERE, IF YOU HAVE MORE QUESTIONS, FEEL FREE TO FIRE AT US AT ANYTIME.
WE'LL SCHEDULE ANOTHER COUNCIL BRIEFING TO COME BACK AND AT THAT POINT FINALLY COME TO A FINAL DECISION ON WHAT YOU THINK IS THE BEST POLICY FOR THE CITY.
BUT THAT WAS THE POINT OF DOING THIS PRESENTATION, IS TO INTRODUCE THIS TO YOU, HELP YOU UNDERSTAND WHAT YOUR CHALLENGES ARE, AND GIVE YOU A PATH GOING FORWARD.
>> IF YOU ALSO HAVE ANY OTHER QUESTIONS, CONCERNS?
IN ONE OF YOUR OVERALL ASSUMPTIONS, YOU INDICATE THAT 30-40 PERCENT OF UTILITIES CHARGE RATES THAT DON'T COVER THEIR COST, AND THERE'S NO HISTORICAL INFORMATION HERE.
I'VE MENTIONED THAT WE HAVE A $6,000,000 RESERVE IN THE PROPRIETARY IN THE WATER FUND, BUT THAT WAS AS OF THE END OF 2021.
WHAT WAS OUR NET CASH FLOW ON JUST THE WATER PIECE?
>> LOOKS LIKE SOMEWHERE A LITTLE OVER 600,000, BUT WE HAVE A EXTREMELY DRY SUMMER AND SO OUR CONSUMPTION LEVELS WERE IMPORTANTLY UNPROPORTIONAL.
>> RIGHT. WE HAVE BEEN SO FAR, I THINK THERE WAS ONE YEAR I RECALL WE HAD A $200,000 NET LOSS AND I UNDERSTAND IT FLUCTUATES AND I DO UNDERSTAND THE NEED TO ANTICIPATE BAD THINGS HAPPENING BUT I DO WANT TO POINT OUT AGAIN, UNDER EITHER THE SCENARIOS THE IMPORTANT I THINK OF LOOKING AT THE EXISTING FUNDS THAT WE HAVE AND IDENTIFY HOW WE SHOULD ADDRESS THAT.
THE OTHER QUESTION I HAVE IS, SHOULD WE BE CHANGING WATER RATE AT THIS TIME AS WE HAVE OTHER ISSUES THAT WE'RE DEALING WITH? [LAUGHTER] MY CONCERN IS WHAT WOULD HAPPEN [OVERLAPPING]
>> DYNAMICS THAT ARE GOING ON RIGHT NOW BUT THEY CHANGE.
>> I HATE TO SEE US CHANGE OUR RATE AND THEN HAVE A NEW AGREEMENT WITH NORTH TEXAS THAT CHANGES OUR RATES AGAIN, THAT CAUSES US TO HAVE TO COME BACK IN A SHORT PERIOD OF TIME.
>> DENNIS, IS THERE A WAY YOU COULD GIVE US YOUR FORMULA JUST IN CASE THAT CONTRACT DOES CHANGE? THAT WAY WE COULD MAKE THOSE ADJUSTMENTS.
WHATEVER WE DECIDE ON IS THE BASE RATE AND STUFF.
>> WELL, AS FAR NORTH IS CONCERNED, THE CONTRACT THAT WE ARE PUSHING NOW IS TO CHANGE THE TAKER PAGE AND WHAT'S CALLED A ROLLING AVERAGE.
WHEREAS BEFORE IT USED TO BE THAT WHATEVER YOUR HIGHEST PEAK USAGE IS, YOU'RE MARRIED TO THAT NUMBER FOR US.
THERE'S 62 GOOD DAYS OF 100 DEGREE PLUS WEATHER.
CITIES' BILLS AND WATER USAGE SHOT UP BY 30 PERCENT.
WELL, THE NEXT 10 YEARS IT WASN'T ANYWHERE NEAR THAT WARM, BUT PEOPLE WERE PAYING THAT HIGH AMOUNT.
THE IDEA BEHIND THE ROLLING AVERAGE NOW IS THAT YOU AVERAGE THE FIVE YEARS AND THAT'S YOUR CASE.
IF YOU HAVE AN ABNORMAL YEAR IT'S GOING TO ADVERSELY IMPACT YOU BUT THEN IF YOU HAVE FOUR MORE NORMAL YEARS, GRAVITY STARTS TO COME DOWN AGAIN.
BECAUSE PARKER IS A GROWING CITY AND BECAUSE YOU ARE GOING TO BE SEEING GREATER AMOUNTS OF USAGE OVER THE NEXT 10 YEARS, I BELIEVE THE IMPACT OF A CHANGE CONTRACT WILL BE FAIRLY NOMINAL FOR YOU.
