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HomeMy WebLinkAbout11-28-16 UtilitiesOFFICE OF THE CITY CLERK KAREEMAH FOWLER, CITY CLERK UTILITIES Committee Members Present: Other Council Present: Others Present: Agenda: NOVEMBER 28, 2016 5:09 P.M. Dr. David Varner, Oliver Davis, Randy Kelly, Regina Williams- Preston Tim Scott, Jo Broden, Karen White, John Voorde Kareemah Fowler, Joseph Molnar, Michael Passavoir, Kathleen Cekanski - Farrand, Adriana Rodriguez Bill No. 66 -16 – Addressing New Water Rates and Changes Committee Chair Dr. David Varner called the meeting to order with one (1) item on the agenda. Bill No. 66 -16 – Addressing New Water Rates and Changes Committeemember Dr. David Varner stated, There has been a proposal to the Committee. I believe it was a forty -three percent (43 %) increase. There are several options Council and Committee has.. The request for forty -three percent (43 %) on the feedback that I've gotten is statistically believed to be needed. The question is, is it needed all at once? I've had some people suggest a phase -in as a possibility. I don't know what the Committee thinks about that, so we might ask the Committee and other Councilmembers about that. The other thing —when we had the meeting the other night with the gentleman from Umbaugh ... John Julien, I noted that, as we keep making these capital improvements, we keep increasing our capital —a net asset evaluation: at the present time, a net asset evaluation with regards to the evaluation of the water treatment facilities. To date, we are basing our payment in lieu of taxes from these funds to the City on our net asset evaluation. So it sort of begs the question: does it make sense to make necessary improvements and then have to pay higher rates to the City? One of the things that came to me in discussions with the attorney was that you could, as part of the ordinance, cap the rate with the pilot banks. So, those are a couple things we have for discussion this evening. Eric, time -wise: when do you expect to bring a Sewer rate ordinance? Is there one expected in 2017? Eric Horvath, Executive Director, the Department of Public Works, with offices on the 13th Floor of the County -City Building, stated that that had not yet been scheduled. He stated that he did not want to move forward with Sewer projects until there was some certainty that the EPA and IBM 455 County -City Building • 227 W. Jefferson Boulevard • South Bend, Indiana 46601 Phone 574- 235 -9221 • Fax 574- 235 -9173 • TDD 574- 235 -5567 • www.SouthBendIN.gov JENNIFER M. COFFMAN ALKEYNA M. ALDRIDGE JOSEPH MOLNAR CHIEF DEPUTY/ CHIEF OF STAFF DEPUTY/ DIRECTOR OF POLICY ORDINANCE VIOLATION CLERK would go along with them. He stated, We're hoping that, early on in the process, there will be a couple of no- brainers that everybody will agree that, yes, you're going to have to do these projects. We don't have any rate stuff planned at all right now. Committeemember Dr. Varner responded, But you're going to have to do something, because your scheduled rate expires this year, is that correct? Or is there a rollover that falls in there? Mr. Horvath responded, It carries as it is, but there will be no increase. Committeemember Oliver Davis asked, The people working with us, will they still be the same or are we going to get a new team in now? The EPA or— Mr. Horvath responded, There's a good probability that there may be a new team. We can speculate, but I don't think anybody knows yet. Committeemember Dr. Varner stated, As of the last of the a -mails I received — because what we're talking about is Sewer, now —has the City or has not the City been in contact with IBM or the EPA about renegotiating or reconsidering or changing? Mr. Horvath responded, We have had a number of conversations, specifically with the EPA- Committeemember Dr. Varner interjected, Not IBM. Mr. Horvath responded, Not necessarily IBM and not necessarily the DOJ either, and those have all been generic in content. These are the things we're looking at. We haven't gotten into any specifics because we have purposely not wanted to until we were certain we had all of our stacks behind us so that when we renegotiate, we can negotiate through a position that's finalized. Committeemember Dr. Varner stated, But we have that old famous part of the agreement in the original full sub - decree. It's not something that can be denied. Or it can be denied. I thought both parties had to agree, even though it was there? Mr. Horvath responded, There are provisions that we can open, but regardless of that ... we won't be able to use their specific reopeners because we're going to be asking for more than the reopeners allow, but they are always willing to sit down. Committeemember Davis asked, When the final agreements are made, is that the decision of just the Mayor who makes the final decision regarding accepting the offer, or will that have to come up before the Council? Committeemember Dr. Varner stated, It's become so public knowledge that there's going to have to be a public discussion of it, and it will be deemed at that point in time acceptable or unacceptable, and we'll go from there. But this can't be conducted in the manner in which the last one was, where the Mayor unilaterally decided to