[0:00] Up. Good >> morning, everybody. You are at a wausau waterwork commission meeting. It is tuesday, september 1st, 2026 11 30 a.m. Warsaw city hall council chambers will call the meeting to order. We have full membership of our body here today so we have a quorum.
[0:27] item one on the agenda today is consideration of the minutes of the preceding meeting of august 12th though entertain a motion on that. We'll make a motion to approve a motion from our second from martin's seeing no discussion all in favor of accepting the minutes of august 12 signify by saying I I and that passes unanimously.
[0:55] great item to his director's report wastewater updates we've got the headwater skijoring and the sealife station projects to update you on. Deb, I hope you're satisfied we don't have cherry street here. We got cherry street got rates of got ben ben here today if you want to help us out with that one.
[1:26] so my intent is just to provide the commission with updates on the existing projects current projects so cheery street. Yeah, there's just a couple punch lists items or one punch list item remaining which will they'll be there on site this thursday to make sure that punch this item is taken care of. Just that quick update hedrick's screening project is still ongoing.
[1:52] they have till october for october 15th for a substantial completion and final completion of november 15th just odds and ends painting the fence line restoration etc. Etc. A new one is the crocker streetlife station project update.
[2:28] there'll be a preconstruction meeting this tomorrow actually wednesday, september 2nd to keep the project off the questions and those projects all right seeing then we'll move on to item three discussion of possible action. We have a presentation and a discussion. We have a presentation today. Brain rohmer's here from ellers of our water sewer financials and proving a possible future rate changes for the water and wastewater utility. So brian, welcome to wausau. Thank you.
[2:54] thank you for having me. So my name is brian raemer. I'm a senior municipal advisor with ellers. We have been here doing this kind of annual long range cash flow analysis for the utilities the past couple of years.
[3:16] in addition to that, we've been involved with the last couple of water cases with the public service commission as well as the last sewer rate adjustment when the truman plant was updated. So this is kind of our annual update to look at the ten year forecast for both utilities. So we want to take into consideration every data that we're getting from the city staff regarding upcoming capital projects.
[3:38] but one thing we just want to remind you is to identify fiscal sustainability within utilities. We are generally looking at two primary financial benchmarks which is kind of the key of the whole presentation for both utilities. We want them to be financially stable on their own and the two ways you identify that is debt coverage and reserves.
[4:01] utilities are very capital intensive. What we mean by that cost a lot of money to put the assets in the ground or in the air as well as that it can be quite volatile to maintain those assets year over year. Right. We live in a lovely climate that provides four main breaks, pump breaks, et cetera.
[4:18] so you have volatile operating expenses. This is generally not a linear function in terms of just, you know, wages and salary updates you have kind of up and downs within those maintenance accounts.
[4:41] so debt coverage becomes imperative in order to make sure you can make your debt payments every year outside of making sure that you are maintaining within your bondholder requirements so you will see that there are required debt coverage thresholds in those bond documents for the water and sewer utility generally that's at a dollar twenty five cents for every dollar of debt service with that volatility. Therefore we want to be above that right just in case we have a bad maintenance here.
[5:02] so really we're looking at is a minimum of one point four or dollars and forty cents for every debt service up to one point six one point six should really be the goal.
[5:24] the reason for that if you're to look at a rating report from moody's for example, that would provide opinion on the credit worthiness of utilities, they generally say, you know, a high credit worthiness for utilities is that one point six. The other thing they'd be focused on is reserves. The reason it's important for utilities have reserves, right when those high dollar amount capital expenditures arrive, you want to make sure you don't have to 100 percent rely on debt.
[5:43] in addition to that you can maintain with some disruptions and in cash flow whether that is, you know, main breaks or disruptions in cash flow in terms of revenues or right. If you just have, you know, certain events I think covid was one of them in terms of some disruptions in cash flows there.
[6:04] so that's why reserves are important. So in evaluating this we look five years into the past and 10 years into the future. The five years into the past is not a what a good analysis really why we're doing that is so that we can start to build a trend analysis.
[6:22] we're not going to be the ones predicting main breaks or just randomly putting them in. We are doing a linear trend but we want to make sure we're thoughtful if we just look to last year there might be a singular event that's spiking on him for example. So you know watertower painting or whatever that might be.
[6:41] so we do want to look five years into the past so that we can you project appropriately into the future and then most importantly we'll show a kind of a 10 year rate impact. So if you don't mind thank you. We're going to start with the water utility. It's a little more of a deeper dove than a sewer utility.
[6:59] the main reason for that is you are regulated by the public service commission so you can only do so much. What I like to explain to governing bodies is you choose the when not the how much so there's two windows of opportunities to adjust rates. One is called a simplified rate case.
[7:19] you can only do this once a year and if you're eligible talk about the eligibility in a second. The other important timing element there is not only once a year for class a b utilities which c says is utilities with four thousand customers or more you only get five years to do this since your last conventional rate case and then they shut that rate change valve off pun
[7:41] intended where they say you can't do a simplified if you need to adjust your rates you have to do a conventional rate case conventional rate cases, the full rate review you last did that in twenty twenty three.
[8:02] that was how rates were less adjusted for the water utility and that lacerated adjustment was pretty significant given the capital additions, you know, happening at that time will kind of explain that math and why capital additions are important. But that last rate adjustment for the water utility alone for an average residential bill was about 54 percent.