I DON'T THINK IT'S GOING TO BE THAT SIGNIFICANT.
WHAT IT DOES IS IT GIVES YOU A BIG INSURANCE POLICY IN CASE WE HAVE ANOTHER CATASTROPHICALLY DRY YEAR.
THAT WAY YOU'RE NOT MARRIED TO A HIGH NUMBER FOREVER.
WE DID A LOT OF ANALYSIS FOR SOME OF THE OTHER MEMBERS CITIES ABOUT WHAT THE IMPACT WOULD BE.
IT GENERALLY FOR GROWING CITIES IS FAIRLY NOMINAL FOR MATURE CITIES LIKE YOUR RICHARDSON'S AND YOUR GARLANDS, YOU SAW A DECREASE OF ABOUT 4-5 PERCENT, AND I'M HERE TO TELL YOU WITH NORTH TEXAS, YOUR RATES ARE GOING WAY UP OVER THE NEXT DECADE.
WHETHER YOU SIGN A NEW CONTRACT OR NOT,
[01:00:02]
YOU'RE GOING TO SEE A MUCH HIGHER COST FROM NORTH TEXAS IN THE NEXT DECADE THAN WHAT WE'VE SEEN NOW.BOTTOM LINE WITH THIS LONG-WINDED ANSWER IS THAT WE COULD PROBABLY TRY TO DO SOME ASSUMPTIONS FOR A NEW CONTRACT, THEY'D BE FAIRLY SPECULATIVE AND I DON'T KNOW IT WOULD MAKE ALL THAT MUCH OF THE DIFFERENCE IN WHAT [INAUDIBLE].
>> THAT MIGHT BE SOMETHING WE HAVE TO TALK ABOUT OFFLINE WITH [INAUDIBLE], WE CAN DO THAT.
>> THIS DOES TAKE INTO ACCOUNT OUR CURRENT CONTRACT TERMS AS FAR AS THEIR ABILITY TO INCREASE US EVERY- [OVERLAPPING]
>> [NOISE] DOES COUNCIL HAVE ANY SUGGESTIONS? I'M JUST THROWING THIS OUT THERE.
IS THERE ANY SCENARIOS YOU WANT US TO RUN, HAVE DAY-IN AND THEN JUST RUN? OR JUST GIVE US AN IDEA SO WE CAN COME UP WITH SOMETHING.
>> I AM NOT INCLINED TO PROVIDE ANY SCENARIOS IN WHICH I WOULD RUN AT THIS POINT BECAUSE OF OTHER ITEMS. I DON'T FEEL LIKE THIS IS THE FORM IN WHICH WE CAN TALK ABOUT IT AS THIS HAS NOW BEEN BROUGHT UP AND I FEEL THAT PERSONALLY, I DON'T THINK THAT THIS IS THE PROPER FORUM PUBLICLY TO HAVE THESE CONVERSATIONS. [NOISE]
>> WELL, I THINK WE ALL NEED TO DIGEST ALL THIS INFORMATION.
THIS IS A LOT OF NUMBERS AND STUFF THAT WE NEED TO THINK ABOUT BEFORE WE MAKE ANY DECISION, OR AT LEAST I DO.
>> HERE'S OUR RATE CHANGE WITH NORTH TEXAS TO THE NEW RATE?
>> BUT THE IMPACT OF THAT 200,000 A YEAR, SOMETHING LIKE THAT, [OVERLAPPING] $3.44 PER THOUSAND GALLONS VERSUS 304 THAT WAS.
>> THAT'S THEIR PERCENTAGE AND THEN THEY'RE TALKING ABOUT ADDITIONAL PERCENTAGE HIKES.
>> NEXT THREE YEARS IS GOING TO BE DOUBLE DIGITS AND THEN THEY'RE GOING TO GO UNDER A COUPLE OF DIGITS.
>> I FEEL LIKE WE'VE GOT A LITTLE BIT OF A CUSHION, SO WE'RE NOT IN SUPER RUSH TO MAKE A FINAL DECISION THERE.
>> WE'VE GOT SO MANY THINGS IN THE AIR, IT'S DIFFICULT.
>> IF YOU HAVE QUESTIONS, LET ME KNOW.
WE CAN SHOOT THEM OFF TODAY AND WE CAN GET THEM OUT TO EVERYONE. THAT WORKS.
>> ANY OTHER QUESTIONS, COMMENTS, THOUGHTS?
>> THANK YOU VERY MUCH FOR YOUR TIME MAYOR AND COUNCIL.
IT IS 7:03.
* This transcript was compiled from uncorrected Closed Captioning.