Document Puyallup_doc_2d7ba79728

Final Report City of Puyallup Water, Sewer, Storm & Surface Water Cost of Service and Sanitation Rate Study December 2010 Prepared by: HDR Engineering, Inc. ---PAGE BREAK--- ---PAGE BREAK--- August 15, 2011 Mr. Clifford Craig Finance Director 333 South Meridian Street Puyallup, WA 98371 Subject: Comprehensive Water, Sewer, Storm & Surface and Sanitation Rate Study Final Report Dear Mr. Craig: HDR Engineering, Inc. (HDR) is pleased to present the final report on the comprehensive water, sewer, storm & surface water study and sanitation rate analysis conducted for the City of Puyallup (City). A key objective the City’s water, sewer, storm & surface water and sanitation rate studies was to develop a financial plan and rates that generate sufficient revenue to fund the operating and capital needs of each utility. The water, sewer and storm & surface water comprehensive studies objective was to also determine the appropriateness of the current rates by conducting a cost of service analysis for each utility. The sanitation analysis did not include a cost of service analysis. This report outlines the approach, methodology, findings, and conclusions of each of the utility rate study processes. This report was developed utilizing the City’s accounting, operating and management records. HDR has relied upon this information to develop our analyses that form our findings, conclusions and recommendations. At the same time, this study was developed utilizing generally accepted utility rate setting principles. The conclusions and recommendations contained within this report is intended to provide a financial plan that meets the operating and capital needs of each utility. Finally, this report provides to the City Council the basis for developing and implementing rates that are cost-based, defensible, and equitable to the City’s utility customers. We appreciate the assistance provided by City staff in the development of this study. More importantly, we appreciate working with City of Puyallup’s staff and management on this project. Sincerely yours, HDR Engineering, Inc. Cil Pierce Senior Project Manager ---PAGE BREAK--- ---PAGE BREAK--- i Table of Contents i City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Executive Summary Introduction 1 Overview of the Rate Study Process 1 Key Water Rate Study Results 2 Summary of the Water Revenue Requirement Analysis 3 Summary of the Water Cost of Service Analysis 4 Summary of the Water Rate Designs 4 Summary of the Water Rate Study 6 Key Sewer Rate Study Results 6 Summary of the Sewer Revenue Requirement Analysis 7 Summary of the Sewer Cost of Service Analysis 8 Summary of the Sewer Rate Designs 8 Summary of the Sewer Rate Study 9 Key Storm and Surface Water Rate Study 10 Summary of the Storm and Surface Water Revenue Requirement 10 Summary of the Storm and Surface Water Cost of Service Analysis 12 Summary of the Storm and Surface Water Rate Designs 12 Summary of the Storm and Surface Water Rate Study 13 Key Sanitation Rate Study 13 Summary of the Sanitation Revenue Requirement 13 Summary of the Sanitation Rate Designs 14 Summary of the Sanitation Rate Study 15 Summary 15 1 Introduction 1.1 Introduction 16 1.2 Overview of the Rate Study Process 16 1.3 Report Organization 17 1.4 Summary 17 2 Overview of Utility Rate Setting Process 2.1 Introduction 18 2.2 Generally Accepted Rate Setting Principles 18 2.3 Prudent Financial Planning 18 2.4 Types of Utilities 20 2.5 Determining the Revenue Requirement 20 2.6 Analyzing Cost of Service 21 2.7 Designing Rates 22 2.8 Economic Theory and Rate Setting 22 2.9 Summary 22 Table of Contents ---PAGE BREAK--- ii Table of Contents ii City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 3 Development of the Water Rate Study 3.1 Introduction 23 3.2 Determining the Water Utility Revenue Requirements 23 3.3 Water Cost of Service Analysis 30 3.4 Water Rate Design 37 3.5 Summary of the Water Rate Study 39 4 Development of the Sewer Rate Study 4.1 Introduction 40 4.2 Determining the Sewer Utility Revenue Requirements 40 4.3 Sewer Cost of Service Analysis 47 4.4 Sewer Rate Design 52 4.5 Summary of the Sewer Rate Study 54 5 Development of the Storm and Surface Water Rate Study 5.1 Introduction 55 5.2 Determining the Storm and Surface Water Utility Revenue Requirements 55 5.3 Storm and Surface Water Cost of Service Analysis 61 5.4 Storm and Surface Water Rate Design 66 5.5 Summary of the Storm and Surface Water Rate Study 67 6 Development of the Sanitation Utility Rate Study 6.1 Introduction 68 6.2 Determining the Sanitation Utility Revenue Requirements 68 6.3 Sanitation Utility Rate Design 71 6.4 Summary of the Sanitation Rate Study 71 Technical Appendices Appendix A – Draft Financial Policies Appendix B – Water Utility System Analyses Appendix C – Sewer Utility System Analyses Appendix D – Storm and Surface Water Utility Analyses Appendix E – Sanitation Utility Analyses ---PAGE BREAK--- Executive Summary 1 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Introduction HDR Engineering, Inc. (HDR) was retained by the City of Puyallup (City) to perform comprehensive water, sewer, storm and surface water and sanitation rate study. The development of these studies determines the adequacy of the existing water, sewer, storm and surface water and sanitation rates and provides the basis for adjustments to maintain cost- based rates for each of the utilities. This report describes the methodology, findings, and conclusions of the water, sewer, storm & surface water and sanitation rate study process. Overview of the Rate Study Process A comprehensive rate study typically utilizes three interrelated analyses to address the adequacy and equity of a utility’s rates. These three analyses are a revenue requirement analysis, a cost of service analysis, and a rate design analysis. Figure ES – 1 Overview of the Comprehensive of Rate Study Analyses A comprehensive review of the City’s water, sewer and storm surface water utilities was undertaken. The sanitation analysis study did not include a cost of service analysis. All of the utilities were each evaluated on a “stand-alone” basis. That is, no subsidies between the utilities or other City funds should occur. By viewing the utilities on a stand-alone basis, the need to adequately fund both O&M and capital infrastructure must be balanced against the rate impacts to each of the utility’s customer classes. Based on the technical analysis undertaken as part of this study, the following findings, conclusions, and recommendations were noted for each utility. Executive Summary Revenue Requirement Analysis Cost of Service Analysis Rate Design Analysis Compares the sources of funds (revenue) to the expenses of the utility to determine the overall rate adjustment required Allocates the revenue requirements to the various customer classes of service in a “fair and equitable" manner Considers both the level and structure of the rate design to collect the target level of revenue ---PAGE BREAK--- Executive Summary 2 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study  The rate study began with a review of financial policies, which were presented to City Council April 2010.  A revenue requirement analysis was developed for each utility for the calendar years of 2010 – 2016.  Capital projects for the 2010 – 2016 time periods were based on capital improvements plans in place and City staff input. Key discussions were held with City staff on the funding sources of these projects.  Some cost of service differences did exist between the various classes of service, for the most part, for each of the utilities. However, given the level of required adjustments needed for each utility no cost of service interclass adjustments were proposed at this time for any of the utilities.  Proposed rates for each utility were developed for the 2011 – 2013 time period.  The recommended rates contained in this report were presented to Council but have not been adopted. Failure by the City to adopt the rates will lead to larger increases needed at some point in the future, and deferred maintenance or capital improvements in the mean- time.  The City should review the need for future rate adjustments again within three to five years for each utility. The following will discuss the key assumptions and conclusions separately for each utility. Key Water Rate Study Results A comprehensive review of the City’s water rates was undertaken. The analysis was on a stand-alone basis. The need to adequately fund both O&M and capital infrastructure was balanced against the rate impacts to the water utility customers. Based on the technical analysis undertaken as part of this study, the following findings, conclusions, and recommendations were noted for the water utility.  The proposed rate adjustments vary from year to year. Specifically they are 4.0%, 4.0%, 6.0%, 6.0%, 4.5%, and 4.5% for 2011, 2012, 2013, 2014, 2015 and 2016 respectively. These recommended adjustments will continue to fund the City’s water operating and capital funding in a more financially secure direction. Fund balance is used to help minimize the rate adjustment needed each year.  Cash reserve target of ninety days of operation and maintenance expenses was met through 2016.  Water capital projects for the 2010 – 2016 period total $11.3 million. Water capital improvements included main replacements, comprehensive plan updates, and a new center well. A total of $5.2 million in revenue bonds, $1.3 million in system development charge revenue, and $4.6 million in rates was assumed to fund these projects. The remaining balance will be funded from cash reserves  Funding of average annual capital improvement plan from 2011 to 2016 of $1.6 million from rates. This equates to funding 50% of annual replacement cost by 2016.  Thirty percent (30%) of the annual system development charge revenue was used to offset growth related debt service payments. ---PAGE BREAK--- Executive Summary 3 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study  Rate adjustments are needed to meet 1.25 debt service coverage ratio on a stand-alone basis. When system development charge revenue is included the 1.25 debt service coverage is met. Summary of the Water Revenue Requirement Analysis A revenue requirement analysis sums a utility’s operating and capital expenses and compares it to the total revenue of the utility to determine the overall rate adjustment required. Table ES – 1 Summary of Water Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Revenue $4,404 $4,430 $4,474 $4,519 $4,564 $4,610 $4,656 Misc. Revenue 196 117 520 544 584 602 616 Total Revenue $4,600 $4,547 $4,994 $5,063 $5,148 $5,212 $5,272 Expenses O&M Expenses $3,388 $3,478 $3,589 $3,724 $3,862 $4,006 $4,155 Taxes 682 601 607 613 631 636 644 Net Debt Service 470 564 693 750 745 855 866 Rate Funded Capital 168 250 450 650 850 1,050 1,250 Working Capital 0 0 (20) (90) (70) (245) (290) Total Expenses $4,708 $4,893 $5,319 $5,647 $6,018 $6,302 $6,625 Bal./(Defic.) Before Tax ($108) ($346) ($325) ($584) ($870) ($1,090) ($1,353) Addt’l Taxes w/Rate Adj. ($14) ($45) ($42) ($76) ($113) ($142) ($176) Net Bal./(Defic.) of Funds ($122) ($391) ($367) ($660) ($983) ($1,232) ($1,529) Defic. as a % of Rates 2.8% 8.8% 8.2% 14.6% 21.5% 26.7% 32.8% Proposed Rate Adjustment 0.0% 4.0% 4.0% 6.0% 6.0% 4.5% 4.5% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 0.97 0.73 1.04 0.88 0.76 0.58 0.48 After Rate Adjustment 0.97 1.01 1.51 1.68 1.89 1.86 2.02 It is important to note the annual deficiencies in the Table ES-1 are cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over the projected time period, rates need to be adjusted approximately 32.8% in order to adequately and properly fund the City’s water utility O&M and capital infrastructure needs. The needed adjustments for the water utility are primarily being driven by the need to increase the funding of capital improvements from rates (“Rate Funded Capital”). At the present time, very little capital improvements are being funded from current on-going revenues (i.e. rates) and it is important for the City to increase this funding level in order to properly and adequately maintain the City’s existing water infrastructure. To implement the needed adjustments, a rate transition plan was developed. Table ES-2 illustrates the effect of these increases on residential rates. ---PAGE BREAK--- Executive Summary 4 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table ES – 2 Water Utility – Rate Transition Plan 2011 2012 2013 2014 2015 2016 Residential Bill $41.69 Proposed Rate Adjustment 4.0% 4.0% 6.0% 6.0% 4.5% 4.5% After Proposed Adjustment $43.36 $45.09 $47.80 $50.67 $52.95 $55.33 Bill Change $1.67 $1.73 $2.71 $2.87 $2.28 $2.38 Cumulative Bi-Month Change $1.67 $3.40 $6.11 $8.98 $11.26 $13.64 The City reviewed the draft results of the water revenue requirement which indicated the need for a rate adjustment to fully fund all operating and capital needs and a recommended level of renewals and replacements from current rate revenue. Summary of the Water Cost of Service Analysis A water cost of service analysis determines the equitable allocation of the water revenue requirement to the various customer classes of service. A water cost of service analysis determines the fair and equitable manner to collect that revenue requirement from each customer class. The water cost of service analysis results indicate cost of service differences between the customer classes of service, specifically with multi-family and irrigation. Given the overall needed rate adjustment, it was determined that there would be no cost of service adjustments at this time. A full description of the analysis is provided in Section 3 of this report. Summary of the Water Rate Designs The final step of the comprehensive water rate study process is the design of water rates to collect the desired levels of revenue, based on the results of the revenue requirement and cost of service analysis. No cost of service adjustments between customer classes of service were desired by the City at this time. Therefore, the proposed rate adjustments were applied equally among each customer class of service. The following tables provide the present approved rates for the residential, multi-family, commercial, and irrigation customers. ---PAGE BREAK--- Executive Summary 5 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table ES – 3 2010 (Present) Water Rates Present Rate Service Charge 5/8" $13.97 3/4" 15.08 1" 19.31 1 1/2" 24.84 2" 40.29 3" 105.71 4" 192.60 6" 288.88 8" 398.82 10" 519.40 Multi Family (Per unit) $10.48 Consumption - $/CCF Residential – 0 - 10 CCF $1.53 11 - 24 CCF 2.07 Over 24 CCF 2.77 Multi-Family – $1.80 Commercial – $2.15 Irrigation – $2.15 As can be seen in Table ES–3 the present rate is comprised of a service charge for all classes of service. The service charge is based on the size of the meter. The multi-family service charge is a per unit charge. In addition to the water service charge there is a consumption charge based on all usage. The residential consumption charge is three tiered inverted block rate structure. All outside services include a 150% differential of the present inside City rate. Table ES–4 presents the proposed residential water rates. The proposed annual rate adjustments are applied to all customer classes of service. ---PAGE BREAK--- Executive Summary 6 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study A typical residential customer with a 5/8” meter, using 16 ccf under the present 2010 rates, would have a bill total of $41.69. Under the proposed 2011 rates, the same customer would pay $43.33 or a difference. A full listing of proposed water rates is provided in Section 3. Summary of the Water Rate Study This completes the analysis for the City’s water utility. The proposed adjustments increase the overall revenue levels of the water utility as needed to fully fund projected operations and capital needs. The projected rate adjustments for 2011, 2012 and 2013 should be 4.0%, 4.0%, and 6.0% respectively. These adjustments would be across the classes of service with no cost of service adjustments proposed at this time. A full and complete discussion of the development of the comprehensive rate study and the proposed rate adjustments can be found in Section 3 of this report. Key Sewer Rate Study Results A comprehensive review of the City’s sewer utility on a stand-alone basis was undertaken. Based on the technical analysis undertaken as part of this study, the following findings, conclusions, and recommendations were noted.  A revenue requirement analysis was developed for the sewer utility for the calendar years of 2010 – 2016. The proposed rate adjustments vary from year to year. Specifically they are 7.0%, 7.0%, 6.7%, 5.0%, 4.0%, and 4.0% for 2011, 2012, 2013, 2014, 2015 and 2016 respectively. These adjustments will continue to fund the City’s sewer operating and capital funding in a more financially secure direction. These adjustments attempt to levelize the rate adjustment over the test period while minimizing customer rate impacts. Fund balance is used to help minimize the rate adjustment needed each year.  Cash reserve target of sixty days of operation and maintenance expenses was met through 2016. Table ES – 4 Proposed Residential Water Rates Proposed 2011 Proposed 2012 Proposed 2013 Service Charge 5/8" $14.53 $15.11 $16.02 3/4" 15.68 16.31 17.29 1" 20.08 20.89 22.14 1 1/2" 25.83 26.87 28.48 Disability/Low-Income Senior Discount $10.72 $11.15 $11.82 Multi Family (Per unit) $10.90 $11.34 $12.02 Consumption - $/CCF Residential 0 - 10 CCF $1.59 $1.65 $1.75 11 - 24 CCF 2.15 2.24 2.37 Over 24 CCF 2.88 3.00 3.18 Multi-Family 1.87 1.95 2.06 ---PAGE BREAK--- Executive Summary 7 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study  Sewer capital projects for the 2010 – 2016 period total $18 million. Sewer capital needs varied from treatment plant upgrades, sewer mains, pump replacement and secondary clarifiers. A total of $3.4 million in capital reserves and $8.7 million in rates were assumed to fund these projects. The remaining balance will be funded from system development charge revenues and minimal new long-term debt.  Funding of average annual capital improvements from 2011 to 2016 was $2.5 million per year. By 2016, the utility was funding 55% of annual replacement cost from rates.  Thirty percent (30%) of the annual system development charge revenue was used to offset growth related debt service payments.  Rate adjustments are needed to meet 1.25 debt service coverage (DSC) ratio on a stand- alone basis. When system development charge revenue is included the 1.25 debt service coverage is met in the earlier years without a rate adjustment. The proposed rate adjustments allow the utility to meet debt service coverage requirements on a stand-alone basis.  For purposes of billing commercial customers, recommend removal of winter water averaging of consumption. Summary of the Sewer Revenue Requirement Analysis A revenue requirement analysis sums a utility’s operating and capital expenses and compares them to the total revenues of the utility to determine the overall rate adjustment required. Provided below in Table ES–5 is a summary of the sewer revenue requirement analysis. Table ES – 5 Summary of Sewer Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Rate Revenue $8,803 $8,857 $8,945 $9,035 $9,125 $9,216 $9,309 Misc. Revenue 227 47 69 61 64 76 87 Total Revenue $9,030 $8,904 $9,014 $9,096 $9,189 $9,292 $9,396 Expenses O&M Expenses $6,231 $5,987 $6,177 $6,405 $6,639 $6,882 $7,134 Transfers (650) (250) (250) (250) (250) (250) (250) Taxes 1,044 987 997 990 1,010 1,020 1,030 Net Debt Service 1,997 1,994 2,240 2,243 2,166 2,132 2,174 Rate Funded Capital 625 700 900 1,150 1,470 1,790 2,110 Working Capital 0 40 110 350 460 470 420 Total Expenses $9,247 $9,458 $10,174 $10,888 $11,495 $12,044 $12,618 Bal./(Defic.) Before Tax ($217) ($554) ($1,160) ($1,792) ($2,306) ($2,752) ($3,222) Addt’l Taxes w/Rate Adjust. ($27) ($66) ($137) ($213) ($273) ($326) ($382) Net Bal./(Defic.) of Funds ($244) ($620) ($1,297) ($2,005) ($2,579) ($3,078) ($3,604) Defic. as a % of Rates 2.8% 7.0% 14.5% 22.2% 28.3% 33.4% 38.7% Proposed Rate Adjustment 0.0% 7.0% 7.0% 6.7% 5.0% 4.0% 4.0% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 0.81 0.89 0.76 0.70 0.64 0.59 0.51 After Rate Adjustment 0.81 1.17 1.29 1.53 1.72 1.89 2.01 ---PAGE BREAK--- Executive Summary 8 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study It is important to note the annual deficiencies in the Table ES–5 are cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over the projected time period, rates need to be adjusted approximately 38.7% in order to adequately fund the City’s sewer utility O&M and capital infrastructure needs. Similar to the water utility, this level of needed rate adjustment is being driven by the need to adequately fund capital improvement projects from rates. This financial plan has provided a reasonable level of increased funding to properly and adequately maintain the City’s existing sewer infrastructure. Based upon the City’s revised revenue requirement analysis the proposed overall sewer rate adjustment should be annual adjustments of 7.0%, 7.0% and 6.7% in 2011, 2012 and 2013. Table ES–6 illustrates the rate transition plan for a residential bill. Table ES – 6 Sewer Utility – Rate Transition Plan 2011 2012 2013 2014 2015 2016 Residential Bill $107.54 Proposed Rate Adjustment 7.0% 7.0% 6.7% 5.0% 4.0% 4.0% After Proposed Adjustment $115.07 $123.12 $131.37 $137.94 $143.46 $149.20 Bill Change $7.53 $8.05 $8.25 $6.57 $5.52 $5.74 Cumulative Change $7.53 $15.58 $23.83 $30.40 $35.92 $41.66 Summary of the Sewer Cost of Service Analysis A sewer cost of service analysis determines the equitable allocation of the sewer revenue requirement to the various customer classes of service. The sewer cost of service analysis indicates cost of service differences between the customer classes of service. The commercial customer class of service appears to be underpaying in relation to their allocated cost of service. This could indicate the need to revise the sewer rate structure from a billing based upon (capped at) average winter water use. No cost of service adjustments are recommended at this time. Full details of the sewer cost of service analysis are described in Section 4. Summary of the Sewer Rate Designs The final step of the comprehensive sewer rate study process is the design of sewer rates to collect the desired levels of revenue, based on the results of the revenue requirement and cost of service analysis. Since there are no cost of service adjustments the classes of service were adjusted equally. Table ES–7 is the present City rate schedules for sewer. ---PAGE BREAK--- Executive Summary 9 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table ES – 7 2010 Residential (Present) Sewer Rates Present Rate Service Charge Residential $31.38 Multi-Family (Per unit) 23.54 Disability/Low-Income Senior Citizen 13.56 Consumption - $/CCF Residential $4.76 Disability/Low-Income Senior Citizen 4.76 Multi-Family 4.76 As can be seen in Table ES–7 the present rate is comprised of a service charge by class of service. In addition to the service charge, there is a consumption charge based on average winter water usage (AWWU). All rate adjustments are described in more detail in Section 4. Table ES–8 provides the proposed annual rate adjustments applied to residential classes of service. A typical residential customer uses approximately 16 ccf Under the 2010 rates, this customer would pay service and consumption charges for a total of $107.54. Under the proposed 2011 rates, the same customer using 16 ccf would pay $115.07 or a difference. Outside services are subject to a 150% rate differential on the present rate. Summary of the Sewer Rate Study This completes the analyses for the City’s sewer utility. It is proposed that rates be adjusted annually by 7.0%, 7.0% and 6.7% 2011, 2012, and 2013 respectively. The adjustments would be across all classes of service. A full and complete discussion of the development of the comprehensive sewer rate study and the proposed rate adjustments can be found in Section 4 of this report. Table ES – 8 Proposed Residential Sewer Rates Proposed 2011 Proposed 2012 Proposed 2013 Service Charge Residential $33.58 $35.93 $38.33 Multi-Family (Per unit) 25.19 26.95 28.76 Disability/Low-Income Senior Citizen 14.51 15.52 16.57 Consumption - $/CCF Residential $5.09 $5.45 $5.81 Disability/Low-Income Senior Citizen 5.09 5.45 5.81 Multi-Family 5.09 5.45 5.81 ---PAGE BREAK--- Executive Summary 10 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Key Storm and Surface Water Rate Study Results A comprehensive review of the City’s storm and surface water rates was developed. When viewing the storm and surface water utility on a stand-alone basis, the need to adequately fund both O&M and capital infrastructure must be balanced against the rate impacts to the storm and surface water utility customers. Based on the technical analysis undertaken as part of this study, the following findings, conclusions, and recommendations were determined.  A revenue requirement analysis was developed for the storm and surface water utility for the calendar years of 2010 – 2016. The proposed rate adjustments vary from year to year. Specifically they are 6.0%, 6.5%, 7.5%, 7.5%, 7.5%, and 5.0% for 2011, 2012, 2013, 2014, 2015 and 2016 respectively. These adjustments will continue to fund the City’s storm and surface water operating and capital funding in a more financially secure direction. Fund balance is used to help minimize the rate adjustment needed each year.  Cash reserve target of sixty days of operation and maintenance expenses was met through 2016.  Storm and surface water capital projects for the 2010 – 2016 period total $12.2 million. Storm and surface water capital needs varied from two different regional storm water facility land acquisition, system improvements and upgrades. A total of $2.8 million in new debt, $2 million in capital reserves and $4.8 million in rates was assumed to fund these projects. The remaining balance will be funded from system development charge revenues.  The average of the capital improvement plan from 2011 to 2016 was $1.7 million. Funding from rates equates to funding 70% of annual replacement cost by 2016.  Twenty percent (20%) of the annual system development charge revenue was used to offset growth related debt service payments.  Rate adjustments are needed to meet 1.25 debt service coverage ratio on a stand-alone basis. When system development charge revenue is included the 1.25 debt service coverage is met through 2014. Summary of the Storm and Surface Water Revenue Requirement Analysis A revenue requirement analysis sums a utility’s operating and capital expenses and compares them to the total revenues of the utility to determine the overall rate adjustment required. Provided below in Table ES–9 is a summary of the storm and surface water revenue requirement analysis. ---PAGE BREAK--- Executive Summary 11 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table ES – 9 Summary of Storm and Surface Water Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Rate Revenue $3,600 $3,628 $3,665 $3,701 $3,738 $3,776 $3,813 Misc. Revenue 91 17 61 56 76 72 19 Total Revenue $3,691 $3,645 $3,726 $3,757 $3,814 $3,848 $3,832 Expenses O&M Expenses $2,999 $2,956 $3,053 $3,175 $3,298 $3,427 $3,560 Taxes 414 405 409 413 404 408 412 Net Debt Service 299 395 261 332 370 481 482 Rate Funded Capital 0 300 700 800 900 1,000 1,100 Working Capital 0 (200) (260) (230) (115) (70) (70) Total Expenses $3,812 $3,856 $4,163 $4,490 $4,857 $5,246 $5,484 Bal./(Defic.) Before Tax ($121) ($211) ($437) ($733) ($1,043) ($1,398) ($1,652) Addt’l Taxes w/Rate Adjust. ($12) ($21) ($44) ($71) ($199) ($133) ($157) Net Bal./(Defic.) of Funds ($133) ($232) ($481) ($804) ($1,142) ($1,531) ($1,809) Defic. as a % of Rates 3.7% 6.4% 13.1% 21.7% 30.6% 40.6% 47.4% Proposed Rate Adjustment 0.0% 6.0% 6.5% 7.5% 7.5% 7.5% 5.0% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 0.56 0.57 0.73 0.39 0.24 0.02 (0.24) After Rate Adjustment 0.56 1.01 2.03 2.21 2.64 2.61 2.83 It is important to note the annual deficiencies in the Table ES–9 are cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over the projected time period, rates need to be adjusted approximately 47.4% in order to adequately fund the City’s storm and surface water utility O&M and capital infrastructure needs. Similar to the other utilities, these adjustments are primarily driven by the need to adequately fund from rates an amount for the renewal and replacement of existing facilities. At the present time, there is no funding and under this financial plan, the City would move to an approach with adequate rate funding for the renewal and replacement of existing storm and surface water infrastructure. Based upon the City’s revenue requirement analysis the proposed overall storm and surface water rate adjustment should be annual adjustments of 6.0%, 6.5% and 7.5% in 2011, 2012 and 2013. Table ES–10 illustrates the rate transition plan for a residential bill. ---PAGE BREAK--- Executive Summary 12 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table ES – 10 Storm and Surface Water Utility – Rate Transition Plan 2011 2012 2013 2014 2015 2016 Residential Bill $20.89 Proposed Rate Adjustment 6.0% 6.5% 7.5% 7.5% 7.5% 5.0% After Proposed Adjustment $22.14 $23.58 $25.35 $27.25 $29.30 $30.76 Bill Change $1.25 $1.44 $1.77 $1.90 $2.04 $1.46 Cumulative Change $1.25 $2.69 $4.46 $6.36 $8.41 $9.87 Summary of the Storm and Surface Water Cost of Service Analysis The storm and surface water cost of service analysis indicates cost of service differences between the customer classes of service. No cost of service adjustments are recommended at this time. A full description is provided in Section 5 of this report. Summary of the Storm and Surface Water Rate Designs The final step of the comprehensive storm and surface water rate study process is the design of storm and surface water rates to collect the desired levels of revenue, based on the results of the revenue requirement and cost of service analysis. Table ES–11 shows the present rates. Table ES – 11 Present Storm and Surface Water Rates ($/ESU) Present Rate Service Charge Residential $20.89 Disability/Senior 7.41 Multi-Family 20.89 Commercial 20.89 As can be seen in Table ES–11 the present rate is comprised of a service charge by class of service per equivalent service unit (ESU). One equivalent service unit equals 2,800 square feet of impervious area. Table ES–12 provides the proposed annual rate adjustments applied to all classes of service. ---PAGE BREAK--- Executive Summary 13 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Under the 2010 rates, a residential customer would pay a total of $20.89. Under the proposed 2011 rates, the same customer would pay $22.14 or a difference. Summary of the Storm and Surface Water Rate Study This completes the analyses for the City’s storm and surface water utility. It is proposed that rates be adjusted annually by 6.0%, 6.5% and 7.5% 2011, 2012, and 2013 respectively. A full and complete discussion of the development of the comprehensive storm and surface water rate study and the proposed rate adjustments can be found in Section 5 of this report. Key Sanitation Analysis Study Results Solid waste collection and disposal services are provided by an outside contractor DM Disposal and were not included within this analysis. The sanitation utility includes landfill closure costs, monitoring, and related expenses only. The sanitation utility was evaluated on a stand-alone basis. Based on the financial analysis undertaken as part of this study, the following findings, conclusions, and recommendations were developed.  The proposed rate adjustments vary from year to year. Specifically they are 120.0%, 0.0%, 0.0%, 2.0%, 0.0%, and 0.0% for 2011, 2012, 2013, 2014, 2015 and 2016 respectively.  Cash reserve target of sixty days of operation and maintenance expenses was met through 2016.  Rate adjustments are needed to meet 1.25 debt service coverage ratio on a stand-alone basis.  Since this utility operates landfill costs only calculations were made to find the sensitivity of any change in expenses for this utility. For every $100,000 in increased expenses approximately an additional $0.85/bi increase would be made to the present rate. Summary of the Sanitation Revenue Requirement Analysis A revenue requirement analysis sums a utility’s operating and capital expenses and compares them to the total revenues of the utility to determine the overall rate adjustment required. Provided below in Table ES–13 is a summary of the sanitation revenue requirement analysis. Table ES – 12 Proposed Storm and Surface Water Rates Proposed 2011 Proposed 2012 Proposed 2013 Service Charge Residential $22.14 $23.58 $25.35 Disability/Senior 7.85 8.37 8.99 Multi-Family 22.14 23.58 25.35 Commercial 22.14 23.58 25.35 ---PAGE BREAK--- Executive Summary 14 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table ES – 13 Summary of Sanitation Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Rate Revenue $148 $149 $150 $152 $153 $155 $156 Misc. Revenue 610 300 0 0 0 0 0 Total Revenue $758 $449 $150 $152 $153 $155 $156 Expenses O&M Expenses $705 $461 $163 $169 $175 $181 $188 Transfers (85) 0 0 0 0 0 0 Debt Service 32 128 165 163 161 159 157 Working Capital 105 40 3 0 8 7 6 Total Expenses $757 $629 $331 $332 $344 $347 $351 Bal./Defic. of Funds $1 ($180) ($181) ($180) ($191) ($192) ($195) Bal./(Defic.) as a % of Rates -0.6% 121.3% 119.8% 118.4% 124.2% 124.2% 124.4% Proposed Rate Adjustment 0.0% 120.0% 0.0% 0.0% 2.0% 0.0% 0.0% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 1.65 0.00 0.00 0.00 0.00 0.00 0.00 After Rate Adjustment 1.65 1.30 1.02 1.01 1.05 1.05 1.04 It is important to note the annual deficiencies in the Table ES–13 are cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over the projected time period, rates need to be adjusted approximately 124.4% in order to adequately fund the City’s sanitation utility O&M needs. The level of the deficiency is primarily driven by the litigation associated with this utility and the repayment on the interfund loan. It should also be noted, at the present time, the O&M expenses exceed the current revenues of the utility. While this level of adjustment appears to be very large, on a basis, it is relatively small. The current rate is only $1.25/bi-month. Based upon the City’s revised revenue requirement analysis the proposed overall sanitation rate adjustment should be annual adjustments of 120.0%, 0.0% and 0.0% in 2011, 2012 and 2013. The increase in 2011 was needed to cover potential litigation expenses and was estimated at the time of the development of this study. While the 120% increase appears extremely large, on a dollar per bi-month basis, the dollar increase in the rate is relatively small. Summary of the Sanitation Rate Designs The final step of the comprehensive sanitation rate study process is the design of sanitation rates to collect the desired levels of revenue, based on the results of the revenue requirement analysis. Table ES–14 shows the present rates. ---PAGE BREAK--- Executive Summary 15 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table ES – 14 2010 Sanitation Rates 2010 Rate Service Charge Residential $1.25 Disability/Low Income Senior Discount 1.25 Multi-Family 1.25 Commercial 1.25 Large Yard Bin Usage $14.67 As can be seen in Table ES - 14 the 2010 rate is comprised of a service charge by class of service. Table ES–15 provides the proposed annual rate adjustments applied to all classes of service. Under the 2010 rates, a residential customer would pay a total of $1.25. Under the proposed 2011 rates, the same customer would pay $2.75 or a difference. Summary of the Sanitation Rate Study This completes the analyses for the City’s sanitation utility. It is proposed that rates be adjusted in 2011 by 120.0%. A full and complete discussion of the development of the sanitation rate study can be found in Section 6 of this report. Summary This concludes the executive summary of the financial review and analyses undertaken for the City’s four utilities. These analyses were completed using the City 2010 financial records and were developed using “generally accepted” accounting and financial management principles and methodologies. The results and recommendations provide the City Council with the tools and information to keep the utilities operating on a financially sound basis through 2013. Table ES – 15 Proposed Sanitation Rates Proposed 2011 Proposed 2012 Proposed 2013 Service Charge Residential $2.75 $2.75 $2.75 Disability/Low Income Senior Discount 2.75 2.75 2.75 Multi-Family 2.75 2.75 2.75 Commercial 2.75 2.75 2.75 Large Yard Bin Usage $32.27 $32.27 $32.27 ---PAGE BREAK--- Introduction 16 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 1.1 Introduction The City of Puyallup (City) retained HDR Engineering, Inc. (HDR) to perform a comprehensive rate study for its water, sewer and storm and surface water utilities and a revenue requirement analysis for the solid waste utility. A comprehensive rate study will determine the adequacy of the existing water and sewer rates and provide the basis for adjustments to move to cost- based rates. This report describes the methodology, findings, and conclusions of the rate study process. These studies determine whether existing rates are adequate to meet each of the utilities’ operating and capital expenses with revenues received from customers. Rates set too low may result in insufficient funds to maintain system integrity. These studies provide a basis for making rate adjustments as well as addressing the equity of current rates. 