CITY OF COLUMBIA

AGENDA MEMORANDUM

Updated: 1/19/2016 1:40 PM Page 1

MEETING DATE: February 2, 2016

DEPARTMENT: Utilities and Engineering

FROM: Joey Jaco, Director of Utilities and Engineering

SUBJECT: Contract Amendment #2 with Black and Veatch Corporation

for Water and Sewer Rate Study (5511706-WM4358/SS7349-

638305)

PRESENTER: Joseph D. Jaco, P.E.

ORIGINAL BUDGET: $200,000.00

CLEAN WATER 2020?: No

FEMA DR-SC4241?: No

The referenced Contract Amendment is to update the City's Water and Sewer Rate Study. This Amendment will

review and track the City's current progress related to the five-year financial plan and user rates and charges

proposed and adopted by the City in 2015 and will provide recommendations to the City concerning the revenue

requirements, cost of service allocations, user rates and charges, and capital financing for the next five-year

period.

Black & Veatch Corporation was selected from the Water and Sewer Rate Study RFP (ENGRFP0004-14-15).

Black & Veatch Corporation is headquartered in Kansas City, MO, however, services are being provided out of

Orlando, FL.. This project does not lend itself to the Mentor Protégé Program.

Compensation for this Contract Amendment is a fixed fee amount of $115,000.00. There are no sub-consultants

for this Amendment.

Original Agreement Amount: $199,158.00.

Contract Amendment #1 added $20,017.00.

Contract Amendment #2 is adding $115,000.00.

New Agreement Total: $334,175.00.

This project impacts all City Council Districts. The Legal Department has reviewed and approved this Amendment

and the Utilities & Engineering Director and ACM for Operations recommend its approval.

FINANCIAL IMPACT: Funding for this Contract Amendment has been identified

as 5511706-WM7358/SS7349-638305.

January 14, 2016

 

PRACTICAL SOLUTIONS. PROVEN BUSINESS EXPERIENCE. COMMITTED PARTNERSHIP. 

WATER AND SEWER RATE STUDY UPDATE 

City of Columbia, South Carolina 7 JANUARY 2016 

  

©Black & Veatch Holding Company 2015. All rights reserved.

  BLACK & VEATCH CORPORATION   11401 LAMAR AVENUE, OVERLAND PARK, KS 66211     +1 913‐458‐9070 | EBERTSRT@BV.COM 

  www.bv.com   

7January2016

Mr.JoeyJaco,DirectorofUtilitiesandEngineeringCityofColumbia,S.C.WaterandSewerRateStudyUpdatePOBox147Columbia,SC29217 Subject:WaterandSewerRateStudyUpdateLetterProposal

DearMr.Jaco,

Black&VeatchCorporation(Black&Veatch)ispleasedtopresentourproposalforprovidingWaterandSewerRateStudyUpdateservicesfortheCityofColumbia,S.C.(theCity).Black&Veatchisuniquelyqualifiedforthisprojectforthefollowingreasons:

OurIndustryThoughtLeadership:Ourprofessionalshaveservedasbothcontributingauthorsandaspeerreviewersforthewater,sewer,andstormwaterutilityindustryratesettingmanuals,andactivelycontributetovariouscommitteeactivities.

ProvenProjectTeamwithdirect,on‐pointexperiencewithmunicipalwaterandwastewaterutilitiesintheUnitedStates:WeunderstandtheindustryandchallengesthattheCityworksineveryday.OurexperiencedteamiscommittedtodeliveringacomprehensivescopeofservicesthatwillhelptheCitynavigateitscomplexchallengesandbusinessenvironmentwithbestpracticesolutionsthroughtheirtechnicalcapabilitiesanddirectexperiencewithprojectssimilarinscope.

Ourprofessionalspossessuniqueutilityfinancialandratemodeldevelopmentcapabilities:WecanprovidetheCitywithathoroughfinancialandratemodelforuseinfutureplanningandratemaking.OurmodeliscomprehensiveandflexibletoconsideruniqueaspectsoftheCity’scustomers,systems,andprocesses.