sign- Committeemember Davis interjected, That was where my concern was. 2 Mr. Horvath responded, I'm not sure— legally, maybe he's the only one who can sign, but I know that the Mayor is committed from day one (1) to the inclusion of the Council, which is why he wanted Frank Barnes and others to be on that committee, because it is important, as we move forward, that the community is onboard with pushing that. For us to be able to get to the lower level control, we're going to need broad community support for that. The other thing is, in going to the Council, we want to have that buy -in to the plan so that when we go to even with the financing aspects and bringing rates stuff in front of you —it's not going to be you, it's going to be something where we all kind of know what's coming and have an idea of what it's going to take to get there. And so, the hope is that we get everyone on the Council buying into the program, and whatever we do with the EPA. Committeemember Davis stated, I think the Chamber and other key businesses need to be clearly aware of their neighbors. Have there been discussions yet with the Chamber? Mr. Horvath responded, So, we've got a representative of the Chamber in our committee, but not specific to actual rates, just because we don't know what the actual rates are. Committeemember Davis stated, Just from a business standpoint, to let those businesses know so they can start utilizing their strengths —and given the fact that our economic and political situation across the world, or this nation, is going to be switching to that language that we will have to adapt in that area so they can be our advocates — moreso than before —now. Committeemember Dr. Varner asked that the discussion return to Water. He asked, Is the Administration open to phasing -in, from my perspective? Councilmember Karen White asked, I thought I heard you make mention of a phase -in. Is that recommendation coming from you - Committemember Dr. Varner interjected, It would come from the Council. Councilmember White continued, stating, The Council. And that's based on feedback that you heard from citizens, too? Committeemember Dr. Varner responded, Oh, just information from some of the things I've read in the newspaper with regards to that. Councilmember White brought up the fact that the Council had put in place a measure by which they could review rates every two (2) years so that rate increases did not come all at once. Committemember Dr. Varner responded that he did not believe that Council had come to an understanding on that matter. Council Attorney Cekanski - Farrand responded, It's been hit- and -miss, same as '93 when we had an ordinance that—at first in the odd -end years— required the Administration to file with the City Clerk's Office data on whether rates and charges should be changed, so that you have ongoing information on a regular and consistent basis so that there wouldn't be such a lag time like this. And there's been significant turnover with regard to the Water Department. That is on the books. Committeemember Davis asked, Is it ever checked? Council Attorney Cekanski - Farrand responded, There were periodic updates after '93, yes. Committeemember Dr. Varner stated, It's been hit -and -miss. The feedback that I got from more than one person is that you shouldn't be penalizing all of the community forty percent (40 %) for a lack of activity on the part of people who were supposed to be managing for the last ten (10) years. And while they were managing it —and I'm sure in most cases managing things well —it's difficult for a forty percent (40 %) increase in anything. It looks like it's about four dollars ($4) a month —from nine (9) to twelve (12) or thirteen (13) —for the average sewer bill. This same forty percent (40 %) affects all water users, whether you're a large user or a small user. Along the same line as the proposal, there was a suggestion that there was an expectation of a new sewer rate. Now, if it's not going to happen next year, that might be interesting, but we don't know the answer to that question. Mr. Horvath stated, It certainly won't be for many months prior, just because... Committeemember Dr. Varner continued, stating, So, the questions need to maybe go back. One (1): what kind of a phase -in? We have a responsibility to fund as necessary; for what the Water Department needs. What kinds of phase -in would they see as acceptable? And the second one is, I think it's imperative that if we make these capital improvements with caps on pilot so that we aren't paying additional funds, it makes the rate greater than it needs to be. Councilmember Jo Broden asked, Could you walk me through the pilot? What's your thinking, there? You're saying capping that? Committeemember Dr. Varner responded, I'm using this with Water, because it could be time to set a precedent—we have an opportunity to set a precedent—but in the case of Sewer, when we may be talking about $700,000,000/$800,000,000 of capital improvements, those capital improvements by evaluation get rolled into the value of the waste water treatment. The kind of payment that the City pays from the fees of the Sewer Department and Water Department back to the City General Fund goes out accordingly. So, the question is: if