Water Resources Board

MINUTES MURFREESBORO WATER RESOURCES BOARD March 26, 2024 ______________________________________________________________________________ The Murfreesboro Water Resources Board met on Tuesday, March 26, 2024, in the conference room of the Operations and Maintenance Building, 1725 South Church Street. Present at the meeting were Board members: Mr. Ron Crabtree, Mr. Brian Kidd, Ms. Kathy Nobles, Mr. John Sant Amour, and Ms. Sandra Trail. Also present were Darren Gore, Valerie Smith, Michele Pinkston, Doug Swann, Steve Campbell, Donald Hughes, Jennifer Tag, Joe Russell, Linda Sullivan, John Gordon, Travis Wilson, Brent Fowler, Sarah Chandler, and Jim Marshall along with other members of the public. The Consent Agenda was presented to the Board for approval: A. Consider proposal from Jobe, Hastings & Associates for the Water Resources Department Audit and the Stormwater Fund Audit for the year ending June 30, 2024 B. Consider SRWTP chemical contract renewals C. Consider SRWTP lime contract amendment D. Consider SSR T.O. 2441009.0, SRWTP OSHG Improvements Brian Kidd made a motion to accept the Consent Agenda as presented and it was seconded by Kathy Nobles. The motion carried unanimously. The February 27, 2024 Board Minutes were accepted as presented. The Board considered 2023/2024 Sanitary Sewer Rehabilitation Change Order No. 1. In 2022, the Board approved LJA to design the upcoming sewer rehabilitation project and provide construction administration and inspection. The project was awarded to SBW Constructors during the August 2023 meeting. SBW Constructors was the only bid received. This project has been on hold to allow SBW to get a portion of the Hobas rehabilitation project completed prior to beginning this normal and customary yearly rehab project. Since the time the project was awarded there have been additional warranty items, from development projects, where the developer accepted the Departments offer to make the warranty repairs through this rehabilitation contract. Staff requested a change order from SBW to add this work to the project and LJA has prepared the change order form. This work is paid for by the developers. Staff recommended approval of Change Order No. 1 in the amount of $87,022.70. The Board accepted Alternate A of the bid and the project was awarded in the amount of $6,942,454 with approximately $390,000 reimbursable from developers for warranty work. $3,000,000 was designated in the Department’s FY24 budget through a combination of a reserved sinking fund and working capital Page 13 Water Resources Board Minutes March 26, 2024 Page 2 reserves. A portion of the construction is proposed from ARP Funds. However, if ARP funded is exceeded prior to this project, then an additional $3,552,454 is required from working capital reserves. This change order for additional work is all warranty as well and the Department has already received these funds from the Developers. The final contract amount will be $7,029,476.70. Sandra Trail made a motion to approve. Brian Kidd seconded. The motion unanimously passed. The Board considered TDOT Salem Hwy Widening Phase 3 easement offers. Phase III widening project for Salem Hwy begins at Cason Lane and extends just west of Veterans Parkway. The widening project is taking their septic field lines therefore, TDOT has asked the Department to design two sewer main extensions to serve an existing convenience store, a residence, and a church to avoid having to relocate them. The Department is under contract with SEC for this design and they have provided easement descriptions so Legal could prepare the easement documents. TDOT is paying for the sewer main extensions through the road widening contract, however, their policies prohibit them from purchasing the necessary sewer easements. Staff has collaborated with the proposed owners, and most are donating the necessary easements, however, there are three properties that may or are requesting payment. TDOT has shared a range for the easement offers based on their appraisals. Staff has worked with the Legal Department on the $/acre price for each property, based on this range, and used this to create these easement offers. Staff requests approval of the offer amounts for sewer main and temporary construction easements, estimated at $32,400, be funded by the Department’s working capital reserves. Kathy Nobles made a motion to approve. Sandra Trail seconded. The motion unanimously passed. The Board considered the Change Control Form No. 3 for small modifications to the new Administration building such as door swing changes, light switch relocations, installing screws in the subflooring to correct the squeaking floors and door locks. The change control log identifies change requests, through CCF’s, and tracks the allowance allocations issued through field work change directives. CCF’s 1 & 2 were modified to formal change orders at last month’s meeting which changed the contract amount. This work change directive, CCF 3 does not change the contract price. The final contract will be adjusted accordingly in a future change order or the final balancing change order at the end of the project if necessary. Staff recommends the contingency allocation be authorized. The total contract amount of $2,084,256 was increased by Change Orders 1 & 2 by $122,681.10 for a new contract amount of $2,206,937.10. Ron Crabtree made a motion to approve. Brian Kidd seconded. The motion unanimously passed. Jackson Thornton Utilities Consultants presented the FY2023 cost of service study (COSS). An accompanying FY28 pro forma was also presented in conjunction with a discussion and analysis on rate design to meet the Department’s 5-yr projected revenue requirements. The COSS was reviewed in a Page 14 Water Resources Board Minutes March 26, 2024 Page 3 historical perspective; looking back at where the Department was in 2007, 2011, 2013, 2015, 2017, 2019, and 2021 and where the Department is as of 2023. The objectives of the COSS is to make sure there is enough revenue to meet the needs of the system, ensure fair and equitable rates as well as customers’ ability to pay; thereby making the rates defensible. The COSS develops the process to determine revenue requirements, develops revenue requirements by rate class, develops recommended rate designs, and recommends potential rate changes. MWRD defines five customer classes for sanitary sewer and six customer classes for drinking water. The customer classes are generally defined as follows: 1) Residential class includes detached and attached residential units, duplexes, mobile homes and apartments. 