1.2 Overview of the Rate Study Process This comprehensive study consists of three interrelated analyses performed for each utility. Figure 1-1 provides an overview of these analyses. Figure 1 - 1 Overview of the Comprehensive Rate Analyses A revenue requirement analysis is concerned with the overall funding sources and expenses of the utility. From this analysis, a determination can be made as to the overall level of adjustment to rates. Next, a cost of service analysis is performed to equitably allocate the revenue requirements to the various types of customers served (e.g. residential, commercial, etc.). Finally, once an overall level of rate adjustment is determined and an equitable allocation of those costs, the last step of the rate study process in the design of rates to collect the appropriate level of revenues while considering the other rate design goals and objectives Section 1 Introduction Revenue Requirement Analysis Cost of Service Analysis Rate Design Analysis Compares the sources of funds (revenues) to the expenses of the utility to determine the overall rate adjustment required Allocates the revenue requirements to the various customer classes of service in a “fair and equitable" manner Considers both the level and structure of the rate design to collect the target level of revenues ---PAGE BREAK--- Introduction 17 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study of the utility (e.g. revenue stability, conservation, etc.). At the same time HDR utilized “generally accepted” cost of service and rate setting techniques and industry best practices in the development of the City’s water, sewer and storm and surface water and solid waste rate studies. 1.3 Report Organization This report is organized as follows:  Section 2 provides background information about the utility rate setting process, including descriptions of generally accepted principles, prudent financial management policies and procedures, types of utilities, methods of determining revenue requirement, cost of service, and rate designs.  Section 3 reviews the comprehensive water rate study analysis developed for the City.  Section 4 reviews the comprehensive sewer rate study analysis developed for the City.  Section 5 reviews the comprehensive storm and surface water rate study.  Section 6 reviews the sanitation utility revenue requirement analysis developed for the City. A technical appendices attached at the end of the report provide the analyses used for each of the utilities in the preparation of this report including the draft financial policies developed for the City. 1.4 Summary This report reviews the comprehensive water, sewer, storm & surface water and solid waste rate analyses prepared for the City. The report has been developed utilizing generally accepted utility setting methodologies. ---PAGE BREAK--- Overview of the Rate Setting Process 18 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “Adoption of such financial policies provides a strong foundation for the long-term financial sustainability of the utilities and provides the outside financial community with a better understanding of the City’s commitment to managing the utilities in a financially prudent manner.” 2.1 Introduction This section provides background information about the rate setting process, including descriptions of generally accepted principles, types of utilities, methods of determining revenue requirements, the cost of service approach, and rate design. This information is useful for gaining a better understanding of the detailed analyses presented in following sections of the report. 2.2 Generally Accepted Rate Setting Principles As a practical matter, utilities should consider setting their rates around some generally accepted or global principles and guidelines. Utility rates should be:  Cost-based, equitable, and set at a level that meets the utility’s full revenue requirement  Easy to understand and administer  Designed to conform with generally accepted rate setting techniques  Stable in their ability to provide adequate revenues for meeting the utility’s financial, operating, and regulatory requirements  Established at a level that is stable from year-to-year from a customer’s perspective These principles and guidelines were applied, to the degree possible, in the development of the rate analyses developed for the City. 2.3 Prudent Financial Planning Financial and rate-setting policies are also integral to the process of developing a comprehensive rate study. Financial policies are intended to provide guidance in the financial planning and rate-setting process, and in the day-to-day financial management of the City’s utilities. Adoption of such financial policies provides a strong foundation for the long-term financial sustainability of the utilities and provides the outside financial community with a better understanding of the City’s commitment to managing the utilities in a financially prudent manner. A set of comprehensive financial and rate-setting policies was developed for the City as part of this study. The policies address issues such as maintaining reserves for various purposes, debt service coverage ratios, and generally accepted practices in establishing rates and fees. The City Council has considered these policies in reviewing the rate study results and proposed rates. Many of the policies are already in place as financial and management practices of the City, and specifically the utilities. The establishment of reserves and funding of renewal and replacement capital are key components of financial planning and rate-setting, and as such, are discussed below. Section 2 – Overview of the Rate Setting Process ---PAGE BREAK--- Overview of the Rate Setting Process 19 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study  ESTABLISHING MINIMUM OPERATING RESERVE BALANCE – The City should strive to maintain a cash balance sufficient to meet the operating expenses. A minimum balance equal to 90 days O&M expense is recommended for the water utility. The sewer and storm and surface water utilities shall maintain a minimum of 60 days O&M expense. This has been a City practice for several years.  ESTABLISHING MINIMUM CAPITAL RESERVE FUNDS – Capital reserves are established to fulfill the cash flow requirements of capital infrastructure construction costs, which vary significantly annually, depending on each year’s projects and the funding sources available. Within the utility industry, capital reserves are generally established based on an average of projected annual capital expenditures, excluding unusually large one-time capital needs. For each utility, the City should attempt to maintain a capital reserve approximately equal to one- year of renewal/replacement type projects, or a six-year average of typical renewal and replacement (routine) type projects, not including large one-time project expenses. These funds are contained within the overall utility fund balance but are accounted for individually for each utility.  GROWTH RELATED CAPITAL RESERVES – System development charges or other growth related funds can be maintained within the utility capital fund balance, but should be accounted for separately. These funds should be expended only on growth/capacity-related capital facilities. These fees for each utility are dependent upon customer growth and do not have a targeted minimum balance to be maintained.  BOND RESERVES – Bond reserves may be legally required for specific debt issues. Bond reserves will be established in accordance with the legal covenants of each debt issue.  OTHER RESERVES FOR CONSIDERATION – Some utilities establish replacement reserves, contingency reserves, and/or rate stabilization reserves. Based on the City’s past practices and experience, Management believes that the established operating reserves adequately cover the utility needs for contingencies and emergencies.  RATE FUNDING FOR RENEWAL AND REPLACEMENT CAPITAL PROJECTS – The funding of on-going renewal and replacement capital projects should primarily be funded from rates. The use of long-term debt issues to fund renewal and replacement projects should be minimized whenever possible. In order to adequately support this funding method, each utility shall budget and fund a reasonable amount of the cost for renewal and replacement of capital assets within the utility’s rates. A simple measure of the minimum suggested funding is an amount equal to or greater than the annual depreciation of those assets, or 1.5% of the asset’s original cost. This is done in order to reflect an average useful life of the assets of approximately 65 years.  ANNUAL RATE REVIEWS AND COMPREHENSIVE RATE AND FEE STUDIES – The City has a practice of doing annual rate reviews, to verify adequate rate revenue for each utility. Additionally, utility rate studies should be conducted at a minimum every five years to update assumptions and ensure the long-term solvency and viability of the City’s utilities. This concludes this brief summary of financial policies related to reserves, funding of replacement capital projects, and rate and fee reviews. A more detailed copy of the set of financial policies drafted for the City is provided in Appendix A of this report. ---PAGE BREAK--- Overview of the Rate Setting Process 20 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “Public utilities are . . . theoretically operated at zero profit. As a point of reference, the City is a public utility. 2.4 Types of Utilities Utilities are generally divided into two types:  Public utilities are usually owned by a city, county, or special district, and are theoretically operated at zero profit. A public utility is locally owned since its customers are also its owners. Public utilities are capitalized or financed by issuing debt and soliciting funds from customers through direct capital contributions or user rates. Public or municipal utilities are typically exempt from state and federal income taxes. A publicly elected City council or board of trustees usually regulates public utilities.  Private utilities are “for profit” enterprises and are owned by a private company and/or stockholders. The shareholders are, in essence, the owners of the private utility. Therefore, the owners of a private utility may not be customers or local citizens, but rather numerous individuals or shareholders spread across the United States. A private utility is capitalized by issuing stock to the general public. Private utilities are taxable entities. Given their for profit status, their rates and operations are generally regulated by a state public utility commission or other regulatory body. As a point of reference, the City is a public utility and the analysis has been based on the methodology generally utilized by a public utility. 2.5 Determining the Revenue Requirement Because public and private utilities have very different administrative and financial characteristics, their methods differ for determining revenue requirement and setting rates. 2.5.1 Public Utilities Most public utilities use the “cash basis” approach for establishing their revenue requirement and setting rates. This approach conforms to most public utility budgetary requirements and the calculation is easy to understand. A public utility:  Totals its cash expenditures for a period of time to determine required revenues.  Adds operation and maintenance (O&M) expenses to any applicable taxes or transfer payments to determine total operating expenses. Operation and maintenance expenses include the materials, electricity, labor, supplies, etc. needed to keep the utility functioning.  Calculates capital costs by adding debt service payments (principal and interest) to capital improvements financed with rate revenues. In lieu of including capital improvements financed with rate revenues, a utility sometimes includes depreciation expense to stabilize annual revenue requirement. Under the cash basis approach of accounting, the sum of the capital and operating expenses equals the utility’s revenue requirement during any period of time (see Table 2-1). Note that the two portions of the capital expense component (debt service and capital improvements financed from rates) are necessary under the cash basis approach because utilities generally cannot finance all their capital facilities with long-term debt. An exception ---PAGE BREAK--- Overview of the Rate Setting Process 21 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study occurs if a public utility provides service to a wholesale or contract customer. In this situation, a public utility could use the “utility basis” approach (see below) to earn a fair return on its investment. Table 2 - 1 Cash versus Utility Basis Comparison Cash Basis Utility Basis (Accrual) + O&M Expense + O&M Expense + Taxes or Transfer Payments + Taxes or Transfer Payments + Capital Improvements Financed with Rate Revenues Depreciation Expense) + Depreciation Expense + Debt service (Principal + Interest) + Return on Investment = Total Revenue Requirement = Total Revenue Requirement 2.5.2 Private Utilities Most private utilities use a “utility basis” or accrual approach for establishing revenue requirement and setting rates (see Table 2-1). A private utility typically:  Totals its O&M expenses, taxes, and depreciation expense for a period of time. Collecting depreciation expense with rates provides a means of recuperating the cost of capital facilities over their useful lives as well as providing funding for other capital projects.  Adds a fair return on investment. Private utilities must pay state and federal income taxes along with any applicable property, franchise, sales, or other form of revenue taxes. The return portion of this type of revenue requirement pays for the private utility’s interest expense on indebtedness, provides funds for a return to the utility’s shareholders in the form of dividends, and leaves a balance for retained earnings and cash flow purposes. The analyses developed within this report utilize the cash basis methodology. This is consistent with past practices in City utility rate-setting. 2.6 Analyzing Cost of Service After the total revenue requirement is determined, it is allocated to the users of the service. The allocation, usually analyzed through a cost of service study, reflects the cost relationships for producing and delivering services. A cost of service study requires three steps: 1. Costs are functionalized or grouped into the various cost categories related to providing service (source, pumping, transmission, distribution, etc.). This step is largely accomplished by the utility’s accounting system. 2. After costs are functionalized then costs are classified to specific cost components. Classification refers to the arrangement of the functionalized data into cost components. For example, a water utility’s costs are typically classified as commodity, capacity, fire protection, and/or customer-related. ---PAGE BREAK--- Overview of the Rate Setting Process 22 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Economic theory suggests that the price of a commodity must roughly equal its cost if equity among customers is to be maintained. 3. Once the costs are classified into components, they are allocated to the customer classes of service (residential, commercial, etc.). The allocation is based on each customer class’ relative contribution to the cost component. For example, customer-related costs are allocated to each class of service based on the total number of customers in that class of service. Once costs are allocated, the required revenues for achieving cost-based rates can be determined. 2.7 Designing Rates Rates that meet the utility’s objectives are designed based on both the revenue requirement and the cost of service analysis results. This provides rates that are cost-based. Rate design, however, may also consider factors such as ability to pay, continuity of past rate philosophy, economic development, ease of administration, and customer understanding. These concepts and priorities are analyzed individually for each utility. 2.8 Economic Theory and Rate Setting One of the major justifications for a comprehensive rate study is founded in economic theory. Economic theory suggests that the price of a commodity must roughly equal its cost if equity among customers is to be maintained. This statement’s implications on utility rate designs are significant. For example, a water utility usually incurs capacity-related costs in meeting its peak day requirements. It follows that the customers who cause maximum peak day demands should pay for those demand-related facilities in proportion to their contribution to maximum demands. Emphasis on seasonal and marginal cost- based utility rates embraces this economic concept. Similarly, sewer rates are sometimes focused on strength of flow, along with volume. When costing and pricing techniques are refined, consumers have a more accurate picture of what the commodity costs to produce and deliver. This price-equals-cost concept provides the basis for the subsequent analysis and comments. 2.9 Summary This section of the report has provided a brief introduction to the general principles, techniques, and economic theory used to set water, sewer, storm & surface water and solid waste rates. These principles and methodologies are the basis for the City’s analysis. The next section discusses the water rate study analysis. ---PAGE BREAK--- Development of the Water Rate Study 23 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study . . the revenue requirement, as developed herein, assumes the full funding needed to operate and maintain the system on a financially sound and prudent basis.” 3.1 Introduction A comprehensive water rate study determines the adequacy of the existing water rates and provides the basis for adjustments to cost-based rates. This section describes the methodology, findings, and conclusions of the water rate study process conducted for the City’s water utility. 3.2 Determining the Water Utility Revenue Requirements The revenue requirement analysis is the first analytical step in the comprehensive rate study process. This analysis determines the adequacy of the City’s overall water rates. From this analysis, a determination can be made as to the overall level of water rate adjustment needed to provide adequate and prudent funding for both operating and capital needs. Typically, the main objectives of a water rate study are to develop cost-based rates while attempting to minimize the impacts to the utility’s customers. In developing the water revenue requirement, it was assumed the utility must financially “stand on its own” and be properly funded. As a result, the revenue requirement, as developed herein, assumes the full funding needed to operate and maintain the system on a financially sound and prudent basis. Provided below is a detailed discussion of the development of the revenue requirement analysis for the City’s water utility. 3.2.1 Establishing a Time Frame and Approach The first step in calculating the revenue requirement for the water utility was to establish a time frame for the revenue requirement analysis. For this study, the revenue requirement was developed for a seven-year projected time period (2010 – 2016). Reviewing a multi-year time period is generally recommended to identify any major expenses that may be on the horizon. By anticipating future financial requirements, the City can begin planning for these in an attempt to minimize short-term rate impacts and overall long-term rates. The second step in determining the revenue requirement for the City was to decide on the basis of accumulating costs. For the City’s revenue requirement, a cash basis approach was utilized. The cash basis approach is the most commonly used methodology by municipal utilities to set their revenue requirement. Section 2 of this report provided a simple overview of the cash basis methodology. The actual revenue requirement developed for the City was customized to follow the utility’s system of accounts (budget documents). Even with the specific customizations, water utility revenue requirement still contains the four basic cost components Section 3 Development of the Water Rate Study ---PAGE BREAK--- Development of the Water Rate Study 24 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study of a cash basis methodology. Table 3-1 provides a summary of the cash basis approach used to develop the City’s water revenue requirement. Table 3 - 1 Overview of the Water Utility Cash Basis Revenue Requirements + Water operation and maintenance exp.  Engineering  Source of Supply  General Fund Administration + Rate funded capital(a) + Debt service (P + I) existing and future  Change in working capital = Total Water Revenue Requirement Rate funded capital + Total water capital improvement projects  Funding sources other than rates  Buy-in capital charges  Grants  Capital Reserves  Long term debt = Rate funded capital Given a time period around which to develop the revenue requirement and a method to accumulate the appropriate costs, the focus then shifts to the development and projection of the revenues and expenses of the water utility. Using the utility’s historical billing records, operating budget, and current capital improvement plan the water utility revenues and expenses were analyzed. 3.2.2 Projecting Water Rate and Other Miscellaneous Revenues The first step in developing the revenue requirement was to develop a projection of water rate revenues, at present rate levels. In general, this process involved developing the projected consumption or billing units for each customer group. The billing units for each customer group were then multiplied by the applicable current rates. This method of independently calculating revenues verifies the projected revenues used within the analysis tie to the projected consumption. The projected consumption by class of service was based on historical consumption records. The vast majority of the City’s rate revenues are derived from residential customers. Currently, the City has four major classes of service: residential, multi-family, commercial, and irrigation. The City’s has a service charge and consumption rate which has three consumption billing tiers. $2,366 $856 $943 $265 $0 Projected 2011 Rate Revenues By Customer Type ($000) Residential Multi-Family Commercial Irrigation Public Fire Protection $2,366 $856 $943 $265 $0 Projected 2011 Rate Revenues By Customer Type ($000) Residential Multi-Family Commercial Irrigation Public Fire Protection ---PAGE BREAK--- Development of the Water Rate Study 25 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study In total, at present rates, the City is projected to receive approximately $4.4 million in rate revenue in 2010. Over the planning horizon of this study, customer growth is expected to be 0.5 percent per year in 2010 and 2011 and 1.0 percent thereafter. This results in total rate revenues of approximately $4.6 million in 2016. In addition to rate revenues, the utility also receives a variety of miscellaneous revenues which includes interest on investments, late fees, turn on/off charges and other miscellaneous revenue. The utility is projected to receive approximately $196,000 in miscellaneous revenues in 2010. Miscellaneous revenues are expected to increase to $616,000 in 2016. On a combined basis, taking into account the water rate revenues along with miscellaneous revenues, the utility’s total projected revenues are expected to be approximately $4.5 million in 2010, increasing to $5.2 by 2016. 3.2.3 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the water utility to operate and maintain the existing plant in service. The costs incurred in this area are expensed during the current year and are not capitalized or depreciated. In general, operation and maintenance expenses are grouped into a number of different functional categories (see Table 3-1). To begin the process of projecting water O&M expenses over the planning horizon, escalation factors were developed. Escalation factors were developed for the basic types of expenses the utility incurs: labor, benefits, materials and supplies, utilities, insurance, and miscellaneous expenses. Because of the recent large escalations in medical benefit costs the escalation factor was assumed to be six to seven percent per year over the planning horizon. The other escalation factors used were in the range of three to four percent per year, depending on the type of cost and recent inflationary trends. To project future O&M expenses, the first step was to determine the functional categories for purposes of projecting costs. HDR reviewed the City’s 2010 budget and determined it contained sufficient detail to develop the water revenue requirement analysis. Therefore, in developing this analysis, HDR maintained the overall functional nature of the City’s system of accounts supply, engineering, billing, etc.). Given the functionalized 2010 O&M expenses, HDR then escalated the O&M expenses based on the appropriate escalation factors. Total operation and maintenance expenses for the City are projected to be approximately $3.3 million in 2010. O&M expenses are projected to increase to approximately $4.1 million by 2016 primarily as a result of assumed inflation over the time period. A few budget line items were adjusted by the City based on more recent and updated information. No other extraordinary O&M expense increases or decreases were assumed during the planning period. 3.2.4 Projecting Taxes/Transfer Payments At the present time, the water utility pays State taxes of 5.029% on gross revenues. In addition, the water utility pays 8.0% of revenues in City utility taxes. Total taxes for the City are projected to be approximately $681,000 in 2010. Tax expenses are projected to decrease to approximately $643,000 by 2016. The reduction in tax is due to a lower projected revenue base which the tax is calculated on for future years than what was budgeted for 2010. ---PAGE BREAK--- Development of the Water Rate Study 26 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 3.2.5 Projecting Capital Improvement Projects Funded From Rate Revenues Utilities incur a variety of needs for capital improvements. There are three major types of improvements, regulatory driven, growth related, and renewal and replacement capital projects. The utility’s capital improvements during the review period include a variety of needs including all three types of projects. The City’s utilities have been under pressure in prior years to keep up with the pace of growth. Now the utilities are entering a period where renewals and replacements are the priority for many of the capital needs. The City’s water utility has many capital improvement projects and capital expenses planned over the study’s time horizon. In total, there is approximately $11.3 million in projected water capital projects through 2016. There are a number of different methods which may be used to fund the capital plan. Among the methods that may be used to finance these capital improvement projects are long-term debt, system development charges, cash reserves, and rates. Table 3-2 presents a summary of the capital improvement plan for the water utility. Table 3 - 2 Summary of the Water Capital Improvement Plan ($000s) 2010 2011 2012 2013 2014 2015 2016 Capital Projects System Improvements $160 $200 $200 $250 $250 $250 $300 Comprehensive Plan 40 0 0 0 0 0 0 Develop Salmon 0 360 0 0 0 0 0 Repl. Salmon Springs 0 251 0 0 0 0 0 Main Replacement - Forest Green 0 673 0 0 0 0 0 NE St. Improvement Project 0 0 268 0 0 0 0 Main Repl. - 7th St SE 0 252 1,428 0 0 0 0 Rec. Center Well 0 0 0 165 937 0 0 Main Replacement 14th St. SW 0 0 0 471 0 0 0 Maplewood Springs Pump Stations 0 0 0 100 0 0 0 Main Replacement - Forest II 0 0 0 527 0 0 0 NE Street Improvement Project 0 0 0 0 0 752 0 Main - 23rd Ave. SW 0 0 0 0 150 850 0 Main- Parkwood 0 0 0 0 497 0 0 Main 14th St. SW 0 0 0 0 0 140 0 Main Replacement - Maplewood 0 0 0 0 0 500 0 Comp Plan Update 0 0 0 0 0 0 170 Main Repl. -Vista 0 0 0 0 0 0 600 Main Repl. - 9th St. SE 0 0 0 0 0 0 450 Capitalized Engineering Services 0 0 0 0 0 0 150 Main 14th St. SW 0 0 0 0 0 0 0 Total Capital Outlays $200 $1,736 $1,896 $1,513 $1,834 $2,492 $1,670 Less: Outside Funding Sources Grants $0 $0 $0 $0 $0 $0 $0 SDC 32 315 0 215 417 0 369 New Debt 0 1,135 1,446 648 567 1,442 0 Cash Reserves 0 36 0 0 0 0 52 Total Outside Funding Sources $32 $1,498 $1,446 $863 $984 $1,442 $420 Rate Funded Capital $168 $250 $450 $650 $850 $1,050 $1,250 ---PAGE BREAK--- Development of the Water Rate Study 27 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation through rates.” In viewing Table 3-2, it should be noted that the “Rate Funded Capital” was increased over the planning horizon from approximately $168,000 per year to $1.25 million. The rational for this increase in the level of rate funding is driven by the current water assets of the utility. A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation through rates. Annual depreciation expense reflects the current investment in plant being depreciated or “losing” its useful life. Therefore, this portion of plant investment needs to be replaced, or put into reserves for future replacement to maintain the existing level of infrastructure. It must be kept in mind that, in theory, annual depreciation expense reflects an investment in infrastructure an average of 30 years ago, assuming a 60-year useful, depreciable life. Simply funding an amount equal to annual depreciation expense will not be sufficient to replace the existing or depreciated facility. Therefore, consideration should be given to funding within rates some amount greater than annual depreciation expense for renewals and replacements. Whenever possible, the City should be funding capital projects from rates in an amount greater than annual depreciation expense. The current depreciation expense for the water utility is $916,000. Within the analysis, HDR developed 3 optional guidelines for funding renewal and replacement capital projects from rates. These included:  Replacement cost  Annual depreciation expense  2% of original cost In previous years, the City had a goal of funding 2% of original cost as a measure of funding renewals and replacements from rates, similar to the minimum annual depreciation guidelines. Using the City’s existing asset inventory listing, HDR developed an order of magnitude replacement cost for the utility system assets. Planned capital improvements are added into the total for each funding approach each year to determine the total funding needed under each capital funding method. Total replacement cost was more than two times annual depreciation expense. Annual depreciation expense was the lowest funding method running an average of $300,000 less than the 2% of original cost method. The utility was funding only $168,000 of CIP from rates in 2010. A gradual plan to fund the minimum of depreciation expense was implemented such that the utility reached projected depreciation expense funding of capital by 2016. Details of this analysis can be found at the bottom of Exhibit 4 in Appendix B. Of the total CIP of approximately $11.3 million, $5.2 million is projected to be debt financed, $88,000 funded through fund balances (reserves), approximately $1.3 million in system development charges, and $4.6 million in rate funding. 3.2.6 Projecting Debt Service The final component of the water utility’s revenue requirement is debt service. At the present time, the water utility has two outstanding debt obligations, amounting to a total of $544,000 ---PAGE BREAK--- Development of the Water Rate Study 28 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study annually in debt service payments. Additional bonds are assumed to be issued during the test period. The total annual payment for debt is estimated to be $989,000 in 2016. Generally, revenue bonds contain rate covenants requiring rates to be set at an adequate level to assure meeting specified minimum debt service coverage (DSC) ratio. This is a financial measure of the utility’s ability to repay the debt. In general, the DSC is set at a level such that revenues less operating expenses should be 1.25 times greater than the maximum annual debt service on the outstanding debt. Given this minimum DSC, it is often prudent to plan or set rates at a level which exceeds this minimum. This guarantees meeting the minimum DSC, and at the same time, provides a slight cushion for unexpected changes. A higher DSC ratio can also strengthen the City’s potential to receive a higher bond rating with lower interest on bonds in the future. Bond rating agencies would review the City’s past financial strength and ability to repay the bonds.1 Within the financial policies, the City targets 1.50 for DSC ratio for revenue bonds and 1.30 for all debt. The debt service coverage falls below the 1.25 minimum without any rate adjustments. With the proposed rate adjustments the debt service coverage remains above the 1.25 minimum DSC ratio through the test period. One application of system development charges (SDCs) can be payment of growth related debt. In the recent past, the City has completed a number of projects related to growth. Therefore, 30% of SDCs was applied toward growth-related debt. As a general financial guideline, a utility should not apply more than 50% of projected SDC revenue toward debt payments. This provides a cushion in case SDC revenue comes in below projections, debt payments and DSC obligations can still be met without hardship or a need for emergency rate action. 3.2.7 Summary of the Revenue Requirements Given the above projections of revenues and expenses, a summary of the revenue requirement for the City’s water utility can be developed. In developing the final revenue requirement, consideration was given to the City’s financial forecast and reserve policies. In particular, emphasis was placed on attempting to minimize rates, yet still have adequate funds to support the operational activities and capital projects throughout the projected time period. Presented in Table 3-3 is a summary of the water revenue requirement. Detailed analysis can be found in Exhibit 3 of Appendix B. 1 While this study has reviewed the water utility on a “stand alone” basis, for purposes of issuance of debt and calculating debt service coverage, the financial strength of all utilities would be considered. ---PAGE BREAK--- Development of the Water Rate Study 29 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table 3 - 3 Summary of Water Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Revenue $4,404 $4,430 $4,474 $4,519 $4,564 $4,610 $4,656 Misc. Revenue 196 117 520 544 584 602 616 Total Revenue $4,600 $4,547 $4,994 $5,063 $5,148 $5,212 $5,272 Expenses O&M Expenses $3,388 $3,478 $3,589 $3,724 $3,862 $4,006 $4,155 Taxes 682 601 607 613 631 636 644 Net Debt Service 470 564 693 750 745 855 866 Rate Funded Capital 168 250 450 650 850 1,050 1,250 Working Capital 0 0 (20) (90) (70) (245) (290) Total Expenses $4,708 $4,893 $5,319 $5,647 $6,018 $6,302 $6,625 Bal./(Defic.) Before Tax ($108) ($346) ($325) ($584) ($870) ($1,090) ($1,353) Addt’l Taxes w/Rate Adj. ($14) ($45) ($42) ($76) ($113) ($142) ($176) Net Bal./(Defic.) of Funds ($122) ($391) ($367) ($660) ($983) ($1,232) ($1,529) Defic. as a % of Rates 2.8% 8.8% 8.2% 14.6% 21.5% 26.7% 32.8% Proposed Rate Adjustment 0.0% 4.0% 4.0% 6.0% 6.0% 4.5% 4.5% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 0.97 0.73 1.04 0.88 0.76 0.58 0.48 After Rate Adjustment 0.97 1.01 1.51 1.68 1.89 1.86 2.02 It is important to note the annual deficiencies in Table 3-3 are cumulative. That is, any adjustment in the initial years will reduce the needed deficiency in the following years. The results of the revenue requirement analysis indicate a deficiency of funds over the planning period (2010-2016). The deficiency ranges from a net deficiency of approximately $122,000 in 2010 to a deficit of $1.5 million in 2016, or a cumulative deficiency in 2016 of 32.8%. The needed adjustments for the water utility are primarily being driven by the need to increase the funding of capital improvements from rates (“Rate Funded Capital”). At the present time, very little capital improvements are being funded from current on-going revenues (i.e. rates) and it is important for the City to increase this funding level in order to properly and adequately maintain the City’s existing water infrastructure. As can be seen in Table 3-3, the “Defic. as a % of Rates” is 8.8% in 2011 and similar in 2012. While an 8% adjustment is needed, a gradual implementation plan was developed under the “Proposed Rate Adjustment” to minimize rate impacts to the degree possible proposing a 4% rate adjustment each year. In 2010 through 2012, it was proposed to use reserves to help implement this gradual plan, while minimizing rate impacts. An indication of a utility’s financial standing is the debt service coverage ratio (DSC). Table 3-3 shows that on a stand-alone basis, the water utility needs the proposed rate adjustments in order to meet the minimum bond requirements. To further explain, a utility with a DSC of 1.0 has no additional revenue available after accounting for operation & maintenance expenses, taxes and debt service payments. This means that without an alternative source of funding such as system development charges, the utility will have no rate funding for capital projects. ---PAGE BREAK--- Development of the Water Rate Study 30 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “Following the generally- accepted guidelines and principles of a cost of service analysis will inherently lead to rates which are equitable, cost- based, and not viewed as arbitrary or capricious in nature.” As noted earlier, a DSC ratio of 1.25 is a minimum requirement of the revenue bond covenants. While the water utility, on a stand-alone basis, cannot meet that ratio, the City revenue bonds are combined issues and on a combined basis the 1.25 requirement is met. It is still important for the utilities to be self-supporting and meet their own financial obligations to maintain financial stability in the long-term. 3.2.8 Review of the Reserve Levels Reserves are an important part of a utility’s financial picture. There can be many different purposes for reserves. The City currently has two reserve funds: operating and unallocated fund balance. It is important for the City to set a minimum and maximum balance on the reserve funds. When the balance of funds reaches the minimum level, it is a signal for action on the City’s part. For the operating reserve fund the City has set a target balance of 25% (90 days of O&M) of operation and maintenance expenses. For the water system this would imply approximately $835,000 in 2010, increasing to $1.0 million in 2016. The operating reserves during the projected time period is held at the target balance by 2016. Any remaining fund balance is used as necessary to help keep rates as low as possible. 