we have to have these extraordinary rate increases, does it make sense to let the pilot continue to grow? Should we be funding pilots or funding the necessary deals? The other point was: another option Council would have would be to fund —the suggestion I believe was — $5,000,000 a year that would be necessary for capital improvement over the next number of years. Council— through rates —fund forty percent (40 %) of it and $2,000,000. You can then use TIF dollars, you can use added dollars, you can use COIT dollars. You can use some of the reserves we have. You can limit the pilots, which would only be a couple hundred - thousand ($200,000) dollars a year, but it adds up. You still get the same thing done, you simply don't leave all the discretionary dollars on the table, and you know the plan or the rate. You can apply TIF money to any capital improvement that serves the TIF district. El Committeemember Davis stated, I agree. Councilmember Broden asked, So that question was addressed regarding the pay as you go versus the rate change, right? So, from the consultant's perspective, maybe if you could clarify their input in terms of recommendations and what we would be gaining, losing... Mr. Horvath responded, We do currently cap the pilot at three percent (3 %) like we do other circuit breakers, but as the A.V. goes up—as the plant value goes up, less depreciation, then obviously three percent (3 %) of a bigger value is a bigger dollar amount. So, you're right in that regard that adding assets does increase that maximum pilot. It doesn't mean that the Administration needs to go to that max, but it does increase their billing, too. The one thing I'll say about the pilot is that when you think about the fact that I've gotten no reviews —and these are outside of our city, as well, and they're paying the same rates as the people inside the city and there's actually a surcharge on it —if you use the pilot for the General Fund, you're having them pay a pro -rata share of those General Fund costs, as well, which is why some cities like using pilots specifically on water and wastewater to help support the General Fund. I'm not speaking in favor or against, I'm just letting you know that those are two (2) issues. In terms of the increase being phased in: if we're going to do ghat, there's no way to set it like wastewater; to phase it in over a period of years in the ordinance. We can only do one (1) rate change, go to IURC and get that approved or not, and if we want a second one that is years from now —six (6) months, two (2) years —you have to go back to them. So you can't do one that's even going up two percent (2 %) next year. Whatever you need, you have to make the case for that need and then go to them with the increase. What we did was looked at the five (5) year capital plan, which was in excess of- Committeemember Dr. Varner interjected, saying, It was $88,000,000. Mr. Horvath continued, stating, And we knew we couldn't get there. We're trying to look at some of the more critical pieces that we knew we really should get to in the next five (5) years — we're trying to fund those. That's where it came from. One way or another, we're rolling the dice. I'm not trying to put you on the spot, I'm just saying it is what it is. We've got some really old stuff, and we're going to do our best to maintain it, regardless of whether we have money for replacing capital or not. We have talked about this before, in that we are very blessed with good water quality and lots of groundwater. We are in a very fortunate situation, in that regard. We're also blessed with a lot of capacity out there, in terms of pumping capacity, which has diminished because of the current condition of our assets. It puts us in a better position than we would be in without that option. So, you can't necessarily, per se, do a phase -in, but we could do a twenty percent (20 %) rate increase and then go back and get an extra fifty percent (50 %) or something. That is doable. The cost of issuance for us in terms of setting the rate goes up, because they spend more money on legal and accounting fees, going back to IURC, and those are monies that we otherwise wouldn't have to spend if we did it in one (1) particular swoop as opposed to multiples ones. So, that would be the reason to do it in one (1) versus two (2). Obviously, if you phase it in, it makes it easier for people to bill it into their rate, whether it's a resident or specifically large users. For residents, it's about five dollars ($5) a month, on average. I'm not saying that people aren't in tough positions. For the most part, it will never make a huge 5 difference to them, but it might when we go from $3,000 to $5,000 on business. We did meet with the top twenty -five (25) users. We sent letters to set up a meeting with four (4) of them. We calmly sat down with them, went over all this. They understood where we were coming from. We didn't get any strong pushback from the four (4) customers that came in from the top twenty - five (25), and we didn't get any response from the other twenty -one (21). Committeemember Dr. Varner asked, Did you ask how many of them plan on reducing their usage to control their expense? John Julien, Umbaugh and Associates, 112 Ironworks