 

7 JANUARY 2016 | PAGE 2 

Thisproposalisastatementofourcommitmenttoprovidetheleadership,projectmanagementandresourcesnecessarytosuccessfullyservetheCity.Welookforwardtodiscussingyourneeds,ourqualifications,andpotentiallong‐termsolutionsthatourcompanycanprovide.ShouldyouhaveanyquestionsaboutourproposalpleasecontactJeffDykstraat407‐419‐3586ordykstraja@bv.com.Welookforwardtoservingyouonthisimportantengagement.

Verytrulyyours,BLACK&VEATCHCORPORATION

RalphEbertsExecutiveVicePresident

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  1

Approach and Scope of Work ThepurposeoftheWaterandSewerRateStudyUpdateistoreviewandtracktheCity’scurrentprogressrelatedtothefive‐yearfinancialplananduserratesandchargesproposedandadoptedbytheCityin2015andtoproviderecommendationstotheCityconcerningtherevenuerequirements,costofserviceallocations,userratesandcharges,andcapitalfinancingforthenextfiveyearperiod.

ThefigurebelowsummarizestheoverallapproachutilizedbyBlack&Veatchandtheindustryforcostofserviceandratestudiesforwaterandwastewaterutilities.

Black&VeatchproposestoupdatetheWaterandSewerRateStudyperformedfortheCitybyBlack&Veatchin2015.ThisupdateofthestudywillincludeareviewofthepriorrecommendationsanddevelopingnewrecommendationsbasedontheCity’sactualexperienceandanychangestoobjectives.Forthepurposesofthescopeofworkpresentedhereinandtheanalysistobeperformed,theTestYearreferstothefirstfiscalyear(2017)ofanalysisforwhichtheCityisrequestingtheseservices.Theassumedfive‐yearstudyperiodasidentifiedhereinisFY2017throughFY2021.Ourproposedworkplanisdividedintoeightinterrelatedtasks:

1. ProjectInitiation

2. DataCollection

3. DataReview

4. Five‐YearRevenueRequirements,AdequacyofExistingRateRevenues,andCapitalFinancingPlan

5. CostofServiceAllocations

6. UserRatesandChargesAnalysis(includingsewersurcharge)

7. ReportsandDeliverables

8. On‐SiteMeetings

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  2

Task 1 Project Initiation  

Aprojectkick‐offmeetingwillbeheldtoinitiatetheproject.Theobjectivesofthistaskaretoreviewtheprojectobjectives,procedures,andapproach.Priortothemeeting,Black&VeatchwillreviewtheprojectscopeofworkandwillprovidedatarequirementsandassumptionsnecessarytoinitiateandcompletetheRateStudyUpdate.

Task 2 Data Collection 

Black&Veatchwillforwardapreliminarydatarequestoutliningthefinancial,operating,customer,andotherpertinentdatarequirementsnecessarytocompletetheengagementdefinedherein.Thisrequestwillbeverysimilartoinformationrequestedduringtheratestudycompletedin2015.Asneeded,supplementaldatarequestsmaybeprovidedtotheCityasidentifiedbytheBlack&Veatchprojectteam.

Task 3 Data Review 

Uponreceiptofdatafromthepreviousstep,Black&Veatchwillperforminitialreviews,withtheCity,regardingtheexistingoperatingandcapitalbudgets,andanychangestothefinancialandstrategicpoliciesthattheCityimplementedduringtheratestudycompletedin2015. 

Task 4 Revenue and Revenue Requirements 

Theprimaryobjectiveofthistaskistoupdateandprojectrevenuesunderexistingratesandappropriatelyforecasttheoperatingandcapitalrequirementsoverthestudyperiodintoafive‐yearcashflowstatement.Theforecastofrevenuerequirementsestablishesthecostbasistocomparetheadequacyofrevenuesfromexistingrates.