3.2.9 Consultant’s Conclusions for the Water Revenue Requirement Based upon the revenue requirement analysis developed and the City’s desired to keep rate adjustments as reasonably and as prudently low as possible, HDR proposes the City increase the overall revenue levels of the water utility by a minimum of 4.0% in 2011 and 2012 and 6.0% in 2013 and 2014 and 4.5% in 2015 and 2016. The anticipated adjustments would move the City toward fully supporting the current level of operations and capital needs for the water utility. 3.3 Water Cost of Service Analysis In the previous subsection, the revenue requirement analysis focused on the total revenues and expenses required to adequately fund the City’s water utility. This section discusses the development of the water cost of service analysis. A cost of service analysis is concerned with the equitable allocation of the total revenue requirement between the various customer classes of service residential, commercial, etc.). The revenue requirement was utilized in the development of the cost of service analysis. In recent years, increasing emphasis has been placed on cost of service studies by government agencies, customers, utility regulatory commissions, and other parties. This interest has been generated in part by continued inflationary trends, increased operating and capital expenditures, and concerns of equity in rates among customers. Following the generally-accepted guidelines and principles of a cost of service analysis will inherently lead to rates which are equitable, cost-based, and not viewed as arbitrary or capricious in nature. There are two primary objectives in conducting a cost of service study:  Allocate the revenue requirement among the customer classes of service  Derive average unit costs for subsequent rate designs ---PAGE BREAK--- Development of the Water Rate Study 31 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “A cost of service study utilizes a three-step approach to review costs. These take the form of functionalization, classification, and allocation.” The objectives of the water cost of service analysis are different from determining revenue requirement. As noted in the previous section, a revenue requirement analysis determines the utility’s overall financial needs, while the cost of service study determines the fair and equitable manner to collect the revenue requirement. The second rationale for conducting a cost of service analysis is to allow a rate to be designed such that it properly reflects the costs incurred by the City. For example, a water utility incurs costs related to flow, average day, peak day, fire protection, and customer cost components. A water utility must build sufficient capacity to meet summer peak capacity needs. Therefore, those customers creating this summer peak requirement should pay their fair share of the cost to meet this peak demand. Each of these types of costs may be collected in a different manner as to allow for the development of rates that collect costs in the same manner as they are incurred. 3.3.1 Customer Classes of Service The first step in a cost of service study is to determine the customer classes of service. Currently, the City has a separate water rate schedule for each individual class of service. Also included in the rate is a city versus rural rate differential. Based on the current rate schedules the classes of service used within the water study are:  Residential  Multi-Family  Commercial  Irrigation In determining classes of service for cost of service purposes, the objective is to group customers together into similar or homogeneous groups based upon facility requirements and/or flow characteristics. In order to determine the cost to serve each customer class of service on the City’s water system, a cost of service analysis is conducted. A cost of service study utilizes a three-step approach to review costs. These were previously discussed in our generic discussion in Section 2, and take the form of functionalization, classification, and allocation. Provided below is a detailed discussion of the water cost of service study conducted for the City, and the specific steps taken within the analysis. 3.3.2 Functionalization of Costs The first analytical step in the cost of service process is called functionalization. Functionalization is the arrangement of expenses and asset (plant) data by major operating functions within the utility. For example, treatment, pumping, distribution, etc. Within this study, the functionalization of the cost data was largely accomplished through the City’s system of accounts. 3.3.3 Classification of Costs The second analytical task performed in a water cost of service study is the classification of the costs. Classification determines why the expenses were incurred or what type of need is being ---PAGE BREAK--- Development of the Water Rate Study 32 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Terminology of a Water Cost of Service Analysis Functionalization – The arrangement of the cost data by functional category (e.g. source of supply, treatment, etc.). Classification – The assignment of functionalized costs to cost components (e.g. commodity, capacity, customer and fire protection related). Allocation – Allocating the classified costs to each class of service based upon each class’s proportional contribution to that specific cost component. Commodity Costs – Costs that are classified as commodity related vary with the total flow of water (e.g. chemical use at a treatment plant). Capacity Costs – Costs classified as capacity related vary with peak day or peak hour usage. Facilities are often designed and sized around meeting peak demands. Fire Protection Costs – Costs that are related to fire protection services (e.g. hydrants), portions of mains and storage tanks, etc. Customer Costs – Costs classified as customer related vary with the number of customers on the system, e.g. metering costs. Direct Assignment – Costs that can be clearly identified as belonging to a specific customer group or group of customers. met. The City’s plant accounts and revenue requirement were reviewed and classified using the following cost classifiers:  Commodity Related Costs: Commodity costs are those costs which tend to vary with the total quantity of water consumed by a customer. Commodity costs are those incurred under average load (demand) conditions and are generally specified for a period of time such as a month or year. Chemicals or electricity used in the treatment of water is an example of a commodity- related cost, since these costs tend to vary based upon the total flow of water.  Capacity Related Costs: Capacity costs are those which vary with peak demand, or the maximum rates of flow to customers. System capacity is required when there are large demands for water placed upon the system summer lawn watering). For water utilities, capacity related costs are generally related to the sizing of facilities needed to meet a customer’s maximum water demand at any point in time. For example, portions of distribution storage reservoirs and mains (pipes) must be adequately sized for this particular type of requirement.  Customer Related Costs: Customer costs are those costs which vary with the number of customers on the water system. They do not vary with system output or consumption levels. These costs are also sometimes referred to as readiness to serve or availability costs. Customer costs may also sometimes be further classified as either actual or weighted. Actual customer costs vary proportionally, from customer to customer, with the addition or deletion of a customer regardless of the size of the customer. In contrast, a weighted customer cost reflects a disproportionate cost, from customer to customer, with the addition or deletion of a customer. An example of an actual customer cost is postage for mailing bills. This cost does not vary from customer to customer, regardless of the size or consumption characteristics of the customer. Examples of weighted customer costs are items such as meter maintenance expenses, where a large industrial customer requires a significantly more expensive meter than a residential customer.  Public Fire Protection Related Costs: Public fire protection costs are those costs related to the public fire protection functions. Usually, such costs are those ---PAGE BREAK--- Development of the Water Rate Study 33 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study related to public fire hydrants and the over-sizing of mains and distribution storage reservoirs for fire protection purposes. The recent State Supreme Court ruling for Lane vs. City of Seattle established that public fire protection costs are a responsibility of general government and not the utility ratepayers. As such, this study has segregated the public fire protection related costs to allow the City to meet the legal requirements of this decision.  Revenue Related Costs: Certain costs associated with the utility may vary with the amount of revenue received. An example is a utility tax based upon the amount of rate revenues received by the water utility.  Direct Assignments: Certain costs associated with operating the system may be directly traced to a specific customer or class of service. In this case, these costs are then directly assigned to that specific class of service. This assures that other classes of service will not be allocated any costs for those significant facilities from which they do not benefit. 3.3.4 Development of Allocation Factors Once the classification process is complete, and the customer groups have been defined, the various classified costs were allocated to each customer group. The City’s classified water costs were allocated to the various customer groups using the following allocation factors.  Commodity Allocation Factor: As noted earlier, commodity related costs vary with the total flow of water. Therefore, the commodity allocation factors were based upon the projected total metered consumption (retail sales volumes) plus losses for each class of service for the projected test period, 2010.  Capacity Allocation Factor: The capacity allocation factor was developed based upon the assumed contribution to peak day use of each class. Peak day use by customer group was estimated using assumed peaking factors for each customer group. In this particular case, the peaking factor was defined as the relationship between peak day contribution and average day use and determined for each customer group based upon a review of the average month to peak month usage. Given a peaking factor, the peak day contribution for each class of service was developed.  Customer Allocation Factor: Customer costs vary with the number of customers on the system. Two basic types of customer allocation factors were identified – actual and weighted. The allocation factors for actual customers were based upon the projection of the number of customers developed within the revenue requirement. The weighted customer allocation factors is also broken down further into two factors which attempt to reflect the disproportionate costs associated with serving different types of customers. The first weighted customer factor is for customer service and accounting. This weighted customer allocation factor takes into account the fact that it may take more time to read a meter and process a bill for larger customers. Additionally, this factor recognized that the residential customer class has the highest customer service demand. The second weighted customer allocation factor is for meters and services. This factor attempts to reflect the different costs associated with providing larger sized meters. For example, there is a significant cost difference associated with replacing a 5/8” meter compared to a six-inch meter. This cost difference is reflected within the allocation factor. ---PAGE BREAK--- Development of the Water Rate Study 34 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study  Public Fire Protection Allocation Factor: As noted above, the State Supreme Court ruling in Lane vs. the City of Seattle established that public fire protection costs are the responsibility of general government. In this case, public fire protection costs were not allocated to any water utility ratepayers. Instead, the public fire protection costs were segregated and directly assigned to public fire protection. By segregating the public fire protection costs in this manner, the City will have identified these costs and can appropriately bill those responsible for providing fire protection services.  Revenue Related Allocation Factor: The revenue related allocation factor was developed from the projected rate revenues for 2010 for each customer group. These same revenues were used within the revenue requirement analysis previously discussed in Section 3. Given the development of the allocation factors, the final step in the cost of service study is to allocate the classified costs to the various customer classes of service. 3.3.5 Functionalization and Classification of Water Plant in Service A necessary step of the cost of service is the functionalization and classification of water plant in service. In performing the functionalization of plant in service, HDR utilized the City’s historical plant records. Once the plant assets were functionalized, the analysis shifted to classification of the asset. The classification process included reviewing each group of assets and determining which cost classifiers the assets were related to. For example, the City’s assets were classified as: capacity-related, commodity-related, customer-related, revenue- related, or public fire protection-related. Provided below is a brief discussion of the classification process used. Pumping plant assets were classified between commodity and capacity related costs. The percentage split between commodity and capacity was based upon the ratio of average day use to peak day use. Consumption over and above average day use is considered capacity related. Source of supply, treatment, pumping and transmission facilities were classified as 43% commodity related and 57% capacity related. This classification reflects the City’s peak summer demand (capacity needs) in relation to their average day use (base or commodity needs). Water transmission/distribution lines (mains) are typically assumed to provide three types of costs. First, a transmission/distribution system must be in place to meet a customer’s minimum requirements for water. This portion of the transmission/distribution main plant investment is considered customer related, or a function of the number of customers on the system. Next, a portion of the transmission/distribution system mains is considered a function of peak flow requirements on the system. Transmission/distribution mains must be sized to adequately meet the peak flows demanded by customers. This portion of the transmission/distribution main plant investment is considered capacity related. Finally, transmission/distribution mains must also be sized for fire flow demands. This final portion of over sizing for transmission/distribution plant investment is classified as public fire protection related. The classification of mains was therefore 24% actual customer, 68% capacity, and 8% fire protection related. Water distribution tanks are typically designated to meet two types of costs – capacity related and fire protection related. The total storage capacity of the City’s reservoirs was examined and consideration given to the capacity required for fire protection purposes under a worst ---PAGE BREAK--- Development of the Water Rate Study 35 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study case scenario. This amount of capacity, in relation to the total storage capacity, is considered fire protection related. The balance of storage capacity is considered capacity related. To address the fire protection issues, hydrants were designated 100% public fire protection. Table 3-4 shows a summary of the basic functionalization and classification of the major water plant items. A more detailed exhibit of the City’s functionalization and classification of plant investment can be found in the Technical Appendix. Table 3 - 4 Summary of the Classification of Water Plant in Service Category Capacity Related Commodity Related Customer Related Fire Protection Source of Supply 0% 0% 100% 0% Pumping 57% 43% 0% 0% Reservoir 91% 0% 0% 9% Distribution Mains 71% 0% 24% 5% Fire Hydrants 0% 0% 0% 100% Meters 0% 0% 100% 0% 3.3.6 Functionalization and Classification of Operating Expenses Operating expenses are generally functionalized and classified in a manner similar to the corresponding plant account. For example, maintenance of distribution mains is typically classified in the same manner (classification percentages) as the plant account for distribution mains. This approach to classification of operating expenses was used for this analysis. For the City’s study, the revenue requirement for 2011 were functionalized, classified, and allocated. As noted earlier, the City utilized a cash basis revenue requirement, which was comprised of operation and maintenance expenses, taxes, debt service, and capital additions funded from rates. A more detailed review of the classification of revenue requirement can be found in Exhibit 11 of Appendix B, beginning on page 14 of 23. 3.3.7 Major Assumptions of the Cost of Service Study A number of key assumptions were used within the City’s cost of service study. Below is a brief discussion of the major assumptions used.  The test period used for the cost of service analysis was 2011. The revenue and expense data was previously developed within the water revenue requirement study.  A cash basis approach was utilized which conforms to generally accepted water cost of service approaches and methodologies.  The classification of plant in service was developed based upon generally accepted cost allocation techniques. Furthermore, the analyses were developed using the City specific data.  Customer usage figures used within this study were provided for each class of service from historical usage information provided by the City. ---PAGE BREAK--- Development of the Water Rate Study 36 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study  Capacity allocation factors were based upon each customer group’s average to peak month relationship, along with certain estimates of the relationship by class of service. 3.3.8 Summary of the Cost of Service Results In summary form, this cost of service analysis began by functionalizing the City’s plant asset records and then the operating expenses. The functionalized plant and expense accounts were then classified into their various cost components. The individual classification totals were then allocated to the various customer groups based upon the appropriate allocation factors. The allocated expenses for each customer group were then aggregated to determine each customer group’s overall revenue responsibility. A summary of the detailed cost responsibility developed for each class of service for 2011 is shown in Table 3-5. Table 3 - 5 Summary of the Water 2011 Cost of Service Analysis ($000s) Class of Service Present Rate Revenues Allocated Costs $ Difference % Difference Residential $2,366 $2,507 ($141) 5.9% Multi-Family 856 628 228 -26.6% Commercial 943 938 -0.6% Irrigation 265 377 (112) 42.0% Public Fire Protection 0 371 (371) 0.0% Total $4,430 $4,821 ($391) 8.8% The allocation of costs attempted to align the facilities and costs allocated to each customer class with their respective benefit from services. Given the range of assumptions that may be used in a cost of service analysis, a general “guideline” that may considered when viewing a cost of service analysis is if a class is within 5% of the overall required adjustment the class, than it may be considered as being within a “reasonable range” of paying its “fair share”. It is important to understand that a cost of service analysis is based on one year’s data and customer information. Water usage may change over time. It may be appropriate to determine whether these findings are consistent over time, and adjust accordingly. The cost of service analysis results indicate cost of service differences exist between the customer classes of service. However, because interclass adjustments can further compound rate impacts to some customer classes, no cost of service adjustments are recommended at this time due to level of rate adjustments needed. 3.3.9 Public Fire Protection Costs As discussed above, the water cost of service, as developed herein, has been developed to comply with the recent Washington State Supreme Court ruling for Lane vs. the City of Seattle. Within this study, the allocated cost for public fire protection was equal to $371,652 for 2011. ---PAGE BREAK--- Development of the Water Rate Study 37 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study In order to comply with Lane vs. the City of Seattle, the City will need to recover these costs from the fire district providing service to the City. Water rates are no longer include these public fire protection related costs. In the context of this study, HDR’s analysis of the public fire protection related costs has been developed based upon HDR’s understanding of the ruling related to Lane vs. the City of Seattle. Therefore, this study and the cost of service analysis should not be considered or construed as a legal opinion related to the Lane vs. The City of Seattle case. The City should confer with their legal counsel to determine specifically how this ruling impacts the City. 3.3.10 Consultant’s Conclusions and Recommendations As was noted in Table 3-5, differences in cost appear to exist between the various classes of service. Given the overall rate adjustment needed it is not recommended to include any cost of service adjustments at this time. 3.3.11 Summary This section of the report has provided an analysis of the water utility cost of service developed for the City of Puyallup. This analysis was prepared using generally accepted cost of service techniques. 3.4 Water Rate Design The final step of the comprehensive water rate study process is the design of water rates to collect the desired levels of revenues, based upon the results of the revenue requirement and cost of service analysis. In reviewing water rate designs, consideration is given to the level of the rates and the structure of the rates. 3.4.1 Rate Design Criteria and Considerations Prudent rate administration dictates that several criteria must be considered when setting utility rates. Some of these rate design criteria are listed below:  Rates which are easy to understand from the customer’s perspective  Rates which are easy for the utility to administer  Consideration of the customer’s ability to pay  Continuity, over time, of the rate making philosophy  Policy considerations (encourage conservation, economic development, etc.)  Provide revenue stability from month to month and year to year  Promote efficient allocation of the resource  Equitable and non-discriminatory (cost-based) Many contemporary rate economists and regulatory agencies feel the last consideration, cost- based rates, should be of paramount importance and provide the primary guidance to utilities on rate structure and policy. It is also important that the City provide its customers with a proper price signal as to what their consumption or usage is costing. This goal may be approached through rate level and structure. When developing the proposed rate designs, all the above listed criteria were taken into consideration. However, it should be noted that it is difficult, if not impossible, to design a rate that meets all the goals and objectives listed above. For example, it may be difficult to ---PAGE BREAK--- Development of the Water Rate Study 38 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study design a rate that takes into consideration the customer’s ability to pay, and one which is cost- based. In designing rates, there are always trade-offs between the goals and objectives. 3.4.2 Review of the Overall Rate Adjustments As indicated in the revenue requirement and the cost of service analyses, the priority for the water utility was to adjust and transition the overall level of the water rates to meet the utility’s financial needs. Therefore, the results of the revenue requirement analysis were the primary basis for establishing the proposed rate adjustments for the water utility. In addition, since no cost of service adjustments were recommended at this time, the proposed rate adjustments will be applied equally among each of the customer classes of service. 3.4.3 Present and Proposed Water Rates In developing the proposed rate designs, the City’s existing rate structures were reviewed. Table 3-6 shows the City’s 2010 water rate schedule. Table 3 - 6 2010 Water Rates 2010 Rates Service Charge 5/8" $13.97 3/4" 15.08 1" 19.31 1 1/2" 24.84 2" 40.29 3" 105.71 4" 192.60 6" 288.88 8" 398.82 10" 519.40 Disability/Low-Income Senior Discount 10.31 Multi Family (Per unit) 10.48 Consumption - $/CCF Residential 0 - 10 CCF $1.53 11 - 24 CCF 2.07 Over 24 CCF 2.77 Multi-Family $1.80 Commercial $2.15 Irrigation $2.15 As can be seen in Table 3-6 the present rate is comprised of a service charge by meter size. Disability/Low-Income Senior Discount has a separate and reduced charge. Multi- family has a charge per living unit. In addition to the service charge, there is a consumption charge based on usage. The consumption charge is an increasing block rate structure for residential and a uniform charge for all consumption for multi-family, commercial and Irrigation. All outside services are 150% differential of the present rate. ---PAGE BREAK--- Development of the Water Rate Study 39 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study For each class of service, proposed rates were developed for 2011 to 2013. Table 3-7 presents the proposed rate design for each customer class using the existing service charge and a consumption charge. The proposed annual rate adjustments are across all classes of service. A typical residential customer with a 5/8” meter, using 16 ccf under the 2010 rates, would a total of $41.69. Under the proposed 2011 rates, the same customer would pay $43.36 or a difference. 3.5 Summary of the Water Rate Study This completes the analysis for the City’s water utility. The analyses were based on City data using generally accepted rate-setting methodologies and principles. It is recommended that rates be increased by 4.0% in 2011 and 2012 and followed by 6.0% in 2013. A detail of the calculations can be found in Appendix B. The results of this study provide the Council with the information necessary to form decisions regarding prudent financial management of the utility. Table 3 - 7 Proposed Water Rates Proposed 2011 Proposed 2012 Proposed 2013 Service Charge 5/8" $14.53 $15.11 $16.02 3/4" 15.68 16.31 17.29 1" 20.08 20.89 22.14 1 1/2" 25.83 26.87 28.48 2” 41.90 43.58 46.20 4” 109.93 114.33 121.20 6” 200.30 208.32 220.82 8” 300.43 312.45 331.20 10” 414.77 431.36 457.24 Disability/Low-Income Senior Discount $10.72 $11.15 $11.82 Multi Family (Per unit) $10.90 $11.34 $12.02 Consumption - $/CCF Residential 0 - 10 CCF $1.59 $1.65 $1.75 11 - 24 CCF 2.15 2.24 2.37 Over 24 CCF 2.88 3.00 3.18 Multi-Family $1.87 $1.95 $2.06 Commercial $2.24 $2.33 $2.47 Irrigation $2.24 $2.33 $2.47 ---PAGE BREAK--- Development of the Sewer Rate Study 40 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study . . the revenue requirement as developed herein, assumes the full and proper funding needed to operate and maintain the system on a financially sound and prudent basis.” 4.1 Introduction This section describes the development of the sewer rate study for the City. Similar to the water rate study, a revenue requirement, cost of service and rate design analysis was conducted for the City’s sewer utility. One of the main objectives of a sewer rate study is to develop fair and equitable rates while attempting to minimize the impacts to the utility’s customers. Provided below is a detailed discussion of each of these technical analyses, along with our findings, conclusions and recommendations. 4.2 Determining the Sewer Utility Revenue Requirements In developing the sewer revenue requirement, it was assumed the utility must financially “stand on its own” and be properly funded. As a result, the revenue requirement as developed herein assumes the full and proper funding needed to operate and maintain the system on a financially sound and prudent basis. Provided below is a detailed discussion of the development of the revenue requirement analysis for the City’s sewer utility. 4.2.1 Establishing a Time Frame and Approach The first step in calculating the revenue requirement for the sewer utility was to establish a time frame for the revenue requirement analysis. For this study, the revenue requirement was developed for a seven-year projected time period (2010 – 2016). This was the same time period reviewed for the City’s other utilities. Reviewing a multi-year time period is generally recommended in an attempt to identify any major expenses that may be on the horizon. By anticipating future financial requirements, the City can begin planning for these expenses sooner, avoiding future rate spiked and leveling rates to the degree possible. The second step in determining the revenue requirement for the City was to decide on the basis of accumulating costs. As for the water utility’s revenue requirement, a cash basis approach was utilized. The cash basis approach is the most commonly used methodology by municipal utilities to set their revenue requirement. Section 2 of this report provided a simple overview of the cash basis methodology. The actual revenue requirement developed for the City was customized to follow the City’s system of accounts (budget documents). Table 4-1 provides a summary of the cash basis approach used to develop the City’s sewer revenue requirement. Section 4 Development of the Sewer Rate Study ---PAGE BREAK--- Development of the Sewer Rate Study 41 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table 4 - 1 Overview of the Sewer Utility Cash Basis Revenue Requirements + Sewer operation and maintenance exp.  Sewer Pumping  Water Pollution Control Plant  Collection/Transmission  Pretreatment Program  General Fund Administration + Net capital projects funded from rates(a) + Debt service (P + I) existing and future  Change in working capital = Total Sewer Revenue Requirement Net capital projects funded from rates + Total sewer capital improvement projects  Funding sources other than rates  System development charges  Grants  Capital Reserves  Long term debt issues = Net Capital Improve. Funded From Rates Given the time period and method to accumulate the appropriate costs, the focus then shifts to the development and projection of the revenues and expenses of the sewer utility. The primary financial inputs in this process were the City’s historical billing records, operating budget, and capital improvement plan. Presented below is a detailed discussion of the steps and key assumptions contained in the development of the projections of the sewer utility’s revenues and expenses. 4.2.2 Projecting Sewer Rate and Other Miscellaneous Revenues The first step in developing the revenue requirement was to develop a projection of rate revenues, at present rate levels. In general, this process involved developing projected billing units for each customer group. The billing units for each customer group were then multiplied by the applicable current sewer rates. This method of independently calculating sewer rate revenues assures the projected revenues used within the analysis tie to the projected billing units. The projected billing units by class of service were based on historical billing records. The vast majority of the City’s rate revenues are derived from residential customers. Currently, the City has three major classes of service: residential, multi-residential and commercial. In ---PAGE BREAK--- Development of the Sewer Rate Study 42 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study total, at present rates, the City is projected to receive approximately $8.8 million in rate revenue in 2010. Over the planning horizon of this study, customer growth is expected to be 0.5 percent per year for 2010 and 2011 and 1.0 percent thereafter resulting in total rate revenues of approximately $9.3 million by 2016. In addition to rate revenues, the utility also receives a variety of miscellaneous revenues which include interest on investments, and other miscellaneous revenues. The utility is projected to receive approximately $227,000 in miscellaneous revenues in 2010. Miscellaneous revenues decrease to $87,000 in 2016. The decrease is due to use of fund balance and assumed lower interest rates for investment interest. On a combined basis, taking into account the rate revenues along with miscellaneous revenues, the utility’s total projected revenues are expected to be approximately $9.0 million in 2010, increasing to $9.3 million in 2016. 4.2.3 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the utility to operate and maintain the existing plant in service. The costs incurred in this area are expensed during the current year and are not capitalized or depreciated. In general, operation and maintenance expenses are grouped into a number of different functional categories (see Table 4-1). To begin the process of projecting O&M expenses over the planning horizon, escalation factors were developed. Escalation factors were developed for the basic types of expenses the City incurs: labor, benefits, materials and supplies, utilities, insurance, and miscellaneous expenses. Consistent with the water utility, medical benefit costs the escalation factor was assumed to be between six and seven percent per year over the planning horizon. The other escalation factors used the same as for the water utility, in the range of two to three percent per year, depending on the type of cost and recent inflationary trends. To project future O&M expenses, the first step was to determine the functional categories for purposes of projecting costs. HDR reviewed the City’s 2010 budget and determined it contained sufficient detail to develop the revenue requirement analysis. Therefore, in developing this analysis, HDR maintained the overall functional nature of the City’s system of accounts payroll, benefits, supplies, etc.). Given the functionalized 2010 O&M expenses, HDR then escalated the O&M expenses based on the escalation factors described above. Total operation and maintenance expenses for the utility are projected to be approximately $6.2 million in 2010. O&M expenses are projected to increase to approximately $7.3 million by 2016 primarily as a result of assumed inflation over the time period. No extraordinary O&M expenses were assumed during the planning period. 4.2.4 Projecting Taxes/Transfer Payments At the present time, the sewer utility pays State public utility taxes of 3.852% of the portion of rate revenue attributable to collection system assets and 1.5% excise tax on treatment related revenue. In addition, the sewer utility pays 8% of revenues in City utility taxes. Total taxes for the City are projected to be approximately $1.0 million in 2010. Tax expenses are projected to remain at this approximate level through 2016. ---PAGE BREAK--- Development of the Sewer Rate Study 43 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 4.2.5 Projecting Capital Improvement Projects Funded From Rate Revenues The sewer utility has several important major types of improvements: regulatory driven, growth related, and renewal and replacement capital projects. In the recent past the sewer utility has had to keep up with the pace of growth and focus on expansion projects. Through this review period the utility is focused on regulatory and expansion improvements at the treatment plant and renewals and replacements for sewer mains. The City’s sewer utility has many capital improvement projects and capital expenses planned over the study’s time horizon. In total, there is approximately $18 million in projected capital projects. Sewer capital needs varied from treatment plant upgrades, replacements, pump replacements, secondary clarifiers and sewer mains. Table 4 - 2 Summary of the Sewer Capital Improvement Plan ($000s) 2010 2011 2012 2013 2014 2015 2016 Capital Projects System Improvements $250 $250 $250 $250 $300 $300 $300 Treatment Plant Upgrades 850 800 700 800 800 800 800 Replace Generators 0 521 0 0 0 0 0 I/I Reduction 0 500 300 300 0 0 0 Riverside LS Upgrade 0 115 630 0 0 0 0 NE Street Improvement 0 0 415 0 0 0 0 Modify Influent Pump 0 935 165 935 0 0 0 Secondary Clarifier 0 0 485 215 0 0 0 W Pioneer Line Replacement 0 0 0 250 200 0 0 N Puyallup Lift Stat. Upgrade 0 0 0 0 452 0 0 14th St Line Replacement 0 0 0 0 767 0 0 12th Ave SE Line Replace. 