Avenue, Mishawaka, IN, stated that none of them brought up that they would change their usage. Committeemember Dr. Varner stated, We know that's what happened to Noble Americas, though. Mr. Horvath stated, The SBCSC came. One was selling water —they were using our water and then selling it, so there's no change. Then Noble Americas, and Steel Warehouse. Committeemember Davis asked, In dealing with this, whenever expenses go up—to bring it back to the IURC —isn't there a way that when they approve something, they can approve something in different multiple packages instead of always having to approve with a single package? Mr. Horvath clarified for John Julien that the Committee was talking about phasing -in rates. He asked him, Is there any way you can do phased -in rates through the IURC? Mr. Julien responded, The only way to do that is if it's a specific project in a financing and a bond financing. They will recognize that it will potentially take a year to complete the project and the cost associated with that project would have a delay, and that would substantiate a multi- phase increase. Their working principles— except for when there's a project —is approving expenses that are fixed, known, and measurable, and occurring within the next twelve (12) months. That precludes them from looking at it when we know that in the next five (5) years there's going to be these incremental changes that we could accommodate in a multi -phase increase. Committeemember Davis asked, Do other cities not have any phase -in kind of programs? Mr. Julien responded, Only if there's a bonded project. Committeemember Davis responded, But nothing outside of that? Mr. Julien responded, Correct. Committeemember Dr. Varner, So, hypothetically, if we were saying that $5,000,000 is what you were hoping for a cash infusion— Mr. Horvath interjected, We are generating $5,000,000 for capital. It's — I Committeemember Dr. Varner interjected, It was $5,000,000 for capital, and that's after you took out the pilots and everything else. There's a net $5,000,000 in cash. Mr. Julien responded, Just under $4,900,000 at which $4,100,000 was specifically - Committeemember Dr. Varner responded, So, in an effort to mitigate the rate, or the potential rate, and then look at it in the future —why can't we have some sort of a commitment to $2,000,000 and the other $3,000,000, if we actually need it, can come from TIF, come from COIT, come from EDIT. We're asking the Administration to use resources that we know exist for expenses that we say we absolutely need, or can project or propose that we need. Councilmember Broden stated, Well, different funding methods. Committeemember Dr. Varner responded, That's correct. But what would the rate be if it was a $2,000,000 cash increment? I know that's off the top of your head, but that would have to be forty percent (40 %), I'm sure. Mr. Julien responded, Well, there is a linear relationship. If you're asking for just under $5,000,000 and if you cut it —for every million dollars that you produce, you're looking at a twenty percent (20 %) reduction, so twenty percent (20 %) of the forty -three (43 %), so that would be something - Committeemember Dr. Varner interjected, About eight percent (8 %) each? Mr. Julien responded, Right, for each million. Utilities functions under the umbrella of the City and it's a matter of allocating resources. The only thing that I would make sure that you're focusing on is, we've got a multi -year capital improvement plan that has identified needs in excess of the $4,100,000 that's in the financial plan now. If you have additional resources that the City can reprioritize and move to Utilities, you might start thinking about funding that gap before you start reducing the rate increase. I obviously don't get any additional pleasure from having larger increases, but just from a financial standpoint, you are already taking a $2,000,000 haircut in terms of identifying your capital goods, now. Committeemember Dr. Varner asked, What's that $2,000,000 haircut that you were talking about? Mr. Julien responded, Well, at the moment your capital improvement plan has an annual need for approximately $6,000,000. We're requesting $4,100,000, and that's the gap that I'm talking about. Al Greek, Utilities Director of South Bend, with offices at Riverside Drive and at North Pumping Station in South Bend, IN, stated that of the City's capital funds, $900,000 a year are spent in meters. He stated, Our meter program's got to come out of this $4,100,000. And we also spend a half a million dollars. We have to buy backhoes, we have to buy front -end loaders, we have to buy equipment, dial turn machines. So, that $4,100,000 he's saying is for capital cannot be used 7 for projects. It has to help the day -to -day operations of the Water Department, just to keep us functional. Committeemember Dr. Varner stated, But you put it in the capital budget, though. Maybe we need to separate the fund— Mr. Greek continued, stating, It comes out of the same fund. So, if you start with $4,100,000, just subtract $1,500,000, and that's then what you have ready for projects. Committeemember Davis asked if the IURC regulated Mishawaka. Mr. Julien responded that they did not. Committeemember Davis asked why they did not. Mr. Julien