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HomeMy WebLinkAbout4379 +--------------------------------------------------------------------------+ ==Enter Search Criteria, Press Esc Key to Transmit ypress Del Key to Terminate Delete Mode + CHANGE Contract Transactions Contract Number 4379 +=Vendor Name +Subject +Department +Status Code + + + + + + Comments ECONOMIC & ENGINEERING SERVICES INC RATE STUDY - COMPREHENSIVE WATER/SEWER/STORMWATER PW - UTIL PRO += Insurance Type Amount GL $2000000.00 AL $1000000.00 E&O $1000000.00 Amount Begin Date End Date Review Date $104400.00 08/15/2003 += 12/31/2004 + 02/15/2007 + Insurance Total Insurance Review Date $4000000.00 04/01/2005 VAULT 01/01/2007 =f + I +--------------------------------------------------------------------------+ PROFESSIONAL SERVICES AGREEMENT Comprehensive Water, Sewer, and Stormwater Rate Study The City of Bremerton ("City") and Economic and Engineering Services, Inc. ("Consultant"), referred to collectively as the "Parties," enter into the following Agreement for professional services: I. Scope: The Consultant agrees to perform the services more specifically described in the Scope of Work, dated -- _, 2003, including any attachments thereto, attached hereto as Exhibit A, which is incorporated by reference herein. The Scope of Work may be modified only pursuant to Section VII.H. of this Agreement. If the Scope of Work provides for unspecified additional services such services shall only be performed upon the express written request of the City. Consultant further represents that the services furnished under this Agreement will be performed in accordance with generally accepted professional practices in effect at the time such services are performed. II. Term: The City and the Consultant agree that work will begin on the tasks described in Exhibit A immediately upon execution of this Agreement. The parties agree that the work described in Exhibit A is to be completed as provided for in the work schedule attached hereto as Exhibit B; provided however, the Agreement shall terminate December 31, 2004. Additional time shall be granted by the City for excusable delays or extra work as provided for in section IX (A) of this agreement. III. Compensation: In consideration of the services provided pursuant to this Agreement, the City shall pay Consultant in an amount not to exceed One Hundred Four Thousand, Four Hundred Dollars ($104,400.00) Consultant's charges and bills shall conform to the fee schedule attached hereto as Exhibit C and incorporated herein by this reference. The Consultant shall submit regular billing statements detailing work performed and amount charged on each task or portion thereof. The descriptions shall conform to and fall within the categories set out in the Scope of Work and/or Fee Schedule. Upon receipt of a conforming billing statement, the City shall promptly process payment. PROVIDED, HOWEVER, the City reserves the right to prioritize scoped work and accelerate and/or delay work tasks under the time frame set forth in Section I! herein. The Consultant's labor rates and billing fees shall be as delineated in Exhibit C. Consultant shall not perform work beyond the Scope of Work, nor shall be compensated for such work, unless the Scope of Work or amount of compensation is modified pursuant to this Agreement. Consultant shall only be compensated for additional services if requested pursuant to Section I and, if not otherwise provided, such compensation shall be in accordance ~vith Exhibit C. If a billing statement does not conform to this Agreement, the City may withhold payment until the statement is brought into compliance. Such withholding does not relieve Consultant of its obligations under this Agreement. Bremerton/EES, Inc. Comprehensive Water, Sewer, Stormwater Rate Study Page 1 of 6 IV. Relationship of Parties: Consultant represents that it is skilled in the matters addressed in the Scope of Work and is performing independent functions and responsibilities within its field of expertise. Consultant and its personnel are independent Consultants and not employees of the City. Consultant and its personnel have no authority to bind the City or to control the City's employees and other Consultants. None of the benefits provided by the City to its employees, including, but not limited to, compensation, insurance, and unemployment insurance are available from the City to the employees, agents, representatives, or sub-Consultants of the Consultant. Consultant will be solely and entirely responsible for its acts and for the acts of Consultant's agents, employees, representatives and sub-Consultants during the performance of this Agreement. The City may, during the term of this Agreement, engage other independent Consultants to perform the same or similar work. As an independent Consultant, Consultant is responsible for its own management. The City's administration and enforcement of this Agreement shall not be deemed an exercise of managerial control over Consultant or its personnel. As an independent Consultant, Consultant is responsible for payment of all taxes and licensing fees necessary to perform its obligations under this Agreement. These taxes and fees include but are not limited to State industrial insurance, Business & Occupation, State professional licensing, and City business licensing. If any taxes or fees due the City have been declared delinquent, the City may withhold the delinquent amount, plus any additional charges arising from the delinquency, from any payments due Consultant. V. Indemnification: Consultant shall defend, indemnify and hold the City, its officers, officials, employees, agents and volunteers harmless from any and all claims, injuries, damages, losses or suits, including all legal costs and attorney fees, arising out of or in connection with the performance of this Agreement, except for that portion of the injuries and damages caused by the City's sole negligence. The City's review or acceptance of any of the work when completed shall not be grounds to avoid any of these covenants of indemnification. Should a court of competent jurisdiction determine that this Agreement is subject to RCW 4.24.115, then, in the event of liability for damages arising out of bodily injury to persons or damages to property caused by or resulting from the concurrent negligence of the Consultant and the City, its officers, officials, employees, agents and volunteers, the Consultant's liability hereunder shall be only to the extent of the Consultant's negligence. IT IS FURTHER SPECIFICALLY AND EXPRESSLY UNDERSTOOD THAT THE INDEMNIFICATION PROVIDED HEREIN CONSTITUTES THE CONSULTANT'S WAWER OF IMMUNITY UNDER INDUSTRIAL INSURANCE, TITLE 51 RCW, SOLELY FOR THE PURPOSES OF THIS INDEMNIFICATION. THE PARTIES FURTHER ACKNOWLEDGE THAT THEY HAVE MUTUALLY