4.1  Customer, Usage, and Flow Projections 

TheBlack&VeatchteamwillworkwiththeCitytoappropriatelyunderstandandupdatetherecentutilitycustomerdemandrequirementsforspecificutilityservices.Attentionwillbededicatedtounderstandingcustomergrowthforthewaterandsewersystem.Inaddition,reasonassociatedwithanyrecentchangesinwaterdemandandsewerflowwillbereviewedanddocumented.

TheforecastofwaterdemandwillbebasedonfactorsassociatedwiththeCity’santicipatedcustomergrowthprojections,historicalorganiccustomergrowth,climatologicalpatterns,localeconomicconditions,andlearnedcustomerwaterusagepatterns.Historicalnumberofutilityaccountsandusageperaccountwillbeanalyzedtoprojectfuturebilledflowbycustomerclassoverthestudyperiod.

4.2  Revenue Projections 

Black&Veatchwillapplytheexistingwaterandsewerratestotheforecastofwaterandsewercustomersandflow.Revenuedeterminedasaresultofthis

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  3

analysiswillformthebasistoassessrevenuesunderexistingratesbyallcustomerclassesandcustomersservedbytheCityoverthestudyperiod.

4.3  Miscellaneous Revenue Projections 

Therevenuestobegeneratedfromotherexistingsourcesincludinginterestearnings,latepaymentcharges,andothermiscellaneousservicechargeswillbeprojectedoverthestudyperiod.Theserevenuesourcesareimportantfordeterminingthenetleveloffuturerevenues,whichneedtobegeneratedfromuserratesandcharges.

4.4  Annual Revenue Requirement Projections 

Black&Veatchwillupdatethefive‐yearforecastofannualrevenuerequirementsforthewaterandseweroperationsonacashbasis.Wewillexaminehistoricalfinancialreports,historicalandbudgetedoperatingandcapitalexpenditures,expectedoperationalandstaffingchanges,potentialnewfacilities,andsystemgrowth,otherrelatedfinancialinformation.Inaddition,currentmarketcostinflationescalatorswillbeutilizedtoforecastcostsoverthestudyperiod.AnotherimportantpieceofdevelopingtheannualrevenuerequirementsisgatheringanunderstandingofprojectedcostsassociatedwithConsentDecreemitigationactivitiesthattheCityisundertakingwhichrepresentssignificantcostburdenstothesewerutilityandcustomers.Specificconsiderationwillbegiventoidentifyone‐timeandcontinuingcostsincurredbytheCityrelatedtorecentfloodingeventsinthelastquarterof2015.

Black&VeatchwilldeveloprevenuerequirementsoftheCity’swaterandsewerutilitiestakingintoconsiderationthefollowingfactors:

BudgetedandProjectedOperationandMaintenanceExpenditures DebtServicePaymentsonexistingandprojectedbondissuesandStateRevolvingFund(SRF)loans

CashfinancingofCapitalImprovementsPlan(CIP)fromraterevenuesthatarenotfundedthroughdebtissuance

FundingtheSewerManagementProgram TransferPaymentstoCityGeneralFund Contributionstospecifiedreservefunds Anyothercashexpenditureasappropriate

Asapartofthedevelopmentoffive‐yearrevenuerequirements,Black&VeatchwilllookindetailatthekeyissuesandeconomicenvironmentthattheCityhasoperatedunderoverthepastfewyears.Issuesrelateddeferredmaintenance,financingofcapital,renewalandrehabilitationpolicies,andbillingaccuracy,willallneedtobeconsideredcarefullyandplannedforinthisWaterandSewerRateStudyUpdate.

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  4

4.5 Determination of the Adequacy of Revenues under Existing Rates 

TheobjectiveofthistaskistodeterminewhethertheCity’sexistingratesandchargesareadequatetomeettherevenuerequirementsandachievethefinancialpoliciesestablishedforthewaterandsewersystems.

Black&Veatchwillupdatethefive‐yearcashflowanalysesforthewaterandsewerfundsoverthestudyperiodshowingacomparisonofrevenuesunderexistingrateswithrevenuerequirements.Asapartofthecashflowanalyses,wewilldeterminetheannualrevenueincreaserequiredtoadequatelysupportutilityoperations.