responded Mishawaka was a city that, due to its population, was able to remove themselves from the IURC by adopting an ordinance. Committeemember Davis asked if South Bend was capable of doing the same. Mr. Julien responded that it could be done, but that it required a referendum. Committeemember Dr. Varner asked, So the public would have to express that that's their wish? Committeemember Davis asked, Would that be advantageous for us? Mr. Julien responded, Absolutely. Mr. Horvath stated, It's been brought up about every three (3) or four (4) years. Committeemember Davis asked, What knocks it down? Mr. Horvath responded, The concern you have —you believe you got absolutely enough information to make this decision... It's always that there is one other person to look at the numbers and say, "Okay, we agree with them," who are professionals at looking at numbers far more than we are. Councilmember Karen White asked John Julien to expand on his response to Committeemember Davis's question about the advantage of not being a part of the IURC. Mr. Julien responded, Indiana is one of the few states in the country that regulates municipally owned utilities, because, in effect, the rate - payers select their leaders through election and have control over the process through the ballot box, as to how they want their utilities led and decisions made. The majority of municipalities have opted out, most of them through the process of adopting an ordinance, because of the population criteria. Now, I'm a firm believer that those that are closest to the problem have the best chance of coming up with the solution. It's evident, because the Sewage Works has always been under the local jurisdiction, that you have the expertise and the commitment to make the right decisions on the Sewer side. So what you get is regulation on a utility just because it's water. Through that process, it's important to know that the rules of how you set rates in Indiana are not set by the IURC— they're enforced by the IURC. The rules are specified within State statute. So, whether you're in or out, the rules remain the same. The way the process happens is, there is a local procedure for adopting your rates that have to abide by State statute. You go through that process —and it is an involved process —and you certainly, as the elected representatives of the community, take that responsibility very seriously and you evaluate the process that's done on a local level. When you're comfortable with that, you will adopt an ordinance saying that you believe that the proper legal rates for the one utility are what is reflected in the rate ordinance. Under the majority of the utilities in Indiana, the process is then complete. When you're a regulated utility, the process starts over again at the IURC, in which we will prepare a second report substantiating the decisions that were made at the local level, submitted to the IURC. The IURC will use this staff and the Office of Utility Consumer counsellor staff and replicate the study. They will come up with their recommendation. Then there will be a proceeding in front of an administrative law judge in which both sides will present their basis for the rate increase, and it will ultimately be in order. Let's say you adopt the ordinance this evening —it's going to add nine (9), ten (10) months to the process, plus the expense of a second report, plus the expense of the IURC and OUCC report, and then the time factor that's involved. What you get, at the end of the day, is a confirmation of the decisions that you have thoroughly investigated before acting on the local level. That's a pretty expensive cost of regulation. Now, I have one more thing. When you are a utility that exists for the purpose of making a profit —and I'm not knocking investor -owned utilities —but they exist with the idea of earning a profit at the end of the day. There needs to be somebody watching over them to make sure that that profit is reasonable. That would be your INM's, your NIPSCO's, your telephone companies. And that, going back to where I started, is the majority of the country's perspective on what utilities should be regulated at the State agency level and which shouldn't. Committeemember Davis asked, Who makes up the board of the IURC and who appoints them? Mr. Julien responded, The five (5) commissioners, I believe, and it's a combination of the Governor's Office and the General Assembly, I think. Committee Chair Dr. David Varner informed those present that there were five (5) minutes left to the meeting. The Committee discussed dates for the continuation of the bill. Committeemember Dr. Varner requested that Mr. Horvath got back to the Council regarding whether or not the Administration would be okay with the pilot cap as part of the agreement, and regarding what other alternatives with which it might be good. He stated, We will have to meet early in January. Committeemember Oliver Davis made a motion to continue Bill No. 66 -16 until January 91n 2017 and Committeemember Regina Williams- Preston seconded, which carried by a voice vote of four (4) ayes. 0J With no further items on the agenda, Committee Chair Dr. David Varner adjourned the meeting at 5:44 p.m. Res ec lly Submitted, avid Varner, Committee Chair 10