NEGOTIATED THIS WAIVER. The provisions of this section shall survive the expiration or termination of this Agreement. Bremerton/EES, Inc. Comprehensive Water, Sewer, Stormwater Rate Study Page 2 of 6 VI. Insurance: The Consultant shall procure and maintain for the duration of the Agreement, insurance against claims for injuries to persons or damage to property which may arise from or in connection with the performance of the work hereunder by the Consultant, its agents, representatives, employees, sub-consultants or sub-Consultants. Before beginning work on the project described in this Agreement, the Consultant shall provide a Certificate of Insurance evidencing: 1. Professional Liability insurance with limits no less than $1,000,000 limit per occurrence/claim. Any payment of deductible or self insured retention shall be the sole responsibility of the Consultant. All required policies shall be provided on a "claims-made" basis. The Consultant's insurance shall be primary insurance as respects the City and the City shall be given thirty (30) days prior written notice by certified mail, return receipt requested, of any cancellation, suspension or material change in coverage. The City also reserves its unqualified right to require at any time and for any reason, proof of coverage in the form of a duplicate of the insurance policy with all endorsements as evidence of coverage. VII. General Conditions: A. Reports and Information: When requested by the City, Consultant shall furnish periodic reports and documents on matters covered by this Agreement. The reports and documents shall be furnished in the time and form requested. Consultant shall maintain accounting records in accordance with Generally Accepted Accounting Principles (GAAP) to substantiate all billed amounts. B. Ownership and Use of Records and Documents: Original documents, drawings, designs and reports, including those in electronic format, developed under this Agreement are the property of the City. All written information submitted by the City to the Consultant in connection with the services performed by the Consultant under this Agreement will be safeguarded by the Consultant to at least the same extent as the Consultant safeguards like information relating to its own business. If such information is publicly available or is akeady in Consultant's possession or known to it, or is rightfully obtained by the Consultant from third parties, Consultant shall bear no responsibility for its disclosure, inadvertent or otherwise. All data, documents and files created by Consultant under this Agreement may be stored at Consultant's office in Bellevue, Washington. Consultant shall make such data, documents, and files available to the City upon its request at all reasonable times for the purpose of editing, modifying and updating as necessary until such time as the City is capable of storing such Bremerton/EES, Inc. Comprehensive Water, Sewer, Stormwater Rate Study Page 3 of 6 information in the City's offices. Duplicate copies of this information shall be provided to the City upon its request, and at reasonable cost. All documents, including all reports, drawings, specifications, computer software or other items prepared or furnished by Consultant pursuant to this Agreement, are instruments of service with respect to the project and are the property of the City. Any reuse by the City for other than the specific purpose intended will be at City's sole risk. C. Consultant to Maintain Records to Support Independent Consultant Status: On the effective date of this Agreement (or shortly thereafter), Consultant shall: 1. File a schedule of expenses with the Internal Revenue Service for the type of business Consultant conducts; 2. Establish an account with the Washington State Department of Revenue and other necessary state agencies for the payment of all state taxes normally paid by employers, register to receive a unified business identifier number from the State of Washington; and 3. Maintain a separate set of books and records that reflect all items of income and expenses of Consultant's business, all as described in the Revised Code of Washington (RCW) Section 51.08.195, as required to show that the services performed by Consultant under this Agreement shall not give rise to an employer- employee relationship between the parties which is subject to RCW Title 51, Industrial Insurance. D. Work Performed at Consultant's Risk: Consultant shall take all precautions necessary and shall be responsible for the safety of its employees, agents, and sub consultants in the performance of the work hereunder and shall utilize all protection necessary for that purpose. All work shall be done at Consultant's own risk, and Consultant shall be responsible for any loss of or damage to materials, tools, or other articles used or held for use in connection with the work. E. Place of Work: The Consultant shall perform the work authorized under this Agreement at its offices in Bellevue, Washington. Meetings with the City staff as described in Exhibit A, Scope of Work, shall take place at the City's offices, or at locations mutually agreed upon by the parties. F. Entire Agreement: This Agreement and its Exhibits constitutes the entire agreement between the Parties, and the Parties acknowledge that there are no other agreements, written or oral, that have not been set forth in the text of this Agreement. G. Severability: Should any part of this Agreement be found void, the balance of the Agreement shall remain in full force and effect. H. Modification: This Agreement may only be modified by written instrument signed by both Parties. Bremerton/EES, Inc. Comprehensive Water, Sewer, Stormwater Rate Study Page 4 of 6 I. Written Notices: All communications regarding this Agreement shall be sent to the parties at the addresses listed below by registered or 1st class mall, or by personal service, and shall be deemed sufficiently given if sent to the addressee at the address stated in this Agreement or such other address as may be hereafter specified in writing. City Address Consultant Address Public Works and Utilities EES, Inc. 3027 Olympus Drive P O Box 1989 Bremerton, WA 98310 Bellevue, WA 98009-1989 J. Waiver: Failure to enforce any provision of this Agreement shall not be deemed a waiver of that provision. Waiver of any right or power arising out of this Agreement shall not be deemed waiver of any other right or power. K. Non-Waiver of Breach: The failure of the City to insist upon strict performance of any of the covenants and agreements contained herein, or to exercise any option herein conferred in one or more instances shall not be construed to be a waiver or relinquishment of said covenants, agreements or options, and the same shall be and remain in full force and effect. L. Compliance with Laws: Consultant shall