[8:22] if you're curious the last time you completed a simplified was twenty nineteen meaning there's been no simplified completed since twenty twenty three years since your last conventional rate case to get into a little bit more of that historical context of what that last rate case you know yielded in terms of cost recovery I have the on m the depreciation and the rate of return which are the three cost buckets the public service
[8:40] commission looks at for a total revenue requirement of twelve point four million dollars. So what that means is your rates are really designed absent any additional users or users being subtracted even to produce twelve point four million of revenues and then kind of up to the utility to manage that right as you go.
[9:02] otherwise you need to come in for another rate adjustment in terms of the simplified rate case, your window of opportunity ends july 1st. Twenty twenty eight again this is only if you're eligible. So we did look into the eligibility you are currently eligible based off of your twenty twenty five pcn report.
[9:24] so the psc when I look at that eligibility criteria it's based off of your last year and a report which is filed generally in may or june of the following year when the auditors are crunching the numbers. So you're currently eligible.
[9:42] that doesn't mean always be eligible through twenty twenty eight right once that twenty twenty six annual report comes out you may not be eligible. This is one of the most important slides for the water utility here.
[10:06] so answering the question how much revenues should we generate from user rates across the united states? There's two methodologies in the state of wisconsin there's one so the left hand side is what's called the cash basis. This is generally accepted in the united states. The psc, however, does not figure out rates this way. The reason we keep an presentations is one your debt service is really truly not considered in the utility basis or the way that the psc pays for it.
[10:26] we are the city's registered municipal advisor. We care a little bit to make sure you can pay your debt service so that that's why we kind of include the cash basis. The other reason to keep it in there is in general you probably want to be recovering rate's to cover both.
[10:46] there could be advantages wherein the cash basis can provide a little bit more flexibility particularly in the cost bucket. That's the city's cash funded capital. That's where we start to talk about can we set that debt coverage amount as part of our annual cost recovery if we're just looking at debt service and our day to day expenses we're not really factoring in the extra twenty
[11:05] five cents for every dollar debt that we need in order to kind of be credit worthy and meet the bondholders expectations. So that's you know, we're we're factoring that in when we're looking at the numbers the psc just note what they'll do is they'll look at your day at expenses.
[11:25] so that's the top two on the right hand side of this chalkboard operating and maintenance expenses, taxes and transfer payments. If you're wondering what taxes are generally think of that is the payment in lieu of taxes that the water utility pays to the general fund which is currently frozen at a certain dollar amount for the city depreciation write original install cost divided
[11:45] by service life. But what we haven't factored in is, you know, inflation on that original cost and any interest expense you may have if you paid for it with a financing vehicle.
[12:06] so to recover that the psc says every utility in the state doesn't matter if you're wausau watertown when a county you know all the w's we can think of you're all at the same rate of return ideal there in terms of the eyes of the psc. So they use that as their variable to cover inflationary pressures and interest expense.
[12:25] they are pretty stringent on that amount and then you subtract out your non rate revenues you know cell tower rents on watertower forfeited discounts, things like that that builds up revenue requirement which last time they said was twelve point four. Let's see where it is today. So I kind of want you to pay attention to the bottom half.
[12:42] we're now taking that contextual evidence of what the psc math is and putting that to paper in terms of where the city's water utility is today. Right now all other things being equal if you were to go in for a rate case and again this is actually for twenty twenty six which the psc is now advanced their calendar of twenty seven but right now for
[13:03] twenty twenty six the psc math yielded a seven point to seven percent rate adjustment. So you can see that in the bottom right corner of this chart when you look at your own m and pilot at just under seven million depreciation one point five and then the rate of return is your total asset
[13:22] value by that percent that they want every utility to be at that yields 5.2 million annually that they want you to recover for that subtract out your non rate revenues and then you get your revenue requirement so they would say you're deficient, you know, just under a million which would be about a seven point
[13:39] three percent adjustment. So it's important to understand this math. One reason why we look back in the future so I just want to point your eyes in the direction of twenty four point twenty five you'll note one the rate of return climbed.
[13:58] the reason for that the psc ties their rate of return to the bond market plus two percent. And so during kind of the covid years municipal issuers could get, you know, one percent debt. So we would expect the psc under our theory to say three percent rate of return. They actually have a floor of four point nine.
[14:19] so the the floor was hit in twenty one through twenty three at four point nine. But now we're kind of back to the norm of the bond market being where it's at and typically you'll see this rate of return historically be anywhere from, you know, five and a half to seven percent.
[14:38] so right now we're at about six point four percent but you can see one that changes your math too as the utility adds capital and this is true of all utilities large and small.
[14:57] you're generally adding it these days due to inflation faster than your depreciating and retiring it so your asset value in the system is going up so and I r b which stands for net investment rate base which I'm sure will get you far in a bar trivia one day but that is the value of the system and that's accelerating right as you add capital you're not retiring in or depreciating it fast enough so that doesn't stay flat. That increases.
[15:15] so I just kind of want to point out this is true of all utilities and then we're going to project this in the future which I think should be kind of the key cog in your decision framework as you start to think about how should we move forward with the psc.
[15:30] the last thing I'll note on this slide is the cash basis up top you may say well why are we very rate deficient in some years when we're looking historically and we're looking at cash flow and capital we're using actuals for that item instead of kind of a projection.
[15:51] and so if you've just decided to use cash because you have the cash available or even you know, maybe a debt proceeds left over from the prior year or grants that come in from the prior year and then you're using it that shows up on your audit is cash funded capital and so that can kind of spike the system.