Thecashflowanalyseswillestablishthebasistodevelopasoundfinancialplanoverthestudyperiodandestablishthetargetrevenuestobeutilizedinperformingthecostofserviceanalysisandratedesignanalysis.

4.6 Capital Financing Plan 

Thewaterandsewerutility’slatestCapitalImprovementProgram(CIP)willbereviewedtogainanunderstandingofanysubstantialchangestotheprojectsscheduled;thetimingassociatedwithsuchprojects,anticipatedsourceoffinancing,andtheanticipatedtimingofproposedrevenuebondissues.Black&VeatchwillworkcloselywiththeCitymanagement,utilitystaff,andthirdpartyconsultantsasneededtoproviderecommendationsontheCIP.Black&VeatchwillworkwiththeCitytodeterminetheappropriateratioofcashversusdebtcapitalfinancingpolicy.

Task 5 Cost of Service Allocations 

Theobjectiveofthistaskistoupdatetheallocationofthefunctionalcomponentsofrevenuerequirements.TheapproachestobeutilizedbyBlack&VeatcharebasedontheAmericanWaterWorksAssociation(AWWA)M1andM5ManualsandtheWaterEnvironmentFederation’s(WEF)FinancingandChargesforWastewaterSystemsManualofPracticeNo.27principlestoidentifycustomerclasscostsofservicerequirements.BecausetheCityprovidesservicetocustomersbothinsideandoutsidecitylimitsandwhoalsoprovidewholesaleutilityservicesliketheCitydoes,wewillcontinuetoutilizetheutilitybasisforthistask.ThisprocessinvolvesrestatingtheoperatingandcapitalcashrequirementsoftheTestYearforeachoftheutilitiesintermsofoperationandmaintenanceexpenses,depreciationexpense,andreturnonratebase.

Thesubtasksassociatedwithupdatingthecostofserviceanalysisaredetailedinthefollowingsections.

5.1  Functionalization and Allocation of Functional Costs to Cost Components 

Black&Veatchwillreevaluateappropriatenessandupdateutilityfunctionalserviceparametersonwhichtoallocatecostbetweenretailandwholesale

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  5

customers,inside‐cityandoutside‐citycustomers,andcustomersreceivingdistinctservicefromtheCity.Thissteprecognizesthatcostsincurredbytheutilitiesaretypicallycausedbyaservicerequirementofthesystem.Theserequirementsvarybetweenwaterandsewerutilitiesbutgenerallyinclude;annualconsumption/flow,peakdemands,numberofcustomers,andotherservices(fireservicesforwaterutilitiesandextrastrengthtreatment“TSS/BODorCOD”forsewerutilities).

Black&Veatchwillupdatethetestyearcostofserviceallocations.Thedevelopmentofwaterfunctionalcostallocationswillrecognizebaseorvolumerelatedcosts,maximumdayandhourlycapacityordemandcosts,fireprotectioncosts,andcustomercosts.Ontheotherhand,thesewerfunctionalcostallocationswillrecognizevolume,suspendedsolids,biochemicaloxygendemand,andcustomers.Also,theallocationofrevenuerequirementswillrecognizekeysissuesassociatedwithprovidingservicetowholesale,multi‐family,industrialsurcharge,andotherspecialservicecustomers.

5.2  Development of Units of Service  

Black&Veatchwillupdateourestimatesoftheunitsofserviceassociatedwitheachofthecostcausativeelementsforthewaterandsewerservice.Theunitsofservicewillbeestimatedbasedontheservicecharacteristicsthataredefinedforeachcustomerclass.Specificattentionwillbededicatedtobreakingoutspecialclassesofservicesuchaswholesaleservice,multi‐familyserviceanddwellingunits,serviceprovidedtoindustrialsurchargecustomers,andothercustomersreceivingspecialservicedesignations.

