| | | | | | | | Agenda Item - 3.e.
City of Garden Grove
INTER-DEPARTMENT MEMORANDUM
| To: | Lisa L. Kim
| From: | Wiliam E. Murray
| | Dept.: | City Manager
| Dept.: | Public Works
| | Subject: | Approval of an Agreement with FG Solutions to prepare a Water Rate Study. (Cost: $93,046.80) (Action Item) | Date: | 3/14/2023 |
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| | | | | | | | OBJECTIVE
To receive City Council approval to enter into a professional services agreement with FG Solutions to conduct a Water Rate Study. |
| | | | | | | | BACKGROUND
In March 2018, City Council adopted water rates under Ordinance No. 2890 that covered a period of five fiscal years from FY 2017/18 to FY 2021/22. The rates were established based on a Five-Year Water Rate Study that was conducted by FG Solutions. This rate study identified the revenue needs for the operation and maintenance of the City’s water enterprise, the capital improvements needs and debt service requirements. Steps taken to establish the rates included:
- Evaluating existing policies and procedures affecting water rates;
- Evaluating adequacy of projected revenues under existing rates to meet projected revenue requirements;
- Developing a sound financial plan to cover a five-year operations, planned capital improvements identified under the Water Master Plan, and stay compliant with federal and state mandates, as well as bond covenants;
- Developing a suitable schedule of water rates to smooth out the impact to our rate payers yet meet the water enterprise business principles adopted by the City Council.
Following the rate study, FG Solutions developed a water rate forecast model for the City and has updated it on an annual basis to track the financial stability of the Water Enterprise Fund. |
| | | | | | | | DISCUSSION
Within the past few years, the Water Enterprise Fund has been impacted by several unforeseen circumstances involving inflation, declining water demands and water contamination (PFAs) removal costs. An in-depth review of the City’s future revenue requirements are necessary at this time to ensure that the City continue to provide high quality and reliable service while maintaining financial stability and bond covenant, as well as adequate levels of investment in the water infrastructure. Revenues must also maintain the City’s targeted reserve levels, debt service coverage requirement and ensure resources are available to meet regulatory demands. The current financial condition will need to be carefully evaluated within the next few months to set reasonable incremental rates, to lessen the impact to our rate payers. If approved, staff anticipates presenting the updated 2023 Water Rate Study to City Council by the end of 2023 to implement new rates to be effective on January 1, 2024.
FG Solutions has been providing rate study and related services to the City since 2016, and assisted the City to successfully transition into the current tiered rate structure. Previous services included calculating the annual water commodity delivery charges, updating annual financial projections of revenues and expenses for budgeting purposes, assisting in water bond issuance, and developing water rate model.
Based on its vast experience in the industry and familiarity with our Water Enterprise’s financial condition and potential challenges, it is in the best interest of the City to retain FG Solutions to provide the upcoming Water Rate Study Service in a most cost effective manner. FG Solutions has provided the attached proposal for the Water Rate Study Service that would cost a total of $93,046.80. |
| | | | | | | | FINANCIAL IMPACT
There is no impact to the General Fund. This study will be funded from the City’s adopted FY 2022-23 Water Enterprise Fund budget. |
| | | | | | | | RECOMMENDATION
It is recommended that the City Council:
- Approve the agreement with FG Solutions, in the amount not to exceed $93,046.80, to prepare a Water Rate Study for the Water Enterprise Fund; and
- Authorize the City Manager to execute the agreement on behalf of the City and make minor modifications as appropriate thereto.
By: Samuel Kim, Water Services Manager, P.E.
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| ATTACHMENTS: | | Description | Upload Date | Type | File Name | | Agreement | 2/23/2023 | Agreement | FG_Solutions_Agreement_2023.pdf |
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