[16:07] so by no means are we rate deficient by forty five percent or thirty four percent as it's kind of shown. We just kind of show that to understand we think this is why the psc follows utility basis but it should kind of provide some context that maybe if we squint and or back up if you will on the cash basis and we didn't
[16:23] have the psc maybe we are you know, about seven percent deficient agreeable to that utility basis method some other historical financial indicators that I'll point out the reserves which is the top left you know, our target being the six months reserves target that we talked about at the start. The utilities is below that.
[16:46] so we would recommend, you know, making sure that rates are set appropriately so that maybe we can climb back out of that. Otherwise you will have to rely on debt service heavily as capital infrastructure is needed. But the debt coverage is improving.
[17:07] one thing that we've just noticed there is you know, right now your rate revenues are slightly higher than the twelve point four they were set up for. So that either tells us, you know, increase usage or customer count or a combination of the two as happened in in in general kind of flattening of the operating and maintenance expenses there as well as there really hasn't
[17:28] been a lot debt issued for the utility in the past couple of years. You can kind of see the orange mountain there in the bottom right chart is relatively flat.
[17:50] twenty three through twenty five in terms of the future projections for the water utility, this as I mentioned should kind of be the slide that would be the key cog in some decision framework for the governing body moving forward. What we're doing here is we're projecting that psc math moving forward.
[18:11] we find a lot of utilities find this so valuable they actually make this into policy in terms of avoiding a large magnitude adjustment and what I mean by that is if you can project where your psc math is going based off of your capital improvement plan assumptions for retirements and depreciation so therefore you can calculate that value of your system. You can see at the bottom of that chart what each year if you do nothing where the psc math will take you.
[18:32] so if we would have filed a rate case by july 31st of this year which is kind of the end of the pieces twenty twenty six calendar for utilities it would have been a seven point three percent adjustment right now if we were to file our case.
[18:49] it's thirteen percent adjustment if we file august twenty twenty seven it's a twenty percentage and again this is you doing nothing right on you know simplified or anything else. So the point there is the psc math can jump greater than the simplified rate adjustment allows for some communities may misunderstand this to say well we're doing our simplified we're generally keeping it helps but the magnitude of the
[19:16] adjustment will not go down. For example, if we did a three percent now it's still a 10 percent adjustment if you're going for a conventional rate case congruent to it. Right.
[19:34] so if you're just to look at that twenty twenty seven column and say well let's get our simplified going that's a three percent adjustments that reduces the magnitude but it's still a 10 percent which is greater than what it was at seven point three percent twenty twenty six. So I just kind of want to point that out as you know the simplified unfortunately the psc sets that rate as well.
[19:56] it's just not enough in today's market for capital investment and the high inflation rates that utilities are seeing on their projects. So I just say keep that in mind as you make the decisions of the when to the psc because you really struggle for the control of the how much.
[20:16] I got a quick question about this so do nothing here when we look at the rate adjustment to benchmark these numbers here, they're not compounded. So it's if we wait until twenty twenty eight it's going to be the nineteen percent increase. It's not the seven seven plus the thirteen correct. Yep yep. Those those rate increases stand on their own based on what year we decide to an increase. Yep.
[20:37] so it would be kind of if we decided to go in for a rate case this year what would the rate adjustment be if we did nothing prior to it. Thank you. Great question. Thank you and feel free to stop me at any time if I don't see you just throw something at me.
[20:53] the next slide just kind of depicts the cash position you can understand right. We're making reasonable assumptions for a relatively flat flat revenues and then increasing on expenses plus your capital improvement program. So with all those assumptions at play right. The financial factors decrease.
[21:17] so I'm not going to spend a lot of time on this slide because generally we don't recommend doing nothing in the context of a regulated utility or any utility at all. But I just kind of wanted to show you the cash flow on the do nothing approach.
[21:36] so then on the next slide which is option two, this is kind of showing what if we wanted to just use our simplified until we run out of those are the psc shuts our valve off and then what would the psc rate adjustment be at that time? So what we're showing is a simplified adjustment for twenty twenty seven in twenty twenty eight you have to wait a year for those each and then we wouldn't be able to do simplified thereafter and then just saying
[21:55] what if we did the conventional rate case you know thereafter so it'd be a three percent and three percent and then a sixteen percent if you're curious on what the psc has done with the simplified rate over time it's been three percent for the last 17 years outside of two years one year
[22:13] four point one one years eight percent but they tie that to cpi. We've been making a push they should try to c.p.u or excuse me cci our construction costs index. Right.
[22:35] if your full rate case math is based off of asset value, why not make the simplified math based off of construction costs? So far no movement there. But that said generally we would expect three percent to kind of hold and then the full rate case based off of the math would be about sixteen percent there for a total cumulative from where we sit now to where you'd be then at about a twenty three percent adjustment and then you
[22:56] can kind of see I'll just lead you guys to the bottom of these future cash flow charts. That's what we're talking about those two financial benchmarks and we do get to the point where we're kind of at that one point six or higher and we're building our cash position to where we
[23:12] would like it to be. If you're saying well this produces too much cash because look at three million dollars et cetera beyond twenty thirty to your skype only goes out to twenty thirty one. So just acknowledge there we're not saying you can fund all of your projects plus you're getting three million dollars every year.
[23:29] you would likely have capital improvements right. Twenty thirty two and beyond but maybe that helps you understand like what could we afford for capital improvements beyond our adopted capital improvement plan. So then what does that twenty one percent on the next slide look like for an average residential user.
[23:53] so this would be somebody a residential user using twelve hundred cubic feet per quarter. My two daughters say we can do more than that but yeah your fixed charge as well which includes both the service charge and your public fire protection charge there and then your volumetric rate.