comply with all applicable Federal, State, and local laws in performing its obligations under this Agreement. M. Choice of Law and Venue: This Agreement shall be interpreted according to the laws of the State of Washington. Any judicial action to resolve disputes arising out of this Agreement shall be brought in Kitsap County Superior Court. N. Attorneys' Fees: In the event of litigation to enforce any of the terms or provisions herein, each party shall pay all its own costs and attorney's fees. O. Assi~unent: Any assignment of this agreement by the Contractor without the written consent of the City shall be void. VIII. Nondiscrimination: Consultant shall not discriminate in employment or services to the public on the basis of race, color, national origin, sex, religion, age, marital status, or disability, except for employment actions based on bona fide occupational qualification. IX. Termination: This Agreement may be terminated, at will, by either Party upon sixty (60) days notice to the other Party. This Agreement may be immediately terminated for cause by a Party if the other Party substantially fails to perform through no fault of the terminating Party, and the non-performing Party does not commence correction of the failure of performance within thirty (30) days of the terminating Party's sending notice to the non-performing Party. Notice by Consultant shall include a report showing the status of all items listed in the Scope of Work current through the termination date. Bremerton/EES, Inc. Comprehensive Water, Sewer, Stormwater Rate Study Page 5 of 6 If the City receives reimbursement by any federal, state, or other source for work described in Section I herein, and that funding is withdrawn, reduced or limited in any way, or the project is cancelled or substantially reduced after the execution date of this Agreement and prior to the completion of the work, the City may summarily terminate this Agreement. Termination shall be effective ten calendar days after Consultant's receipt of the written notice by certified mail. A. Excusable Delays: The right of Consultant to proceed shall not be terminated nor shall Consultant be charged with liquidated damages for any delays in the completion of the work due to: 1) any acts of the federal government in controlling, restricting, or requisitioning materials, equipment, tools, or labor by reason of war, national defense, or other national emergency; 2) any acts of the City, its consultants, or other public agencies causing such delay; and 3) causes not reasonably foreseeable by the parties at the time of the execution of the Agreement that are beyond the control and without the fault or negligence of the Consultant, including, but not restricted to, acts of God, fires, floods, strikes, or weather of unusual severity. PROVIDED, HOWEVER, that the Consultant must promptly notify the City within ten (10) calendar days in writing of the cause of the delay. If, on the basis of the facts and the terms of this Agreement, the delay is properly excusable, the City shall, in writing, extend the time for completing the work for a period of time commensurate with the period of excusable delay. B. Rights Upon Termination: In the event of termination, the City shall pay for all services performed by the Consultant to the effective date of termination, as described on a final invoice submitted to the City. After termination, the City may take possession of all records and data within the Consultant's possession pertaining to this project which may be used by the City without restriction. Any such use not related to the project which Consultant was contracted to perform shall be without liability or legal exposure to the Consultant. CITY OF BREMERTON ECONOMIC AND ENGINEERING SERVICES, INC. By: Cary Bozeman By: .~,~,~ C~,,-K~ its: Mayo. j.. ! t .-7__ its:k.~,~--. Date: )~/{).~//~.7 Date: ,~r,_~-~ ~, '2~'D  Attest .).~) ~)/f ~'ity Clerk,~'r' .... t'- - '~ / Bremerton/EES, Inc. Comprehensive Water, Sewer, Stormwater Rate Study Page 6 of 6 Introduction The City of Bremerton (City) has requested technical assistance in conducting a comprehensive water, sewer and stormwater utility rate study. The ultimate goal of this study is to assure the adequate funding of each utility's O&M and capital needs, while developing rates that are fhir and equitable. In order to accomplish that goal a comprehensive rate study must be conducted for each utility. At the end of that process, rates will be recommended that meet the financial objectives of the City and which are cost-based and equitable. In addition to conducting a comprehensive rate study for each utility, the City also would like to review and update the current system development charges (SDC's) for the water and sewer utilities and establish SDC's for the stormwater utility. The purpose of SDC's is to equitably assign the costs of infrastructure related to growth to those new customers connecting to the systmn and creating the need for expanded infrastructure. By maintaining cost-based SDC's, existing customers may be sheltered from the costs related to growth. Provided within this section of the proposal is a detailed discussion of our proposed scope of services to conduct a comprehensive rate study and system development charge study for the City's water, sewer, and stormwater utilities. Overview of a Comprehensive Rate Study A comprehensive rate study is generally comprised of three interrelated analyses: (1) the development of revenue requirements to determine adequate funding levels, (2) a cost of service study designed to understand the cost differences associated with serving various types of customers, and (3) a rate design analysis that establishes a cost-basis for setting fixed and variable rates. Provided below in Table A-1 is a brief overview of the rate study process. I Compares the sources offunds (revenues) to the Revenue Requirement .