0 0 0 0 312 0 0 11th ST NW 0 0 0 0 0 65 0 East Main Force Upgrade 0 0 0 0 0 225 1,250 East Maine Lift Station 0 0 0 0 0 470 0 Aeration Blowers 0 0 0 0 0 388 0 Sewer Comp Plan 0 0 0 0 0 0 175 Future Unidentified CIP 0 0 0 0 0 402 1,075 Total Capital Outlays $1,100 $2,186 $2,945 $2,750 $2,831 $2,650 $3,600 Less: Outside Funding Sources System Develop. Charges $0 $365 $898 $383 $226 $695 $720 New Debt 0 0 415 0 0 65 0 Cash Reserves 0 50 550 550 100 100 770 Capital Reserves 475 1,071 182 667 1,035 0 0 Total Outside Funding Source $475 $1,486 $2,045 $1,600 $1,361 $860 $1,490 Capital Funded from Rates $625 $700 $900 $1,150 $1,470 $1,790 $2,110 There are a number of different methods used to fund the capital plan, including long-term debt, system development charges, capital reserves, and rates. Similar to the water rate study, the amount of capital improvements funded from rates has been increased from approximately $625,000 to $2.1 million over this planning horizon. This level of funding more closely aligns the utility with its depreciation expense related to the ---PAGE BREAK--- Development of the Sewer Rate Study 44 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation through rates.” sewer assets. A general financial guideline for financial stability states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates. Annual depreciation expense reflects the current investment in plant being depreciated or “losing” its useful life. Therefore, this portion of plant investment needs to be replaced to maintain the existing level of infrastructure. It must be kept in mind that, in theory, annual depreciation expense reflects an investment in infrastructure an average of 30 years ago, assuming a 60-year useful, depreciable, life. Simply funding an amount equal to annual depreciation expense will not be sufficient to replace the existing or depreciated facility. Therefore, consideration should be given to funding within rates some amount greater than annual depreciation expense for renewals and replacements. Whenever possible, the City should be funding capital projects from rates in an amount greater than annual depreciation expense. The annual depreciation expense for the sewer utility is approximately $2.2 million. As in the water rate study, HDR developed 3 optional guidelines for funding sewer utility renewal and replacement capital projects from rates. These included:  Replacement cost  Annual depreciation expense  2% of original cost In previous years, the City had a goal of funding 2% of original cost as a measure of funding renewals and replacements from rates, similar to the minimum annual depreciation guidelines. Using the City’s existing asset inventory listing, HDR developed an order of magnitude replacement cost for the utility system assets. Planned capital improvements are added into the total for each funding approach each year to determine the total funding needed under each capital funding method. Total replacement cost was more than two times annual depreciation expense. Two percent of original cost method was the lowest funding method, ranging between $500,00 and $800,000 less than depreciation expense through the review period. The utility was funding $625,000 of capital from rates in 2010. A gradual plan to fund the minimum of depreciation expense for capital was implemented such that the utility reached a midpoint between projected depreciation expense funding and 2% of original cost method by 2016. Details of this analysis can be found at the bottom of Exhibit 4 in Appendix C. The City’s sewer capital improvement plan totals approximately $18 million over the 2010- 2016 time horizon. A total of $3.4 million in capital reserves and $8.7 million in rates was assumed to fund these projects. The remaining balance will be funded from system development charge revenues and minimal new debt. A detailed summary of the capital projects is shown in the Technical Appendix. 4.2.6 Projecting Debt Service The final component of the City’s sewer revenue requirement is debt service. At the present time, the City has several outstanding debt obligations. There is a 2004 revenue bond with an average annual debt payment of $1.4 million. The 2009 revenue bond payment averages ---PAGE BREAK--- Development of the Sewer Rate Study 45 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study $510,000 during the review period. The 1997 Public Works Trust Fund loan (PWTF) is another $390,000 per year, totaling an existing debt payment of $2.36 million. Over the review period another $40,000 in debt payments is added from the proposed capital improvement plan. This results in a total debt payment of $2.4 million in 2012 through 2016. Applying an estimated $220,000 of system development charge revenue toward the growth related debt, the net debt payment totals $2.175 million by 2016. Generally, revenue bonds contain rate covenants requiring rates to be set at an adequate level to assure meeting a specified minimum debt service coverage ratio (DSC). This is a financial measure of the utility’s ability to repay the debt. In general, the DSC is set at a level such that revenues less operating expenses will be 1.30 times greater than the maximum annual debt service on the outstanding debt. Given a minimum DSC, it is often prudent to plan or set rates at a level which exceeds this minimum. This guarantees meeting the minimum DSC, and at the same time, provides a slight cushion for unexpected changes. This also strengthens the City’s ability to issue revenue bonds in the future, if necessary, since bond rating agencies would review the City’s past financial strength and ability to repay the bonds.2 On a stand-alone basis, the sewer utility is projected to fall below the 1.25 minimum. If system development charge revenues are included within the calculation of the DSC, the minimum debt service coverage of 1.25 is met. On a combined utility basis, the DSC requirement is met in the earlier years. With the proposed rate adjustments, beginning in 2011, the debt service coverage remains above the 1.25 minimum through the test period. 4.2.7 Summary of the Revenue Requirements Given the above projections of revenues and expenses, a summary of the revenue requirement for the City’s sewer utility can be developed. In developing the final revenue requirement, consideration was given to the financial planning considerations of the City. In particular, emphasis was placed on attempting to minimize rates, yet still have adequate funds to support the operational activities and capital projects throughout the projected time period. Presented in Table 4-3 is a summary of the sewer revenue requirement. Detailed analysis can be found in Exhibit 3 of Appendix C. 2 While this study has reviewed the sewer utility on a “stand alone” basis, for purposes of issuance of debt and calculating debt service coverage, the financial strength of all utilities would be considered. ---PAGE BREAK--- Development of the Sewer Rate Study 46 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Table 4 - 3 Summary of Sewer Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Rate Revenue $8,803 $8,857 $8,945 $9,035 $9,125 $9,216 $9,309 Misc. Revenue 227 47 69 61 64 76 87 Total Revenue $9,030 $8,904 $9,014 $9,096 $9,189 $9,292 $9,396 Expenses O&M Expenses $6,231 $5,987 $6,177 $6,405 $6,639 $6,882 $7,134 Transfers (650) (250) (250) (250) (250) (250) (250) Taxes 1,044 987 997 990 1,010 1,020 1,030 Net Debt Service 1,997 1,994 2,240 2,243 2,166 2,132 2,174 Rate Funded Capital 625 700 900 1,150 1,470 1,790 2,110 Working Capital 0 40 110 350 460 470 420 Total Expenses $9,247 $9,458 $10,174 $10,888 $11,495 $12,044 $12,618 Bal./(Defic.) Before Tax ($217) ($554) ($1,160) ($1,792) ($2,306) ($2,752) ($3,222) Addt’l Taxes w/Rate Adjust. ($27) ($66) ($137) ($213) ($273) ($326) ($382) Net Bal./(Defic.) of Funds ($244) ($620) ($1,297) ($2,005) ($2,579) ($3,078) ($3,604) Defic. as a % of Rates 2.8% 7.0% 14.5% 22.2% 28.3% 33.4% 38.7% Proposed Rate Adjustment 0.0% 7.0% 7.0% 6.7% 5.0% 4.0% 4.0% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 0.81 0.89 0.76 0.70 0.64 0.59 0.51 After Rate Adjustment 0.81 1.17 1.29 1.53 1.72 1.89 2.01 It is important to note the annual deficiencies in Table 4-3 are cumulative. That is, any adjustment in the initial years will reduce the needed deficiency in the following years. The results of the revenue requirement analysis indicate a deficiency of funds over the planning period (2010 - 2016). The deficiency ranges from approximately $244,000 in 2010 to $3.6 million in 2016, or a cumulative deficiency in 2016 of 38.7%. Similar to the water utility, this level of needed rate adjustment is being driven by the need to adequately fund capital improvement projects from rates. This financial plan has provided a reasonable level of increased funding to properly and adequately maintain the City’s existing sewer infrastructure. 4.2.8 Review of the Reserve Levels Reserves are an important part of a utility’s financial picture. There can be many different purposes for reserves. The City currently has three reserve funds: operating, capital and system development charge fund balance. It is important for the City to set a target balance on the reserve funds. When the balance of funds does not meet the minimum level, it is a signal for action on the City’s part. For the operating reserve fund the City has set a minimum balance of 90 days of annual expenses (O&M, taxes, and debt service). For the sewer system this would imply reserves of approximately $1.0 million in 2010, increasing to $1.1 million in ---PAGE BREAK--- Development of the Sewer Rate Study 47 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “Following the generally- accepted guidelines and principles of a cost of service analysis will inherently lead to rates which are equitable, cost-based, and not viewed as arbitrary or capricious in nature.” 2016. The operating reserves meet the target during the projected time period. The utility has a significant fund balance which is applied to capital projects in an attempt to keep rates as low as possible. 4.2.9 Consultant’s Conclusions for Sewer Revenue Requirement Based upon the City’s revised revenue requirement analysis the proposed overall sewer rate adjustment should be annual adjustments of 7.0%, 7.0% and 6.7% in 2011, 2012 and 2013. The anticipated adjustments would move the City closer to fully supporting the current level of operations and capital needs for the sewer utility. 4.2.10 Summary This section of the report has provided a discussion of the City’s revenue requirement analysis. The sewer revenue requirement analysis developed a financial plan to support the utility’s operating and capital infrastructure requirements. The next section will discuss the cost of service analysis developed for the utility. 4.3 Sewer Cost of Service Analysis In the previous section, the revenue requirement analysis focused on the total sources and application of funds required to adequately fund the City’s sewer utility. This section will discuss the development of the cost of service analysis. A cost of service analysis is concerned with the equitable allocation of the total revenue requirement between the various customer classes of service residential, commercial, etc.). The previously developed revenue requirement was utilized in the development of the cost of service analysis. In recent years, increasing emphasis has been placed on cost of service studies by government agencies, customers, utility regulatory commissions, and other parties. This interest has been generated in part by continued inflationary trends, increased operating and capital expenditures, and concerns of equity in rates among customers. Following the generally-accepted guidelines and principles of a cost of service analysis will inherently lead to rates which are equitable, cost- based, and not viewed as arbitrary or capricious in nature. 4.3.1 Objectives of a Cost of Service Study There are two primary objectives in conducting a cost of service study:  Allocate the revenue requirement among the customer classes of service  Derive average unit costs for subsequent rate designs The objectives of the sewer cost of service analysis are different from determining revenue requirements. As noted in the previous section, a revenue requirement analysis determines the utility’s overall financial needs, while the cost of service study determines the fair and equitable manner to collect the revenue requirement. The second rationale for conducting a cost of service analysis is to ensure a rate is designed such that it properly reflects the costs incurred by the utility. For example, a sewer utility incurs ---PAGE BREAK--- Development of the Sewer Rate Study 48 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “A cost of service study utilizes a three- step approach to review costs. These take the form of functionalization, classification, and allocation.” costs related to flow, strength, and customer cost components. Each of these types of costs may be collected in a different manner as to allow for the development of rates that collect costs in the same manner as they are incurred. 4.3.2 Determining the Customer Classes of Service The first step in a cost of service study is to determine the customer classes of service. Currently, the City has a separate rate schedule for each individual class of service. Also included in the rate is an outside city rate differential of 1.5 times the inside city rate. Based on the current rate schedules the classes of service used within the sewer study are:  Residential  Multi-family  Commercial In determining classes of service for cost of service purposes, the objective is to group customers together into similar or homogeneous groups based upon facility requirement and/or flow characteristics. 4.3.3 General Cost of Service Procedures In order to determine the cost to serve each customer class of service on the City’s system, a cost of service analysis is conducted. A cost of service study utilizes a three-step approach to review costs. These were previously discussed in our generic discussion in Section 2, and take the form of functionalization, classification, and allocation. Provided below is a detailed discussion of the sewer cost of service study conducted for the City, and the specific steps taken within the analysis. Functionalization of Costs The first analytical step in the cost of service process is called functionalization. Functionalization is the arrangement of expenses and asset (plant) data by major operating functions within each utility. For example, pumping, treatment, collection, etc. Within this study, the functionalization of the cost data was largely accomplished through the City’s system of accounts. Classification of Costs The second analytical task performed in a sewer cost of service study is the classification of the costs. Classification determines why the expenses were incurred or what type of need is being met. The City’s plant accounts and revenue requirement were reviewed and classified using the following cost classifiers:  Volume Related Costs: Volume related costs are those costs which tend to vary with the total quantity of wastewater collected and treated. A majority of collection system costs and treatment costs are included in this component. An example of a volume related cost is electricity used for pumping wastewater.  Strength Related Costs: Strength related costs are those costs associated with the additional handling and treatment of high “strength” wastewater. Strength of wastewater is typically measured in biochemical oxygen demand (BOD) and total suspended solids (SS). Increased levels of BOD or SS generally equate to increased treatment costs. Pre- ---PAGE BREAK--- Development of the Sewer Rate Study 49 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Terminology of a Sewer Cost of Service Analysis Functionalization – The arrangement of the cost data by functional category (e.g. treatment, collection etc.). Classification – The assignment of functionalized costs to cost components (e.g. volume, strength, and customer related). Allocation – Allocating the classified costs to each class of service based upon each class’s proportional contribution to that specific cost component. Volume Costs – Costs that are classified as volume related vary with the total flow of sewer (e.g. chemical use at a treatment plant). Strength Costs – Costs classified as strength related refer to the wastewater treatment function. Typically, strength-related costs are further defined as biochemical oxygen demand (BOD) and suspended solids (SS). Different types of customers may have high wastewater strength characteristics and high strength wastewater costs more to treat. Facilities are often designed and sized around meeting these costs. Customer Costs – Costs classified as customer related vary with the number of customers on the system, e.g. billing costs. Direct Assignment – Costs that can be clearly identified as belonging to a specific customer group or group of customers. treatment is generally required if the discharge is known to regularly exceed the typical waste strength.  Customer Related Costs: Customer-related costs vary with the addition or deletion of a customer. Customer related costs typically include the costs of billing, collecting, and accounting. Customer-related costs may also be further categorized as actual or weighted. The differences in these costs are similar to those noted for the water utility.  Revenue Related Costs: Some costs associated with the sewer utility may vary with the amount of revenue received by the utility. An example of a revenue related cost would be a state utility tax which is based on gross utility revenue.  Direct Assignments: Certain costs associated with operating the utility may be directly traced to a specific customer or class of service. These costs are then “directly assigned” to that specific class of service. Development of Allocation Factors Once the classification process is complete, and the customer groups have been defined, the various classified costs were allocated to each customer group. The City’s classified costs were allocated to the various customer groups using the following allocation factors.  Volume Allocation Factor: Volume-related costs are generally allocated on the basis of contribution to wastewater flows. In order to develop this allocation factor, some knowledge of the contribution to flows must be determined. Sewer flows were estimated based on the winter water usage plus I&I of 28% for each class of service for the projected test period, 2010.  Strength Allocation Factor: Strength-related costs are classified between biochemical oxygen demand (BOD) and suspended solids (SS). Both of these types of costs are allocated to the various classes of service based upon the relative estimated that each class of service contributed to the overall flow at the plant. The City’s strength characteristics by class of service were estimated within this study based on estimated values at the City treatment plant.  Customer Allocation Factor: Customer costs within the cost of service study are allocated to the various customer classes of service based upon their respective customer counts. The number of customers, by ---PAGE BREAK--- Development of the Sewer Rate Study 50 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study customer class of service, was developed within the revenue requirement study. Two types of customer allocation factors were developed, actual and weighted. Actual customer costs do not vary by the volume or strength characteristics of the class of service and are based on the actual number of customers for each class of service. A weighting factor was used to develop the weighted customer allocation factor. The weighted customer allocation factor attempts to reflect the disproportionate costs associated with serving larger customers. These customers are assigned a higher per customer cost because they require additional administrative costs and possible monitoring.  Revenue Related Allocation Factor: The revenue related allocation factor was developed from the projected rate revenues for 2010 for each customer group. These same revenues were used within the revenue requirement analysis previously. Given the development of the allocation factors, the final step in the cost of service study is to allocate the classified costs to the various customer classes of service. 4.3.4 Functionalization and Classification of Sewer Plant in Service The next step of the cost of service is the functionalization and classification of sewer plant in service. In performing the functionalization of plant in service, HDR utilized the City’s historical plant records. Once the plant assets were functionalized, the analysis shifted to classification of the asset. The classification process included reviewing each group of assets and determining which cost classifiers the assets were related to. For example, the City’s assets were classified as: volume-related, strength-related, customer-related, revenue-related, or direct assignment. Provided below is a brief discussion of the classification process used. Sewer pump stations are typically 100% volume related. Treatment plant addresses both total flow and strength of wastewater and there was split between volume and strength related. In this study, the treatment plant was classified as 50% volume and 25% strength for both BOD and SS. The collection lines were assumed to be a function of both flow and the number of customers connected to the system (i.e. a network of collection lines). Table 4-4 shows the detail of the classification for the City’s sewer plant in service. A more detailed exhibit of the City’s functionalization and classification of plant investment can be found in Exhibit 9 of Appendix C. Table 4 – 4 Summary of the Classification of Sewer Plant in Service Category Volume Related BOD Strength Related SS Strength Related Customer Related Pumping 100% 0% 0% 0% Treatment 50% 25% 25% 0% Collection 80% 0% 0% 20% 4.3.5 Functionalization and Classification of Operating Expenses Operating expenses are generally functionalized and classified in a manner similar to the corresponding plant account. For example, maintenance of collection lines is typically classified in the same manner (classification percentages) as the plant account for collection lines. This approach to classification of operating expenses was used for this analysis. ---PAGE BREAK--- Development of the Sewer Rate Study 51 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study For the City’s study, the revenue requirement for 2011 were functionalized, classified, and allocated. As noted earlier, the City utilized a cash basis revenue requirement, which was comprised of operation and maintenance expenses, taxes, debt service, and capital additions funded from rates. A more detailed review of the classification of revenue requirement can be found in the Technical Appendix. 4.3.6 Major Assumptions of the Cost of Service Study A number of key assumptions were used within the City’s cost of service study. Below is a brief discussion of the major assumptions used.  The test period used for the sewer cost of service analysis was 2011. The revenue and expense data was previously developed within the revenue requirement study.  A cash basis approach was utilized which conforms to generally accepted sewer cost of service approaches and methodologies.  The classification of plant in service was developed based upon generally accepted cost allocation techniques. Furthermore, they were developed using the City-specific data, when available. When the City-specific data was not available, HDR estimated the classification based upon its experience with previous sewer cost of service studies of a similar nature.  Customer volumes used within this study were provided for each class of service from historical winter usage information provided by the City. 4.3.7 Summary of the Cost of Service Results In summary form, this cost of service analysis began by functionalizing the City’s plant asset records and then the operating expenses. The functionalized plant and expense accounts were then classified into their various cost components. The individual classification totals were then allocated to the various customer groups based upon the appropriate allocation factors. The allocated expenses for each customer group were then aggregated to determine each customer group’s overall revenue responsibility. A summary of the detailed cost responsibility developed for each class of service is shown in Table 4-5. Table 4 - 5 Summary of the 2011 Sewer Cost of Service Analysis ($000s) Class of Service Present Rate Revenues Allocated Costs $ Difference % Difference Residential $4,580 $4,608 ($28) 0.6% Multi-Family 2,303 2,346 (43) 1.9% Commercial 1,974 2,523 (549) 27.8% Total $8,857 $9,477 ($620) 7.0% The allocation of costs attempted to assure the facilities and costs allocated to each customer class reflected their respective benefit. The cost of service results indicated that some costs differences exist between the customer classes of service. A general “rule of ---PAGE BREAK--- Development of the Sewer Rate Study 52 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study thumb” that can be used as a guide when reviewing a cost of service analysis is if a class is within 5% of the overall required adjustment the class is paying its “fair share”. This cost of service analysis is based on one year’s data and customer information, and winter usage may change over time. It may be appropriate to determine whether these findings are consistent over time, and adjust accordingly. 4.3.8 Consultant’s Conclusions and Recommendations As was noted in Table 4-5, differences in cost appear to exist between the various classes of service. However, the vast majority of customers are at or near their cost of service. Given the overall objective of the sewer utility financially standing on its own, it is recommended the overall level of rates be adjusted to collect the revenue requirements over the test period. No cost of service adjustments are proposed at this time. 4.3.9 Summary This section of the report has provided an analysis of the sewer cost of service developed for City of Puyallup. This analysis was prepared using generally accepted cost of service techniques. 4.4 Sewer Rate Design The final step of the comprehensive sewer rate study process is the design of sewer rates to collect the desired levels of revenues, based upon the results of the revenue requirement and cost of service analysis. In reviewing sewer rate designs, consideration is given to the level of the rates and the structure of the rates. 4.4.1 Rate Design Criteria and Considerations Prudent rate administration dictates that several criteria must be considered when setting utility rates. Some of these rate design criteria are listed below:  Rates which are easy to understand from the customer’s perspective  Rates which are easy for the utility to administer  Consideration of the customer’s ability to pay  Continuity, over time, of the rate making philosophy  Policy considerations (encourage conservation, economic development, etc.)  Provide revenue stability from month to month and year to year  Promote efficient allocation of the resource  Equitable and non-discriminatory (cost-based) Many contemporary rate economists and regulatory agencies feel the last consideration, cost- based rates, should be of paramount importance and provide the primary guidance to utilities on rate structure and policy. It is important that the City provide its customers with a proper price signal as to what their consumption or flow is costing. This goal may be approached through rate level and structure. When developing the proposed rate designs, all the above listed criteria were taken into consideration. However, it should be noted that it is difficult, if not impossible, to design a rate that meets all the goals and objectives listed above. For example, it may be difficult to design a rate that takes into consideration the customer’s ability to pay, and one which is cost-based. In designing rates, there are always trade-offs between the goals and objectives. ---PAGE BREAK--- Development of the Sewer Rate Study 53 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 4.4.2 Review of the Overall Rate Adjustments As indicated in the revenue requirement and the cost of service analyses, the priority for the sewer utility was to adjust and transition the overall level of the sewer rates to meet’s financial needs. Therefore, the results of the revenue requirement analysis were the primary basis for establishing the proposed rate adjustments for the sewer utility 4.4.3 Present and Proposed Sewer Rates In developing the proposed rate designs, the City’s existing rate structures were reviewed. For each class of service rates were developed for 2011 thru 2013. Table 4-6 shows the City’s present sewer rate schedule. Table 4 - 6 2010 Present Sewer Rates Present Rate Service Charge Residential $31.38 Multi-Family (Per unit) 23.54 Commercial 31.38 Disability/Low-Income Senior Citizen 13.56 Consumption - $/CCF Residential $4.76 Disability/Low-Income Senior Citizen 4.76 Multi-Family 4.76 Commercial Strength Category I 4.76 Strength Category II 6.26 Strength Category III 7.38 Strength Category III w/Discount 6.72 As can be seen in Table 4-6 the 2010 rate is comprised of a service charge based on class of service. In addition to the service charge there is a consumption charge based on average winter water consumption. All outside City service has a 150% rate differential for their rates. Table 4-7 presents the rates developed for each customer class for the years 2011 through 2013. These rates keep the same rate structure for the classes of service with the proposed annual rate adjustments across all classes of service. ---PAGE BREAK--- Development of the Sewer Rate Study 54 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study A typical residential customer uses approximately 16 ccf Under the 2010 rates, this customer would pay service and consumption charges for a total of $107.54. Under the proposed 2011 rates, the same customer using 16 ccf would pay $115.07 or a difference. 4.4.4 Summary of the Sewer Rate Study This completes the analysis for the City’s sewer utility. It is recommended that rates be increased by 7.0%, 7.0% and 6.7% in 2011, 2012 and 2013 respectively. 4.5 Summary of the Sewer Rate Study This completes the analysis for the City’s sewer utility. The rate adjustments and corresponding rate designs have been presented to the City Council. At the time of printing, the rates were not adopted by Council. Table 4 - 7 Proposed Sewer Rates Proposed 2011 Proposed 2012 Proposed 2013 Service Charge Residential $33.58 $35.93 $38.33 Multi-Family (Per unit) 25.19 26.95 28.76 Commercial 33.58 35.93 38.33 Disability/Low-Income Senior Citizen 14.51 15.52 16.57 Consumption - $/CCF Residential $5.09 $5.45 $5.81 Disability/Low-Income Senior Citizen 5.09 5.45 5.81 Multi-Family 5.09 5.45 5.81 Commercial Strength Category I 5.09 5.45 5.81 Strength Category II 6.70 7.17 7.65 Strength Category III 7.90 8.45 9.02 Strength Category III w/Discount 7.19 7.69 8.21 ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 55 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study . . the revenue requirement as developed herein assume the full and proper funding needed to operate and maintain the system on a financially sound and prudent basis.” 5.1 Introduction This comprehensive storm and surface water rate study determines the adequacy of the existing storm and surface water rates and provides the basis for adjustments to cost-based rates. This section describes the methodology, findings, and conclusions of the storm and surface water rate study process. 5.2 Determining the Storm and Surface Water Utility Revenue Requirements In developing the storm & surface water revenue requirement, it was assumed the utility must financially “stand on its own” and be properly funded. As a result, the storm and surface water revenue requirement as developed herein assumes the full and proper funding needed to operate and maintain the system on a financially sound and prudent basis. Provided below is a detailed discussion of the development of the revenue requirement analysis for the City’s storm and surface water utility. 5.2.1 Establishing a Time Frame and Approach The first step in calculating the revenue requirement for the storm & surface water utility was to establish a time frame for the revenue requirement analysis. For this study, the revenue requirement was developed for a seven-year projected time period (2010 – 2016). This time period aligns with the review period of the City’s other utilities. Reviewing a multi-year time period is generally recommended in an attempt to identify any major expenses that may be on the horizon. By anticipating future financial requirements, the City can begin planning for these changes sooner, thereby minimizing short-term rate impacts and overall long-term rates. The second step in determining the revenue requirement for the City was to decide on the basis of accumulating costs. For the City’s revenue requirement, a cash basis approach was utilized. The cash basis approach is the most commonly used methodology by municipal utilities to set their revenue requirement. Section 2 of this report provided a simple overview of the cash basis methodology. The actual revenue requirement developed for the City was customized to follow the City’s system of accounts (budget documents). In general, the City’s revenue requirement contains the four basic cost components of a cash basis methodology. Table 5-1 provides a summary of the cash basis approach used to develop the City’s storm & surface water revenue requirement. Section 5 – Development of the Storm and Surface Water Rate Study ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 56 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study $1,092 $435 $2,101 Projected 2011 Rate Revenues By Customer Type ($000) Residential Multi-Family Commercial $1,092 $435 $2,101 Projected 2011 Rate Revenues By Customer Type ($000) Residential Multi-Family Commercial Table 5 - 1 Overview of the Storm and Surface Water Utility Cash Basis Revenue Requirements + Storm & surface water operation and maintenance exp.  Collection/Transmission  Storm Street Cleaning  New NPDES Regulations  General Fund Administration + Net capital projects funded from rates(a) + Debt service (P + I) existing and future  Change in working capital = Total Storm & Surface Water Revenue Requirement Net capital projects funded from rates + Total storm & surface water capital improvement projects  Funding sources other than rates  System development charges  Grants  Capital Reserves  Long term debt issues = Net Capital Improve. Funded From Rates Given a time period around which to develop the revenue requirement and a method to accumulate the appropriate costs, the focus then shifts to the development and projection of the revenues and expenses of the storm and surface water utility. The primary financial inputs in this process were the City’s historical billing records, operating budget, and current capital improvement plan. Presented below is a detailed discussion of the steps and key assumptions contained in the development of the projections of the City’s revenues and expenses. 5.2.2 Projecting Storm and Surface Water Rate and Other Miscellaneous Revenues The first step in developing the revenue requirement was to develop a projection of rate revenues, at present rate levels. In general, this process involved developing projected billing units for each customer group. The billing units for each customer group were then multiplied by the applicable current storm and surface water rates. This method of independently calculating revenues assures the projected revenues used within the analysis tie to the projected billing units. The projected billing units by class of service were based on historical billing records. The vast majority of the City’s rate revenues are derived from commercial customers. Currently, the City has three major classes of service: residential, multi-residential and commercial. In total, at present rates, the City is projected to receive approximately $3.5 million in rate revenue in 2010. Over the planning horizon of this study, customer growth is ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 57 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study $2,956 $405 $395 $300 ($200) 2011 Expenses ($000) O&M Expenses Taxes Net Debt Service Capital Funded From Rates Change in Working Capital $2,956 $405 $395 $300 ($200) 2011 Expenses ($000) O&M Expenses Taxes Net Debt Service Capital Funded From Rates Change in Working Capital expected to be 0.5 percent per year for 2010 and 2011 and 1.0 percent for the remaining years resulting in total rate revenues of approximately $3.8 million in 2016. In addition to rate revenues, the City also receives a variety of miscellaneous revenues which includes interest on investments, and other miscellaneous revenues. The utility is projected to receive approximately $91,000 in miscellaneous revenues in 2010. Miscellaneous revenues are expected to decrease due the decline in investment interest income to $18,000 in 2016. On a combined basis, taking into account the rate revenues along with miscellaneous revenues, the City’s total projected revenues are expected to be approximately $3.6 million in 2010, increasing to $3.8 in 2016. 