[24:15] so if you're like me and you have higher usage and you kind of like to calculate your own bill when you see these charts just take the tiered column. That's the volumetric rate and you could apply that by you know, your cubic foot usage that you would know.
[24:35] but right now really what we're doing there is, you know, taking twelve times that volumetric rate plus the fixed charge to get to that quarterly bill. So the three percent yield about a three change to a quarterly bill using that amount and then that's sixteen percent would yield about nineteen dollars change to that quarterly bill amount for a total change over a planning period of for this average user of twenty six dollars and twenty cents if you
[24:53] use more it would be a higher impact. If you use less it would be a lower impact. So then on the next slide one thing we wanted to kind of consider is you know what would we be looking at in terms of what if we were to do a conventional rate case in twenty twenty seven? So one
[25:16] thing we wanted to show here I know on a couple of slides ago we showed like the 13 percent all other things being equal. It would be that just to give a little buffer here, you know, we just kind of chose to say, you know, you're twenty twenty seven budget going through its
[25:33] process right now in the fall. We just want to be cognizant that the other thing that I'll mention is when the psc goes into a rate case they don't just look at your budgeted expenses. They'll add annualization for watertower paintings, well rehabs, things like that.
[25:53] so it's not it's your budget plus so we did add a percent to be realistic to what the psc rate adjustment might actually be whereas that exercise we were doing in five slides ago or so the 13 percent were really just advancing your budget by three percent. Right.
[26:15] so hopefully that makes sense that we just wanted to add that level of conservatism if you were to do the conventional rate case now staff had asked us to prepare this which I think was a wise decision just to say, you know, when we think about our decision framework is our goal you know, not only fiscal health but controlling the bills for our rate payers.
[26:35] the majority of you I'm sure would say yes. So in that right we know we control the when and not the magnitude of the adjustment but you're when controls the magnitude of the adjustment.
[26:54] so if we want the lowest magnitude of adjustment for the water utility doing the rate case sooner rather than later as you can see here would yield that. So now is 14 percent only financially viable so you can go down the bottom again of this chart looking at the on deck coverage as well as the cash targets we kind of build almost to the same magnitude out of where we sit today.
[27:17] we still fall within that one point four to one point six range of deck coverage and we're climbing to the reserves targets that we've been talking to in a relatively similar manner.
[27:39] it might you know, if you were to compare the two to charts you'll see we have just a little bit more debt proceeds there but it doesn't mean that the utility can't afford the additional debt proceeds because we do have, you know, some wiggle room to start filtering in new debt. So here just making mention we achieved the same goals as option two.
[28:01] option one in my opinion should be kind of off the table but you achieve the same goals as option two and you get less of a rate impact for your users. The other thing that I'll mention here this is built off of right linear assumptions.
[28:22] you know, uden navigate this and not just set it and forget it in terms of do you want to execute any additional simplified rate adjustments within that five year window that you get? But we reach the same financial targets as option two in option three which is to in the rate case sooner rather than later then on the next slide is a depiction of what that fourteen percent would yield which would be about fifteen dollars and seventy three cents for that same user that we talked about.
[28:41] and again this is water bill only we'll talk about the sewer in a second. So that's what option three yield's then kind of where we sit on the next slide with other ab utilities. So again this is utilities. Four thousand customers or more. This is sorted by, you know, a quarterly bill for all of these communities.
[29:06] somebody's using twelve thousand gallons kind of where you sit. So right now you know this all we're showing is the top 30 of the total 85 ab utilities and your sixteen you know, among all the 85 utilities. So again, this is most expensive to cheapest so most expensive at the top at the bottom.
[29:28] and then if you're curious where do we sit? You know, in terms of most expensive in the whole state, all utilities not just class be your hundred eighty nine out of five hundred and seventy five utilities there.
[29:51] so one thing to just kind of note as well the effective date can be important there on the right hand most collum the reason for that is kind of that whole psc math discussion if it's been a long time since they've adjusted rates I see a twenty eleven in some situations of twenty eighteen. Right. They could expect a larger magnitude adjustment forthcoming.
[30:12] we've obviously got a lot of slides here so we didn't include everything but we have for some communities shown the last rate adjustments that have happened in the last three quarters. The average adjustment is 60 percent to 80 percent across the state.
[30:33] so that's a little enlightening if you ask me in terms of hopefully communities can start to understand the magnitude of the adjustment and the psc although the mission is that they're there for the people, they're there for their math as well.
[30:53] so I just kind of, you know, keep that in mind so for our recommendations option one is infeasible as I mentioned, option two and three do get you you know, under both circumstances kind of the minimum recommended rate adjustment with the context changing you know, doing a rate case sooner rather than later and they both meet those financial goals. We've talked about some risk exposure to the forecast that we always mention at this kind of annual juncture is, you know, other sipi not identified.
[31:12] you know, you could have upcoming unknown legal mandate. Cpa always likes to keep erik and his team on their toes and then other rate making goals would be, you know, another thing to just kind keep in mind you may have other circumstances that you might want to make changes sooner rather than later.
[31:31] in the past we've talked about, you know, discussing different costs locutions when we go into the psc the next time. So before I go on the sewer I'll kind of stop here and ask if there's any questions on water. Ok, questions for mr. Roomer. Aaron, last week we did are discussing the process we take a chemical room project was baked into this proposal.
[31:53] do you know or probably our staff to me. Yes. Yeah, yeah. That we we had that in our capital budget. You know, I think we had what one point six million in grant and then the remainder was baked into our capital. Yeah, right. Mr.