~.nall~is expenses of each utility to determine the overall adjustment to rates. i Allocates the total revenue requirements to the Co~t of ,~rvice Analysis various customer classes of service in a "fair and equitable" manner. II Design rates to yield the revenue requirements Rate Design Analltsis 8 and meet the goals and objectives of the CiO' Exhibit A--Detailed Scope of Services A-t City of Bremerlon While Table A-1 provides an overview of the typical components of a comprehensive water, sewer and/or stormwater rate study, an important aspect of this study is incorporating and "tailoring" those analytical elements into an overall scope of services that will provide the work products being requested by the City. Provided below is detailed discussion of how this basic analytical framework will be tailored to meet the City's needs. Detailed Description of Proposed Scope of Services EES has developed a detailed scope of services that has attempted to meet the specific goals and objectives of the City. More importantly, the scope of services outlined below, provides the City with a better understanding of our depth of knowledge and skills in conducting comprehensive rate studies. In developing the proposed scope of services, two items should be noted. First, it is assumed that each of the utility rate analyses will be conducted simultaneously. The second item to note is that the scope of services to conduct the water, sewer and stormwater are assumed to be identical, except where noted. Task l--Initial Kick-Off Meeting (Project Meeting) Task Objective: Bring the Consultant, utility/City management and staff together, at the start of the project, to assure that both parties have a mutual understanding of the goals, objectives, issues and concerns related to the study. The initial kick-off (project) meeting is important to the overall success of this engagement since it forms the foundation for the rate study process. The initial project meeting is used as a starting point in developing a strong working relationship between EES and the City. At the same time, this meeting allows both parties to discuss the overall goals and objectives for this study, while at the same time discussing any issues and concems that either party may have. It is proposed that the initial project meeting be approximately 2-hours in length. Expected City Staff Support for Task 1: · Have City key management/project team members attend a half-day planning meeting. Work Product Deliverables as a Result of Task I--Initial Kick-off Meeting: · Identification of objectives, issues and concerns by both parties. · Face-to-face meeting to get the study off to a positive start. Task 2--Data Collection Task Objective: Review and assess the City's existing water, sewer and stormwater data, and provide a written data request detailing the data required to complete the study. The initial written data request details the data and information required to conduct the study. EES will provide a written data request to the City prior to the initial kick-off meeting so that it can be discussed at the meeting and any problem areas quickly resolved. The data and information requested for this study should be, for the most part, readily available information (e.g. financial, statistical, customer, etc.). The key issue for data collection purposes may be the fi~ee~ E~(hlbit A--Detailed Scope of Services A-2 City of Bremerlon level of detail that is readily available and needed for the study. It is important to keep in mind that a cost of service study requires data and information that is more detailed than the data typically reported for annual financial statement purposes. For those areas where the data is not readily available, or will require significant labor and expense on the City's part to provide, EES and the City will determine the "sensitivity" or "importance" of the data required and if alternative data sources are available. As with any study, it is imperative that the City provide a timely response for the data requested. Expected City Staff Support for Task 2: · Gather the data requested from the written data request provided by EES. (Note: typically requires 20 - 40 hours of total staff time to provide.) [Vork Product Deliverables as a Result of Task 2--Data Collection: · An initial written data request to the City. · Identification of any data constraints. Task 3--Revenue Requirement Analysis Task Objective: Using a generally-accepted rate setting methodology, develop for each utility, the revenue requirements for a projected five-year period to ensure adequate funds for operating and capital needs. The development of the revenue requirement analyses for each utility is the first major analytical portion of the comprehensive rate study process. This portion of the study entails reviewing, for each utility, the various sources of funds (revenues) and comparing them to the applications of funds (expenses) for the utility. This task considers the prudent and proper funding for O&M and capital expenditures for each utility, and determines the need for any rate adjustments over the time period selected. A more detailed discussion of the various steps involved in developing the City's revenue requirements for each utility is provided below. STEP 1 -- SELECTION OF A TEST PERIOD -- The first step in the development of the revenue requirements is the selection of a "test period". A "test period" refers to a time flame of reference for the accumulation of revenues, expenses and consumption data. In this case, a five- year projected time period is proposed (e.g. 2004 - 2008). By reviewing costs over this extended time frame, the City can determine if any major rate impacts are on the horizon and potentially take steps today to help minimize future impacts (e.g. rate adjustment transition, accumulation of capital reserves, etc.). STEP 2 - METHOD OF,4CCUMUL.4TING COSTS - Once the "test period" has been determined, the next decision is to determine the basis or method of accumulating costs. There are two choices for accumulating costs for revenue requirement/financial planning purposes; the "cash" or "utility/accrual" basis. Table A-2 provides a simple comparison between these two "generally accepted" methodologies. Exhibit A--Detailed Scope of Services A-3 City of Bremerton Utility/Accrual Basis Cash Basis + O&M Expense + O&M Expense + Taxes or Transfer Payments -. Taxes or Transfer Payments + Annual Depreciation Expense - Capital Projects Financed with Rate Revenues (_~ Deprec. Exp.) + Return on Rate Base (Investment) -. Debt Service (P-I) - Revenue Requirement - Revenue Requirement Two items should be noted from the above table. First, the terms "cash" and "accrual" used in the table are not the same terms used in the accounting sense. These terms, as used for rate setting purposes, relate to the cost components to be included within the revenue requirements. The second important point that should be made concerning the above table is that in practice, the "cash" basis approach is most commonly used by public (municipal) utilities for determining and setting their revenue requirements since this closely follows their budgeting process. This is the methodology EES would recommend to establish revenue requirements for the City. This is also the method that the City utilized in its last comprehensive rate study conducted by EES. STEP 3 --/[CCUMULATION OF REVENUES AND EXPENSES - Once the test period and method of accumulating costs has been determined, EES in conjunction with City management and staff, will develop the test period revenue requirements for each utility. Revenue requirements are composed of two major types of costs; operational and capital expenses. The operational costs are generally projected