2) Small Commercial includes churches, hotel/motel and other retail/service establishments that have a meter smaller than 1 ½”. 3) Large Commercial includes Middle Tennessee Medical Center (MTMC) as well as the same categories as defined in small commercial but having a water meter 1 ½” or larger. 4) Industrial includes all industrial water and sewer users in MWRD’s water service area and all sewer users in CUD’s water service area. 5) Government includes MTSU, the VA hospital, schools and all internal Murfreesboro accounts 6) Wholesale is for water sales only exclusive to Marshall County. When reviewing the Department’s recovery of cost in total, the Department started in a 20.7% under recovery in 2007. In 2011 the Department was still under-recovering by 5.6%; however, in 2023 the Department is currently over-recovering by 17.7% (in total). The Department is well positioned in understanding the cost, funding, and rate structure to construct future improvements to meet customer demands and regulatory requirements. Staff reviewed potential rate designs that will ensure future cost of service is recovered through rate revenue. Continued cost of service studies conducted biannually will guide management in making adjustments to rates so as to ultimately attempt to recover 100% from all customer classes; thereby preventing to the greatest degree possible any subsidies from one class to another or from the water utility to the sewer utility. The Board reviewed proposed water and sewer rate design to support the FY25 budget and FY28 pro forma. The table below shows MWRD’s rates from current FY24, proposed FY25 and future FY26-FY28. The table also shows the anticipated over/under recovery based on the rate design adjustments. Page 15  Water Resources Board Minutes March 26, 2024 Page 4 MWRD Water/Sewer Rate Design (Assuming $120M in Debt by FY28) 2024 2025 2026 2027 2028 Fiscal Year Current Proposed PF PF PF Rate Rate Sewer Residen�al Min. Monthly Charge $10.72 $11.00 $11.25 $11.75 $12.25 Commodity Charge ($/kgal) $5.50 $5.50 $5.50 $5.55 $5.60 Sewer Over/Under Recovery (Less Add'l Fees) 116.4% 109.9% 105.6% 102.0% Sewer Over/Under Recovery (if No Rate Change) 115.8% 108.9% 103.0% 98.1% Avg Sewer Bill @ 4,900 gal/month $37.95 $38.20 $38.95 $39.69 Water Residen�al Min. Monthly Charge $10.72 $11.00 $11.25 $11.75 $12.25 Commodity Charge ($/kgal) $3.66 $3.70 $3.75 $3.85 $4.00 Water Over/Under Recovery (Less Add'l Fees) 105.0% 101.9% 101.2% 101.3% Water Over/Under Recovery (if No Rate Change) 103.8% 99.4% 96.3% 93.3% Avg Water Bill @ 5,730 gal/month $32.28 $32.81 $33.89 $35.25 Combined Recovery FY23 COSS Avg Combined Water/Sewer Bill $69.44 $70.23 $71.01 $72.83 $74.94 % Increase 1.14% 1.12% 2.56% 2.89% Combined Recovery 112.3% 107.1% 104.1% 101.8% Combined Recovery (if No Rate Change) 111.5% 105.6% 100.8% 96.5% Without implementing rate changes, the sewer and water recoveries will be 98.1% versus 93.3% in FY28. By implementing the proposed rate changes, the sewer and water recoveries are estimated to be 102.0% and 101.3% in FY28. Since MWRD started conducting cost-of-service studies, the goal has always been to try and align the Department’s water and sewer rate structure with the actual cost of service results. The primary purpose of a cost-of-service study is to allocate a utility’s overall revenue requirements (i.e., expenses) to the various customer classes it serves in a manner that reflects the relative costs of providing service to each customer class. The secondary purpose of the cost-of-service is to assign costs to the fixed cost portions of a utility’s operation via minimum monthly fees and to the variable cost portions of a utility’s operation via commodity fees. Fixed costs are costs which remain constant regardless of the volume of throughput and are predominately associated with capital investment in the utility system. Fixed costs include costs such as labor, asset repair and replacement, and debt. Variable costs are costs which vary with the volume of throughput, such as fuel, chemicals, and increased O&M expenses as the system expands. As studies have shown, MWRD’s minimum monthly fees have been lower than the cost-of-service study recommended. The Department knowingly kept the minimum monthly fees lower so as to cause the Page 16 Water Resources Board Minutes March 26, 2024 Page 5 least impact to low- and fixed-income customers. However, based on FY23 cost-of-service study results and the FY28 pro forma, staff is recommending some minor adjustments to the Departments rate design. The combined monthly residential water and sewer bill is $70.23. This falls between a 2- and 3- person family household and is well under the affordability indexes. The proposed FY24 rate design, when plotted against the combined recovery curves, demonstrates how the minimum fee is raised and the commodity fee slope is reduced. MWRD’s current rate design meets the affordability index for 1-person through 5-person homes. The pro forma for FY28 also meets the current 2023 HUD affordability indexes. However, the cost of service for FY23 and pro forma for FY28 do show the need to increase the minimum monthly fees rather substantially and flatten out the commodity charges. The affordability limits represent 4% of a very low-income earner (50% of median income) in Murfreesboro. A median family income of 4 is established at $99,800 per year, so 50% of median for a family of four is established as $49,900 per year. Water fund revenues are estimated to increase by $177,000; $59,000 in water commodity revenue and $118,000 in proposed minimum monthly charge increases. Sewer Revenue are estimated to increase by $1,365,694; $1,117,000 in commodity revenue due to growth and $248,000 in proposed minimum monthly charge increases. The FY25 rate ordinance will be brought to the Board concurrently with the request to approve the FY25 MWRD budget in May. Staff presented the Water Resources Dashboard Performance for February 2024. Staff presented the Financial Reports for eight months ending February 29, 2024. There being no further business, the meeting was adjourned. _____________________________ John Sant Amour, Chairman Page 17