[32:23] martin's one of the concerns I think on a policy standpoint is the pilot payment for the water utility and have you done any projections on what the potential rate case could be with versus without the pilot and if that's if there's any advantage to that? You know, I guess paying you know, the pilot going into the general fund and how that impacts the general fund versus not.
[32:48] yeah, we two years ago to this committee we presented an in depth what-if scenario on on that we can bring that back if it's requested the your concerns are warranted.
[33:14] you know, it's it's that balance in terms of right lowers the cost for the water utility but also, you know, heightens the revenue need on the general fund side so we can bring that back. We did not for this year or I should say this iteration of it but we certainly can be ready to bring that back if you'd like that explored and if we submit for you know I mean if we submit for a case and we leave the pilot off, does the
[33:30] well the does the psc take that into consideration as one of their >> yes. So the pilot the psc does not control so that is done by resolution from the municipal level and the psc cannot argue that unless you're asking for it to be higher than the calculation which is superior. Right.
[33:50] that almost never happens. I think it's only happened I think eight times historically that communities are requesting something higher for unique circumstances. But if you're just adopting a resolution something lower than the calculation like we did several years ago, the psc does not dispute that it's chosen at the municipal level and then that just moves your rate adjustment
[34:13] presumably down. Right, because you're removing that expense for the water utility. It's a mishandling. Well, I had I was going to ask the south end but since we're all jumping in here, I'll just ask you now so how does the us fund affect all of these revenues so we have five million we're going to get
[34:36] and it should be directed towards the utility. I don't know why it wouldn't be but how does that impact that along with the pilot if we retain that and then we also have the lead replacement and I mean that hasn't been determined yet.
[34:53] I don't know that it has been but has it how that's going to be paid? I mean that could be just a simple assessment and that would be the end of that burden. Well, the the utilities still has our side of service, right? So that that's the utility burden will stay because we don't have principal forgiveness for that.
[35:11] so so all of those lead service lines on the public side will be to increase tony. You won't you won't be borrowing that money. I mean we do borrow already. I know you borrowed it already because of that. Right and everything. Yeah, but you haven't made a determination or you haven't the council makes that determination how that's going to be addressed.
[35:28] we're >> just talking the private side that doesn't affect the utility rates. Yeah. So either that's borrowed on the levee or it's paid for by the homeowners but that that doesn't affect that doesn't have any influence on anything you're doing here. Yeah, just the influx of music or money from pithos, right? Yes.
[35:47] that was like five million right total. Yeah. So in the end how to use those funds hasn't been determined right yet. Right. And so you know that could go towards capital projects or towards operations or you know and and so that has yet to be determined but that would be important in determining a rate increase.
[36:11] we shouldn't have it just I mean I'm trying to avoid the rate increase actually because I think fifty for sure enough for a while I would say it's been a while. So I I mean when it comes to the utility I mean we're we're looking it's been three years we're going on for years. Right.
[36:30] I mean everybody talks about what inflation has been happening over the last three years. Right. Well the utility feels every bit of that if not more you know with our construction costs going up and but we still have to maintain and and work with those.
[36:47] so I mean typically we would we would like I mean ideally we would have had these small rate increases over the last couple of years right. And then going into you know, maybe twenty seven as well and then looking because I mean none of us like those large giant rate increases. Right. But we do know and we predict quite well on what our capital costs are and what our future is.
[37:05] you bring up a good point that we do have cash available, you know and we do have to make determinations on what that's going to be used for. That's all coming your way right. That should be coming. It's people's money so it shouldn't be sent anywhere else but here.
[37:21] >> yeah, that's that's actually part of the utility. So this commission will determine, you know, where where that is. Yes. Yeah. And I'll just point out the psc has ruled and presumably we're talking about like lawsuit proceeds for the fast money the psc not in all cases so far and again relatively new to them has not determined that that
[37:46] necessarily and I know this sounds odd actually decreases your rate adjustment because in order to decrease the rate adjustment let's say you say you want to spend it on operations they would say well at some point that runs out.
[38:06] so why not adjust the rates to make sure we're ready for when that runs out and I know you're like aren't there for the customer believe me, we had a long argument in the last rate case to get the 800000 a grant for operations on the gack. Right.
[38:25] the granular activated carbon that we got from dnr reduce because of that temporary treatment needed and that took a lot of arguing with the psc just to get that removed. So and then when it comes to the capital, the you may say that that could be contributed. They did make that determination in the clear case that we just helped them through when they use the lawsuit money towards capital.
[38:47] so that would be one way to reduce the rate adjustment is obviously we have a precedent to stand on it. It would probably be important to help the decision to be made there by maybe preempting the psc to say what what would help our rates the best and I would get that in writing we did that in
[39:06] order to make sure as they were making their determinations on how to spend those funds in order to control rates. But I'd be very careful is just to say that because when we explored the options I was awestruck that they said no and they thought about spending it on operations that that wouldn't change their thought process on
[39:28] the mathematical calculation for what the rates should be and retaining the pilot same I mean well the pilot would if you reduce that the rate adjustment goes down. Yeah, yeah. We definitely should do that. But it's it would be a concern for the general fund. Right.
[39:50] in terms of where does that budget need to go where the other revenues come from or where you know there's other things that need to move on that end it's generated by the utility should remain in utility. So I thought ok, those are my questions. Thank you. Any questions on water? Another piece to go here. Yep.