5.2.3 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the City to operate and maintain the existing plant in service. The costs incurred in this area are expensed during the current year and are not capitalized or depreciated. In general, operation and maintenance expenses are grouped into a number of different functional categories (see Table 5-1). To begin the process of projecting O&M expenses over the planning horizon, escalation factors were developed. Escalation factors were developed for the basic types of expenses the City incurs: labor, benefits, materials and supplies, utilities, insurance, and miscellaneous expenses. The same escalation factors applied to the water and sewer utilities were used for the storm and surface water utility, with medical benefits assumed to be between six and seven percent per year and other escalation factors ranging from two to three percent per year, depending on the type of cost and recent inflationary trends. To project future O&M expenses, the first step was to determine the functional categories for purposes of projecting costs. HDR reviewed the City’s 2010 budget and determined it contained sufficient detail to develop the revenue requirement analysis. Therefore, in developing this analysis, HDR maintained the overall functional nature of the City’s system of accounts payroll, supplies, etc.). Given the functionalized 2010 O&M expenses, HDR then escalated the O&M expenses based on the previously mentioned escalation factors. Total operation and maintenance expenses for the City are projected to be approximately $2.9 million in 2011. O&M expenses are projected to increase to approximately $3.5 million by 2016 primarily as a result of assumed inflation over the time period. No extraordinary O&M expenses were assumed during the planning period. 5.2.4 Projecting Taxes/Transfer Payments At the present time, the storm and surface water utility pays State taxes of 1.8% of revenues. In addition, the storm and surface water utility pays 8% of revenues in City utility taxes. Total ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 58 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study taxes for the City are projected to be approximately $414,000 in 2010. Tax expenses are projected to increase to approximately $425,000 by 2016. 5.2.5 Projecting Capital Improvement Projects Funded From Rate Revenues The City’s storm and surface water utility has many capital improvement projects and capital expenses planned over the study’s time horizon. In total, there is approximately $12.2 million in projected capital projects. Funding for these improvements is anticipated to be $2.8 million in revenue bonds, $1.7 million in reserves and $4.5 million in rates. A detailed summary of the capital projects is shown in Appendix D. Table 5 - 2 Summary of the Storm and Surface Water Capital Improvement Plan ($000s) 2010 2011 2012 2013 2014 2015 2016 Capital Projects System Improvements $200 $200 $170 $170 $200 $200 $250 Basin Plan Update 0 150 0 0 0 947 0 12th Ave SW Regional Facility 0 700 0 0 0 0 0 E Main Deer Creek 0 60 0 0 0 0 0 Army Corp Eng. GI Study 0 30 30 30 0 0 0 NE Street Improvement 0 0 179 0 0 157 0 Flow Calibrations 0 0 237 0 0 0 0 9th St SW 0 0 0 835 0 947 0 21st St Deer Creek Crossing 0 0 0 310 0 12 0 Tacoma Road Improv. 0 0 0 470 0 0 8th Ave Low Retrofit 0 0 0 0 483 0 0 East Main Sidewalk 0 0 0 0 0 346 0 11th St NW 0 0 0 0 0 1,054 0 39th Ave SE Regional Detent. 0 0 0 0 0 3,000 0 Bradley Lake/Puyallup Downs 0 0 0 0 0 0 255 NPDES Management 35 0 0 0 0 0 0 NPDES Pond Retrofit 100 0 0 0 0 0 0 Future Unidentified Projects 0 0 515 305 217 800 723 Total Capital Outlays $335 $1,140 $1,131 $1,650 $1,370 $5,400 $1,228 Less: Outside Funding Sources From SDC $23 $770 $252 $15 $0 $1,295 $128 From Reserves 312 70 0 0 0 1,705 0 New Debt 0 0 179 835 470 1,400 0 Total Outside Funding Sources $335 $840 $431 $850 $470 $4,400 $128 Rate Funded Capital $0 $300 $700 $800 $900 $1,000 $1,100 There are a number of different methods which may be used to fund the capital plan. Among the methods that may be used to finance these capital improvement projects are long-term debt, system development charges, capital reserves, and rates. A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates. Annual depreciation expense reflects the current investment in plant being depreciated or “losing” its useful life. Therefore, this portion of plant investment needs to be replaced to maintain the existing level of infrastructure. It must be kept in mind that, in theory, annual depreciation expense reflects an investment in infrastructure an average of 30 years ago, assuming a 60-year useful, ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 59 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation through rates.” depreciable, life. Simply funding an amount equal to annual depreciation expense will not be sufficient to replace the existing or depreciated facility. Therefore, consideration should be given to funding within rates some amount greater than annual depreciation expense for renewals and replacements. Whenever possible, the City should be funding capital projects from rates in an amount greater than annual depreciation expense. As with the water and sewer utilities, HDR developed 3 optional guidelines for funding storm and surface water renewal and replacement capital projects from rates. These included:  Replacement cost  Annual depreciation expense  2% of original cost In prior years, the City had a goal of funding 2% of original cost as a measure of funding renewals and replacements from rates, similar to the minimum annual depreciation guidelines. Using the City’s existing asset inventory listing, HDR developed an order of magnitude replacement cost for the utility system assets. Planned capital improvements are added into the total for each funding approach each year to determine the total funding needed under each capital funding method. Total replacement cost was more than two times annual depreciation expense. Annual depreciation expense was just lower than the 2% of original cost method. The utility was funding no capital from rates in 2010. A gradual plan was developed to fund roughly $200,000 more than depreciation expense by 2016. Details of this analysis can be found at the bottom of Exhibit 4 in Appendix D. Of the total capital plan to be funded, the City is projected to fund approximately $2.8 million from revenue bonds and the remaining will be funded from reserves and rates. 5.2.6 Projecting Debt Service The final component of the storm and surface water utility’s revenue requirement is debt service. At the present time, the utility has three outstanding debt obligations. Additional bonds are also assumed to be issued during the time period. The total annual payment for debt is estimated to be $587,000 in 2016. Generally, revenue bonds contain rate covenants requiring rates to be set at an adequate level to assure meeting a specified minimum debt service coverage ratio (DSC). This is a financial measure of the utility’s ability to repay the debt. In general the DSC is set at a level such that revenues less operating expenses will be 1.30 times greater than the maximum annual debt service on the outstanding debt. Given a minimum DSC, it is often prudent to plan or set rates at a level which exceeds this minimum. This guarantees meeting the minimum DSC, and at the same time, provides a slight cushion for unexpected changes. This also strengthens the ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 60 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study City’s ability to issue revenue bonds in the future, if necessary, since bond rating agencies would review the City’s past financial strength and ability to repay the bonds.3 On a stand-alone basis the utility does not meet the 1.25 target unless rate adjustments are made. When system development charge revenue is included in the calculation of the DSC the City meets the 1.25 debt service target until the last two years of the review period. This clearly indicates the need to adjust the storm and surface water rates. 5.2.7 Summary of the Revenue Requirements Given the above projections of revenues and expenses, a summary of the revenue requirement for the City’s storm and surface water utility can be developed. In developing the final revenue requirement, consideration was given to the financial planning considerations of the City. In particular, emphasis was placed on attempting to minimize rates, yet still have adequate funds to support the operational activities, capital projects and debt obligations of the utility throughout the projected time period. Presented in Table 5-3 is a summary of the storm and surface water revenue requirement. Detailed analysis can be found in Appendix D. Table 5 - 3 Summary of Storm and Surface Water Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Rate Revenue $3,600 $3,628 $3,665 $3,701 $3,738 $3,776 $3,813 Misc. Revenue 91 17 61 56 76 72 19 Total Revenue $3,691 $3,645 $3,726 $3,757 $3,814 $3,848 $3,832 Expenses O&M Expenses $2,999 $2,956 $3,053 $3,175 $3,298 $3,427 $3,560 Taxes 414 405 409 413 404 408 412 Net Debt Service 299 395 261 332 370 481 482 Rate Funded Capital 0 300 700 800 900 1,000 1,100 Working Capital 0 (200) (260) (230) (115) (70) (70) Total Expenses $3,812 $3,856 $4,163 $4,490 $4,857 $5,246 $5,484 Bal./(Defic.) Before Tax ($121) ($211) ($437) ($733) ($1,043) ($1,398) ($1,652) Addt’l Taxes w/Rate Adjust. ($12) ($21) ($44) ($71) ($199) ($133) ($157) Net Bal./(Defic.) of Funds ($133) ($232) ($481) ($804) ($1,142) ($1,531) ($1,809) Defic. as a % of Rates 3.7% 6.4% 13.1% 21.7% 30.6% 40.6% 47.4% Proposed Rate Adjustment 0.0% 6.0% 6.5% 7.5% 7.5% 7.5% 5.0% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 0.56 0.57 0.73 0.39 0.24 0.02 (0.24) After Rate Adjustment 0.56 1.01 2.03 2.21 2.64 2.61 2.83 It is important to note the annual deficiencies in Table 5-3 are cumulative. That is, any adjustment in the initial years will reduce the needed deficiency in the following years. The results of the revenue requirement analysis indicate a deficiency of funds over the planning period (2010 - 2016). The deficiency ranges from approximately $133,000 in 2010 to $1.8 million in 2016, or a cumulative deficiency in 2016 of 47.4%. It should be noted that 3 While this study has reviewed the sewer utility on a “stand alone” basis, for purposes of issuance of debt and calculating debt service coverage, the financial strength of all utilities would be considered. ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 61 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “Following the generally- accepted guidelines and principles of a cost of service analysis will inherently lead to rates which are equitable, cost-based, and not viewed as arbitrary or capricious in nature.” at the present time the rate revenues for this utility is just barely covering the O&M and taxes of the utility. Debt service is not fully funded from the rates of the utility, hence the debt service coverage that is less than 1.00. In addition, similar to the other utilities, these adjustments are driven, in part, by the need to adequately fund from rates an amount for the renewal and replacement of existing facilities. At the present time, there is no funding and under this financial plan, the City would move to an approach with adequate rate funding for the renewal and replacement of existing storm and surface water infrastructure. 5.2.8 Review of the Reserve Levels Reserves are an important part of a utility’s financial picture. There can be many different purposes for reserves. The City currently has three reserve funds: operating, capital and system development charge reserves. It is important for the City to set a minimum on the reserve funds. When the balance of funds reaches the minimum level, it is a signal for action on the City’s part. For the operating reserve fund the City has set a minimum balance of 60 days of operation and maintenance expenses. For the storm and surface water system this would imply approximately $493,000 in 2010, increasing to $585,000 in 2016. The operating reserve target is met or close throughout the test period. 5.2.9 Consultant’s Conclusions for Storm and Surface Water Revenue Requirement Based upon the revenue requirement analysis developed, HDR recommends the City increase the overall revenue levels of the storm and surface water utility based on the proposed rate adjustments shown in Table 5-3. The first adjustment would be in 2011 for 6.0%, followed by 6.5% in 2012 and 7.5% in 2013. The anticipated adjustments would move the City closer to fully supporting the current level of operations and capital needs for the storm and surface water utility. 5.2.10 Summary This section of the report has provided a discussion of the City’s revenue requirement analysis. The revenue requirement analysis developed a financial plan to support the City’s operating and capital infrastructure requirements for the storm and surface water utility. The next section will discuss the storm and surface water cost of service analysis developed for the City. 5.3 Storm and Surface Water Cost of Service Analysis In the previous section, the revenue requirement analysis focused on the total sources and application of funds required to adequately fund the City’s storm and surface water utility. This section will discuss the development of the cost of service analysis. A cost of service analysis is concerned with the equitable allocation of the total revenue requirement between the various customer classes of service residential, commercial, etc.). The previously developed revenue requirement was utilized in the development of the cost of service analysis. In recent years, increasing emphasis has been placed on cost of service studies by government agencies, customers, utility regulatory commissions, and other parties. This interest has been generated in part by continued inflationary trends, increased operating and capital expenditures, and concerns of equity in rates ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 62 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study “A cost of service study utilizes a three-step approach to review costs. These take the form of functionalization, classification, and allocation.” among customers. Following the generally-accepted guidelines and principles of a cost of service analysis will inherently lead to rates which are equitable, cost-based, and not viewed as arbitrary or capricious in nature. 5.3.1 Objectives of a Cost of Service Study There are two primary objectives in conducting a cost of service study:  Allocate the revenue requirement among the customer classes of service  Derive average unit costs for subsequent rate designs The objectives of the storm and surface water cost of service analysis are different from determining revenue requirement. As noted in the previous section, a revenue requirement analysis determines the utility’s overall financial needs, while the cost of service study determines the fair and equitable manner to collect the revenue requirement. The second rationale for conducting a cost of service analysis is to ensure a rate is designed such that it properly reflects the costs incurred by the City. For example, a storm and surface water utility incurs costs related to flow run-off (volume) and customer-related cost components. A storm and surface water utility must build sufficient infrastructure to meet run- off or volume needs. Therefore, volume or run-off related costs should be equitably or proportionally assigned to customers based upon their estimated proportional share of the contribution to run-off volumes. Each of these types of costs may be collected in a different manner as to allow for the development of rates that collect costs in the same manner as they are incurred. 5.3.2 Determining the Customer Classes of Service The first step in a cost of service study is to determine the customer classes of service. Currently, the City has a separate rate schedule for each individual class of service. Also included in the rate is an outside city rate differential of 1.5 times the inside City rate. Based on the current rate schedules the classes of service used within the storm and surface water study are:  Residential  Multi-family  Commercial In determining classes of service for cost of service purposes, the objective is to group customers together into similar or homogeneous groups based upon facility requirement and/or flow characteristics. 5.3.3 General Cost of Service Procedures In order to determine the cost to serve each customer class of service on the City’s system, a cost of service analysis is conducted. A cost of service study utilizes a three-step approach to review costs. These were previously discussed in our generic discussion in Section 2, and take the form of functionalization, classification, and allocation. Provided below is a detailed discussion of the storm and surface water cost of service study conducted for the City, and the specific steps taken within the analysis. ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 63 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study Terminology of a Storm and Surface Water Cost of Service Analysis Functionalization – The arrangement of the cost data by functional category (e.g. pumps, conveyance, etc.). Classification – The assignment of functionalized costs to cost components (e.g. volume (run-off) and customer related). Allocation – Allocating the classified costs to each class of service based upon each class’s proportional contribution to that specific cost component. Volume Costs – Costs that are classified as volume related are related to total run-off of a property. The impervious area of a property is related to the amount of run-off or volume. Customer Costs – Costs classified as customer related vary with the number of customers on the system, e.g. billing costs. Direct Assignment – Costs that can be clearly identified as belonging to a specific customer group or group of customers. Customer Classes of Service The grouping of customers into similar groups based upon flow characteristics and/or facility requirements. Functionalization of Costs The first analytical step in the cost of service process is called functionalization. Functionalization is the arrangement of expenses and asset (plant) data by major operating functions within each utility. For example, pumping, treatment, collection, etc. Within this study, the functionalization of the cost data was largely accomplished through the City’s system of accounts. Classification of Costs The second analytical task performed in a storm and surface water cost of service study is the classification of the costs. Classification determines why the expenses were incurred or what type of need is being met. The City’s plant accounts and revenue requirement were reviewed and classified using the following cost classifiers:  Volume (Run-Off) Related Costs: Volume or run-off costs are those costs which tend to vary with the total quantity of impervious area by a customer. Impervious area of a property directly relates to the amount of run-off from that property.  Customer Related Costs: Customer costs are those costs which vary with the number of customers on the storm and surface water system. They do not vary with system output or volume levels.  Revenue Related Costs: Some costs associated with the storm and surface water utility may vary with the amount of revenue received by the utility. An example of a revenue related cost would be a state utility tax which is based on gross utility revenue.  Direct Assignments: Certain costs associated with operating the utility may be directly traced to a specific customer or class of service. These costs are then “directly assigned” to that specific class of service. Development of Allocation of Factors Once the classification process is complete, and the customer groups have been defined, the various classified costs were allocated to each customer group. The City’s classified costs were allocated to the various customer groups using the following allocation factors.  Volume (Run-Off) Allocation Factor: Volume or run-off- related costs are generally allocated on the basis of contribution flows. Equivalent residential units (ERUs) form the basis for the equitable allocation of costs on an impervious surface basis. Residential customers were considered to be one ERU. ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 64 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study  Customer Allocation Factor: Customer costs within the cost of service study are allocated to the various customer classes of service based upon their respective customer counts. The number of customers, by customer class of service, was developed within the revenue requirement study. Two types of customer allocation factors were developed, actual and weighted. Actual customer costs do not vary by the volume or customer characteristics of the class of service and are based on the actual number of customers for each class of service. A weighting factor was used to develop the weighted customer allocation factor. The weighted customer allocation factor attempts to reflect the disproportionate costs associated with serving or billing larger customers. These customers are assigned a higher per customer cost because they require additional administrative costs and possible monitoring.  Revenue Related Allocation Factor: The revenue related allocation factor was developed from the projected rate revenues for 2011 for each customer group. These same revenues were used within the revenue requirement analysis previously. Given the development of the allocation factors, the final step in the cost of service study is to allocate the classified costs to the various customer classes of service. 5.3.4 Functionalization and Classification of Storm and Surface Water Plant in Service The next step of the cost of service is the functionalization and classification of the storm and surface water plant in service. In performing the functionalization of plant in service, HDR utilized the City’s historical plant records. Once the plant assets were functionalized, the analysis shifted to classification of the asset. The classification process included reviewing each group of assets and determining which cost classifiers the assets were related to. For example, the City’s assets were classified as: volume-related, customer-related, revenue- related, or direct assignment. As can be seen in Table 5-4, volume or run-off is the primary method of classifying costs related to the storm and surface water plant in service. Table 5 - 4 Summary of the Classification of Storm and Surface Water Plant in Service Category Volume Related Customer Related Revenue Related Direct Assignment Pump Stations 100% 0% 0% 0% Storm Pipes 100% 0% 0% 0% Ponds 100% 0% 0% 0% 5.3.5 Functionalization and Classification of Operating Expenses Operating expenses are generally functionalized and classified in a manner similar to the corresponding plant account. For example, repair and maintenance expenses are typically classified in the same manner (classification percentages) as the plant account for repair of plant assets. This approach to classification of operating expenses was used for this analysis. For the City’s study, the revenue requirement for 2011 was functionalized, classified, and allocated. A more detailed review of the classification of revenue requirement can be found in the Technical Appendix D. ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 65 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 5.3.6 Major Assumptions of the Cost of Service Study A number of key assumptions were used within the City’s cost of service study. Below is a brief discussion of the major assumptions used.  The test period used for the storm and surface water cost of service analysis was 2011. The revenue and expense data was previously developed within the revenue requirement study.  A cash basis approach was utilized which conforms to generally accepted storm and surface water cost of service approaches and methodologies.  The classification of plant in service was developed based upon generally accepted cost allocation techniques. Furthermore, they were developed using the City specific data, when available. When the City specific data was not available, HDR estimated the classification based upon its experience with previous storm and surface water cost of service studies of a similar nature. 5.3.7 Summary of the Cost of Service Results In summary form, this cost of service analysis began by functionalizing the City’s plant asset records and then the operating expenses. The functionalized plant and expense accounts were then classified into their various cost components. The individual classification totals were then allocated to the various customer groups based upon the appropriate allocation factors. The allocated expenses for each customer group were then aggregated to determine each customer group’s overall revenue responsibility. A summary of the detailed cost responsibility developed for each class of service is shown in Table 5-5. Table 5 - 5 Summary of the Storm and Surface Water 2011 Cost of Service Analysis ($000s) Class of Service Present Rate Revenues Allocated Costs $ Difference % Difference Residential $1,092 $1,254 ($162) 14.8% Multi-Family 435 442 1.4% Commercial 2,101 2,164 (63) 3.0% Total $3,628 $3,860 ($232) 6.4% The allocation of costs attempted to assure the facilities and costs allocated to each customer class reflected their respective benefit. The cost of service results indicated that there appear to be differences between the customer classes of service. A general “rule of thumb” that can be used as a guide when reviewing a cost of service analysis is if a class is within 5% of the overall required adjustment the class is paying its “fair share”. ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 66 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 5.3.8 Consultant’s Conclusions and Recommendations As was noted in Table 5-5, differences in cost do appear to exist between the various classes of service. The overall objective for the storm and surface water utility is to financially stand on its own, it is recommended the overall level of rates be adjusted to collect the revenue requirements over the test period. No cost of service adjustments will be made at this time. 5.3.9 Summary This section of the report has provided an analysis of the cost of service developed for City of Puyallup. This analysis was prepared using generally accepted cost of service techniques. 5.4 Storm and Surface Water Rate Design The final step of the comprehensive storm and surface water rate study process is the design of storm and surface water rates to collect the desired levels of revenues, based upon the results of the revenue requirement and cost of service analysis. In reviewing storm and surface water rate designs, consideration is given to the level of the rates and the structure of the rates. 5.4.1 Rate Design Criteria and Considerations Prudent rate administration dictates that several criteria must be considered when setting utility rates. Some of these rate design criteria are listed below:  Rates which are easy to understand from the customer’s perspective  Rates which are easy for the utility to administer  Consideration of the customer’s ability to pay  Continuity, over time, of the rate making philosophy  Policy considerations (development, on-site vs. regional incentives, etc.)  Provide revenue stability from month to month and year to year  Equitable and non-discriminatory (cost-based) Many contemporary rate economists and regulatory agencies feel the last consideration, cost- based rates, should be of paramount importance and provide the primary guidance to utilities on rate structure and policy. When developing the proposed rate designs, all the above listed criteria were taken into consideration. However, it should be noted that it is difficult, if not impossible, to design a rate that meets all the goals and objectives listed above. For example, it may be difficult to design a rate that takes into consideration the customer’s ability to pay, and one which is cost-based. In designing rates, there are always trade-offs between the goals and objectives. 5.4.2 Review of the Overall Rate Adjustments As indicated in the revenue requirement and the cost of service analyses, the priority for the storm and surface water utility was to adjust and transition the overall level of the storm and surface water rates to meet’s financial needs. Therefore, the results of the revenue requirement analysis were the primary basis for establishing the proposed rate adjustments for the storm and surface water utility. In addition, since no cost of service adjustments were recommended at this time the proposed rate adjustments will be applied equally among each of the customer classes of service. ---PAGE BREAK--- Development of the Storm & Surface Water Rate Study 67 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 5.4.3 Present and Proposed Storm and Surface Water Rates In developing the proposed rate designs, the City’s existing rate structures were. For each class of service rates were developed for 2011 thru 2013. Table 5-6 shows the City’s present storm and surface water rate schedule. Table 5 - 6 2010 Storm and Surface Water Rates ($/ERU) Present Rate Service Charge Residential $20.89 Disability/Senior 7.41 Multi-Family 20.89 Commercial 20.89 As can be seen in Table 5-6 the 2010 rate is comprised of a base charge based on type of class of service. This rate is based on the impervious area of an average equivalent residential unit (ERU). Each customer is charged based on the number of ERU’s in their property. Residential customers are charged one ERU. Table 5-7 presents the rates developed for each customer class for the years 2011 through 2013. These rates keep the same rate structure for the classes of service. A typical residential customer would pay $20.89 Under the proposed 2011 rates, the same customer would pay $22.14 or a increase. 5.4.4 Summary of the Storm and Surface Water Rate Study This completes the analysis for the City’s storm and surface water utility. It is recommended that rates be increased by the proposed rates for 2011, 2012 and 2013. These rates have been presented to the City Council but have not yet been adopted. 5.5 Summary of the Storm and Surface Water Rate Study This completes the analysis for the City’s storm and surface water utility. The City proposed rate adjustments of 6.0%, 6.5%, and 7.5% for 2011 thru 2013 to meet operating and capital expenses. The City Council reviewed the rates presented but did not approve the rates at this time. Table 5 - 7 Proposed Storm and Surface Water Rates ($/ERU) Proposed 2011 Proposed 2012 Proposed 2013 Service Charge Residential $22.14 $23.58 $25.35 Disability/Senior 7.85 8.37 8.99 Multi-Family 22.14 23.58 25.35 Commercial 22.14 23.58 25.35 ---PAGE BREAK--- Development of the Sanitation Utility Rate Study 68 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study . . the revenue requirement as developed herein assume the full and proper funding needed to operate and maintain the system on a financially sound and prudent basis.” 6.1 Introduction This section describes the development of the sanitation (landfill) rate study for the City. A revenue requirement analysis was completed. From this analysis, a determination can be made as to the overall level of sanitation rate adjustment needed to provide adequate and prudent funding for operating needs. 6.2 Determining the Sanitation Utility Revenue Requirements In developing the sanitation revenue requirement, it was assumed the utility must financially “stand on its own” and be properly funded. As a result, the revenue requirement as developed herein assumes the full and proper funding needed to operate and maintain the system on a financially sound and prudent basis. Provided below is a detailed discussion of the development of the revenue requirement analysis for the City’s sanitation utility. 6.2.1 Establishing a Time Frame and Approach The first step in calculating the revenue requirement for the sanitation utility was to establish a time frame for the revenue requirement analysis. For this study, the revenue requirement was developed for a seven-year projected time period (2010 – 2016). Reviewing a multi-year time period is generally recommended in an attempt to identify any major expenses that may be on the horizon. By anticipating future financial requirements, the City can begin planning for these changes sooner, thereby minimizing short-term rate impacts and overall long-term rates. The second step in determining the revenue requirement for the City was to decide on the basis of accumulating costs. For the City’s revenue requirement, a cash basis approach was utilized. The cash basis approach is the most commonly used methodology by municipal utilities to set their revenue requirement. Section 2 of this report provided a simple overview of the cash basis methodology. The actual revenue requirement developed for the City was customized to follow the City’s system of accounts (budget documents). However, in general, even with these modifications, the City’s revenue requirement still contains the four basic cost components of a cash basis methodology. The same methodology used for the other utilities was followed for the sanitation utility in development of the revenue requirements. Given a time period around which to develop the revenue requirement and a method to accumulate the appropriate costs, the focus then shifts to the development and projection of the revenues and expenses of the sanitation utility. Section 6 – Development of the Sanitation Utility Rate Study ---PAGE BREAK--- Development of the Sanitation Utility Rate Study 69 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study The primary financial inputs in this process were the City’s historical billing records and operating budget. The City does not have a capital improvement plan for the landfill utility. Presented below is a detailed discussion of the steps and key assumptions contained in the development of the projections of the utility’s revenues and expenses. 6.2.2 Projecting Sanitation Rate and Other Miscellaneous Revenues The first step in developing the sanitation revenue requirement was to develop a projection of rate revenues, at present rate levels. In general, this process involved developing projected billing units for each customer group. The billing units for each customer group were then multiplied by the applicable current rates. This method of independently calculating revenues assures the projected revenues used within the analysis tie to the projected billing units. The projected billing units by class of service were based on historical billing records. The vast majority of the utility’s rate revenues are derived from residential customers. Currently, the City has four major classes of service: residential, senior, multi-residential and commercial. The sanitation utility is relatively small and, in total and at present rates, the City is projected to receive approximately $148,000 in rate revenue in 2010. Over the planning horizon of this study, customer growth is expected to be 0.5 percent per year in 2010 and 2011. A 1.0 percent growth is expected thereafter resulting in total rate revenues of approximately $156,000 in 2016. In addition to rate revenue, the utility also typically may have a minor amount of miscellaneous revenues. Currently, investment interest, and other miscellaneous revenues for the utility are zero. However, the utility is projected to receive approximately $610,000 in miscellaneous revenues in 2010 for an interfund loan to cover legal expenses for litigation. This loan creates a debt payment in future years as described below. On a combined basis, taking into account the rate revenues along with the interfund loan revenues, the sanitation utility’s total projected revenues are expected to be approximately $758,000 in 2010 and $156,000 in 2016. 6.2.3 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the City primarily to follow closure requirements for the landfill. The same escalation factors developed for the other utilities were applied in the development of the revenue requirement analysis. Given the functionalized 2010 O&M expenses, HDR then escalated the O&M expenses based on the previously mentioned escalation factors. Total operation and maintenance expenses for the utility are projected to average $175,000 per year in the latter years of the review period, but be approximately $705,000 in 2010 and are projected to be $460,000 in 2011. These increased costs in 2010 and 2011 are due to legal services provided to the utility to settle litigation against the utility. 6.2.4 Projecting Debt Service The final component of the utility’s revenue requirement is debt service. At the present time, the City has outstanding debt obligations for other internal loans. The total annual payment for debt is $32,000 in 2010 and increases to $157,000 in 2016. Increased debt was projected for the new interfund loans and an estimated settlement cost. ---PAGE BREAK--- Development of the Sanitation Utility Rate Study 70 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 6.2.5 Summary of the Revenue Requirements Given the above projections of revenues and expenses, a summary of the revenue requirement for the City’s sanitation utility can be developed. In developing the final revenue requirement, consideration was given to the financial planning considerations of the City. Presented in Table 6-1 is a summary of the sanitation utility revenue requirement. Detailed analysis can be found in Technical Appendix E. Table 6 - 1 Summary of Sanitation Utility Revenue Requirements ($000s) 2010 2011 2012 2013 2014 2015 2016 Revenue Retail Rate Revenue $148 $149 $150 $152 $153 $155 $156 Misc. Revenue 610 300 0 0 0 0 0 Total Revenue $758 $449 $150 $152 $153 $155 $156 Expenses O&M Expenses $705 $461 $163 $169 $175 $181 $188 Transfers (85) 0 0 0 0 0 0 Debt Service 32 128 165 163 161 159 157 Working Capital 105 40 3 0 8 7 6 Total Expenses $757 $629 $331 $332 $344 $347 $351 Bal./(Defic.) of Funds $1 ($180) ($181) ($180) ($191) ($192) ($195) Defic. as a % of Rates -0.6% 121.3% 119.8% 118.4% 124.2% 124.2% 124.4% Proposed Rate Adjustment 0.0% 120.0% 0.0% 0.0% 2.0% 0.0% 0.0% Debt Service Coverage Ratio (All debt) Before Rate Adjustment 1.65 0.00 0.00 0.00 0.00 0.00 0.00 After Rate Adjustment 1.65 1.30 1.02 1.01 1.05 1.05 1.04 It is important to note the annual deficiencies in Table 6-1 are cumulative. That is, any adjustment in the initial years will reduce the needed deficiency in the following years. The results of the revenue requirement analysis indicate a deficiency of funds over the planning period (2010 - 2016). The cumulative deficiency in 2016 is 124.4%. These deficiencies are driven by the litigation and the additional long-term debt service related to the repayment of the interfund loan. While this level of adjustment appears to be very large, on a basis, it is relatively small. The current rate is only $1.25/bi-month. Another indication of a strong financial status is the debt service coverage ratios (DSC). In this case, the DSC has been calculated, but it is not particularly relevant since the debt is primarily related to an interfund loan. However, the DSC calculation does indicate that without a rate adjustment the debt service payments cannot be made, and even with the adjustment to rates, the revenue generated will just cover the debt service payment. 6.2.6 Review of the Reserve Levels Reserves are an important part of a utility’s financial picture. There can be many different purposes for reserves. The City currently has an operating reserve. For this reserve the City has set a minimum balance of 60 days of operation and maintenance expenses. For the sanitation system this would imply approximately $116,000 in 2010 and $31,000 in 2016. The operating reserves during the projected time period are held at the minimum required balance by 2016. ---PAGE BREAK--- Development of the Sanitation Utility Rate Study 71 City of Puyallup – Water, Sewer, Storm & Surface Water, and Sanitation Rate Study 6.2.7 Consultant’s Conclusions for Sanitation Revenue Requirement Based upon the revenue requirement analysis developed, HDR recommends the City increase the overall revenue levels of the sanitation utility based on the proposed rate adjustments shown in Table 6-1. The first adjustment would be in 2011 for 120.0%. 6.3 Sanitation Utility Rate Design The final step is the design of sanitation rates to collect the desired levels of revenue, based upon the results of the revenue requirement analysis. There were no changes to the structure of the rates. Table 6-2 shows the City’s 2010 sanitation rate schedule. Table 6 - 2 2010 Sanitation Utility Rates Present Rate Service Charge Residential $1.25 Disability/Low Income Senior Discount 1.25 Multi-Family 1.25 Commercial 1.25 Large Yard Bin Usage $14.67 Table 6-4 presents the rates developed for each customer class for the years 2011 through 2013. The proposed rate adjustment of 120.0% in 2011 is across all classes of service. No rate increases are proposed for 2012 and 2013. A typical residential customer would pay a rate of $1.25. Under the proposed 2011 rate, the same customer would pay $2.75 or a difference. 6.3 Summary of the Sanitation Rate Study This completes the analysis for the City’s sanitation utility. It is recommended that the City adjust the sanitation rate by 120% in 2011. Table 6 - 3 Proposed Sanitation Rates Proposed 2011 Proposed 2012 Proposed 2013 Service Charge Residential $2.75 $2.75 $2.75 Disability/Low Income Senior Discount 2.75 2.75 2.75 Multi-Family 2.75 2.75 2.75 Commercial 2.75 2.75 2.75 Large Yard Bin Usage $32.27 $32.27 $32.27 ---PAGE BREAK--- This page intentionally left blank. ---PAGE BREAK--- Technical Appendices ---PAGE BREAK--- ---PAGE BREAK--- Appendix A Draft Financial Policies ---PAGE BREAK--- ---PAGE BREAK--- Financial Policies and Guidelines for Rate-Setting 1 City of Puyallup City of Puyallup Financial Policies and Guidelines For Utility Rate Setting Introduction The development of financial policies to aid in the utility rate setting process has a number of important advantages from a policy and decision-making perspective. More importantly, the development and establishment of written financial policies for this specific area follows best management practices and guidelines as established by the Government Finance Officers Association (GFOA). HDR has adapted the GFOA principles and framework to establish written financial policies to guide the financial planning and rate setting process for utilities. This discussion paper will review the suggested framework for establishing written financial policies and guidelines for the utility financial planning and rate setting processes of the City. Overview of Best Practices and Framework for Policies The GFOA has established an approach for best practices in establishing policies for budgeting purposes.1 The basis framework is established around four basic principles. These principles are as follows:
Principle I – Establish Broad Goals To Guide Government Decision Making - A government should have broad goals that provide overall direction for the government and serve as a basis for decision making.
Principle II – Develop Approaches to Achieve Goals - A government should have specific policies, plans, programs, and management strategies to define how it will achieve its long-term goals.
Principle III – Develop a Budget with Approaches to Achieve Goals - A financial plan and budget that moves toward achievement of goals, within the constraints of available resources, should be prepared and adopted.
Principle IV – Evaluate Performance and Make Adjustments – Program and financial performance should be continually evaluated, and adjustments made, to encourage progress toward achieving goals. Principles are intended to be broad and reflect the overall budget/planning process. More importantly, these principles are intended to consider both the political and managerial perspectives within the process. These political and managerial perspectives obviously have technical and financial ramifications. By clearly defining and understanding these basic principles, the entity (e.g. City, utility, department, etc.) is communicating a clearer direction. 1 Recommended Budget Practices, A Framework for Improved State and Local Government Budgeting, Government Finance Officers Association, 1998 ---PAGE BREAK--- Financial Policies and Guidelines for Rate-Setting 2 City of Puyallup Within each principle, there is a set of elements. The elements are intended to represent achievable results. There are a total of 12 elements under the four goals. These elements are as follows
Principle I – Establish Broad Goals to Guide Decision Making • Element 1 – Assess Community Needs, Priorities, Challenges and Opportunities • Element 2 – Identify Opportunities and Challenges for Government Services, Capital Assets and Management • Element 3 – Develop and Disseminate Broad Goals
Principle II – Develop Approaches to Achieve Goals • Element 4 – Adopt Financial Policies • Element 5 – Develop Programmatic, Operating and Capital Policies and Plans • Element 6 – Develop Programs with Services that are Consistent with Policies and Plans • Element 7 – Develop Management Strategies
Principle III – Develop Budget With Approaches to Achieve Goals • Element 8 – Develop a Process for Preparing and Adopting a Budget • Element 9 – Develop and Evaluate Financial Options • Element 10 – Make Choices Necessary to Adopt a Budget
Principle IV – Evaluate Performance and Make Adjustments • Element 11 – Monitor, Measure, and Evaluate Performance • Element 12 – Make Adjustments As Needed For purposes of establishing financial policies for the City’s utilities, the focus will be on Elements 4 and 5. Within Elements 4 and 5, GFOA has segregated various policies into “practices.” These various practices provide by Element provide the final detail of an organized structure. The various practices for Elements 4 and 5 are shown below.
Principle II – Develop Approaches to Achieve Goals • Element 4 – Adopt Financial Policies  Practice 4.1 Develop Policy on Stabilization Funds  Practice 4.2 Develop Policy on Fees and Charges  Practice 4.3 Develop Policy on Debt Issuance and Management  Practice 4.3a Develop Policy on Debt Level and Capacity  Practice 4.4 Develop Policy Use on One-Time Revenue  Practice 4.4a Evaluate the Use of Unpredictable Resources  Practice 4.5 Develop Policy on Balancing the Operating Budget  Practice 4.6 Develop Policy on Revenue Diversification  Practice 4.7 Develop Policy on Contingency Planning • Element 5 – Develop Programmatic, Operating and Capital Policies and Plans  Practice 5.1 Prepare Policies and Plans to Guide the Design of Programs and Services  Practice 5.2 Prepare Policies and Plans for Capital Asset Acquisition, Maintenance, Replacement, and Retirement ---PAGE BREAK--- Financial Policies and Guidelines for Rate-Setting 3 City of Puyallup The above elements and practices have been adapted for use to organize the City’s financial and rate setting policies for the utilities. Development of the City’s Financial/Rate–Setting Policies Provided below is the development of the proposed specific financial and rate setting policies for the City’s water, wastewater, stormwater and sanitation utilities. The policies are intended to provide guidance in the financial planning and rate-setting process, and in the day-to-day financial management of these utilities. The City currently has many of these practices in place. The adoption of these financial policies will provide a strong foundation for the long-term financial sustainability of the utilities and will provide the outside financial community with a better understanding of the City’s commitment to managing each of the utilities in a financially prudent manner. These policies have been organized and numbered around the suggested GFOA format. If desired, the City can certainly reformat or organize these policies to incorporate into other City policies or guidelines. ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 1 Draft April 2010 4. UTILITY FINANCIAL POLICIES 4.1 Reserves and Rate Stabilization Funds 4.2 Establishing Rates and Fees 4.3 Debt Issuance and Debt Management 4.3a Debt Level and Capacity 4.4 Disposition of “One-Time” Revenues 4.4a Evaluate the Use of Unpredictable Resources 4.5 Balanced Operating Budget 4.6 Revenue Diversification 4.7 Contingency Planning 4.0 Adopt Financial Policies The following financial policies have been developed to provide guidance and consistency in utility financial planning and rate-setting decision-making for the City’s management team and City Council. These policies and guidelines will assist the City in achieving overall financial planning and rate-setting processes from year-to-year for the City’s water, wastewater, stormwater and sanitation utilities. These policies should not be considered on a stand-alone basis, but rather should be used with other City documents and procedures in a decision-making process. The proposed policies should be reviewed at the beginning of each fiscal period to determine if they are still relevant and appropriate. 4.1 Reserves and Rate Stabilization Funds The City shall strive to maintain adequate fund balances (reserves) for each utility in order to provide sufficient cash flows to meet operating and capital expenses. The City will maintain system funds required by law, ordinance and bond covenant, so as to provide working capital (cash flow) for normal and ordinary operations, while also providing the financial ability to address economic downturns and system emergencies. If reserves are depleted, the reserves should be replenished over a three year period to re-establish the target balance. FUND BALANCE AND RESERVE POLICIES: A. Operating/Fund Balance/Cash Flow – Operating reserves are composed of active working capital cash and operating reserves. These reserves reflect the timing difference between billing for revenues and payment of expenses. The operating reserve can also be used to cover unanticipated cash operating expenses or lower than expected revenue collections. For each utility, the basis for establishing the target operating reserve level will be 90 days of O&M expenses (25% = 90/365) for the water utility, with a minimum level of 60 days, or 17%. The target minimum balance for the sewer and stormwater utilities shall be 60 days. The minimum balance is related to the billing cycle, or cash flow cycle of the primary revenue stream. B. Capital Reserves – Capital reserves are used to fund the cash flow requirements of capital infrastructure construction. These reserves can increase and decrease significantly depending on funding sources available and the capital projects that are planned during the year. For each utility, the City should attempt to maintain a capital reserve ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 2 Draft April 2010 approximately equal to one-year of renewal/replacement type projects, or a six-year average of typical renewal and replacement (routine) type projects, not including large one-time project expenses. These funds are contained within the overall utility fund balance but are accounted for individually for each utility. C. Growth Related Capital Reserves – System development charges or other growth related funds can be maintained within the utility capital fund balance, but should be accounted for separately. These funds should be expended only on growth/capacity-related capital facilities. These fees for each utility are dependent upon customer growth and do not have a targeted minimum balance to be maintained. D. Bond Reserves – Bond reserves may be legally required for specific debt issues. Bond reserves will be established in accordance with the legal covenants of each debt issue. Other Reserves for Consideration: E. Some utilities establish replacement reserves, contingency reserves, and/or rate stabilization reserves. Based on the City’s past practices and experience, Management believes that the established operating reserves adequately cover the utility needs for contingencies and emergencies. All expenditures drawn from reserve accounts will require prior City Council approval unless previously authorized by the approved budget document. In any case, where the reserves are drawn below policy minimums, a report shall be developed containing the reasons for withdrawals and any impacts to programs or rates due to this withdrawal. Maintenance of minimum reserves should not, on its own, trigger the need for a rate adjustment. Rates will be reviewed after two consecutive years of loss of revenue or diminishing reserves as a result of covering costs. 4.2 Establishing Rates and Fees The City’s utility rates and service fees shall be reviewed annually, to assure sufficient revenues, and necessary adjustments made to reflect inflation, construction needs, maintain bond covenants, and avoid major periodic increases. This does not imply that rates must be adjusted each year, simply that the rates are reviewed in the context of these policies to assure that they are adequately funding each utility. USER CHARGES RATE-SETTING POLICIES: The City shall establish user rates and fees using “generally accepted” rate setting and costing methodologies. Each utility shall be viewed on a “stand-alone” basis to help assure self sufficiency and sustainability. The analyses associated with “generally accepted” rate-setting techniques include the following analyses: A. Revenue Requirement Analysis – Establishes the overall level of financial and rate needs of the utility. In developing the revenue requirements for each utility, it is prudent practice to consider the following: 1. Revenue requirements will be established on a “cash basis” approach that will include all utility programs, operation & maintenance expenses, taxes/transfers, debt service (P&I) and capital improvements funded from rates. ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 3 Draft April 2010 2. Revenues and costs will be annually projected for a projected six year period (the proposed budget year plus five additional projected years). 3. Projections of O&M costs should include any estimated incremental O&M costs associated with increased service levels or future capital improvements. 4. Joint or common costs of the utilities shall be allocated between utilities based upon a “fair” methodology that utilizes labor ratios, number of customers, revenue, usage or other equitable and appropriate operational factors. The specific allocation method for specific costs should be the method that the utility deems to be most appropriate and fair. 5. The City will continue to develop a six year capital improvement plan and update it annually. 6. On an annual basis, the City should adequately fund, through its rates, an amount to adequately maintain the existing utility infrastructure of the City. To achieve this policy, the City should, at a minimum, be funding capital projects based on an average useful life of 65 years. Past practice has been to fund the equivalent of 1.5% of original asset value. Another industry measure is to target annual depreciation expense. As new large capital facilities are added to the City, consideration may be given to phasing-in the rate impact of the policy. These funds must be used for replacement related project expenditures. 7. The system’s capital improvement program will consider mandated capital, growth related capital, and replacement capital. 8. Level of rate adjustment(s) will reflect all of the above costs, direct, indirect and costs of administration, and minimum reserve levels such that rates will be cost- based. B. Cost of Service Analysis – Determines the equitable allocation of costs (revenue requirements) between the various customer groups. 1. When possible, a cost of service study will be utilized to equitably allocate the utility costs to the customer classifications of service. 2. The cost allocation methodology will utilize techniques that are “generally accepted” by the industry (e.g. American Water Works Association, Water Environment Federation, etc.). 3. The cost of service for each utility will consider the specific circumstances and unique characteristics of the utility in the cost allocation methodology. C. Rate Design Analysis – Designs rates to collect the appropriate level of revenue and reflects the rate design goals, objectives and policies of the City. 1. Rate designs will be reflective of system needs, and also reflect the greater public purpose and policy goals of the City Council (e.g. economic development, conservation, etc.). City Council goals and objectives may change over time, and the rate designs should change accordingly. 2. Rates shall balance the overall goals and objectives of the rate design process with any administrative or utility billing issues. Providing rates that are easy to ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 4 Draft April 2010 understand and administer is beneficial to both the customer and the utility. 3. Rates will be set at a level that recovers necessary costs, by customer classification, yet flexible enough to accomplish the City’s objectives. As deemed appropriate, rate structures shall be designed to reward the preservation of valuable resources (conservation), the efficient use of resources, while discouraging excessive or wasteful usage. (e.g. public purpose programs). 4. Rates should be designed to be as equitable as possible, and detailed to a level to reflect the service provided private fire protection, multi-family services, etc.). SERVICE FEES AND CHARGES Service fees are collected from individual customers requesting specific services, or requiring specific services, such as meter installations, new account set up, water/sewer availability, and turn-on/turn-off services. Fees for these services are necessary to protect general utility customers from funding the cost of these services for individual customers. Essentially, these types of fee are needed for those requiring special services to pay for those special services. A. Service Fees and Charges – As applicable and appropriate for each utility, service fees and charges for special service requests shall be established and updated to assure full cost recovery. 1. Service fees and charges for special services shall be updated periodically, at least once every three to five years, to keep charges reasonably equal to the cost of such services (meter installation, turn on/turn off fees, new account setup charges, water availability and water quality testing, etc,). 2. These services fees shall be reviewed annually, and as appropriate, adjustments made to reflect inflation and avoid major periodic increases. Fees shall be adjusted annually by the local area Consumer Price Index. SYSTEM DEVELOPMENT CHARGE SETTING POLICIES: System development charges (SDCs), or alternatives to SDCs, are intended to reflect the cost of growth and capacity expansion to serve new customers and additional capacity requirements. SDCs are a common method of assessing the cost of growth and expansion to new customers or those existing customers requesting expansion of their capacity requirements. In establishing SDCs for each utility, the following shall be considered: A. Meeting Legal Requirements – SDCs, or alternatives, shall be established and administered to conform and meet any State and local legal requirements. B. Methodologies – SDCs shall be established using “generally accepted” methodologies and shall include a debt service credit to fairly account for the method of financing used for growth and expansion projects. C. Determination of Cost-Basis - As appropriate for each utility, SDCs shall be calculated to determine the cost-based levels for customers seeking to connect to the City’s utility systems. ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 5 Draft April 2010 D. Establishing Final SDCs - The City Council shall establish the final SDCs taking into consideration the cost-based levels of the fees and the City Council’s policy or philosophy as it relates to the sharing of growth-related costs between existing rate payers and new customers connecting to the system. At no time shall the City Council establish or adopt SDCs, or alternatives, greater than the calculated cost-based SDCs. ANNUAL REVIEWS/UPDATES TO RATES AND FEES: To help assure that utility rates and fees are sufficient, the City should annually review their rates and fees. This does not necessarily imply annual rate adjustments, but the City should closely monitor the financial/rate performance of each utility to help maintain adequate rates and fees. A. Annual Reviews - Utility rates, fees and SDCs shall be reviewed annually, to assure sufficient revenues, and necessary adjustments made to reflect inflation, construction needs, maintain bond covenants, and to avoid major periodic increases. B. Annual Adjustments – SDCs shall be adjusted annually using the Construction Base index to reflect inflation (Engineering News Record Construction Cost Index). Service fees and charges shall be adjusted annually by the local area Consumer Price Index (CPI-U Seattle-Tacoma-Bremerton, 1st half Index, or other reasonable replacement) to reflect inflation for special services. C. Comprehensive Rate Studies - Utility rate studies shall be conducted at a minimum every five years to update assumptions and ensure the long-term solvency and viability of the City’s utilities. D. Master Plan and SDCs - Every three to six years, or whenever the comprehensive master plan for a utility is updated, the SDCs for the utility shall be updated to reflect the changes in planning, infrastructure, and capital financing. 4.3 Debt Issuance and Debt Management The issuance of long-term debt is a valuable funding resource for the utility. Used appropriately and prudently, long-term debt can help minimize the utility’s rates over time. The utilities shall minimize dependency on debt financing capital projects. Annual renewal and replacement capital projects should be adequately funded from rates. Funding levels for capital investments should be sufficient to meet capital improvement projections needed as outlined in the current capital improvement plan. Long-term debt should be considered for unusually large capital improvement projects or greater than normal capital plans. The utilities shall be managed to assure meeting target debt service coverage (DSC) requirements. The City shall not issue long-term debt to support operating costs. A. Renewal and Replacement Capital Projects – The funding of on-going renewal and replacement capital projects should primarily be funded from rates. The use of long-term debt issues to fund renewal and replacement projects should be minimized whenever possible. In order to adequately support this funding method, each utility shall budget and fund a reasonable amount of the cost for renewal and replacement of capital assets within the utility’s rates. A simple measure of the minimum suggested funding is an amount equal to or greater than the annual depreciation of those assets, ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 6 Draft April 2010 or 1.5% of the asset’s original cost. This is done in order to reflect an average useful life of the assets of approximately 65 years. B. Use of Long-Term Debt As a Funding Mechanism – A utility may consider the use of long-term debt financing when it appears that a capital project or plan is of such a magnitude that it will negatively impact the utility’s rates in the short-term. The benefit of long-term debt financing is that it will help to minimize rates over the long- term, but it will also spread the costs of that asset over the useful life of asset and over time charge those customers that benefit from that asset. C. Types of Long-Term Debt – Each utility may have different types of long-term debt available to it. The utilities should strive to utilize the type of debt that has the lowest costs, while not imposing any burdensome covenants or reporting requirements. D. Bond (Legal) Covenants - The City shall manage the utilities to meet any bond covenants associated with the long-term debt. Bond covenants are legal obligations of the borrower (City/utility). E. Debt Service Coverage (DSC) Covenant – A long-term debt issue may contain a legal covenant regarding debt service coverage. A debt service coverage ratio is an important financial measure of the utilities ability to repay the outstanding debt obligation, and is reviewed for adequacy by banks and rating agencies. Generically, the DSC ratio is the utility’s net operating income divided by the total annual debt service payment. For financial planning purposes, the annual debt service coverage ratio associated with each utility shall be greater than or equal to 1.50 on all outstanding debt that carries a legal bond covenant. For all outstanding debt for each utility, including low-interest loans, the City will maintain a debt service coverage ratio greater than or equal to 1.30. (Industry bond coverage ratio covenants are usually at 1.25.) F. Reporting Standards - The City shall fully adhere to all applicable Government Standards Boards (GASB) requirement and recognized best practices for the accounting treatment and disclosure of debt obligations transactions in its audited financial statements and other relevant publications. 4.3a Debt Level and Capacity The City will follow and comply with all statutory debt limitations imposed by the State of Washington. All City debt obligations will comply with statutory requirements. A. Revenue-Bonded Debt Capacity - The issuance of debt for utilities will typically be supported by the revenues of the utility. The ability of the utility to fund and support revenue bonded debt will financially establish a debt level and capacity for revenue-bonded debt. B. Non-Revenue Bonded Debt Capacity - For non-revenue bonded debt issues, the City’s Finance Director shall provide a recommendation on debt level and capacity for the utilities, taking into account the City’s other debt obligations and need for debt capacity. ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 7 Draft April 2010 4.4 Disposition of “One-Time” Revenues “One-time” revenues are revenues of an unusual or infrequent nature which are likely not the result of the utility providing services and producing and delivering goods in connection with a utility’s principal ongoing operations (e.g. legal settlement). Unless specifically earmarked otherwise, “one-time” revenues should be transferred to the appropriate reserve fund which best represents the reason for the “one-time” revenue (e.g. operating reserve, capital reserve, emergency reserve, etc.). Such one-time revenues should be expended on one-time capital expenditures, or non-routine/not on-going operating expenses. 4.5 Balanced Operating Budget The City shall establish and maintain separate utility operating and capital improvement accounts or budgets for each utility operation in order to provide for proper fund management, financial planning and long-term solvency of each City operated utility. A. Self-Supporting - Each utility shall be self-supporting, such that current revenues fully fund current expenses and any fund balance or debt service coverage requirements. B. Capital Accounts - Capital contributions from rates, grants, loans and other financing mechanisms will be accounted for separately in capital accounts, such that funds dedicated to capital purposes are expended only for capital purposes. C. Adequate Funding to Preserve System Assets - The total operating expenditures of each of the utilities shall be funded at a level that will preserve the intended life and functional requirements of each utility system. D. Evaluation and Monitoring of Costs - Costs shall be evaluated and monitored to ensure that the utilities are operated in a cost effective and economically prudent manner. E. Maintenance of Sufficient Reserves - The City will maintain sufficient reserves and investments of such a nature that it maintains liquidity equal to 6 months of operating expenses. F. Positive Annual Net Income - The City should have annual net income (total revenue less O&M, taxes, debt service and capital projects funded from rates) greater than or equal to zero G. Strive for Rate Stability - Rate stability reinforces that costs are being managed and controlled. Rates should be stable in their ability to generate sufficient revenues, but also in the customer’s perception of the rate changes from year to year. 1. Needed rate adjustments will attempt to minimize impacts to customers by phasing- in large rate adjustments over time. 2. Where possible, excess fund balances shall be used to offset rate increases with any remaining balances being used for approved capital purposes. The use of fund balances (reserves) shall not compromise the financial policy on establishing and maintaining minimum targeted reserves levels or adequate funding on a long-term self-sustaining basis. ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 8 Draft April 2010 3. Annual rate reviews will consider a five-year projected period to attempt to stabilize and minimize rates over time. 4. A comprehensive rate study will be conducted by an outside party at least every 5 years in order to assess the fairness of the rates to the City’s ratepayers and to ensure that the necessary revenue is available for the City’s operating and capital needs. 4.6 Revenue Diversification As enterprise funds, each utility has very limited ability for revenue diversification. Where possible, the City should explore revenue sources such as grants, developer contributions, service fees and charges, SDCs, etc. Revenue sources such as property taxes or sales taxes should not be relied upon as a potential revenue (funding) source for the utilities. 4.7 Contingency Planning The City should establish a contingency plan for unexpected operational changes stemming from legislative or economic events effecting the City’s operations which can not be anticipate at the time of the budget process. This can be implemented in two ways: 1) by setting aside funds for a catastrophe/emergency reserve equal to amount needed to fund for emergency repairs or failure of essential equipment, or 2) to set aside a subsequent year’s debt service payment. 5. PROGRAMMATIC, OPERATING AND CAPITAL POLICIES AND PLANS 5.1 Policies and Plans to Guide the Design of Programs and Services 5.2 Policies and Plans for Capital Asset Acquisition, Maintenance, Replacement, and Retirement 5.0 Programmatic, Operating, and Capital Policies and Plans The City’s operating and maintenance (O&M) program will be maintained at a level that assures system reliability and efficiency. A well thought out maintenance program will extend the life of the system and in turn reduce infrastructure costs in the long-term. Sufficient funding should be made to provide for adequate maintenance and/or replacement of capital plant and equipment. A. Funding to Meeting Regulations and Standards - The City will adequately fund costs for meeting current industry standards and regulations (e.g. Safe Drinking Water Act, Clean Water Act, NPDES II, etc) in the annual financial review. B. Capital Improvement Plan - The City, as part of its routine planning process, will develop a 6-year capital improvement plan for each utility and update it annually. C. Adopted Capital Plan - The City, for each utility, will make all capital improvements according to an adopted Capital Improvement Program (Master Plan and/or Budget). ---PAGE BREAK--- Utility Financial and Rate Setting Policies and Guidelines City of Puyallup 9 Draft April 2010 D. Types of Capital Projects - The City’s capital improvement program, for each utility, will consider mandated capital, growth related capital and renewal and replacement capital. 5.1 Policies and Plans to Guide the Design of Programs and Services The City’s utilities should be accounted for in separate self-supporting enterprise funds. A comprehensive planning document should be completed every six years that incorporates each utilities unique infrastructure needs. 