Theseunitsofservicewillbeupdatedrecognizingthecustomerusageanalysis,availabledata,andengineeringjudgmentaboutcustomerclassservicerequirements.Atthecompletionoftheunitofserviceanalysisupdate,theBlack&Veatchteamwillalignthefunctionalallocationofrevenuerequirementswiththedeterminedunitsofservice.

5.3  Development of Unit Costs of Service 

Theunitscostofservicewillbetheresultofaligningtheallocationoffunctionalcostwiththeestimatedunitsofservice.ThecalculatedunitscostofserviceestablishesthebasistounderstandthecostbasedfunctionalunitvalueofservicesprovidedbytheCity.Asdeterminedintheanalysis,theunitcostofservicewillbeutilizedtodeterminethecostresponsibilityofallcustomersclassessummarizedintheunitsofservice.

5.4  Distribution of Costs to Customer Classes 

Black&Veatchwillassignthetotalcostsofserviceforeachcustomerclassbyapplyingunitcostsofservicetoeachindividualcustomerclasses’unitsofservice.Therelativeresponsibilityofeachcustomerclasswillbespecificallydeterminedbasedoneachclass’oruser’sestimatedservicerequirements.Adirectassignmentandcalculationoftheutilitysystemsinsideandoutsidethe

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  6

citycostdifferentialwillbedevelopedbasedontheutility’scurrentcostofequityandareasonablerateofreturnfromcustomersservedbytheutility.

Uponcompletionofthissubtask,Black&VeatchwillprovideasummaryofthecostsofservicebycustomerclassincomparisontotherevenueunderexistingratesfortheTestYeartodeterminethedegreeofcostrecoveryandtoidentifypossiblerevenueadjustmentsforconsiderationinratedesigntoalignthecustomerclasseswiththecostburdenthattheyplaceontheutilities.Basedonthestatedgoalsandobjectivesofthecostofserviceandratedesignprocess,thiscomparisonisimportantinthedeterminationofappropriaterevenuerecoveryandthemechanismsbywhichtorecoverthesecostsforeachutilitysystem.

Task 6 User Rates and Charges Analysis 

Theobjectiveofthistaskistorecommendfairandequitableratestructureoptionsforratedesignandassociatedcustomerclassificationsforwaterandsewerservice.Thisillustrationhighlightstheprocessandconnectionbetweenthecostofserviceanalysisandratedesignanalysisinverifyingtheadequacyoftheproposedrates.Duringthecashflowanalyses,totalsystemproposedrevenuetargetsaredeterminedandtheratedesignanalysisverifiestheabilityofproposedratestoachievetheserevenuetargets.Black&VeatchwillalsoprovideupdatedrecommendationsontheCity’scurrentratestructureasneeded.

Ourrecommendedapproachtotheratedesignprocessseekstoestablishareasonablenexusbetweencostsincurredinprovidingserviceandtheratesandchargesthataredesignedtorecoverthesecostsofprovidingservice.Black&VeatchrecognizesthatthereneedstobeabalancebetweentheratesasdeterminedbythecostofserviceanalysisandtheCity’sgoalsandobjectives.

Black&VeatchinconjunctionwiththeCitywillconsiderCitypolicies,existingtariffs,pricingandprojectobjectives,andpracticallimitationsasapartoftheratedesignanalysis.Issuesaroundcustomeraffordability,revenuestability,andcostofservicerecoverybyclasscanhaveconflictingimpacts,butwillbestronglyconsideredandquantitativelyanalyzedtodeterminetheimpactontheadequacyoftheproposedrates.

Theunderstandingofexistingcustomerclasses’billtabulationdistributionswillbecriticaltoprovidingrevenuestabilityandrecoverytotheCity.Forachievingrevenueneutralityinratedesign,itisimperativethataccurateandappropriatecustomerbillinginformationisprovided.WorkingcloselywiththeCity’scustomerbillingstaffandCustomerSuitebillingsystem,Black&VeatchenvisionsthisprocessasaninteractivedialogueandexchangethatiscriticaltotheStudy.

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  7

Theratesdesignupdatewillincludethedevelopmentofretailratesbothinsideandoutsidecity,sewerindustrialsurcharges,StateratesandFortJackson.