[40:19] ok, so then on suer this should go a little quicker. We don't have to do the chalkboard again and kind of explain the financial criteria that we're aiming for but here you don't have the public service commission regulating the utilities. So we do kind of take a look at both elements and to be honest most utilities start to lean towards the cash basis.
[40:40] part of the reason for that is when there's really no benchmark rate of return. You know it's a shot in the dark, right in terms of oh we want two and a half percent I think at the end of the day you kind of look at your interest expense profile and say what makes sense for our
[40:57] utility which at the end of the day if you're doing that you're just kind of leaning towards a cash basis anyway. So what we've done here is I would focus your eyes on the top half here for the sewer utility and looking at the cash basis for the cash funded capital.
[41:15] what we've essentially said the target for that cost bucket would be would be meaning meeting that minimum debt coverage requirement of one point four times your annual debt payments. So essentially what we're doing there is just adding you know, the forty cents for every dollar debt service and then historically it's looking at actual cash spend as well.
[41:35] so you see some years where it's significantly deficient. Again, there was just a decision made to use cash for that year's capital that said kind all other things being equal. You know, maybe it's time to start looking at adjusting the sewer rates but you have full authority over that at the municipal level.
[41:57] prerecording and there's no regulatory authority overlooking that. So the last adjustment was april 1st. Twenty twenty three looking into the historical financial indicators on the next slide, you know your cash position has been relatively right at that target and kind of maintaining with that target as well as the on deck coverage.
[42:23] however, one thing I'll mention there's the debt coverage has now started to kind of creep back towards just about breaking even which is again a good place to be in outside of right. If we have a bad winter bad maintenance year, we might dip below the thresholds that we need to maintain per our bond covenants.
[42:43] so then on the next slide which just kind of looking at the capital improvement program and overall unilateral authority that you have, one of our goals is meet those financial benchmarks but also kind of mitigate the rate adjustment.
[43:06] so essentially what we've done here forecasts out what you can afford cash versus debt with the capital improvements forecasts out what the debt coverage would be and try not to go below one point four or above one point six. And you can see here we kind of maintain towards that minimum with these smaller rate adjustments, if you will, and then make sure that we're kind of in the healthy cash position that we'd want to be and then the cash position does look
[43:27] extra healthy as we build towards twenty thirty two and beyond. But understand right there's no capital improvements there. So assuming that there would be capital improvements. Right.
[43:51] those numbers would go down so again I would say you don't just set this in forget it obviously because the numbers change but it should be noted that we would recommend is a fiduciary to the city the sewer utility do something something small at minimum.
[44:11] you know, in the near term all other things being equal if this is you know, somebody tells me ten years from now this is exactly what the expenses will be and both capital and operating I would say this is the plan based off of the framework that we've talked about in terms of the financial targets we want to hit. But at the end of the day right. That's really we don't have that crystal ball. And so that said, I would focus on the near term and doing something small is warranted.
[44:30] how that impacts the sewer bill on the next page again kind of similar average residential bill again this is sewer only you have your volumetric rate you know currently at five point ninety one since the fixed charge at thirty six thirty one if you did four percent both of those you goes up to six dollars and fifteen cents and then thirty
[44:50] seven dollars and seventy six cents which is about a four dollars and thirty cent change for somebody using twelve hundred cubic feet per quarter if you use more might be slightly higher if you use less slightly lower in that quarterly bill period but at the end of the day benefit that the sewer utility kind of gets
[45:09] to control your rates can also be a cause cause for concern if we're doing nothing for an extended period of time and then we have a large capital projects.
[45:29] so I would just say the smaller more regular rate adjustments can be advantageous to make sure we're not faced with a larger magnitude adjustment once you know the bigger projects hit. And then so those recommendations you know, as I mentioned more frequent inflationary adjustments.
[45:52] it maintains those financial benchmarks that we've talked about similar risk exposure and then if you do have other rate making goals, for example, we did a full cost of service study back in twenty twenty three to make sure that the various charges throughout the city are allocated appropriately and it wasn't just a flat percent for the most part.
[46:12] you know the smaller inflationary adjustments maybe not necessary but you know if you have industrial service agreements and other things like that that you want to be cognizant you made and they weren't doing a you know, bigger rate study to make sure that everybody's kind of charged in an equitable manner. So with that I can take any questions and again, no immediate action on on our end is necessary.
[46:34] this is kind of our annual review, you know, but I'm sure appreciated to get some direction to staff as well as us so questions miss mr. Mertens, I guess you know the question I have it would be timeline since there's no action on this today if we are looking at a rate case and the fiscal issues fiscal year started august 1st I guess today what when would we have to submit a rate case? Sure.
[47:00] so until that math changes over because of the calendar year you would have until july 31st of next year until the math changes. Right. And then we're adding the capital for twenty twenty eight even if you submit an august twenty twenty seven they ask you to add your capital into to that math for twenty twenty eight additions
[47:18] so you would have until to make the decision you know do you want to do a simplified or a full rate case you know several months all the way through july 31st until that math changes I think in terms of you where the water utility sits obviously any decision could benefit the utility in terms of are we
[47:39] doing direction one or two in terms of simplified right. If we're doing a simplified that those are automatic and they happen within forty five days of when you decide to do it.
[47:57] ok, so so if we do a simplified rate case that's that can take an effect as little as forty five current conventional rate case how long is that usually take the six eight months. Ok thanks for the question. Anything else eric to update us go. Yeah so we are going through rate cases back in twenty two twenty three.
[48:24] this commission wanted to take a look at our rate structure as a whole and our next full rate case and one of the things that that by consensus that the commission you know wanted to move towards was monthly billing rate versus quarterly.