5.2 Policies and Plans for Capital Assets Acquisition, Maintenance, Replacement, and Retirement Customer growth and system expansion as a result of new development has direct impacts upon a utility’s infrastructure requirements, the financing of the “growth related” infrastructure, and customer rates. Through the establishment of specific financial/rate policies, the City will attempt to shelter the City’s existing customers, as much as reasonably possible, from the financial/rate impacts of growth and system expansion. A. Growth-Related Capital Projects - Within the City’s capital improvement plans and rate study, growth-related capital projects shall be clearly identified. B. Financing of Growth-Related Projects - The financing of growth-related capital projects may be funded from any of the available funding resources of the utility. However, to better meet the City’s stated policy, the use of long-term debt to finance growth-related projects will allow the City to better match the financing of these facilities to the timing of the customers as they connect to the system. C. Use of System Development Charge Proceeds – SDC revenue will only be used for two purposes – to pay for growth-related debt service or to directly pay for growth- related capital improvements. D. Limitation on the Use of SDCs to Pay Debt Service - The use of SDC revenue to pay for growth-related debt service shall be limited in any year, for planning/rate purposes, to 50% of the annual SDC revenue projected to be collected. If growth and the corresponding SDC revenue is less than projected, the City should still have sufficient SDC revenue to make the annual debt service payments associated with the growth- related capital projects. E. Maintenance of Assets Records - The Finance Department, on a yearly basis, will track and maintain asset records for all additions, replacements or retirements of assets. This will be maintained for each utility on an on-going basis in an asset management database and reported in a yearly asset record report. ---PAGE BREAK--- Appendix B Water Utility System Analyses ---PAGE BREAK--- ---PAGE BREAK--- Budget 2010 2011 2012 2013 2014 2015 2016 Revenue Rate Revenue $4,403,487 $4,430,173 $4,474,475 $4,519,220 $4,564,412 $4,610,056 $4,656,157 Miscellaneous Revenue 196,200 117,262 519,835 543,508 583,548 601,689 615,699 Total Revenue $4,599,687 $4,547,435 $4,994,310 $5,062,728 $5,147,960 $5,211,745 $5,271,855 Expenses O&M Expenses $3,388,131 $3,477,729 $3,588,530 $3,723,959 $3,862,123 $4,005,732 $4,155,013 Taxes 681,700 601,048 607,099 613,207 630,534 636,839 643,204 Net Debt Service 469,685 564,184 693,142 749,738 745,192 854,719 866,823 Capital Funded From Rates 168,000 250,000 450,000 650,000 850,000 1,050,000 1,250,000 Change in Working Capital 0 0 (20,000) (90,000) (70,000) (245,000) (290,000) Total Revenue Requirement $4,707,516 $4,892,961 $5,318,771 $5,646,905 $6,017,848 $6,302,289 $6,625,040 Balance (Deficiency) of Rates ($107,829) ($345,526) ($324,461) ($584,177) ($869,889) ($1,090,544) ($1,353,185) Plus Additional Taxes of 5.029% ($14,049) ($45,019) ($42,274) ($76,112) ($113,338) ($142,087) ($176,306) Net Balance/(Deficiency) of Funds ($121,878) ($390,545) ($366,735) ($660,290) ($983,227) ($1,232,631) ($1,529,491) Balance (Def.) of Rates as % of Rates 2.8% 8.8% 8.2% 14.6% 21.5% 26.7% 32.8% Proposed Rate Adjustment 0.0% 4.0% 4.0% 6.0% 6.0% 4.5% 4.5% Add'l Revenue After Rate Adjustment $0 $177,207 $365,117 $662,048 $982,653 $1,244,594 $1,523,133 Balance (Def) After Rate Increase ($121,878) ($213,338) ($1,618) $1,758 ($574) $11,962 ($6,358) City of Puyallup Water Utility Exhibit 1 Summary of Revenue and Expenses Projected % Bal. (Def.) of Rates After Increase 2.8% 4.8% 0.0% 0.0% 0.0% ‐0.3% 0.1% Residential Bill $41.69 [Rates from 1/1/09 ordinance; 5/8" meter, 16 ccf] Rate After Proposed Adjustment $41.69 $43.36 $45.09 $47.80 $50.67 $52.95 $55.33 Bill Change $0.00 $1.67 $1.73 $2.71 $2.87 $2.28 $2.38 Cumulative Bill Change $0.00 $1.67 $3.40 $6.11 $8.98 $11.26 $13.64 Debt Service Coverage Ratio (SDC revenue not included) Before Rate Adjustment 0.97 0.73 1.04 0.88 0.76 0.58 0.48 After Required Rate Adjustment 1.20 1.34 1.52 1.68 1.89 1.85 2.02 After Proposed Rate Adjustment 0.97 1.01 1.51 1.68 1.89 1.86 2.02 (With SDC revenue included) Before Rate Adjustment 1.43 1.12 1.37 1.19 1.22 1.00 0.89 After Required Rate Adjustment 1.66 1.74 1.84 1.99 2.36 2.26 2.44 After Proposed Rate Adjustment 1.43 1.40 1.84 1.99 2.36 2.27 2.43 Capital Funded From Rates Capital Funded From Rates $168,000 $250,000 $450,000 $650,000 $850,000 $1,050,000 $1,250,000 2% of original cost (OC) $1,180,000 $1,210,000 $1,250,000 $1,280,000 $1,320,000 $1,370,000 $1,400,000 Estimated Replacement Cost (RC) $1,950,000 $2,050,000 $2,160,000 $2,270,000 $2,390,000 $2,520,000 $2,640,000 Fund Balance Ending Fund Balance (O&M & Avg. Annual CIP) $2,060,681 $1,850,539 $1,868,508 $1,820,248 $1,790,057 $1,597,806 $1,291,143 Target Fund Balance (O&M) 835,000 858,000 885,000 918,000 952,000 988,000 1,025,000 Target Fund Balance (O&M & Avg. Annual CIP) 2,455,000 2,478,000 2,505,000 2,538,000 2,572,000 2,608,000 2,645,000 Above/(Below) Target Balance (O&M & Avg. CIP) ($394,319) ($627,461) ($636,492) ($717,752) ($781,943) ($1,010,194) ($1,353,857) Water COSA - Page 1 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Escalation Factors Exhibit 2 2010 2011 2012 2013 2014 2015 2016 Escalation Factors: Revenues: As Resid Residential 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% As Comm Commercial/Industrial 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% As Misce Miscellaneous Revenue Budget 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Expenses: 0.5% 0.5% 2.0% 2.0% 3.0% 3.0% 3.0% As Labo Labor Budget 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% As Bene Benefits ‐ Medical Budget 7.0% 7.0% 7.0% 6.0% 6.0% 6.0% As Bene Benefits ‐ Other Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Mate Materials & Supplies Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Equip Equipment Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Misce Miscellaneous Budget 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% As Othe Other Utilities Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Elect Electricity Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Natu Natural Gas Budget 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% As Insur Insurance Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Debt Service: Term 20 20 20 20 20 20 20 Interest Rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% Interest Income 0.5% 0.5% 2.0% 2.0% 3.0% 3.0% 3.0% Water COSA - Page 2 of 23 ---PAGE BREAK--- City of Puyallup Page 1 of 4 Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 REVENUE Rate Revenue 439600 Water Sales Residential $2,314,244 $2,325,815 $2,349,073 $2,372,564 $2,396,290 $2,420,252 $2,444,455 As Residential Disability/Senior 40,251 40,453 40,857 41,266 41,678 42,095 42,516 As Residential Multi‐Family 851,315 855,571 864,127 872,768 881,496 890,311 899,214 As Residential Commercial 933,686 943,022 952,453 961,977 971,597 981,313 991,126 As Commercial/Industrial Irrigation 263,992 265,312 267,965 270,645 273,351 276,085 278,845 As Residential Total Rate Revenue $4,403,487 $4,430,173 $4,474,475 $4,519,220 $4,564,412 $4,610,056 $4,656,157 Miscellaneous Revenue 439800 Late Penalty $27,000 $27,270 $27,543 $27,818 $28,096 $28,377 $28,661 As Miscellaneous Revenue 440400 Turn on Charges, Water 25,900 26,159 26,421 26,685 26,952 27,221 27,493 As Miscellaneous Revenue 452001 Investment Interest 90,000 10,000 35,000 35,000 50,000 48,000 41,000 Calculated on Fund Balance 454700 Telecom (Cell Tower) Lease 26,100 26,361 26,625 26,891 27,160 27,431 27,706 As Miscellaneous Revenue Fire Protection Revenue 0 0 376,500 399,090 423,035 442,072 461,965 Cost of Service; rate incr. escalation 458600 Other Misc. Revenue 27,200 27,472 27,747 28,024 28,304 28,587 28,873 As Miscellaneous Revenue Total Miscellaneous Revenue $196,200 $117,262 $519,835 $543,508 $583,548 $601,689 $615,699 TOTAL REVENUE $4,599,687 $4,547,435 $4,994,310 $5,062,728 $5,147,960 $5,211,745 $5,271,855 EXPENSES Engineering 522061 Engineering/Other $40,000 $41,200 $42,436 $44,133 $45,899 $47,735 $49,644 As Labor Source of Supply ‐ Operations 510095 Payroll Contingency $33,526 $34,532 $35,568 $36,990 $38,470 $40,009 $41,609 As Labor 511011 Reg & Part Time Wages 771,404 794,546 818,383 851,118 885,163 920,569 957,392 As Labor 511015 Longevity Pay 7,200 7,416 7,638 7,944 8,262 8,592 8,936 As Labor 511017 Acting Pay 4,123 4,247 4,374 4,549 4,731 4,920 5,117 As Labor 511025 Standby Pay 8,510 28,000 28,840 29,994 31,193 32,441 33,739 As Labor 512013 Overtime 42,429 43,702 45,013 46,813 48,686 50,633 52,659 As Labor 514021 Med, etc. Benefits 0 0 0 0 0 0 0 As Benefits ‐ Medical 514022 State Retirement Plans 43,642 44,951 46,300 47,689 49,119 50,593 52,111 As Benefits ‐ Other 514027 Regence Blue Shield 187,639 200,774 214,828 229,866 243,658 258,277 273,774 As Benefits ‐ Medical 514030 FICA Medicare 62,874 64,760 66,703 68,704 70,765 72,888 75,075 As Benefits ‐ Other 514032 Labor & Industries 31,666 32,616 33,594 34,602 35,640 36,710 37,811 As Benefits ‐ Other 514033 Life Insurance 1,557 1,604 1,652 1,701 1,752 1,805 1,859 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 33,944 36,320 38,862 41,583 44,078 46,723 49,526 As Benefits ‐ Medical 514035 Vision Insurance 9,274 9,923 10,618 11,361 12,043 12,765 13,531 As Benefits ‐ Medical 514037 Employee Assistance Plan 256 264 272 280 288 297 306 As Benefits ‐ Other 514042 Long Term Disability 4,773 4,916 5,064 5,216 5,372 5,533 5,699 As Benefits ‐ Other 515022 Uniforms & Clothing 1,650 1,700 1,750 1,803 1,857 1,913 1,970 As Materials & Supplies 517031 Office & Operating Supplies 128,400 155,000 158,100 161,262 164,487 167,777 171,133 As Miscellaneous 517032 Office Supplies ‐ Paper 650 670 690 710 732 754 776 As Materials & Supplies 517033 Office Supplies ‐ Toner 650 670 690 710 732 754 776 As Materials & Supplies 518032 Fuel for Consumption 800 824 849 874 900 927 955 As Materials & Supplies 518033 ER&R ‐ Fuel 39,600 40,788 42,012 43,272 44,570 45,907 47,284 As Materials & Supplies 519034 Items Purchased for Resale 54,200 55,284 56,390 57,517 58,668 59,841 61,038 As Miscellaneous 520035 Small Tools/Minor Equipment 43,700 45,011 46,361 47,752 49,185 50,660 52,180 As Equipment 522041 Professional Services 35,300 36,359 37,450 38,948 40,506 42,126 43,811 As Labor 522057 PS ‐ Emerg After Hours Ans. Service 500 510 520 531 541 552 563 As Miscellaneous 522059 PS ‐ Engineering/Design 2,250 2,295 2,341 2,388 2,435 2,484 2,534 As Miscellaneous 522081 PS ‐ Medical/Physicals 500 510 520 531 541 552 563 As Miscellaneous 522092 PS ‐ Printing/Copying Services 800 3,500 3,570 3,641 3,714 3,789 3,864 As Miscellaneous 522105 PS ‐ Software Support/Other 500 510 520 531 541 552 563 As Miscellaneous Projected Water COSA - Page 3 of 23 ---PAGE BREAK--- City of Puyallup Page 2 of 4 Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected 522018 PS ‐ Training 500 510 520 531 541 552 563 As Miscellaneous 522109 PS ‐ Tree Removal/Trimming 650 663 676 690 704 718 732 As Miscellaneous 522110 PS ‐ Uniform Cleaning 5,250 6,500 6,630 6,763 6,898 7,036 7,177 As Miscellaneous 522111 PS ‐ Vadis NW Contract 21,200 21,836 22,491 23,391 24,326 25,299 26,311 As Labor 522118 PS ‐ Water Testing 0 35,000 36,050 37,492 38,992 40,551 42,173 As Labor 522119 PS ‐ Project Legal Fees 0 0 0 0 0 0 0 As Labor 522122 PS ‐ Waste Disposal Services 5,900 6,077 6,259 6,447 6,641 6,840 7,045 As Other Utilities 523043 Delivery Charges (Fedex, UPS) 0 0 0 0 0 0 0 As Miscellaneous 523048 Comm ‐ Cellular Phone 7,400 7,622 7,851 8,086 8,329 8,579 8,836 As Other Utilities 524043 Travel ‐ Miles, Meals, Lodge 1,850 1,887 1,925 1,963 2,002 2,043 2,083 As Miscellaneous 525044 Advertising 300 306 312 318 325 331 338 As Miscellaneous 525046 Advertising ‐ Legal Notices 200 204 208 212 216 221 225 As Miscellaneous 526045 Operating Rentals & Leases 4,400 4,488 4,578 4,669 4,763 4,858 4,955 As Miscellaneous 526048 Rentals ‐ Field Equipment 4,400 4,488 4,578 4,669 4,763 4,858 4,955 As Miscellaneous 527048 Insurance ‐ Self Insurance Fund 28,021 28,862 29,727 30,619 31,538 32,484 33,459 As Insurance 528048 Public Utility ‐ Electric 179,816 185,210 190,767 196,490 202,384 208,456 214,710 As Electricity 528049 Public Utility ‐ Water 216 222 229 236 243 250 258 As Other Utilities 528050 Public Utility ‐ Sewer 219 226 232 239 246 254 261 As Other Utilities 528051 Public Utility ‐ SWM 5,202 5,358 5,519 5,684 5,855 6,031 6,211 As Other Utilities 528052 Public Utility ‐ Refuse 3,300 3,399 3,501 3,606 3,714 3,826 3,940 As Other Utilities 528053 Public Utility ‐ Natural Gas 8,507 8,847 9,201 9,477 9,762 10,054 10,356 As Natural Gas 528057 Public Utility ‐ Landfill Fees 100 103 106 109 113 116 119 As Other Utilities 529048 Repairs & Maintenance 136,216 40,000 41,200 42,436 43,709 45,020 46,371 As Materials & Supplies 529056 R/M: Contr Maint ‐ Field Equip 33,900 34,578 35,270 35,975 36,694 37,428 38,177 As Miscellaneous 529067 R/M: Generator Maintenance 2,250 2,295 2,341 2,388 2,435 2,484 2,534 As Miscellaneous 529075 R/M: Motorola Radio 1,100 1,122 1,144 1,167 1,191 1,214 1,239 As Miscellaneous 529084 R/M: Repairs ‐ Equipment 0 0 0 0 0 0 0 As Equipment 529106 ER&R ‐ Maint/Internal 105,696 108,867 112,133 115,497 118,962 122,531 126,207 As Materials & Supplies 529108 IT&C ‐ Maint/Internal 57,221 58,938 60,706 62,527 64,403 66,335 68,325 As Materials & Supplies 529109 IT&C ‐ Replacement 11,513 11,858 12,214 12,581 12,958 13,347 13,747 As Materials & Supplies 529111 IT&C Dispatch 800 MHz Assessment 34,618 35,657 36,726 37,828 38,963 40,132 41,336 As Materials & Supplies 530049 Miscellaneous 8,700 8,874 9,051 9,233 9,417 9,606 9,798 As Miscellaneous 530050 Misc ‐ Conference Registration 5,300 5,406 5,514 5,624 5,737 5,852 5,969 As Miscellaneous 530051 Misc ‐ Dues 1,800 1,836 1,873 1,910 1,948 1,987 2,027 As Miscellaneous 530052 Misc ‐ Subscriptions 400 408 416 424 433 442 450 As Miscellaneous 530053 Misc ‐ Certifications 2,100 2,142 2,185 2,229 2,273 2,319 2,365 As Miscellaneous 531050 Intergovernmental Services 0 0 0 0 0 0 0 As Labor 536063 Improvements Other Than Bldg 55,600 56,712 57,846 59,003 60,183 61,387 62,615 As Miscellaneous 537064 Machinery and Equipment 64,100 66,023 68,004 70,044 72,145 74,309 76,539 As Equipment 537075 ER&R ‐ Repl/Internal 56,300 57,989 59,729 61,521 63,366 65,267 67,225 As Equipment Total Source of Supply $2,406,562 $2,466,713 $2,547,183 $2,640,959 $2,735,803 $2,834,359 $2,936,785 522120 General Fund Administration $941,569 $969,816 $998,911 $1,038,867 $1,080,422 $1,123,639 $1,168,584 As Labor Total Operations & Maintenance $3,388,131 $3,477,729 $3,588,530 $3,723,959 $3,862,123 $4,005,732 $4,155,013 Taxes 528056 Public Utility Tax ‐ Rates $386,200 $354,414 $357,958 $361,538 $365,153 $368,804 $372,493 8% of rate revenue 528059 Public Utility Tax ‐ SDCs 44,300 23,136 23,407 23,679 35,231 35,583 35,936 8% of SDC revenue 532051 Intergovernmental Charges 251,200 223,499 225,734 227,991 230,150 232,452 234,776 5.029% of rates; 1.8% SDC/fee rev. Total Taxes $681,700 $601,048 $607,099 $613,207 $630,534 $636,839 $643,204 thru 2013; 1.5% thru 2016 Water COSA - Page 4 of 23 ---PAGE BREAK--- City of Puyallup Page 3 of 4 Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected Debt Service [PHONE REDACTED] Revenue Bond $329,589 $330,960 $406,077 $408,296 $399,705 $391,799 $404,476 2009 Revenue Bonds (Series B) 215,096 213,248 146,989 148,042 147,840 145,807 146,434 541002 Bond Administration Fee 0 0 0 0 0 0 0 New Debt Service 0 94,976 215,976 270,201 317,647 438,312 438,312 Total Debt Service $544,685 $639,184 $769,042 $826,538 $865,192 $975,919 $989,223 Less: SDC Revenue ($75,000) ($75,000) ($75,900) ($76,800) ($120,000) ($121,200) ($122,400) 30.0% of SDC Revenue Net Total Debt Service $469,685 $564,184 $693,142 $749,738 $745,192 $854,719 $866,823 Capital Funded Through Rates $168,000 $250,000 $450,000 $650,000 $850,000 $1,050,000 $1,250,000 2008 Depr. = $916,101 Change in Working Capital $0 $0 ($20,000) ($90,000) ($70,000) ($245,000) ($290,000) TOTAL REVENUE REQUIREMENT $4,707,516 $4,892,961 $5,318,771 $5,646,905 $6,017,848 $6,302,289 $6,625,040 Balance (Def.) of Rates ($107,829) ($345,526) ($324,461) ($584,177) ($869,889) ($1,090,544) ($1,353,185) Plus Additional Taxes of 5.029% + 8% ($14,049) ($45,019) ($42,274) ($76,112) ($113,338) ($142,087) ($176,306) Net Balance/(Deficiency) of Funds ($121,878) ($390,545) ($366,735) ($660,290) ($983,227) ($1,232,631) ($1,529,491) Balance as % of Rate Adjustment Needed 2.8% 8.8% 8.2% 14.6% 21.5% 26.7% 32.8% Required Rate Adjustment to meet 1.25 DSC 3.4% 7.5% 3.6% 6.8% 9.3% 14.1% 16.4% Proposed Rate Adjustment 0.0% 4.0% 4.0% 6.0% 6.0% 4.5% 4.5% Add'l Revenue After Rate Adjustment $0 $177,207 $365,117 $662,048 $982,653 $1,244,594 $1,523,133 Balance (Def) After Rate Increase ($121,878) ($213,338) ($1,618) $1,758 ($574) $11,962 ($6,358) Additional Rate Adjustment Needed 2.8% 4.8% 0.0% 0.0% 0.0% ‐0.3% 0.1% Debt Service Coverage Ratio (SDC revenue not included) Before Rate Adjustment 0.97 0.73 1.04 0.88 0.76 0.58 0.48 After Required Rate Adjustment 1.20 1.34 1.52 1.68 1.89 1.85 2.02 After Proposed Rate Adjustment 0.97 1.01 1.51 1.68 1.89 1.86 2.02 (With SDC revenue included) Before Rate Adjustment 1.43 1.12 1.37 1.19 1.22 1.00 0.89 After Required Rate Adjustment 1.66 1.74 1.84 1.99 2.36 2.26 2.44 After Proposed Rate Adjustment 1.43 1.40 1.84 1.99 2.36 2.27 2.43 Water COSA - Page 5 of 23 ---PAGE BREAK--- City of Puyallup Page 4 of 4 Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected Operating Fund $2,143,559 Beginning balance 1/1/2010 Beginning Cash Reserve Balance $2,143,559 $2,021,681 $1,772,344 $1,750,726 $1,662,484 $1,591,910 $1,358,872 Plus: Balance/(Deficiency) (121,878) (213,338) (1,618) 1,758 (574) 11,962 (6,358) Less: Uses of Funds 0 36,000 0 0 0 0 51,500 From CIP, Exhibit 4 Change in Working Capital 0 0 20,000 90,000 70,000 245,000 290,000 Ending Cash Reserve Balance $2,021,681 $1,772,344 $1,750,726 $1,662,484 $1,591,910 $1,358,872 $1,011,015 Target Fund Balance=90 Days of O&M $835,000 $858,000 $885,000 $918,000 $952,000 $988,000 $1,025,000 Capital/Repair Replacement Fund Beginning Cash Reserve Balance $0 $39,000 $78,195 $117,782 $157,765 $198,147 $238,934 440200 Hook‐up Fees, Water 39,000 39,195 39,587 39,983 40,383 40,786 41,194 As Residential Grants 0 0 0 0 0 0 0 From CIP, Exhibit 4 SDC 32,000 315,000 0 215,000 417,000 0 368,500 City provided growth related % New Debt 0 1,135,000 1,446,000 648,000 567,000 1,442,000 0 Project costs less other funding Cash Reserves 0 36,000 0 0 0 0 51,500 Input Developer Contributions 0 0 0 0 0 0 0 Input Capital Funded from Rates 168,000 250,000 450,000 650,000 850,000 1,050,000 1,250,000 Input Less: Uses of Funds 200,000 1,736,000 1,896,000 1,513,000 1,834,000 2,492,000 1,670,000 From CIP, Exhibit 4 Ending Cash Reserve Balance $39,000 $78,195 $117,782 $157,765 $198,147 $238,934 $280,128 Target = Average Annual 6‐year CIP $1,620,000 $1,620,000 $1,620,000 $1,620,000 $1,620,000 $1,620,000 $1,620,000 SDC Reserve Beginning Cash Reserve Balance $0 $143,000 $3,000 $180,100 $144,300 $7,300 $290,100 Plus: SDC Revenue 250,000 250,000 253,000 256,000 400,000 404,000 408,000 As Residential Less: SDC Debt Payment 75,000 75,000 75,900 76,800 120,000 121,200 122,400 Uses of Funds 32,000 315,000 0 215,000 417,000 0 368,500 From CIP, Exhibit 4 Ending Cash Reserve Balance $143,000 $3,000 $180,100 $144,300 $7,300 $290,100 $207,200 2% of original cost (OC) $1,180,000 $1,210,000 $1,250,000 $1,280,000 $1,320,000 $1,370,000 $1,400,000 Estimated Replacement Cost (RC) $1,950,000 $2,050,000 $2,160,000 $2,270,000 $2,390,000 $2,520,000 $2,640,000 Fund Balance (not including SDCs) Ending Fund Balance (O&M & Avg. Annual CIP) $2,060,681 $1,850,539 $1,868,508 $1,820,248 $1,790,057 $1,597,806 $1,291,143 Target Fund Balance (O&M) 835,000 858,000 885,000 918,000 952,000 988,000 1,025,000 Target Fund Balance (O&M & Avg. Annual CIP) 2,455,000 2,478,000 2,505,000 2,538,000 2,572,000 2,608,000 2,645,000 Above/(Below) Target Balance (O&M & Avg. CIP) ($394,319) ($627,461) ($636,492) ($717,752) ($781,943) ($1,010,194) ($1,353,857) Water COSA - Page 6 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Summary of Capital Improvement Plan Exhibit 4 2010 2011 2012 2013 2014 2015 2016 % Growth Related Notes Capital Improvements System Improvements $160,000 $200,000 $200,000 $250,000 $250,000 $250,000 $300,000 0% From CIP Plan Water Comprehensive Plan 40,000 0 0 0 0 0 0 80% From CIP Plan Develop Salmon Springs 0 360,000 0 0 0 0 0 100% From CIP Plan Salmon Springs Main Replacement 0 251,000 0 0 0 0 0 0% From CIP Plan Water Main Replacement ‐ Forest Green 0 673,000 0 0 0 0 0 0% From CIP Plan NE Street Improvement Project 0 0 268,000 0 0 0 0 0% From CIP Plan Water Main Replacement (Design) ‐ 7th St SE 0 252,000 1,428,000 0 0 0 0 0% From CIP Plan Recreation Center Well No. 2 (Design) Treatment included 0 0 0 165,000 937,000 0 0 100% From CIP Plan Water Main Replacement 14th St. SW (1000 to 1500 Block) 0 0 0 471,000 0 0 0 0% From CIP Plan Maplewood Springs Pump Station Improvements 0 0 0 100,000 0 0 0 50% From CIP Plan Water Main Replacement ‐ Forest Green Phase 2 0 0 0 527,000 0 0 0 0% From CIP Plan NE Street Improvement Project 0 0 0 0 0 752,000 0 100% From CIP Plan Water Main Replacement ‐ 23rd Ave. SW (Design) 0 0 0 0 150,000 850,000 0 0% From CIP Plan Water Main Replacement ‐ Parkwood 0 0 0 0 497,000 0 0 0% From CIP Plan Water Main Replacement 14th St. SW (Pioneer to 5th St.) 0 0 0 0 0 140,000 0 0% From CIP Plan Water Main Replacement ‐ Maplewood (Pumps to Reservoir) 0 0 0 0 0 500,000 0 0% From CIP Plan Comp Plan Update 0 0 0 0 0 0 170,000 80% From CIP Plan Water Main Replacement ‐ Vista 0 0 0 0 0 0 600,000 0% From CIP Plan Water Main Replacement ‐ 9th St. SE (15th to 23rd) 0 0 0 0 0 0 450,000 35% From CIP Plan Water Main Replacement ‐ 14th St. SW (1200 to 1500 Block) 0 0 0 0 0 0 150,000 50% From CIP Plan Future Unidentified Improvement 0 0 0 0 0 0 0 Input Total Capital Improvement $200,000 $1,736,000 $1,896,000 $1,513,000 $1,834,000 $2,492,000 $1,670,000 TOTAL CAPITAL IMPROVEMENT PROJECTS $200 000 $1 736 000 $1 896 000 $1 513 000 $1 834 000 $2 492 000 $1 670 000 TOTAL CAPITAL IMPROVEMENT PROJECTS $200,000 $1,736,000 $1,896,000 $1,513,000 $1,834,000 $2,492,000 $1,670,000 Less: Funding Grants $0 $0 $0 $0 $0 $0 $0 Input SDC 32,000 315,000 0 215,000 417,000 0 368,500 Growth portion New Debt 0 1,135,000 1,446,000 648,000 567,000 1,442,000 0 Input Cash Reserves 0 36,000 0 0 0 0 51,500 Input Developer Funding 0 0 0 0 0 0 0 Input Total Funding Sources $32,000 $1,486,000 $1,446,000 $863,000 $984,000 $1,442,000 $420,000 Capital Funded Through Rates $168,000 $250,000 $450,000 $650,000 $850,000 $1,050,000 $1,250,000 2008 Depr. = $916,101 Replacement Cost Analysis ‐ 2008 Replacement Costs to 2010$ dollars wit $116,701,547 3.8% 65 year CPI U Average years of Useful Life (replacement cycle) 60 60 60 60 60 60 60 Annual Replacement Cost plus annual inflation $1,950,000 $2,024,000 $2,128,000 $2,242,000 $2,356,000 $2,481,000 $2,616,000 Plus Annual CIP Project Costs for Total Replacement Costs Annually $1,950,000 $2,050,000 $2,160,000 $2,270,000 $2,390,000 $2,520,000 $2,640,000 Depreciation Analysis Total Total Improvement Project $200,000 $1,736,000 $1,896,000 $1,513,000 $1,834,000 $2,492,000 $1,670,000 $11,341,000 Average years of Depreciation 50 50 50 50 50 50 50 Annual Increase in Depreciation $4,000 $34,720 $37,920 $30,260 $36,680 $49,840 $33,400 226,820 Cumulative Increase in Depreciation $4,000 $38,720 $76,640 $106,900 $143,580 $193,420 $226,820 Projected Depreciation $920,000 $950,000 $990,000 $1,020,000 $1,060,000 $1,110,000 $1,140,000 Plant Replacement Costs (Plant Original Cost X $59,047,354 2% of Original Costs $1,180,000 2% of Original Cost Method Plus Annual CIP $1,180,000 $1,210,000 $1,250,000 $1,280,000 $1,320,000 $1,370,000 $1,400,000 Water COSA - Page 7 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Development of the Commodity Allocation Factor Exhibit 5 2010 Net Water Average Consumption 17.0% Delivered Day Use Customer Classes in ccf Losses (Flow + Losses) (MGD) % of Total Residential 811,232 137,909 949,141 1.95 51.6% Disability/Senior 18,817 3,199 22,015 0.05 1.2% Multi‐Family 267,275 45,437 312,711 0.64 17.0% Commercial 367,362 62,451 429,813 0.88 23.4% Irrigation 106,623 18,126 124,749 0.26 6.8% Total 1,571,308 267,122 1,838,431 3.77 100.0% Allocation Factor 2009 Production 1,913,599 3.9 (C0MM) Note: Water Comp. Plan (2009) states water losses at 12%, Table 2‐10, page 2‐8, based on 1997‐2002 data. City data 17% losses and unaccounted water. City noted numerous old, under registering meters. = Consumption/365/1,000,000 City of Puyallup Water Utility Development of the Capacity Allocation Factor Exhibit 6 Average Peak Consumption Peaking Day Use Customer Classes (MGD) Factors (MGD) % of Total Residential 1.95 2.15 4.18 48.1% Disability/Senior 0.05 2.15 0.10 1.1% Multi‐Family 0.64 2.00 1.28 14.7% Commercial 0.88 2.45 2.16 24.8% Irrigation 0.26 3.80 0.97 11.2% Total 3.77 8.69 100.0% Allocation Factor Historical Peak Day 8.70 (CAP) Note: Based on historical peak to average month, 2009. Historical peak from City information. Water COSA - Page 8 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Development of the Customer Allocation Factor Exhibit 7 Number of % of Number of Weighting Weighted % of Weighting Weighted % of Customer Classes Accounts Total Units Factor Customer Total Factor Customer Total Residential 8,645 81.6% 8,645 1.0 8,645 49.8% $463 $4,003,849 72.2% Disability/Senior 314 3.0% 314 1.3 392 2.3% $462 $144,865 2.6% Multi‐Family 704 6.6% 4,934 1.5 7,400 42.6% $800 $562,562 10.1% Commercial 777 7.3% 777 1.0 777 4.5% $881 $684,262 12.3% Irrigation 154 1.5% 154 1.0 154 0.9% $960 $147,602 2.7% Total 10,593 100.0% 14,823 17,368 100.0% $5,543,139 100.0% Allocation Factor (AC) (WCA) (WCMS) Note: Based on City input. Based on weighted average of number of meters to meter cost. Meter cost provided by City. City of Puyallup Water Utility Development of the Public Fire Protection Allocation Factor Exhibit 8 Fire Prot. Total FP Number of Requirements Duration Requirements % of Customer Classes Accounts (gals/min) (minutes) (1,000 g/min) Total Residential 8,645 1,000 60 518,701 36.7% Disability/Senior 314 1,000 60 18,814 1.3% Multi‐Family 704 2,500 180 316,575 22.4% Commercial 777 4,000 180 559,343 39.6% Irrigation 154 0 0 0 0.0% Total 10,593 1,413,432 100.0% Allocation Factor (FP) Based on fire protection requirements provided by City. Actual Customer Customer Service & Accounting Meters & Services Water COSA - Page 9 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Development of the Revenue Related Allocation Factor Exhibit 9 Projected Revenue Customer Classes 2011 % of Total Residential $2,325,815 52.5% Disability/Senior 40,453 0.9% Multi‐Family 855,571 19.3% Commercial 943,022 21.3% Irrigation 265,312 6.0% Total $4,430,173 100.0% Allocation Factor (RR) Water COSA - Page 10 of 23 ---PAGE BREAK--- City of Puyallup Page 1 of 2 Water Utility Functionalization and Classification of Plant in Service Exhibit 10 Customer Related Weighted for: Direct Actual Cust. Meters & Revenue Assign. Original Cost Commodity Capacity Customer Acctg. Services Related Public Fire 2008 Plant (COMM) (CAP) (AC) (WCA) (WCMS) (RR) (DAFP) Basis of Classification Plant Assets Land Land ‐ N. Puyallup Reservoir $78,415 $0 $71,645 $0 $0 $0 $0 $6,770 91% CAP 9% FP Land ‐ Salmon Springs (source) 5,000 5,000 0 0 0 0 0 0 100% COMM Land ‐ 1300 ‐ 23Rd Ave SE (reservoir) 1,831 0 1,673 0 0 0 0 158 91% CAP 9% FP Land ‐ 39Th Ave Se (reservoir) 1,981 0 1,810 0 0 0 0 171 91% CAP 9% FP Land ‐ Stemp Property (corp. yard) 231,804 231,804 0 0 0 0 0 0 100% COMM Land ‐ Pratt Property (corp. yard) 138,556 138,556 0 0 0 0 0 0 100% COMM Land ‐ Kinard Property (corp. yard) 68,712 68,712 0 0 0 0 0 0 100% COMM Land ‐ 910 25Th St 25,000 25,000 0 0 0 0 0 0 100% COMM Land ‐ 1108‐1110 39Th Ave SE (corp. yard) 160,456 0 146,604 0 0 0 0 13,852 91% CAP 9% FP Total Land $711,755 $469,072 $221,732 $0 $0 $0 $0 $20,951 Other Improvements Water Rights Study $119,400 $51,342 $68,058 $0 $0 $0 $0 $0 43% COMM 57% CAP Fence At Maplewood Springs 5,370 2,309 3,061 0 0 0 0 0 43% COMM 57% CAP Fence At 23Rd Ave. S.E. 5,566 2,393 3,173 0 0 0 0 0 43% COMM 57% CAP Loop Road At Corporate Yard 24,945 10,726 14,219 0 0 0 0 0 43% COMM 57% CAP Cherokee Park Sidewalks 17,580 7,559 10,021 0 0 0 0 0 43% COMM 57% CAP 23Rd Ave Sw Tank Painting Proj 446,050 191,802 254,249 0 0 0 0 0 43% COMM 57% CAP Water Reservoir ‐ Painting 162,442 0 148,419 0 0 0 0 14,024 91% CAP 9% FP Water Improvement‐Cascade Chri 61,310 26,363 34,947 0 0 0 0 0 43% COMM 57% CAP Water Improvement‐19 St Sewer 7,167 3,082 4,085 0 0 0 0 0 43% COMM 57% CAP Water Reservoir ‐ Painting 224,213 0 204,856 0 0 0 0 19,357 91% CAP 9% FP Wildwood Reservoir Fence 8,859 0 8,094 0 0 0 0 765 91% CAP 9% FP Paving ‐ Corporate Yard 23,166 9,961 13,204 0 0 0 0 0 43% COMM 57% CAP Painting 39Th Ave Reservoir 45,333 0 41,419 0 0 0 0 3,914 91% CAP 9% FP Waterworks Utility Rate Study 31,262 0 0 0 31,262 0 0 0 100% WCA Water System Plan 64,192 27,602 36,589 0 0 0 0 0 43% COMM 57% CAP Rainier Woods Park Fence 6,726 2,892 3,834 0 0 0 0 0 43% COMM 57% CAP Total Other Improvements $1,253,580 $336,033 $848,227 $0 $31,262 $0 $0 $38,059 Heavy Equipment 2002 Service Body ‐ 6310 $24,216 $10,413 $13,803 $0 $0 $0 $0 $0 43% COMM 57% CAP Crane For Truck 9,300 3,999 5,301 0 0 0 0 0 43% COMM 57% CAP Stage Pump ‐ Well #43 6,293 2,706 3,587 0 0 0 0 0 43% COMM 57% CAP Booster Equipment 9,188 3,951 5,237 0 0 0 0 0 43% COMM 57% CAP Altitude Valve 5,744 2,470 3,274 0 0 0 0 0 43% COMM 57% CAP Trenchbox 5,501 2,366 3,136 0 0 0 0 0 43% COMM 57% CAP Remote Meter Reading System 14,109 6,067 8,042 0 0 0 0 0 43% COMM 57% CAP Universal Pipe Cutter 6,362 2,736 3,626 0 0 0 0 0 43% COMM 57% CAP Tablet Chlorinator 5,221 2,245 2,976 0 0 0 0 0 43% COMM 57% CAP Water Pump 28,482 12,247 16,235 0 0 0 0 0 43% COMM 57% CAP Auto Irrigation System 39,912 17,162 22,750 0 0 0 0 0 43% COMM 57% CAP Hydraulic Vehicle Lift 23,274 10,008 13,266 0 0 0 0 0 43% COMM 57% CAP Fuel Card System 7,670 3,298 4,372 0 0 0 0 0 43% COMM 57% CAP Exhaust System 21,642 9,306 12,336 0 0 0 0 0 43% COMM 57% CAP Telemetering System 75,457 32,446 43,010 0 0 0 0 0 43% COMM 57% CAP Security System ‐ Corp Yard 2 10,873 4,675 6,197 0 0 0 0 0 43% COMM 57% CAP Water Pump For Maplewood 22,994 9,887 13,106 0 0 0 0 0 43% COMM 57% CAP Pump/Motor 5 Stage, 6 22,536 9,690 12,845 0 0 0 0 0 43% COMM 57% CAP 60 Horse Power Bj Pump 26,641 11,456 15,186 0 0 0 0 0 43% COMM 57% CAP Chlorinator ‐ Maplewood 6,279 2,700 3,579 0 0 0 0 0 43% COMM 57% CAP Chlorinator ‐ Maplewood 6,279 2,700 3,579 0 0 0 0 0 43% COMM 57% CAP Chlorinator 6,279 2,700 3,579 0 0 0 0 0 43% COMM 57% CAP Pump And Motor ‐ Inground 34,146 14,683 19,463 0 0 0 0 0 43% COMM 57% CAP Water COSA - Page 11 of 23 ---PAGE BREAK--- City of Puyallup Page 2 of 2 Water Utility Functionalization and Classification of Plant in Service Exhibit 10 Customer Related Weighted for: Direct Actual Cust. Meters & Revenue Assign. Original Cost Commodity Capacity Customer Acctg. Services Related Public Fire 2008 Plant (COMM) (CAP) (AC) (WCA) (WCMS) (RR) (DAFP) Basis of Classification Chlorinator ‐Salmon Springs #1 9,436 4,057 5,378 0 0 0 0 0 43% COMM 57% CAP Pump For Well #43 14,697 6,320 8,377 0 0 0 0 0 43% COMM 57% CAP 12 Attitude Valve" 18,502 7,956 10,546 0 0 0 0 0 43% COMM 57% CAP Vault ‐ Maplewood Springs 13,203 5,677 7,526 0 0 0 0 0 43% COMM 57% CAP Vault ‐ 14Th S 5,222 2,246 2,977 0 0 0 0 0 43% COMM 57% CAP Rugid Telemetry Unit 7,922 3,406 4,516 0 0 0 0 0 43% COMM 57% CAP Submersible Pump & Motor 16,900 7,267 9,633 0 0 0 0 0 43% COMM 57% CAP Total Heavy Equipment $504,280 $216,840 $287,440 $0 $0 $0 $0 $0 Machinery & Equipment Konica 3035 Copier $7,038 $3,026 $4,012 $0 $0 $0 $0 $0 43% COMM 57% CAP Cherokee Control Panel 7,507 3,228 4,279 0 0 0 0 0 43% COMM 57% CAP Wildwood Control Panel 7,942 3,415 4,527 0 0 0 0 0 43% COMM 57% CAP 39Th Pump Station Control Panel 7,942 3,415 4,527 0 0 0 0 0 43% COMM 57% CAP 9Th & 19Th Control Panel 7,507 3,228 4,279 0 0 0 0 0 43% COMM 57% CAP Total Machinery & Equipment $37,937 $16,313 $21,624 $0 $0 $0 $0 $0 Buildings & Structures Corp Yard Bldg $1,129,697 $358,063 $728,026 $0 $19,666 $0 $0 $23,942 As all other plant Chlorination Building 13,818 13,818 0 0 0 0 0 0 100% COMM Corp. Yard Conf. Room Remodel 154,666 49,022 99,674 0 2,692 0 0 3,278 As all other plant Total Buildiings & Structures $1,298,181 $420,903 $827,700 $0 $22,359 $0 $0 $27,220 Software Sensus Meter Reading Software $14,969 $0 $0 $14,969 $0 $0 $0 $0 100% AC Software ‐ Scada System 20,271 8,716 11,554 0 0 0 0 0 43% COMM 57% CAP Invensys Technology Adv. Software 6,618 0 4,515 1,588 0 0 0 515 As Water Mains Wonderware Software 11,862 0 8,092 2,847 0 0 0 923 As Water Mains Total Software $53,720 $8,716 $24,161 $19,405 $0 $0 $0 $1,439 Wells $1,880,900 $808,787 $1,072,113 $0 $0 $0 $0 $0 43% COMM 57% CAP Booster Stations $1,920,100 $825,643 $1,094,457 $0 $0 $0 $0 $0 43% COMM 57% CAP Hydrants $2,137,000 $0 $0 $0 $0 $0 $0 $2,137,000 100% DAFP Pressure Reducing Valves $589,200 $253,356 $335,844 $0 $0 $0 $0 $0 43% COMM 57% CAP Water Mains $41,978,905 $0 $28,635,994 $10,074,937 $0 $0 $0 $3,267,973 68% CAP 24% AC 8% FP Water Reservoirs $4,262,500 $0 $3,894,514 $0 $0 $0 $0 $367,986 91% CAP 9% FP Water Meters $2,419,295 $0 $0 $0 $0 $2,419,295 $0 $0 100% WCMS Total Plant Assets $59,047,354 $3,355,663 $37,263,806 $10,094,342 $53,621 $2,419,295 $0 $5,860,627 % Total Plant 100.0% 5.7% 63.1% 17.1% 0.1% 4.1% 0.0% 9.9% Less: Depreciation Other Improvements $850,268 $227,922 $575,328 $0 $21,204 $0 $0 $25,814 As Other Improvements Heavy Equipment 460,651 198,080 262,571 0 0 0 0 0 As Heavy Equipment Machinery & Equipment 13,216 5,683 7,533 0 0 0 0 0 As Machinery & Equipment Buildings & Structures 433,190 140,451 276,195 0 7,461 0 0 9,083 As Buildings & Structures Software 40,536 6,577 18,231 14,642 0 0 0 1,086 As Software Wells 561,600 241,488 320,112 0 0 0 0 0 As Wells Booster Stations 908,500 390,655 517,845 0 0 0 0 0 As Booster Stations Hydrants 1,333,000 0 0 0 0 0 0 1,333,000 As Hydrants Pressure Reducing Valves 342,900 147,447 195,453 0 0 0 0 0 As Pressure Reducing Valves Water Mains 9,496,880 0 6,478,316 2,279,251 0 0 0 739,313 As Water Mains Water Reservoirs 1,504,800 0 1,374,889 0 0 0 0 129,911 As Reservoirs Water Meters 1,924,161 0 0 0 0 1,924,161 0 0 As Meters Total Depreciation $17,869,702 $1,358,303 $10,026,474 $2,293,893 $28,665 $1,924,161 $0 $2,238,206 Net Plant In Service $41,177,652 $1,997,361 $27,237,332 $7,800,448 $24,956 $495,134 $0 $3,622,421 % Net Plant in Service 100.0% 4.9% 66.1% 18.9% 0.1% 1.2% 0.0% 8.8% Water COSA - Page 12 of 23 ---PAGE BREAK--- City of Puyallup Functionalization and Classification of Distribution Storage Exhibit 10A Hours Gal/Minute Total Fire Flow Requirements 3 4,000 720,000 Total Storage Capacity 8,340,000 Public Fire Protection 9% Capacity 91% From City information. City 2009 Water System Comprehensive Plan; Table 1‐4, page 1‐16 and Table 3‐18, page 3‐22. Source of Supply Capacity/Commodity Average Day 3.77 Comm 43% Peak Day 8.69 1‐comm=Cap 57% Distribution Main Analysis Mtr Size Length (ft) $ Total 2" 31,508 $27 $857,018 3" 100 $51 5,100 4" 51,538 $85 4,380,730 6" 219,818 $93 20,443,074 8" 374,234 $116 43,411,144 10" 36,759 $143 5,256,537 12" 184,709 $150 27,706,350 14" 24,193 $174 4,209,582 16" 61,030 $198 12,083,940 18" 10,688 $220 2,351,360 20" 7,228 $260 1,879,280 24" 956 $304 290,624 922,859 106,269,535 Customer% Total @ 2" Equiv $25,101,765 /Total Cost 24% Capacity Cost for 2‐8" $69,097,066 Equiv 8" for larger $28,496,676 1+2‐3/4 (to 14") 68% Fire Protection 1‐comm‐cap 8% 2" and 3" not provided therefore prorated based on 4" size and equivalency ratio Replacement cost provided by City. Water COSA - Page 13 of 23 ---PAGE BREAK--- City of Puyallup Page 1 of 2 Water Utility Functionalization and Classification of Expenses Exhibit 11 Weighted for: Direct Actual Cust. Meters & Revenue Assign. Total Commodity Capacity Customer Acctg. Services Related Public Fire EXPENSES 2011 (COMM) (CAP) (AC) (WCA) (WCMS) (RR) (DAFP) Basis of Classification Engineering 522061 Engineering/Other $41,200 $1,998 $27,252 $7,805 $25 $495 $0 $3,624 As Net Plant in Service Source of Supply ‐ Operations 510095 Payroll Contingency $34,532 $1,675 $22,841 $6,541 $21 $415 $0 $3,038 As Net Plant in Service 511011 Reg & Part Time Wages 794,546 38,540 525,560 150,514 482 9,554 0 69,897 As Net Plant in Service 511015 Longevity Pay 7,416 360 4,905 1,405 4 89 0 652 As Net Plant in Service 511017 Acting Pay 4,247 206 2,809 804 3 51 0 374 As Net Plant in Service 511025 Standby Pay 28,000 1,358 18,521 5,304 17 337 0 2,463 As Net Plant in Service 512013 Overtime 43,702 2,120 28,907 8,279 26 525 0 3,844 As Net Plant in Service 514021 Med, etc. Benefits 0 0 0 0 0 0 0 0 As Net Plant in Service 514022 State Retirement Plans 44,951 2,180 29,733 8,515 27 541 0 3,954 As Net Plant in Service 514027 Regence Blue Shield 200,774 9,739 132,804 38,033 122 2,414 0 17,662 As Net Plant in Service 514030 FICA Medicare 64,760 3,141 42,836 12,268 39 779 0 5,697 As Net Plant in Service 514032 Labor & Industries 32,616 1,582 21,574 6,179 20 392 0 2,869 As Net Plant in Service 514033 Life Insurance 1,604 78 1,061 304 1 19 0 141 As Net Plant in Service 514034 Dental Insurance/WA Dental 36,320 1,762 24,024 6,880 22 437 0 3,195 As Net Plant in Service 514035 Vision Insurance 9,923 481 6,564 1,880 6 119 0 873 As Net Plant in Service 514037 Employee Assistance Plan 264 13 174 50 0 3 0 23 As Net Plant in Service 514042 Long Term Disability 4,916 238 3,252 931 3 59 0 432 As Net Plant in Service 515022 Uniforms & Clothing 1,700 82 1,124 322 1 20 0 150 As Net Plant in Service 517031 Office & Operating Supplies 155,000 7,518 102,526 29,362 94 1,864 0 13,635 As Net Plant in Service 517032 Office Supplies ‐ Paper 670 32 443 127 0 8 0 59 As Net Plant in Service 517033 Office Supplies ‐ Toner 670 32 443 127 0 8 0 59 As Net Plant in Service 518032 Fuel for Consumption 824 40 545 156 0 10 0 72 As Net Plant in Service 518033 ER&R ‐ Fuel 40 788 1 978 26 980 7 727 25 490 0 3 588 As Net Plant in Service Customer Related 518033 ER&R Fuel 40,788 1,978 26,980 7,727 25 490 0 3,588 As Net Plant in Service 519034 Items Purchased for Resale 55,284 2,682 36,568 10,473 34 665 0 4,863 As Net Plant in Service 520035 Small Tools/Minor Equipment 45,011 2,183 29,773 8,527 27 541 0 3,960 As Net Plant in Service 522041 Professional Services 36,359 1,764 24,050 6,888 22 437 0 3,199 As Net Plant in Service 522057 PS ‐ Emerg After Hours Ans. Service 510 25 337 97 0 6 0 45 As Net Plant in Service 522059 PS ‐ Engineering/Design 2,295 111 1,518 435 1 28 0 202 As Net Plant in Service 522081 PS ‐ Medical/Physicals 510 25 337 97 0 6 0 45 As Net Plant in Service 522092 PS ‐ Printing/Copying Services 3,500 170 2,315 663 2 42 0 308 As Net Plant in Service 522105 PS ‐ Software Support/Other 510 25 337 97 0 6 0 45 As Net Plant in Service 522018 PS ‐ Training 510 25 337 97 0 6 0 45 As Net Plant in Service 522109 PS ‐ Tree Removal/Trimming 663 32 439 126 0 8 0 58 As Net Plant in Service 522110 PS ‐ Uniform Cleaning 6,500 315 4,299 1,231 4 78 0 572 As Net Plant in Service 522111 PS ‐ Vadis NW Contract 21,836 1,059 14,444 4,136 13 263 0 1,921 As Net Plant in Service 522118 PS ‐ Water Testing 35,000 35,000 0 0 0 0 0 0 100% COMM 522119 PS ‐ Project Legal Fees 0 0 0 0 0 0 0 0 As Net Plant in Service 522122 PS ‐ Waste Disposal Services 6,077 295 4,020 1,151 4 73 0 535 As Net Plant in Service 523043 Delivery Charges (Fedex, UPS) 0 0 0 0 0 0 0 0 As Net Plant in Service 523048 Comm ‐ Cellular Phone 7,622 370 5,042 1,444 5 92 0 671 As Net Plant in Service 524043 Travel ‐ Miles, Meals, Lodge 1,887 92 1,248 357 1 23 0 166 As Net Plant in Service 525044 Advertising 306 15 202 58 0 4 0 27 As Net Plant in Service 525046 Advertising ‐ Legal Notices 204 10 135 39 0 2 0 18 As Net Plant in Service 526045 Operating Rentals & Leases 4,488 218 2,969 850 3 54 0 395 As Net Plant in Service 526048 Rentals ‐ Field Equipment 4,488 218 2,969 850 3 54 0 395 As Net Plant in Service 527048 Insurance ‐ Self Insurance Fund 28,862 1,400 19,091 5,467 17 347 0 2,539 As Net Plant in Service 528048 Public Utility ‐ Electric 185,210 185,210 0 0 0 0 0 0 100% COMM 528049 Public Utility ‐ Water 222 222 0 0 0 0 0 0 100% COMM 528050 Public Utility ‐ Sewer 226 226 0 0 0 0 0 0 100% COMM 528051 Public Utility ‐ SWM 5,358 260 3,544 1,015 3 64 0 471 As Net Plant in Service 528052 Public Utility ‐ Refuse 3,399 165 2,248 644 2 41 0 299 As Net Plant in Service 528053 Public Utility ‐ Natural Gas 8,847 8,847 0 0 0 0 0 0 100% COMM 528057 Public Utility ‐ Landfill Fees 103 5 68 20 0 1 0 9 As Net Plant in Service Water COSA - Page 14 of 23 ---PAGE BREAK--- City of Puyallup Page 2 of 2 Water Utility Functionalization and Classification of Expenses Exhibit 11 Weighted for: Direct Actual Cust. Meters & Revenue Assign. Total Commodity Capacity Customer Acctg. Services Related Public Fire EXPENSES 2011 (COMM) (CAP) (AC) (WCA) (WCMS) (RR) (DAFP) Basis of Classification Customer Related 529048 Repairs & Maintenance 40,000 1,940 26,458 7,577 24 481 0 3,519 As Net Plant in Service 529056 R/M: Contr Maint ‐ Field Equip 34,578 1,677 22,872 6,550 21 416 0 3,042 As Net Plant in Service 529067 R/M: Generator Maintenance 2,295 111 1,518 435 1 28 0 202 As Net Plant in Service 529075 R/M: Motorola Radio 1,122 54 742 213 1 13 0 99 As Net Plant in Service 529084 R/M: Repairs ‐ Equipment 0 0 0 0 0 0 0 0 As Net Plant in Service 529106 ER&R ‐ Maint/Internal 108,867 5,281 72,011 20,623 66 1,309 0 9,577 As Net Plant in Service 529108 IT&C ‐ Maint/Internal 58,938 2,859 38,985 11,165 36 709 0 5,185 As Net Plant in Service 529109 IT&C ‐ Replacement 11,858 575 7,844 2,246 7 143 0 1,043 As Net Plant in Service 529111 IT&C Dispatch 800 MHz Assessment 35,657 1,730 23,585 6,755 22 429 0 3,137 As Net Plant in Service 530049 Miscellaneous 8,874 430 5,870 1,681 5 107 0 781 As Net Plant in Service 530050 Misc ‐ Conference Registration 5,406 262 3,576 1,024 3 65 0 476 As Net Plant in Service 530051 Misc ‐ Dues 1,836 89 1,214 348 1 22 0 162 As Net Plant in Service 530052 Misc ‐ Subscriptions 408 20 270 77 0 5 0 36 As Net Plant in Service 530053 Misc ‐ Certifications 2,142 104 1,417 406 1 26 0 188 As Net Plant in Service 531050 Intergovernmental Services 0 0 0 0 0 0 0 0 As Net Plant in Service 536063 Improvements Other Than Bldg 56,712 2,751 37,513 10,743 34 682 0 4,989 As Net Plant in Service 537064 Machinery and Equipment 66,023 3,203 43,672 12,507 40 794 0 5,808 As Net Plant in Service 537075 ER&R ‐ Repl/Internal 57,989 2,813 38,357 10,985 35 697 0 5,101 As Net Plant in Service Total Source of Supply $2,466,713 $338,024 $1,479,821 $423,803 $1,356 $26,901 $0 $196,808 General Fund Administration $969,816 $131,487 $582,789 $166,904 $534 $10,594 $0 $77,508 As All Other Expenses Total Operations & Maintenance $3,477,729 $471,509 $2,089,862 $598,512 $1,915 $37,991 $0 $277,941 Taxes 528056 Public Utility Tax ‐ Rates $354 414 $0 $0 $0 $0 $0 $354 414 $0 100% RR 528056 Public Utility Tax Rates $354,414 $0 $0 $0 $0 $0 $354,414 $0 100% RR 528059 Public Utility Tax ‐ SDCs 23,136 0 0 0 0 0 23,136 0 100% RR 532051 Intergovernmental Charges 223,499 0 0 0 0 0 223,499 0 100% RR Total Taxes $601,048 $0 $0 $0 $0 $0 $601,048 $0 Debt Service [PHONE REDACTED] Revenue Bond $330,960 $16,054 $218,917 $62,695 $201 $3,980 $0 $29,115 As Net Plant in Service 2009 Revenue Bonds (Series B) 213,248 10,344 141,055 40,396 129 2,564 0 18,760 As Net Plant in Service 541002 Bond Administration Fee 0 0 0 0 0 0 0 0 As Net Plant in Service New Debt Service 94,976 4,607 62,823 17,992 58 1,142 0 8,355 As Net Plant in Service Total Debt Service $639,184 $31,004 $422,794 $121,083 $387 $7,686 $0 $56,229 Less: SDC Revenue ($75,000) ($3,638) ($49,609) ($14,208) ($45) ($902) $0 ($6,598) As Net Plant in Service Net Total Debt Service $564,184 $27,366 $373,185 $106,876 $342 $6,784 $0 $49,632 Capital Funded Through Rates $250,000 $12,126 $165,365 $47,359 $152 $3,006 $0 $21,993 As Net Plant in Service Change in Working Capital $0 $0 $0 $0 $0 $0 $0 $0 As Net Plant in Service Total Revenue Requirement $4,892,961 $511,002 $2,628,411 $752,746 $2,408 $47,781 $601,048 $349,565 Less: Misc. Revenue 439800 Late Penalty $27,270 $0 $0 $0 $0 $0 $27,270 $0 100% RR 440400 Turn on Charges, Water 26,159 0 0 0 0 0 26,159 0 100% RR 452001 Investment Interest 10,000 0 0 0 0 0 10,000 0 100% RR 454700 Telecom (Cell Tower) Lease 26,361 1,279 17,437 4,994 16 317 0 2,319 As Net Plant in Service Fire Protection Revenue 0 0 0 0 0 0 0 0 As Net Plant in Service 458600 Other Misc. Revenue 27,472 1,333 18,172 5,204 17 330 0 2,417 As Net Plant in Service Total Misc. Revenue $117,262 $2,611 $35,608 $10,198 $33 $647 $63,429 $4,736 Net Revenue Requirements $4,775,699 $508,391 $2,592,803 $742,548 $2,376 $47,133 $537,619 $344,829 % Net Revenue Requirements 100.0% 10.6% 54.3% 15.5% 0.0% 1.0% 11.3% 7.2% Water COSA - Page 15 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Allocation of Revenue Requirements Exhibit 12 Net Revenue Disability/ Public Fire Allocation Classification Components Requirement Residential Senior Multi‐Family Commercial Irrigation Protection Factor Commodity $508,391 $262,471 $6,088 $86,476 $118,859 $34,498 $0 COM Capacity $2,592,803 1,247,733 28,941 382,407 643,870 289,851 0 CAP Customer Related ‐Actual Customer $742,548 606,015 21,981 49,315 54,458 10,779 0 AC ‐Weighted for Cust. Acctg. 