from historical or budgeted costs, using assumed escalation factors, and adjusted for any known changes in operations (e.g. additional personnel, growth/expansion, etc.) While the projection of the operational costs is fairly straightforward, the capital cost projections are generally the focus of the analysis, and require more thought and planning. Within this study, the starting point for projecting capital costs (expenditures) will be the City's capital facility plan or capital budgeting documents. In the financial planning process, consideration must be given to maximizing the capital improvements (expenditures) for the system, while minimizing rates to its customers. This is accomplished in a variety of ways. However, the most important aspect of this discussion is that there are multiple methods of financing capital expenditures, and it is through this process that rates can be minimized. Table A-3 provides an overview of the general approach that is used to develop a capital expense plan for the revenue requirement analysis. Exhibit ~Detalled Scope of Services A-4 City of Bremerton + Total Capital Projects · /Replacement and Refurbishment Capital Projects · /Legally Mandated Capital Projects · /System Growth and Expansion Capital Projects - Outside Funding Soumes - · / Capital Reserves '/ Grants · / Low-Interest Loans (State and/or Federal) '/ System Development Charges (SDCs)/(Contributed Capital) · / Short-Term Borrowing · / Borrowed Funds/Long Term Debt (e.g. Revenue Bond) = Capital Projects Financed with Rate Revenues (_> Deprec. Exp.) The basic framework shown above is developed on a year-by-year basis for each of the projected five (5) years of the water, sewer and stormwater revenue requirement analysis. In summary form, the general approach is to list the annual capital projects for each utility, and then determine the various outside funding sources for each of the projects. These outside funding sources may be low-interest loans, grants, customer capital contributions, system development charges, etc. The balance of projects not funded by the available sources of funds must be financed from a combination of long-term debt and rates. It is the balancing of the use of long- term debt to the impact upon rates, which is critical to the analysis. In balancing the use of debt to equity (rate) financing of capital projects, a number of financial planning aspects are taken into account. First, the utility's debt service coverage ratio is an important financial measure or indication of the utility's ability to repay debt. The strength of the debt service coverage ratio is a direct function of the amount of capital projects that are financed from rate revenues. At a minimum, we assume that a utility should fund an amount equal to or greater than the utility's annual depreciation expense for renewal and replacement of capital projects. By following this simple financial rule, the utility is not only assured of a strong debt service coverage ratio, but at the same time, it assures that existing plant in service will be maintained at acceptable service levels. By properly funding for this component of the capital projects, it should provide the utility with greater flexibility in its ability to borrow for capital projects. In summary, given a better understanding of the overall magnitude of the needed capital projects, a final financing plan can be developed which meets the City's goals and objectives for each utility, while attempting to minimize rates and costs over time. Expected City Staff Support for Task 3: · Provide "as needed" assistance, via email and telephone, to explain the City's data and information as it relates to developing the revenue requirements. ~S Exhibit A--Detailed Scope of Services A-5 City of Bremerton · Provide "as needed" data refinements or additional data needs as determined during the process of developing the revenue requirements. · Attend a one-half day project meeting to review the draft revenue requirement analysis. Work Product Deliverables as a Result of Task 3 - Development of the Revenue Requirement Analysi~ From the work accomplished above, the deliverables for this task will be as follows: · A projected revenue requirement analysis for a projected 5-year period that considers the necessary operating and capital needs of each utility. · A capital financing plan within the revenue requirement analysis, utilizing the City's comprehensive plans or capital budget, which attempts to maximize capital expenditures, while minimizing the impacts to customers over time. · If needed, a transition plan to "phase in" any needed rate adjustments. · Recomanendations regarding key financial indicators (debt service coverage, capital replacement, reserve levels, etc.). Task 4--Cost of Service Analysis Task Objective: Develop an average embedded cost of service study to equitably allocate the revenue requirements of each utility to the customers served by the City. Determine the fixed and variable costs associated with serving each customer class of service. Given the results of the revenue requirements, the revenue requirements of each utility will be allocated to the various customer classes of service using an average embedded cost of service methodology. In simplified terms, a cost of service study attempts to equitably allocate the revenue requirements of each utility between the various customer classes of service (e.g. residential, commercial, U.S. Navy, etc.). A brief discussion of the major steps associated with a cost of service analysis is provided below. STEP 1 -- SELECTION OF TEST PERIOD - The first step of a cost of service is to select a time period for the allocation of costs. This is similar to the revenue requirement time period selection process noted above. A cost of service analysis typically reviews a 1 to 2 year period, or the period over which water, sewer and stormwater rates will ultimately be set. In the City's case, allocating the year 2003 revenue requirements for each utility for cost of service purposes would appear to be appropriate. STEP 2 -- SELECTION OF THE METHOD TO ACCUMULATE COSTS - Much like the discussion of revenue requirements, the City must determine whether to use a "cash" or "accrual" basis approach for the cost of service study. The City currently has a contract with the U.S. Navy that specifies the use of the accrual basis approach. Therefore, EES will convert the City's "cash" basis revenue requirements to an accrual approach. In developing the rates for the U.S. Navy, they will be charged a "fair" rate of return on the investment made by the City. The balance of the revenue requirements are paid by the City's retail customers. STEP3 -- FUNCTIONALIZATION AND CLASSIFICATION OF EXPENSES- The next step in the cost of service analysis is to functionalize the