[48:47] the other thing that they wanted to look at is adding adding a structure in the rate case for those users that that use very little water and that could be maybe one individual in the home or you know, maybe just some more elderly people that just don't use a lot of water right. In setting like a lower structure at that end, you know, so less of an impact for them. Right. And so I think that would be smart.
[49:08] I don't think that we've really looked at that, you know, since I've been here and I think with the monthly billing would be helpful but I think we would need a little bit more time before we went into something like that. Right.
[49:31] so from from a staff perspective, you know, I do think that a small rate increase for twenty seven would be smart and we would start planning for a larger rate cut rate increase going into you know twenty eight or twenty nine with maybe looking at some of those changes is helped with that in the past and and as he said you know it could be six eight months by the time we
[49:52] filed that case with the psc before something actually you know comes into play. So I just wanted to give you a little bit of history on some previous conversations that have happened with the commission and and in kind of how you know, maybe the best way to to move forward with this because
[50:13] I think it does take time. The short the small rate increases are pretty quick. You know, it's no problem. But the larger ones they take their time intensive staff intensive with information and stuff as well. So, uh, yeah. Mr. One last question. I guess we just kind of jogged my memory.
[50:41] you know, you're talking about the potential of you what what would what we could do with lacerates for low volume users. Have we ever considered a different rate structure for very high volume users because they could potentially tax the the utility in in a in a in a different way on the spectrum than other than a low volume user would? Yeah, I think
[51:08] that's looked at I'll let brian talk a little bit about that. You know our large and you know yeah. So you you can charge a flat rate structure instead of a declining rate structure generally what the what you'll find is actually the high volume users don't impact the system as much as they may do
[51:33] like on a sewer utility based off of the type of discharge they have for water just because they're using a high amount doesn't tax the the same amount or excuse me in the system as much. What does is what you kind of think about peak demands.
[51:55] so are they peaking the system which actually is how the psc base math when they do the real nerdy spreadsheet and they're looking at demand ratios right. Everybody's using the system in the morning and then at night right after school work, et cetera.
[52:18] so residential users peak the system even though they may not be the highest volume users and that's how water rates are built. So if you're saying we do want to have a rate structure where high volume users you know, the the magnitude of volume they use within a billing period are you know, in essentially charge more you do a flat rate structure the more you use the more you pay.
[52:41] currently I believe it's declining rate structure for the city right now. So it kind of levels out if you will not exactly level but right. Kind of slows down. So I would just say that's one consideration.
[53:01] but like we talked about last time that we were in the rate case process, you know, we could go to the psc with a couple of different things. We've got to have data to back it up. But you know, is the residential class really peaking the system as much as the commercial or the industrial is one thing larger utilities do just kind of mature to this point generally. I also think there's arguments to be made with how work from home has changed.
[53:21] you know, some of those elements that maybe it is only school that's really picking on the residential side or as much so there are things like that that can be evaluated. The the issue is I can't give a definitive answer without without taking that to the psc to kind of say like here's what we want.
[53:42] so that would take some time to kind of come back with but things that can be explored that notion of a volume volume discount has has been surfaced a couple of times now recently with call with within the community there's so I think that's another advantage like like really looking at the rate structure that we have.
[54:07] you know, when whenever the city decides to go in for a full rate case, I think I think those are very good ideas and I think that just also reinforces the fact that we really should look at our rate structure this next time we do and determine where we can make some changes to the benefit of users.
[54:29] yeah, yeah. I would say it's a good idea in the lower magnitude adjustment rate cases as well. Right. That I think one of the reasons when we brought it to the commission back in twenty twenty three we were facing right.
[54:49] of 50 plus rate adjustments so when when you make those changes like that, you know it might have made the average residential user go up to sixty I think it was when we ran like the preliminary numbers I want to say it was close to 70 percent. I think it was like sixty eight percent what that rate adjustment would have been when it's the smaller rate adjustment. Right.
[55:06] and you're thinking about like a five person family. Right. That's easier to balance. The margins are smaller on the smaller magnitude adjustment. So that's generally what we recommend to communities when we're helping them with the rate cases.
[55:30] you probably want to do a bigger change like that during the smaller magnitude adjustment rate cases otherwise rate the margins start to change significantly and then it's like are we really achieving that goal or are we pricing out you know, like the families in our community or you know, et cetera? So just note this has kind of been brought up and would certainly be on the table for a smaller magnitude adjustment relative
[55:49] to the twenty twenty three rate case. Any hanging chads? Deb hadlee so who addresses the change in the pilot this committee and who addresses the change in where where the funds are coming or going to is that a console consideration or it's so confusing you're loaning money and we don't know about
[56:13] it and then we're looking at a different aspect of how this is all running and you've already approved money for all that borrowing and it's like it hasn't really and decided how that's going to be paid for or the relief found on it and and like if the pilot is our decision but it doesn't sound
[56:30] like it is it sounds like it's a console decision to eliminate giving that money. The council council wondering why we get all engaged in this and I mean if you're if the console is making the decision I'm wondering about the decision making process.
[56:52] well, the committee the commissioners the commission makes a decision on two commissions, you know, finances. Right. So I mean if you separate out the lead service lines, marianne could probably talk a little more detail too. But like the lead service lines on the public side. Right.
[57:12] that's one hundred percent the utility right on the private side those decisions are made at the council level because it's a financial decision on the levy or however those private services are funded that doesn't affect the utility budget. Ok, and then the fast funding to my understanding that that came back to the utility from so from the lawsuits will come back to the correct. Is that automatically? Yeah, no discussion correct. Council doesn't have any chance of taking any of it.