Uponupdatingtheratedesignanalysis,theBlack&Veatchteamwillpreparebillimpactcomparisonsbetweentheexistingandproposedutilityratesandtheutilityserviceratesofneighboringutilities.

Task 7 Reports and Deliverables 

Black&Veatchwillprepareadraftreportandasubsequentfinalprojectreportsattheconclusionoftheengagementwhichwillhighlighttheworkcompletedinthetasksaboveandproviderecommendationsforthefollowing:

ProjectedFive‐YearFinancialPlanandCashFlowStatementswithProposedRevenueIncreasesbyUtilitySystem

CostofServiceAllocationsforFY2017 ProposedWaterandSewerRatesfortheCityforFY2017

Therespectivesubmittalwillexplainthestudyapproach,findings,andrecommendations.ListedbelowisasummaryofallthereportstobeagreeduponandsubmittedtotheCity:

1. DraftRateStudyUpdateReport

2. CompletedFinalRateStudyUpdateReport

Task 8 On‐Site Meetings 

BasedonourexperienceduringtheRateStudyperformedin2015,Black&Veatchproposestoattendfivemeetings:1)ProjectOrientation,2)CityCouncilPreliminaryResults,3)CityCouncilRatePresentation(ProposedRates),4)1stReadingofProposedRates,and5)FinalReadingofProposedRates.Additionalin‐personmeetingscanbeheldpertheCity’srequestatadditionalcost.Black&Veatchproposesfrequentcommunicationthroughouttheengagementandwillsetupweeklyconferencecallsthroughouttheproject.

SCHEDULE Thefollowingscheduleoutlinesaproposedscheduleassumingatimelynoticetoproceedandreceiptofallrequestedprojectdata,scheduledstakeholdermeetings,andafinalizedscopeofservices.Specificon‐sitemeetingdatesareestimatesonlyandwillbemutuallyagreedupon.ThecompletionandtimingofdeliveryforthereportswillalsobemutuallyagreeduponattheoutsetoftheprojectinTask1.

City of Columbia, South Carolina | WATER AND SEWER RATE STUDY UPDATE 

 BLACK & VEATCH | Approach and Scope of Work  8

FEE Fortherequestedservicesandlevelofeffortasunderstoodandoutlinedherein,Black&Veatchproposestoperformtheservicesforafixedfeeamountof$115,000inclusiveofdirectexpensesincurredatactualcost.Directexpensesincludeairfare,carrental,mileage,parking,hotels,meals,andoutsidereproductioncosts.Thesedirectexpensesincludeestimatedtravelexpensesforfiveon‐sitemeetingsandpresentationsbyBlack&Veatchconsultants.Black&VeatchproposestosubmitmonthlyinvoicestotheCityattheendofeachmonthandbillonapercentcompletebasis.Black&Veatchexpectsallpaymentstobeduewithin30days(Net30)uponreceiptofaninvoice.

DISCLAIMER Black&VeatchandtheCityofColumbia,SouthCarolinasuccessfullyexecutedacontractdatedNovember24,2014“AgreementforConsultingServices”(ReferencedAgreement).Black&VeatchproposestoperformthescopeofserviceshereinundertheReferencedAgreement.

 

Project Schedule

Task 1: Project Initiation

Task 2: Data CollectionTask 3: Data Review

Task 5: Cost of Service AllocationsTask 6: User Rates and Charges Analysis

Task 7: Reports and DeliverablesTask 8: On‐Site Meetings

Draft Report Presented to City Staff Final Report Presented to City Staff

Notes:

Key: Deliverable Submitted

Black & Veatch Project Work Black & Veatch On‐Site Meetings or Presentations

July 2016

* The Black & Veatch project team is available to begin this project immediately upon the agreement of a contract with the City. 

Feb 2016 June 2016Mar 2016 Apr 2016Jan 2016

Task 4: 5 Yr. Revenue Requirements, 

Adequacy of Existing Rate Revenues, and 

Capital Financing Plan

May 2016