data. Functionalization refers to the arrangement of cost data into its basic cost categories (e.g. for the water utility, source of supply/production, treatment, transmission, distribution, etc.). This task is simplified greatly through the City's use ~/~ee~ Exhibit A--Detailed Scope of Services A-6 City of Bremerton of a uniform system of accounts. Given functionalized costs, the costs are then classified to their various cost components. For the water utility, classification involves determining whether each specific cost or account item was incurred to meet a consumer's capacity, commodity, fire protection or customer related need. In contrast, for the sewer utility, classification involves determining whether each specific cost or account item was incurred to meet a consumer's volume, strength or customer related need. For the stormwater utility, the two main cost drivers are volume flows and customer related costs. While the basic cost components noted above for each utility are the cornerstone to the analysis, they are by no means the only cost components to be utilized for each of the studies. A thorough review of the various types of costs that the City incurs for each utility will be undertaken and specific cost classifiers developed. Classification will be based upon generally accepted cost of service techniques. STEP 4 -- DETERMINATION OF CLASSES OF SERVICE - Development of the cost of service for each utility begins with determining the classes of service that will be used for purposes of establishing cost allocations and rates. The process of establishing classes of service is to group customers into homogeneous groups. That is, customers with similar usage and/or facility requirements. One of the major reasons for conducting this study is to assure that the rates being charged all customers, including the U.S. Navy, are fair and equitable. As a starting point, the City's current rate schedules will be used to establish customer classes of service. The U.S. Navy will be treated as a separate class of service to allow for the establishment of equitable and cost-based rates. The final classes of service to be used for this study will be reviewed by the City. STEP $- ALLOCATION OF EXPENSES -- The next analytical process involved in each of the cost of service analyses is the allocation of the classified rate base and expenses to each of the customer classes of service. Once the classes of service have been determined, the process of developing allocation factors is undertaken. In developing the allocation factors, EES will develop factors that are "fair and equitable" to all customers, and which rely upon City specific data where available. ~TEP ~¢ - SUMMARY OF THE COST OF SERVICE -- Given the development of all the allocation factors, the previous task allocated the rate base and expenses to each class of service. From this process, a summary page of the cost of service study for each utility is provided. The summary page for the cost of service study compares the difference between the current level of rate revenues received from each class of service, and the allocated cost of service for each class. The cost of service will also provide average unit costs, or cost-based water, sewer and stormwater rates, which are important to the development of final rate designs. Average unit costs provide the City with an understanding of the cost/rate relationship between fixed and variable costs. In particular, the U.S. Navy is concemed that the annual method of adjusting its rates has increased the fixed component of the rate, beyond its actual cost. This analysis will determine the appropriate cost-based relationship between the fixed and variable costs that the U.S. Navy is charged. In summary, the development of average unit costs will provide "cost of service" based water, sewer and stormwater rates for all classes of service for the City. Exhibit A--Detailed Scope of Services A-7 City of Bremerton Expected City Staff Support for t~is ~ask: · Provide any "as needed" data refinements or additional data needs as determined during the process of developing the cost of service analysis. Work Product Deliverables as a Result of Task 4- Cost of Service Analysis: · Review of the current customer classes of service for each utility and determine any revisions for cost allocation purposes. · A "fair and equitable" allocation of the revenue requirements to the various classes of service for the City's utility systems. · A summary of the average unit costs (cost based rates) for the various customer classes of service for each utility. Task 5--Rate Design Analysis Task Objective: Utilize the cost information developed as a part of the previous tasks and develop rate design options for possible adoption by the City Council. A starting point for the rate design process is understanding the rate design goals and objectives the City is striving for in this study. These objectives may include ease of administration, simplicity, revenue stability, efficient use, etc. Understanding the City's rate design objectives will assist EES in the development of the rate design altematives for each utility. In designing the rate options for the City, the cost of service information and average unit cost information for each utility will be utilized as a starting point. As a part of this task, the City's present rate designs for each utility will be reviewed to ensure that they conform to contemporary rate-setting goals and objectives. EES will review the rate objectives of the City and provide rate alternatives for each utility that will meet those objectives. For each rate design developed, a bill comparison and graph will be provided that shows a comparison between the present bill and the proposed bill at various levels of usage. Bill comparisons are useful in assessing the potential impacts to a wide variety of customers. A comparison of neighboring water, sewer and stormwater utilities will also be provided for the proposed rate designs. Expected City Staff Support for this Task: · Discuss with EES the City's rate design goals and objectives. · Review rate design alternatives for appropriateness. Work Product Deliverables as a Result of Task 5 - Rate Design Analysis: · Review of the City's current rates and development of various rate design alternatives. · Bill comparisons and graphs for the rate design altematives developed. Exhibit A--Detailed Scope of Services A-8 City of Bremerton Task 6--Review and Update System Development Charges Task Objective: Review the City's system development charges and update them as appropr/ate to consider the City's current facility plans for each utility. EES as part of this task will review and update the City's system development charges. The system development charges will be calculated based on the cost and value of unused