[57:41] well I mean I think the reality the I mean the council could even overturn a commission or a decision by the commission I would assume you know, just because that they you know that the utility you know, we're not fully independent but the utility commission has also been delegated full authority to set rates so if you decide
[58:01] to move ahead with the rate let's just say the three percent on the water, then we would go directly to the psc. Right. If you decide you want to go to the psc for a full rate case, then we go to the psc for the full rate case that does not go to council.
[58:19] so or if we want to hold or if you wanted to hold yeah. That's your decision to decide that. Yes yeah. Definitely some cause and effect because if council decided to increase the pilot to two million dollars that affects us everybody right.
[58:43] which you know I want to get the whole it is in and it is challenging deb and I I don't disagree with that. I mean, you know, very successful utilities are fully independent right? I mean they do a much better job right here. Yes. I to I don't I don't know if that's going to happen but it yeah, I would absolutely agree with you. Yeah. It's too convoluted.
[59:05] you don't know what's going on and then we approve something it's like what now we're off the deep end here and we didn't realize the whole picture right in the pilot I'm reading about a console and all that information is I flat.
[59:25] yeah I mean I guess sometimes they get fifty percent right but very careful you're the right you have any party. I always am. I'm good with them no any more I'd like to add to that one you know certainly can come back with anything as directed so ok yeah right thank you.
[59:47] I think the I think the one thing is I you know you don't have to make a decision today a lot of information to take in. I would like to bring it back next month to keep it on the table for discussion and a possible decision.
[1:00:06] so I don't really want to let this just kind lie because I think the financials in the facts kind of show for themselves I think the determination one way or another he needs to you know, needs to be decided upon. So whichever direction the commission wants to go. So thanks thanks. Ok. Up next under item for discussion.
[1:00:40] it's an update and discussion on wastewater effluent peachfuzz there's letter in the under tap for talks a little bit about our exceedances and then can explain what we're doing to try to track some of that down. Mr. Brooks, thank you. I just want to provide the commission with an update on the continuing paphos monitoring that the wastewater treatment plant is doing currently as of may 1st there's requirement from our discharge permit from the dnr required under this gispert discharge permit we're required
[1:01:12] to test effluent bi monthly and paphos annually. If you look at the chart you can you notice that the prior to the may samples the the the number I'm concerned with primarily is a pdf process.
[1:01:43] no, the proposed limit is less than eight parts per trillion as you can see that we weren't having any real there wasn't the outliers or any right raise raise levels at that time to be have concern of course that our first compliant reportable compliance sample we came back with a higher number than anticipated which is the main point for for on may 7th for us was nineteen point four for the pfoa proposed limit is
[1:02:10] less than twenty. We're sitting fine there. But yeah, the main concern is the nineteen point four or four threw me off guard and I'm sure did you as well because I've been telling you all along that our numbers have been great.
[1:02:32] so somewhere in the system are getting some p fast contamination and has not yet been determined where it's coming from. We reviewed the sampling protocols within internally different techniques we've used and there's been no indication of contamination or cross contamination are the blanks that we have to analyze along with those samples are coming back no detec.
[1:03:02] so that tells us that there's no contamination because the same tools used to collect the sample as it is to use the effluent sample. So it has to be coming in some from out in the system into the treatment plant and I might add that the wastewater treatment utility does not generate paphos. We are the receiver from its users.
[1:03:25] so I just wanted everybody to keep that in mind that it's not being generated at the treatment facility. Um, some of the actions underway I just described we we reviewed our sampling techniques, the protocol we're going to start doing running some tests out in the collection system in different areas that we think there might be some contamination coming in possibility once we receive
[1:03:52] those results we can review that, have a discussion to see if we want to do something with the city sewer ordinance to to make it possible for us to require the industries and customers to test not necessarily the customers the residents but the larger users and that so we'll have to review that when we get those
[1:04:18] results and apply to test very soon. We're still waiting on a bi monthly sample. We sent results samples out in august early august. So we're waiting on those results usually takes about a month to get the results.
[1:04:40] so I think that's why the dnr made the requirement of bi monthly testing because it takes so long to get your results. So we're still waiting on those results once they come in I'll share it with the commission and that as far as our biosolids we're looking very good on that.
[1:05:01] I plan to test one more time due to the fact that our permit went into effect our discharge from went into effect may 1st. The sample that we last tested wasn't february so it doesn't encompass when the permit went into effect. So to comply I'm going to test again with the biosolids and be able to report that data.
[1:05:26] so once we do that we'll be able to share that with the commission as well see where we're at, questions banner staff on that pursuit. Ok, we'll find them item dnr response letter from our twenty twenty five seema report and by all accounts very positive and I think this is a mandatory feedback loop from them is that correct then it is yes.
[1:05:55] it's just the dnr is a response to the annual twenty twenty five compliance maintenance annual report. As you can see all great az commended us for reporting the ssl which was in september of last year and everything was reported on that essel ssl and received the letter of compliance back from the dnr stating that we met all the requirements we've cleaned
[1:06:24] forty eight point nine percent of the collection system televis 10 percent so we're doing very well in that category said basically just keep up the good work add a boy item anyway with the goal he questions on that piece. Thank you ben.
[1:07:01] next meeting is october six same place eleven thirty would entertain a motion to adjourn motion from hadley's second second from lirr all in favor signify by saying I meeting's adjourned. If you