system capacity in the City's systems as well as associated capital improvements necessary to serve new development. System development charges (SDC's) are one-time charges paid by new development to finance the construction of growth related facilities and reimburse existing customers for the past investments in available capacity. In developing the methodology to be used to analyze the City's SDC's for each utility, EES will meet with City staff to review the current methodology used to establish the City's SDC's. At the same meeting, a discussion can be held regarding any modifications that may be needed to each methodology to assure that the proper costs are captured and recovered in this process. Various options for valuation of the existing systems will be reviewed. These will include original cost, depreciated original cost, depreciated replacement value, as well as original cost adjusted for the associated carrying cost of the excess capacity investment. EES will also review options associated with allocation of capital improvements to serve growth. Generally two options are available: the incremental method and the proportional method. The incremental method assigns the cost of project replacements to existing development based on the additional cost incurred in over-sizing of the facilities. The proportional method would assign the cost to existing and new development based on the proportional amount of capacity. An example of the incremental method is to look at the cost of upsizing a 6-inch line to a 12-inch line. It is anticipated that the methodology and key issues will be resolved very early on in the study process to assure that the appropriate data is developed and incorporated into the SDC methodology. As a part of the study process, EES will review any associated credits required to be given to new development to assure that they do not "pay twice"; that is, once through rates and once through the SDC charge. This will include review of any general obligation issues which are paid by property taxes and hence are paid for whether or not the user has been paying through water rates or not. Additionally, any associated debt, which may be paid for through revenue bond issuances, will also be reviewed for applicable credits. Given the nature and complexity of these charges, EES will prepare a separate report discussing the establishment of the SDC's for each of the utilities. Given the legal implications of establishing SDC's, it is better filed as a report separate from the rate study report. Five (5) copies of the draft SDC reports will be submitted to the City for review and comment. Fifieen (15) copies of the final SDC reports will be provided to the City. Expected City Staff Support for this Task: · Discuss with EES the City's "growth" related projects. · Review the proposed methodology and resulting SDC's for appropriateness. }Fork Product Deliverables as a Result of Task 6~System Development Charge Methodology: · System development charges, for each utility, that are cost-based, equitable and legally defensible. f~ees Exhibit A--Detailed Scope of Services 1-9 City of Bremerton · Separate reports outlining the findings, methodology and system development charges. Five (5) copies of the draft SDC report will be provided and fifteen (15) copies of each final report will be provided to the City. · A camera ready copy of the report. Task 7--Work Papers and Report Documentation Task Objective: Provide a well-written report to summarize the findings, conclusions and recommendations of the rate study. In addition, provide a copy of all workpapers associated with the project to aid in future updating of the study by City staff Upon completion of the rate analysis, EES will develop a draft written report of the rate study. The written report is intended to be comprehensive in nature and document all of the activities undertaken as a part of the project, along with our findings, conclusions and recommendations. Within all of our reports, EES provides technical appendices of all the technical analyses undertaken. EES will provide five (5) copies of the draft final report to the City for its review and comment. Any comments, suggestions or corrections from the City concerning the draft final report will be incorporated into the final report. Fifteen (15) copies of the final report will be provided to the City. A stand-alone document will be developed for the U.S Navy due to the special circumstances surrounding these accounts. Additionally, complete documentation of all workpapers used in the preparation of the utility rate study will be provided to the City. This should facilitate subsequent updating by City staff with limited input from outside consultants. Expected City Staff Support for this Task: · Review and comment on the draft written report. Work Product Deliverables as a Result of Task 7- Work papers and Report Documentation: · Five (5) draft and fifteen (15) final copies of the written report. · Five (5) draft and fifteen (15) final copies of the stand-alone report developed for the Navy. · A camera ready copy of each report. · A copy of all workpapers used in the preparation of the study. Task 8--Meetings/Workshops/Public Presentations Task Objective: Provide effective public presentations of the findings, results and recommendations of the study. The overall quality and value of a rate study is often measured by the quality of the public presentation process. In addition, the ability of the consultant to present this technical material in a manner that is easily understandable to the City Council and public is paramount. EES excels in this aspect of the study. EES would suggest up to four meetings with the City Council and the public. The first meeting would be a workshop to discuss the results of the water, sewer and stormwater revenue requirements and cost of service. From that meeting, EES would gain policy direction from the City Council as it relates to moving forward with final rate designs. The second meeting with the City Council would review the various altemative rate designs for possible adoption. The City f~S Exhibit A--Detailed Scope of Services A-t 0 City of Bremerton Council could narrow its options for a final public heating. The third meeting would review the development of the proposed system development charges. Finally, the fourth meeting would be a formal City Council meeting to have a public hearing on the proposed rates and SDC's. Throughout this project, EES will schedule, as appropriate, project meetings with the City staff to keep them abreast of the progress of the study and to assure that the assumptions and methodology used within the study are consistent with the City's thinking. Throughout this engagement, EES will provide as much educational service to the City's staff members as possible. This "transfer of knowledge" should allow for subsequent analysis and updates of these studies with little or no outside technical assistance. Expected City Staff Support for this Task: I Review and comment on any proposed handouts for public meetings. Work Product Deliverables as a Result of Task 8- Meetings/Workshops/Public Presentations: · Up to four (4) workshops/public presentations with the City Council during the rate study process to gain policy direction and present the results to the public. Task 9--Computer Models Task Objective: Provide a copy of all models developed as a part of this study. The financial/rate models developed for the City will be provided at the end of the study. The models will be developed using the spreadsheet program of the City's choice (e.g. Excel, Lotus, etc.). Expected City Staff Support for this Task: · Select the City's preferred spreadsheet program. Work Product Deliverables as a Result of Task 9 - Computer Models: · A copy of the computer spreadsheet models used to develop the City's study. This concludes the discussion of the proposed scope of services for the City. This scope of services has been developed based upon our limited understanding of the City's goals and objectives for this study. EES is willing to modify its approach to meet the City's specific needs. At the conclusion of this process, should the City desire the assistance of EES to meet or negotiate with the U.S. Navy on the proposed rates, these services will be provided on a time and materials basis. EES has not included any time or expenses within this scope of services for those efforts, should they be needed. Summary This section of the proposal has provided a detailed discussion of our approach and methodology in meeting the City's rate study needs. We have attempted to provide as much detail to our approach as reasonably possible. As needed, our proposed approach can be revised to meet the specific needs of the City. We are confident of our ability to provide a quality work product to the City, and to work effectively and in the best interests of its customers. ~ee~ Exhibit A--Detailed Scope of Services A-11 City of Breme~ton Introduction This section of the proposal will provide a detailed discussion of our proposed hourly billing rates and the estimated labor hours for the project. These proposed items are based upon our understanding of the City's needs and may be negotiated and adjusted to meet the specific needs of the City. EES Hourly Billing Rates Economic and Engineering Services, Inc. (EES) utilizes the following hourly billing rates. These rates were effective as of January 1, 2003. Hourly Range Wlfl~/~ a Grade T/tie Grade Minimum to Max/mum PrincipalN.P. $140.00/hr $165.00/hr Associate Analyst 7 $118.00/hr $144.00/hr Financial Manager 6 105.00/hr 129.00/hr Sr. Financial Analyst 5 92.00/hr 112.00/hr Project Analyst 4 77.00/hr 94.00/hr Financial Analyst 2/3 54.00/hr 78.00/hr Associate Engineer 7 $118.00/hr $ ! 44.00/hr Engineering Manager 6 105.00/hr 129.00/hr Sr. Engineer 5 92.00/hr 112.00/hr Project Engineer 4 77.00/hr 94.00/hr Engineer 2/3 54.00/hr 78.00/hr Sr. Word Processor $38.00/hr $51.00/hr Word Processor 30.00/hr 49.00/hr Estimated Fees EES has developed fee estimates for the City's project based upon the current hourly billing rates, the estimated labor needed to conduct the water, sewer, and stormwater rate study and SDC analysis. f~ee~ Exhibit B--Proposed Billing Rates and Estimated Fees B-1 City of Bremerton Water Sewer Stormwater Total Labor: Task 1: Initial Project Meeting $750 $750 $500 $2,000 Task 2: Data Collection 1,000 750 500 2,250 Task 3: Revenue Requirement Analysis 7,500 7,000 6,500 21,000 Task 4: Cost of Service Analysis 8,000 7,500 3,500 19,000 Task 5: Rate Design Analysis 5,000 4,000 4,000 13,000 Task 6: System Development Charges 9,500 9,000 7,500 26,000 Task 7: Workpapers/Written Reports 2,500 2,500 3,000 8,000 Task 8: Public Presentations 3,000 3,000 3,000 9,000 Task 9: Computerization - Rate Models 500 500 500 1,500 Grand Total Labor $37,750 $35,000 $29,000 $101,750 Expenses: Mileage/Ferries 1,150 Misc. (phone, copies, fax) 1,500 Total Expenses $2,650 Grand Total Water, Sewer and Stormwater Rate Study/SDC Analysis $104.404) The above fee estimate is based upon the scope of services previously presented. Economic and Engineering Services, Inc. is willing to negotiate a final fee based upon a scope of services. Should the City request any additional services under this contract, the services will be provided at the hourly billing rates stated above. All portions of this proposal can be expanded or reduced as mutually agreed upon in writing by the City and EES. The above quoted fees will remain in effect until September 1, 2003. As noted within our scope of services, the above fee estimates for the water and sewer rate study and SDC analysis does not include any time or effort associated with U.S. Navy negotiations. EES has included time and budget to meet with the Navy to discuss the findings, conclusions and recommendations of the study. However, any extensive discussions or negotiations with the U.S. Navy, or any other customer, will be considered outside of the scope of services contained herein. In negotiating a final fee for this study, EES is willing to enter into a "not-to-exceed" contract with the City for the proposed services. Summary This section of the proposal provided a detailed discussion regarding the project hourly billing rates and estimated fees for the City's water, sewer and stormwater rate and SDC studies. We are willing to adjust our scope and schedule to attempt to work within the City's time or budget constraints. Exhibit B--Proposed Billing Rates and Estimated Fees B-2 City of Bremnrton Introduction A rate study of this complexity generally requires 16 to 24 weeks to complete, depending upon a number of factors. These factors include the amount of time required by the City to collect the necessary data, the ability to schedule meetings with City staff in a timely manner and, most importantly, receive policy direction from the City's management and/or City Council for the study. Provided below in Figure C-1 is an estimated time schedule for the project. 2003 2004 T ,k Description Aug Sept Oct I NovI Dec Jan Feb I Mar Initial Project Meeting Data Collection I Rev. Requirement Analysis Cost of Service Analysis Rate Design Analysis System Development Charges Written Reports Public Presentations , Computer Models · Meetings/Public Presentations ~.~ Rate Implementation Summary EES has provided a time schedule that allows sufficient time to work through the many issues surrounding a rate and SDC study. EES makes every effort to meet our client's needs, while at the same time providing a high quality work product. Exhibit C--Proposed Time Schedule C-3 City of Bromerton