2,376 1,182 54 1,012 106 21 0 WCA ‐Weighted for Meters & Services 47,133 34,045 1,232 4,783 5,818 1,255 0 WCMS Total Customer Related $792,057 641,242 23,266 55,111 60,383 12,055 0 Revenue Related $537,619 282,247 4,909 103,827 114,440 32,197 0 RR Direct Assignment ‐ Public Fire Protection $344,829 0 0 0 0 0 344,829 DAFP Revenue Requirement $4,775,699 $2,433,694 $63,204 $627,821 $937,551 $368,600 $344,829 Water COSA - Page 16 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Summary of Cost of Service Analysis Exhibit 13 2011 Disability/ Public Fire Expenses Residential Senior Multi‐Family Commercial Irrigation Protection Revenues at Present Rates $4,430,173 $2,325,815 $40,453 $855,571 $943,022 $265,312 $0 Less: Allocated Revenue Requirement 4,775,699 2,433,694 63,204 627,821 937,551 368,600 344,829 Balance/(Deficiency) Before Taxes ($345,526) ($107,879) ($22,752) $227,750 $5,472 ($103,288) ($344,829) Add'l Taxes with rate increase ($45,019) ($8,391) ($1,770) $0 $0 ($8,034) ($26,823) Balance/(Deficiency) of Funds ($390,545) ($116,270) ($24,521) $227,750 $5,472 ($111,323) ($371,652) Required % Change in Rates 8.8% 5.0% 60.6% ‐26.6% ‐0.6% 42.0% 0.0% 2011 Public Fire Expenses Residential Multi‐Family Commercial Irrigation Protection Revenues at Present Rates $4,430,173 $2,366,268 $855,571 $943,022 $265,312 $0 Less: Allocated Revenue Requirement 4 775 699 2 496 898 627 821 937 551 368 600 344 829 Less: Allocated Revenue Requirement 4,775,699 2,496,898 627,821 937,551 368,600 344,829 Balance/(Deficiency) Before Taxes ($345,526) ($130,630) $227,750 $5,472 ($103,288) ($344,829) Add'l Taxes with rate increase ($45,019) ($10,161) $0 $0 ($8,034) ($26,823) Balance/(Deficiency) of Funds ($390,545) ($140,792) $227,750 $5,472 ($111,323) ($371,652) Required % Change in Rates 8.8% 5.9% ‐26.6% ‐0.6% 42.0% 0.0% Water COSA - Page 17 of 23 ---PAGE BREAK--- City of Puyallup Water Utility Average Unit Cost Summary Exhibit 14 Total Residential Multi‐Family Commercial Irrigation Commodity $/100 CF $0.32 $0.32 $0.32 $0.32 $0.32 Capacity $/100 CF $1.65 $1.54 $1.43 $1.75 $2.72 Revenue $/100 CF $0.34 $0.35 $0.39 $0.31 $0.30 Total $/100 CF $2.32 $2.21 $2.14 $2.39 $3.34 Customer Costs ‐ $2.81 $12.36 $1.86 $12.95 $13.07 Proposed Revenue $/ccf $3.04 $3.01 $2.35 $2.55 $3.46 Current Revenue $/ccf $2.82 $2.85 $3.20 $2.57 $2.49 Basic Data: Annual Water Consumption(/100 CF) 1 571 308 830 049 267 275 367 362 106 623 Annual Water Consumption(/100 CF) 1,571,308 830,049 267,275 367,362 106,623 Number of Units 14,823 8,959 4,934 777 154 $0.00 $1.00 $2.00 $3.00 $4.00 Residential Multi‐Family Commercial Irrigation Current Vs. Proposed Unit Cost $/ccf Proposed Revenue $/ccf Current Revenue $/ccf Water COSA - Page 18 of 23 ---PAGE BREAK--- City of Puyallup Page 1 of 5 Development Of Revenues At Present Rates For Actual Year 2009 Rates 1/1/2009 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09 Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Total RESIDENTIAL Per Unit Service Charge 5/8" Meter $13.97 4,773 3,283 4,832 3,287 4,834 3,312 4,864 3,344 4,845 3,309 4,872 3,280 8,152 3/4" Meter $15.08 8 3 8 3 8 3 8 3 8 3 8 3 11 1" Meter $19.31 20 1 20 1 20 1 20 1 20 1 21 1 22 1 1/2" Meter $24.84 3 0 3 0 3 0 4 0 4 0 4 0 4 2" Meter $40.29 1 1 1 1 1 1 1 1 1 1 1 1 2 3" Meter $105.71 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter $192.60 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $288.88 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $398.82 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $519.40 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 4,805 3,288 4,864 3,292 4,866 3,317 4,897 3,349 4,878 3,314 4,906 3,285 8,191 Usage Charge (per ccf) 0 ‐ 10 ccf. $1.53 39,646 26,838 40,992 25,232 39,734 28,007 44,329 29,754 44,600 27,583 42,116 26,625 415,456 11 ‐ 24 ccf $2.07 13,332 9,834 17,236 6,767 13,426 14,664 35,902 25,904 42,695 13,946 21,571 9,669 224,946 Over 24 ccf $2.77 2,736 2,223 3,838 905 2,260 3,384 22,521 22,934 55,942 5,232 7,770 1,819 131,564 Total Consumption 55,714 38,895 62,066 32,904 55,420 46,055 102,752 78,592 143,237 46,761 71,457 38,113 771,966 Revenues Water Service Charge $67,300 $45,968 $68,125 $46,024 $68,153 $46,373 $68,597 $46,821 $68,331 $46,332 $68,728 $45,926 $686,678 Water Usage Charge 95,834 67,576 109,028 55,120 94,845 82,579 204,524 162,672 311,576 85,563 130,612 65,790 1,465,718 Total Revenues $163,135 $113,545 $177,152 $101,144 $162,998 $128,952 $273,120 $209,493 $379,907 $131,894 $199,340 $111,716 $2,152,396 RESIDENTIAL OUTSIDE Per Unit Service Charge 5/8" Meter $20.96 59 345 60 341 57 348 58 343 59 345 60 344 404 3/4" Meter $22.62 0 1 0 1 0 1 0 1 0 1 0 1 1 1" Meter $28.97 0 5 0 5 0 5 0 4 0 5 0 5 5 1 1/2" Meter $37.26 0 1 0 1 0 1 0 1 0 1 0 1 1 2" Meter $60.44 0 0 0 0 0 0 0 0 0 0 0 0 0 3" Meter $158.57 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter $288.90 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $433.32 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $598.23 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $779.10 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 59 352 60 348 57 355 58 349 59 352 60 351 411 Usage Charge (per ccf) 0 ‐ 10 ccf. $2.30 477 2,761 510 2,659 484 2,980 513 3,071 522 2,785 494 2,772 20,028 11 ‐ 24 ccf $3.11 169 1,149 244 841 212 1,733 415 2,385 525 1,157 308 1,037 10,175 Over 24 ccf $4.16 19 782 15 122 33 806 243 1,714 648 298 114 233 5,027 Total Consumption 665 4,692 769 3,622 729 5,519 1,171 7,170 1,695 4,240 916 4,042 35,230 Revenues Water Service Charge $1,236 $7,434 $1,257 $7,350 $1,194 $7,497 $1,215 $7,363 $1,236 $7,434 $1,257 $7,413 $51,889 Water Usage Charge 1,698 13,153 1,990 9,221 1,906 15,569 3,476 21,575 5,521 11,222 2,564 10,550 98,445 Total Revenues $2,935 $20,588 $3,248 $16,571 $3,101 $23,066 $4,691 $28,938 $6,757 $18,656 $3,821 $17,963 $150,334 TOTAL RESIDENTIAL $166,070 $134,132 $180,400 $117,715 $166,098 $152,018 $277,811 $238,431 $386,664 $150,551 $203,161 $129,679 $2,302,730 Water COSA - Page 19 of 23 ---PAGE BREAK--- City of Puyallup Page 2 of 5 Development Of Revenues At Present Rates For Actual Year 2009 Rates 1/1/2009 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09 Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Total DISABILITY/SENIOR DISCOUNT Service Charge 5/8" Meter $13.97 121 192 121 191 120 188 119 187 118 187 119 188 307 3/4" Meter $15.08 0 0 0 0 0 0 0 0 0 0 0 0 0 1" Meter $19.31 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1/2" Meter $24.84 0 0 0 0 0 0 0 0 0 0 0 0 0 2" Meter $40.29 0 0 0 0 0 0 0 0 0 0 0 0 0 3" Meter $105.71 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter $192.60 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $288.88 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $398.82 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $519.40 0 0 0 0 0 0 0 0 0 0 0 0 0 Discount $10.31 121 192 121 191 120 188 119 187 118 187 119 188 154 Total Meters 121 192 121 191 120 188 119 187 118 187 119 188 307 Usage Charge (per ccf) 0 ‐ 10 ccf. $1.53 761 1,262 799 1,137 725 1,333 928 1,523 972 1,285 829 1,219 12,773 11 ‐ 24 ccf $2.07 183 274 201 154 116 315 490 867 644 302 264 285 4,095 Over 24 ccf $2.77 80 64 95 27 6 30 197 362 599 49 86 46 1,641 Total Consumption 1,024 1,600 1,095 1,318 847 1,678 1,615 2,752 2,215 1,636 1,179 1,550 18,509 Revenues Water Service Charge $443 $703 $443 $699 $439 $688 $436 $684 $432 $684 $436 $688 $6,775 Water Usage Charge 1,765 2,675 1,902 2,133 1,366 2,775 2,980 5,128 4,479 2,727 2,053 2,582 32,565 Total Revenues $2,208 $3,378 $2,345 $2,832 $1,805 $3,463 $3,415 $5,812 $4,911 $3,411 $2,489 $3,271 $39,340 DISABILITY/SENIOR DISCOUNT OUTSIDE Service Charge 5/8" Meter $20.96 0 6 0 6 0 6 0 6 1 5 0 5 5 3/4" Meter $22.62 0 0 0 0 0 0 0 0 0 0 0 0 0 1" Meter $28.97 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1/2" Meter $37.26 0 0 0 0 0 0 0 0 0 0 0 0 0 2" Meter $60.44 0 0 0 0 0 0 0 0 0 0 0 0 0 3" Meter $158.57 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter $288.90 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $433.32 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $598.23 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $779.10 0 0 0 0 0 0 0 0 0 0 0 0 0 Discount $15.47 0 6 0 6 0 6 0 6 1 5 0 5 3 Total Meters 0 6 0 6 0 6 0 6 1 5 0 5 5 Usage Charge (per ccf) 0 ‐ 10 ccf. $2.30 0 24 0 22 0 27 0 43 0 33 0 30 179 11 ‐ 24 ccf $3.11 0 0 0 0 0 2 0 21 0 1 0 11 35 Over 24 ccf $4.16 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Consumption 0 24 0 22 0 29 0 64 0 34 0 41 214 Revenues Water Service Charge $0 $33 $0 $33 $0 $33 $0 $33 $5 $27 $0 $27 $192 Water Usage Charge 0 55 0 50 0 68 0 164 0 79 0 103 519 Total Revenues $0 $88 $0 $83 $0 $101 $0 $197 $5 $106 $0 $130 $712 TOTAL DIS./SENIOR $2,208 $3,466 $2,345 $2,916 $1,805 $3,564 $3,415 $6,009 $4,917 $3,518 $2,489 $3,401 $40,051 Water COSA - Page 20 of 23 ---PAGE BREAK--- City of Puyallup Page 3 of 5 Development Of Revenues At Present Rates For Actual Year 2009 Rates 1/1/2009 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09 Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Total MULTI FAMILY Meter Size ‐ Number of Accounts 5/8" Meter 14 32 14 32 14 32 14 32 14 32 14 31 45 3/4" Meter 78 174 78 174 80 174 79 173 77 175 78 173 251 1" Meter 55 42 54 42 54 42 54 42 54 42 54 42 96 1 1/2" Meter 78 58 79 58 83 58 78 58 78 58 78 58 136 2" Meter 61 27 61 25 61 26 61 26 61 25 61 25 86 3" Meter 1 0 1 0 1 0 1 0 1 0 1 0 1 4" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 287 333 287 331 293 332 287 331 285 332 286 329 615 Service Charge Per Unit 5/8" Meter $10.48 586 0 586 0 586 0 586 0 586 0 586 0 586 3/4" Meter $10.48 96 0 96 0 96 0 96 0 96 0 96 0 96 1" Meter $10.48 367 0 367 0 367 0 367 0 367 0 367 0 367 1 1/2" Meter $10.48 1,547 0 1,547 0 1,547 0 1,547 0 1,547 0 1,547 0 1,547 2" Meter $10.48 1,592 0 1,592 0 1,592 0 1,592 0 1,592 0 1,592 0 1,592 3" Meter $10.48 104 0 104 0 104 0 104 0 104 0 104 0 104 4" Meter $10.48 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $10.48 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $10.48 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $10.48 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 4,292 0 4,292 0 4,292 0 4,292 0 4,292 0 4,292 0 4,292 Usage Charge (per ccf) All Consumption $1.80 19,907 15,511 20,979 13,446 18,333 15,183 23,667 18,142 24,393 16,792 19,855 14,957 221,165 Total Consumption 19,907 15,511 20,979 13,446 18,333 15,183 23,667 18,142 24,393 16,792 19,855 14,957 221,165 Revenues Water Service Charge $44,980 $0 $44,980 $0 $44,980 $0 $44,980 $0 $44,980 $0 $44,980 $0 $269,881 Water Usage Charge 35,833 27,920 37,762 24,203 32,999 27,329 42,601 32,656 43,907 30,226 35,739 26,923 398,097 Total Revenues $80,813 $27,920 $82,742 $24,203 $77,980 $27,329 $87,581 $32,656 $88,888 $30,226 $80,719 $26,923 $667,978 MULTI FAMILY OUTSIDE Meter Size ‐ Number of Accounts 5/8" Meter 2 53 2 53 2 53 2 52 3 52 2 54 56 3/4" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 1" Meter 0 10 0 10 0 10 0 10 0 10 0 10 10 1 1/2" Meter 0 9 0 9 0 9 0 9 0 9 0 9 9 2" Meter 0 6 0 6 0 6 0 6 0 6 0 6 6 3" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter 0 3 0 3 0 3 0 3 0 3 0 3 3 6" Meter 0 1 0 1 0 1 0 1 0 1 0 1 1 8" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 2 82 2 82 2 82 2 81 3 81 2 83 85 Service Charge Per Unit 5/8" Meter $15.72 129 0 129 0 129 0 129 0 129 0 129 0 129 3/4" Meter $15.72 0 0 0 0 0 0 0 0 0 0 0 0 0 1" Meter $15.72 47 0 47 0 47 0 47 0 47 0 47 0 47 1 1/2" Meter $15.72 52 0 52 0 52 0 52 0 52 0 52 0 52 2" Meter $15.72 60 0 60 0 60 0 60 0 60 0 60 0 60 3" Meter $15.72 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter $15.72 266 0 266 0 266 0 266 0 266 0 266 0 266 6" Meter $15.72 63 0 63 0 63 0 63 0 63 0 63 0 63 8" Meter $15.72 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $15.72 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 617 0 617 0 617 0 617 0 617 0 617 0 617 Usage Charge (per ccf) All Consumption $2.70 148 6,675 31 6,132 41 8,009 27 10,271 14 6,532 64 6,836 44,780 Total Consumption 148 6,675 31 6,132 41 8,009 27 10,271 14 6,532 64 6,836 44,780 Revenues Water Service Charge $9,699 $0 $9,699 $0 $9,699 $0 $9,699 $0 $9,699 $0 $9,699 $0 $58,195 Water Usage Charge 400 18,023 84 16,556 111 21,624 73 27,732 38 17,636 173 18,457 120,906 Total Revenues $10,099 $18,023 $9,783 $16,556 $9,810 $21,624 $9,772 $27,732 $9,737 $17,636 $9,872 $18,457 $179,101 TOTAL MULTI‐FAMILY $90,912 $45,942 $92,525 $40,759 $87,790 $48,954 $97,353 $60,387 $98,625 $47,862 $90,591 $45,380 $847,079 Water COSA - Page 21 of 23 ---PAGE BREAK--- City of Puyallup Page 4 of 5 Development Of Revenues At Present Rates For Actual Year 2009 Rates 1/1/2009 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09 Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Total COMMERCIAL Service Charge 5/8" Meter $13.97 250 103 248 105 252 122 261 127 258 121 261 123 384 3/4" Meter $15.08 0 2 0 2 0 2 0 2 0 2 0 2 2 1" Meter $19.31 46 54 45 54 45 54 45 54 45 54 45 54 99 1 1/2" Meter $24.84 33 55 35 55 32 55 33 54 33 54 33 54 87 2" Meter $40.29 56 61 61 59 62 58 62 59 64 55 63 59 122 3" Meter $105.71 0 17 0 17 0 17 0 18 0 18 0 18 18 4" Meter $192.60 0 16 0 16 0 16 0 16 0 16 0 16 16 6" Meter $288.88 4 2 5 2 6 2 7 2 7 2 7 3 10 8" Meter $398.82 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $519.40 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 389 310 394 310 397 326 408 332 407 322 409 329 738 Usage Charge (per ccf) All Consumption $2.15 21,254 24,952 28,193 19,085 24,396 24,122 35,214 45,492 41,980 31,772 31,386 29,445 357,291 Total Consumption 21,254 24,952 28,193 19,085 24,396 24,122 35,214 45,492 41,980 31,772 31,386 29,445 357,291 Revenues Water Service Charge $8,612 $11,792 $9,105 $11,739 $9,416 $11,937 $9,855 $12,128 $9,894 $11,883 $9,895 $12,361 $128,616 Water Usage Charge 45,696 53,647 60,615 41,033 52,451 51,862 75,710 97,808 90,257 68,310 67,480 63,307 768,176 Total Revenues $54,308 $65,439 $69,720 $52,772 $61,867 $63,799 $85,565 $109,936 $100,151 $80,193 $77,375 $75,667 $896,792 COMMERCIAL OUTSIDE Service Charge 5/8" Meter $20.96 1 22 1 22 0 22 1 22 0 22 0 22 22 3/4" Meter $22.62 0 0 0 0 0 0 0 0 0 0 0 0 0 1" Meter $28.97 1 6 1 6 1 6 1 6 1 6 1 6 7 1 1/2" Meter $37.26 0 4 0 4 0 4 0 4 0 4 0 4 4 2" Meter $60.44 0 2 0 2 0 2 0 2 0 2 0 2 2 3" Meter $158.57 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter $288.90 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $433.32 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $598.23 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $779.10 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 2 34 2 34 1 34 2 34 1 34 1 34 35 Usage Charge (per ccf) All Consumption $3.23 14 908 20 892 17 1,213 23 2,392 16 1,324 16 1,408 8,243 Total Consumption 14 908 20 892 17 1,213 23 2,392 16 1,324 16 1,408 8,243 Revenues Water Service Charge $50 $905 $50 $905 $29 $905 $50 $905 $29 $905 $29 $905 $5,665 Water Usage Charge 45 2,928 65 2,877 55 3,912 74 7,714 52 4,270 52 4,541 26,584 Total Revenues $95 $3,833 $114 $3,781 $84 $4,817 $124 $8,619 $81 $5,175 $81 $5,446 $32,249 TOTAL COMMERCIAL $54,403 $69,272 $69,834 $56,554 $61,951 $68,616 $85,689 $118,554 $100,231 $85,367 $77,456 $81,113 $929,040 Water COSA - Page 22 of 23 ---PAGE BREAK--- City of Puyallup Page 5 of 5 Development Of Revenues At Present Rates For Actual Year 2009 Rates 1/1/2009 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09 Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Total IRRIGATION Service Charge 5/8" Meter $13.97 0 0 0 0 0 0 0 0 0 0 0 0 0 3/4" Meter $15.08 2 0 2 0 2 0 2 0 2 0 2 0 1 1" Meter $19.31 25 16 25 16 25 16 25 16 25 16 25 16 21 1 1/2" Meter $24.84 20 39 21 39 20 40 20 42 20 41 20 41 30 2" Meter $40.29 27 15 23 15 29 15 29 15 31 16 33 15 22 3" Meter $105.71 0 0 0 0 0 0 1 0 1 0 1 0 0 4" Meter $192.60 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $288.88 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $398.82 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $519.40 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 74 70 71 70 76 71 77 73 79 73 81 72 74 Usage Charge (per ccf) All Consumption $2.15 370 201 121 334 444 4,946 19,063 22,987 33,279 14,807 8,146 1,395 106,093 Total Consumption 370 201 121 334 444 4,946 19,063 22,987 33,279 14,807 8,146 1,395 106,093 Revenues Water Service Charge $2,098 $1,882 $1,961 $1,882 $2,178 $1,907 $2,284 $1,957 $2,364 $1,972 $2,445 $1,932 $24,862 Water Usage Charge 796 432 260 718 955 10,634 40,985 49,422 71,550 31,835 17,514 2,999 228,100 Total Revenues $2,893 $2,314 $2,221 $2,600 $3,133 $12,541 $43,269 $51,379 $73,914 $33,807 $19,959 $4,931 $252,961 IRRIGATION ‐ OUTSIDE Service Charge 5/8" Meter $20.96 0 0 0 0 0 0 0 0 0 0 0 0 0 3/4" Meter $22.62 0 0 0 0 0 0 0 0 0 0 0 0 0 1" Meter $28.97 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1/2" Meter $37.26 1 1 1 1 1 1 1 1 1 1 1 1 1 2" Meter $60.44 1 1 1 1 1 1 1 1 1 1 1 1 1 3" Meter $158.57 0 0 0 0 0 0 0 0 0 0 0 0 0 4" Meter $288.90 0 0 0 0 0 0 0 0 0 0 0 0 0 6" Meter $433.32 0 0 0 0 0 0 0 0 0 0 0 0 0 8" Meter $598.23 0 0 0 0 0 0 0 0 0 0 0 0 0 10" Meter $779.10 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Meters 2 2 2 2 2 2 2 2 2 2 2 2 2 Usage Charge (per ccf) All Consumption $3.23 0 0 0 19 0 545 0 1,937 0 1,305 0 350 4,156 Total Consumption 0 0 0 19 0 545 0 1,937 0 1,305 0 350 4,156 Revenues Water Service Charge $98 $98 $98 $98 $98 $98 $98 $98 $98 $98 $98 $98 $1,172 Water Usage Charge 0 0 0 61 0 1,758 0 6,247 0 4,209 0 1,129 13,403 Total Revenues $98 $98 $98 $159 $98 $1,855 $98 $6,345 $98 $4,306 $98 $1,226 $14,575 TOTAL IRRIGATION $2,991 $2,412 $2,319 $2,759 $3,230 $14,396 $43,367 $57,723 $74,012 $38,113 $20,057 $6,157 $267,537 SUMMARY Number of Customers Residential 4,864 3,640 4,924 3,640 4,923 3,672 4,955 3,698 4,937 3,666 4,966 3,636 8,602 Disability/Senior 121 198 121 197 120 194 119 193 119 192 119 193 312 Multi‐Family 289 415 289 413 295 414 289 412 288 413 288 412 700 Commercial 391 344 396 344 398 360 410 366 408 356 410 363 773 irrigation 74 70 71 70 76 71 77 73 79 73 81 72 153 Total Number of Customers 5,739 4,667 5,801 4,664 5,812 4,711 5,850 4,742 5,831 4,700 5,864 4,676 10,540 Multi‐Family ‐ Number of Units 4,909 0 4,909 0 4,909 0 4,909 0 4,909 0 4,909 0 4,909 Consumption (ccf) Residential 56,379 43,587 62,835 36,526 56,149 51,574 103,923 85,762 144,932 51,001 72,373 42,155 807,196 Disability/Senior 1,024 1,624 1,095 1,340 847 1,707 1,615 2,816 2,215 1,670 1,179 1,591 18,723 Multi‐Family 20,055 22,186 21,010 19,578 18,374 23,192 23,694 28,413 24,407 23,324 19,919 21,793 265,945 Commercial 21,268 25,860 28,213 19,977 24,413 25,335 35,237 47,884 41,996 33,096 31,402 30,853 365,534 Irrigation 370 201 121 334 444 4,946 19,063 22,987 33,279 14,807 8,146 1,395 106,093 Total Consumption 99,096 93,458 113,274 77,755 100,227 106,754 183,532 187,862 246,829 123,898 133,019 97,787 1,563,491 Water Revenues Residential $166,070 $134,132 $180,400 $117,715 $166,098 $152,018 $277,811 $238,431 $386,664 $150,551 $203,161 $129,679 $2,302,730 Disability/Senior 2,208 3,466 2,345 2,916 1,805 3,564 3,415 6,009 4,917 3,518 2,489 3,401 40,051 Multi‐Family 90,912 45,942 92,525 40,759 87,790 48,954 97,353 60,387 98,625 47,862 90,591 45,380 847,079 Commercial 54,403 69,272 69,834 56,554 61,951 68,616 85,689 118,554 100,231 85,367 77,456 81,113 929,040 Irrigation 2,991 2,412 2,319 2,759 3,230 14,396 43,367 57,723 74,012 38,113 20,057 6,157 267,537 Total Revenues $316,583 $255,224 $347,423 $220,702 $320,874 $287,548 $507,636 $481,105 $664,449 $325,411 $393,753 $265,730 $4,386,438 2009 Actual $4,385,765 Difference $673 0.02% Water COSA - Page 23 of 23 ---PAGE BREAK--- ---PAGE BREAK--- Appendix C Sewer Utility System Analyses ---PAGE BREAK--- ---PAGE BREAK--- Budget 2010 2011 2012 2013 2014 2015 2016 Revenue Rate Revenue $8,802,626 $8,856,410 $8,944,974 $9,034,423 $9,124,768 $9,216,015 $9,308,175 Miscellaneous Revenue 227,000 47,400 68,804 61,212 64,624 76,040 87,461 Total Revenue $9,029,626 $8,903,810 $9,013,778 $9,095,635 $9,189,392 $9,292,056 $9,395,636 Expenses O&M Expenses $6,230,826 $5,987,082 $6,176,699 $6,405,585 $6,638,955 $6,881,410 $7,133,327 Transfers ($650,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) Taxes 1,044,200 986,863 996,729 989,897 1,010,104 1,020,245 1,030,481 Net Debt Service 1,997,425 1,994,532 2,240,330 2,242,853 2,166,014 2,132,318 2,174,319 Capital Funded From Rates 625,000 700,000 900,000 1,150,000 1,470,000 1,790,000 2,110,000 Change in Working Capital 0 40,000 110,000 350,000 460,000 470,000 420,000 Total Revenue Requirement $9,247,451 $9,458,476 $10,173,758 $10,888,336 $11,495,074 $12,043,973 $12,618,127 Balance (Def.) of Rates ($217,825) ($554,666) ($1,159,980) ($1,792,700) ($2,305,682) ($2,751,917) ($3,222,490) Plus Additional Taxes of 3.852% ($25,817) ($65,739) ($137,481) ($212,471) ($273,269) ($326,157) ($381,930) Net Balance/(Deficiency) of Funds ($243,642) ($620,406) ($1,297,461) ($2,005,171) ($2,578,951) ($3,078,074) ($3,604,420) Balance (Def.) of Rates as % of Rates 2.8% 7.0% 14.5% 22.2% 28.3% 33.4% 38.7% Proposed Rate Adjustment 0.0% 7.0% 7.0% 6.7% 5.0% 4.0% 4.0% Add'l Revenue After Rate Adjustment $0 $619,949 $1,296,127 $2,002,103 $2,579,469 $3,078,115 $3,605,579 Balance (Def) After Rate Increase ($243,642) ($457) ($1,334) ($3,068) $518 $40 $1,159 City of Puyallup Sewer Utility Projected Exhibit 1 Summary of Revenue and Expenses Additional Rate Adjustment Needed 2.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Residential Bill $107.54 [Rates from 1/1/09 ordinance; 16 ccf] Rate After Proposed Adjustment $107.54 $115.07 $123.12 $131.37 $137.94 $143.46 $149.20 Bill Change $0.00 $7.53 $8.05 $8.25 $6.57 $5.52 $5.74 Cumulative Bill Change $0.00 $7.53 $15.58 $23.83 $30.40 $35.92 $41.66 Debt Service Coverage Ratio (SDC revenue not included) Before Rate Adjustment 0.81 0.89 0.76 0.70 0.64 0.59 0.51 After Required Rate Adjustment 0.92 1.17 1.29 1.53 1.72 1.89 2.01 After Proposed Rate Adjustment 0.81 1.17 1.29 1.53 1.72 1.89 2.01 (With SDC revenue included) Before Rate Adjustment 1.08 1.16 1.01 0.95 0.96 0.91 0.83 After Required Rate Adjustment 1.19 1.45 1.55 1.78 2.04 2.21 2.33 After Proposed Rate Adjustment 1.08 1.45 1.55 1.78 2.04 2.21 2.33 Capital Funded From Rates Capital Funded From Rates $625,000 $700,000 $900,000 $1,150,000 $1,470,000 $1,790,000 $2,110,000 2% of original cost (OC) $1,770,000 $1,790,000 $1,800,000 $1,810,000 $1,810,000 $1,810,000 $1,830,000 Estimated Replacement Cost (RC) $2,790,000 $2,930,000 $3,090,000 $3,250,000 $3,420,000 $3,590,000 $3,790,000 Fund Balance Ending Fund Balance (O&M & Avg. Annual CIP) $5,336,358 $4,309,902 $3,741,067 $2,925,499 $2,306,017 $2,731,057 $2,437,216 Target Fund Balance (O&M) 1,024,000 984,000 1,015,000 1,053,000 1,091,000 1,131,000 1,173,000 Target Fund Balance (O&M & Avg. Annual CIP) 3,604,000 3,564,000 3,595,000 3,633,000 3,671,000 3,711,000 3,753,000 Above/(Below) Target Balance (O&M & Avg. CIP) $1,732,358 $745,902 $146,067 ($707,501) ($1,364,983) ($979,943) ($1,315,784) Sewer COSA - Page 1 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Escalation Factors Exhibit 2 2010 2011 2012 2013 2014 2015 2016 Escalation Factors: Revenues: As Resid Residential 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% As Comm Commercial/Industrial 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% As Misce Miscellaneous Revenue Budget 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Expenses: 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% As Labor Labor Budget 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% As Bene Benefits ‐ Medical Budget 7.0% 7.0% 7.0% 6.0% 6.0% 6.0% As Bene Benefits ‐ Other Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Mate Materials & Supplies Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Equip Equipment Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Misce Miscellaneous Budget 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% As Othe Other Utilities Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Electr Electricity Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Natur Natural Gas Budget 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% As Insur Insurance Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Debt Service: Term 20 20 20 20 20 20 20 Interest Rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% Interest Income 0.5% 0.5% 2.0% 2.0% 3.0% 3.0% 3.0% Sewer COSA - Page 2 of 22 ---PAGE BREAK--- City of Puyallup Page 1 of 5 Sewer Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected REVENUE Rate Revenue Sewer Sales 440600 Residential $4,454,217 $4,476,488 $4,521,253 $4,566,465 $4,612,130 $4,658,251 $4,704,834 As Residential Disability/Senior 102,776 103,290 104,322 105,366 106,419 107,484 108,558 As Residential Multi‐Family 2,291,591 2,303,049 2,326,079 2,349,340 2,372,834 2,396,562 2,420,528 As Residential Commercial 1,954,043 1,973,583 1,993,319 2,013,252 2,033,385 2,053,719 2,074,256 As Commercial/Industrial Total Rate Revenue $8,802,626 $8,856,410 $8,944,974 $9,034,423 $9,124,768 $9,216,015 $9,308,175 Miscellaneous Income 440800 Late Penalty $40,000 $40,400 $40,804 $41,212 $41,624 $42,040 $42,461 As Miscellaneous Revenue 452001 Investment Interest 187,000 7,000 28,000 20,000 23,000 34,000 45,000 Calculated Total Revenue $227,000 $47,400 $68,804 $61,212 $64,624 $76,040 $87,461 TOTAL REVENUE $9,029,626 $8,903,810 $9,013,778 $9,095,635 $9,189,392 $9,292,056 $9,395,636 EXPENSES Sewer Pumping Operations 510095 Payroll Contingency $16,611 $17,109 $17,623 $18,328 $19,061 $19,823 $20,616 As Labor 511011 Reg & Part Time Wages 71,945 74,103 76,326 79,380 82,555 85,857 89,291 As Labor 511015 Longevity Pay 495 510 525 546 568 591 614 As Labor 511017 Acting Pay 0 0 0 0 0 0 0 As Labor 511025 Night Shift Pay 0 0 0 0 0 0 0 As Labor 529048 Repairs & Maintenance 0 50,000 51,500 53,045 54,636 56,275 57,964 As Materials & Supplies 514022 State Retirement Plans 3,791 3,905 4,022 4,143 4,267 4,395 4,527 As Benefits ‐ Other 514027 Regence Blue Shield 15,988 17,107 18,305 19,586 20,761 22,007 23,327 As Benefits ‐ Medical 514030 FICA Medicare 5,462 5,626 5,795 5,968 6,148 6,332 6,522 As Benefits ‐ Other 514032 Labor & Industries 2,700 2,781 2,864 2,950 3,039 3,130 3,224 As Benefits ‐ Other 514033 Life Insurance 132 136 140 144 149 153 158 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 2,981 3,190 3,413 3,652 3,871 4,103 4,349 As Benefits ‐ Medical 514035 Vision Insurance 815 872 933 998 1,058 1,122 1,189 As Benefits ‐ Medical 514037 Employee Assistance Plan 22 23 23 24 25 26 26 As Benefits ‐ Other 514042 Long Term Disability 457 471 485 499 514 530 546 As Benefits ‐ Other 517031 Office & Operating Supplies 19,200 19,584 19,976 20,375 20,783 21,198 21,622 As Miscellaneous 520035 Small Tools/Minor Equipment 15,700 16,171 16,656 17,156 17,670 18,201 18,747 As Materials & Supplies 522041 Professional Services 4,500 4,635 4,774 4,965 5,164 5,370 5,585 As Labor 522111 PS ‐ Vadis NW Contract 21,900 0 0 0 0 0 0 As Labor 523049 Comm ‐ General Phone Service 2,500 0 0 0 0 0 0 As Materials & Supplies 523052 Comm ‐ Postal Express 400 412 424 437 450 464 478 As Materials & Supplies 527048 Insurance ‐ Self Insurance Fund 1,925 1,983 2,042 2,103 2,167 2,232 2,299 As Insurance 528048 Public Utility ‐ Electric 69,066 71,138 73,272 75,470 77,734 80,066 82,468 As Electricity 528049 Public Utility ‐ Water 535 551 568 585 602 620 639 As Other Utilities 528050 Public Utility ‐ Sewer 219 226 232 239 246 254 261 As Other Utilities 528051 Public Utility ‐ SWM 4,376 4,507 4,642 4,782 4,925 5,073 5,225 As Other Utilities 528053 Public Utility ‐ Natural Gas 27,165 28,252 29,382 30,263 31,171 32,106 33,069 As Natural Gas 528057 Public Utility ‐ Landfill Fees 50 52 53 55 56 58 60 As Other Utilities 529108 IT&C ‐ Maint/Internal 47,560 48,987 50,456 51,970 53,529 55,135 56,789 As Materials & Supplies 537064 Machinery and Equipment 24,300 25,029 25,780 26,553 27,350 28,170 29,015 As Equipment Total $360,795 $397,358 $410,212 $424,217 $438,499 $453,291 $468,611 Sewer COSA - Page 3 of 22 ---PAGE BREAK--- City of Puyallup Page 2 of 5 Sewer Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected Water Poll. Control Plant Operations 510095 Payroll Contingency $26,791 $27,595 $28,423 $29,559 $30,742 $31,972 $33,250 As Labor 511011 Reg & Part Time Wages 1,004,318 1,034,448 1,065,481 1,108,100 1,152,424 1,198,521 1,246,462 As Labor 511015 Longevity Pay 4,575 4,712 4,854 5,048 5,250 5,460 5,678 As Labor 511017 Acting Pay 7,635 7,864 8,100 8,424 8,761 9,111 9,476 As Labor 511025 Night Shift Pay 7,565 7,792 8,026 8,347 8,681 9,028 9,389 As Labor 511028 Holiday Pay 32,867 33,853 34,869 36,263 37,714 39,222 40,791 As Labor 512013 Overtime 5,816 5,990 6,170 6,417 6,674 6,941 7,218 As Labor 514022 State Retirement Plans 55,686 57,357 59,077 60,850 62,675 64,555 66,492 As Benefits ‐ Other 514027 Regence Blue Shield 222,792 238,387 255,075 272,930 289,306 306,664 325,064 As Benefits ‐ Medical 514030 FICA Medicare 80,226 82,633 85,112 87,665 90,295 93,004 95,794 As Benefits ‐ Other 514032 Labor & Industries 38,230 39,377 40,558 41,775 43,028 44,319 45,649 As Benefits ‐ Other 514033 Life Insurance 1,844 1,899 1,956 2,015 2,075 2,138 2,202 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 41,273 44,162 47,253 50,561 53,595 56,811 60,219 As Benefits ‐ Medical 514035 Vision Insurance 11,210 11,995 12,834 13,733 14,557 15,430 16,356 As Benefits ‐ Medical 514037 Employee Assistance Plan 303 312 321 331 341 351 362 As Benefits ‐ Other 514042 Long Term Disability 6,367 6,558 6,755 6,957 7,166 7,381 7,603 As Benefits ‐ Other 515022 Uniforms & Clothing 2,900 2,987 3,077 3,169 3,264 3,362 3,463 As Materials & Supplies 517031 Office & Operating Supplies 537,700 475,000 484,500 494,190 504,074 514,155 524,438 As Miscellaneous 517033 Office Supplies ‐ Toner 1,000 0 0 0 0 0 0 As Materials & Supplies 517034 Janitorial Supplies 2,900 2,987 3,077 3,169 3,264 3,362 3,463 As Materials & Supplies 518033 ER&R Fuel 5,746 5,918 6,096 6,279 6,467 6,661 6,861 As Materials & Supplies 520035 Small Tools/Minor Equipment 38,700 39,861 41,057 42,289 43,557 44,864 46,210 As Materials & Supplies 520036 Small Tools ‐ Software 300 309 318 328 338 348 358 As Materials & Supplies 522041 Professional Services 54,900 56,547 58,243 60,573 62,996 65,516 68,137 As Labor 522059 PS ‐ Engineering/Design 97,900 50,000 51,000 52,020 53,060 54,122 55,204 As Miscellaneous 522064 PS ‐ Film Processing 1,000 0 0 0 0 0 0 As Miscellaneous 522065 PS ‐ Alarm Monitoring 1,000 1,020 1,040 1,061 1,082 1,104 1,126 As Miscellaneous 522082 PS ‐ Medical/Vaccination 1,000 1,020 1,040 1,061 1,082 1,104 1,126 As Miscellaneous 522092 PS ‐ Printing/Copying Services 1,000 0 0 0 0 0 0 As Miscellaneous 2210 S S f S /O h 1 000 1 020 1 040 1 061 1 082 1 104 1 126 A i ll 522105 PS ‐ Software Support/Other 1,000 1,020 1,040 1,061 1,082 1,104 1,126 As Miscellaneous 522110 PS ‐ Uniform Cleaning 19,600 18,000 18,360 18,727 19,102 19,484 19,873 As Miscellaneous 522122 PS ‐ Waste Disposal Services 240,300 247,509 254,934 262,582 270,460 278,574 286,931 As Other Utilities 523043 Delivery Charges (Fed Ex, UPS) 600 612 624 637 649 662 676 As Miscellaneous 532047 Comm ‐ Pager Services 100 103 106 109 113 116 119 As Other Utilities 523048 Comm ‐ Cellular Phone 2,900 2,987 3,077 3,169 3,264 3,362 3,463 As Other Utilities 523049 Comm ‐ General Phone Service 600 618 637 656 675 696 716 As Other Utilities 523051 Comm ‐ Other Postage 0 0 0 0 0 0 0 As Materials & Supplies 523052 Comm ‐ Postal Express 0 0 0 0 0 0 0 As Materials & Supplies 524043 Travel ‐ Miles, Meals, Lodge 2,800 1,800 1,836 1,873 1,910 1,948 1,987 As Miscellaneous 526045 Operating Rentals & Leases 0 0 0 0 0 0 0 As Miscellaneous 527048 Insurance ‐ Self Insurance Fund 29,019 29,890 30,786 31,710 32,661 33,641 34,650 As Insurance 528048 Public Utility ‐ Electric 275,330 283,590 292,098 300,861 309,886 319,183 328,758 As Electricity 528049 Public Utility ‐ Water 5,397 5,559 5,726 5,897 6,074 6,257 6,444 As Other Utilities 528050 Public Utility ‐ Sewer 11,474 11,818 12,173 12,538 12,914 13,302 13,701 As Other Utilities 528051 Public Utility ‐ SWM 10,608 10,926 11,254 11,592 11,939 12,298 12,667 As Other Utilities 528052 Public Utility ‐ Refuse 15,620 16,089 16,571 17,068 17,580 18,108 18,651 As Other Utilities 528057 Public Utility ‐ Landfill Fees 50 52 53 55 56 58 60 As Other Utilities 528058 Public Utility ‐ Recycling 50 52 53 55 56 58 60 As Other Utilities 529048 Repairs and Maintenance 179,143 50,000 51,500 53,045 54,636 56,275 57,964 As Materials & Supplies 529058 R/M: Contractor Main ‐ Software 0 0 0 0 0 0 0 As Miscellaneous 529106 ER&R ‐ Maintenance/Internal 32,197 33,163 34,158 35,183 36,238 37,325 38,445 As Equipment 529108 IT&C ‐ Maint/Internal 23,780 24,256 24,741 25,236 25,740 26,255 26,780 As Miscellaneous 529109 IT&C ‐ Replacement 5,719 5,833 5,950 6,069 6,190 6,314 6,441 As Miscellaneous 529111 IT&C ‐ Dispatch 800 MHz Assessment 6,924 7,132 7,346 7,566 7,793 8,027 8,268 As Equipment 530049 Miscellaneous 26,600 10,000 10,200 10,404 10,612 10,824 11,041 As Miscellaneous 530050 Misc ‐ Conference Registration 1,400 1,428 1,457 1,486 1,515 1,546 1,577 As Miscellaneous 530051 Misc ‐ Dues 800 816 832 849 866 883 901 As Miscellaneous 530053 Misc ‐ Certifications 300 306 312 318 325 331 338 As Miscellaneous 530090 Misc Permit Fees 0 32,000 32,640 33,293 33,959 34,638 35,331 As Miscellaneous 537064 Machinery & Equipment 105,000 108,150 111,395 114,736 118,178 121,724 125,375 As Equipment 537075 ER&R ‐ Repl/Internal 18,932 19,500 20,085 20,688 21,308 21,947 22,606 As Equipment Total $3,309,787 $3,163,790 $3,264,255 $3,380,575 $3,498,253 $3,620,444 $3,747,338 Sewer COSA - Page 4 of 22 ---PAGE BREAK--- City of Puyallup Page 3 of 5 Sewer Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected Sewer Coll/Transmission Operations 510095 Payroll Contingency ($14,076) ($14,498) ($14,933) ($15,531) ($16,152) ($16,798) ($17,470) As Labor 511011 Reg & Part Time Wages 273,192 281,388 289,829 301,423 313,479 326,019 339,059 As Labor 511015 Longevity Pay 3,255 3,353 3,453 3,591 3,735 3,884 4,040 As Labor 511017 Acting Pay 0 0 0 0 0 0 0 As Labor 512012 Overtime 0 7,500 7,725 8,034 8,355 8,690 9,037 As Labor 514022 State Retirement Plans 14,372 14,803 15,247 15,705 16,176 16,661 17,161 As Benefits ‐ Other 514027 Regence Blue Shield 79,850 85,440 91,420 97,820 103,689 109,910 116,505 As Benefits ‐ Medical 514030 FICA & Medicare 20,705 21,326 21,966 22,625 23,304 24,003 24,723 As Benefits ‐ Other 514032 Labor Industries 10,934 11,262 11,600 11,948 12,306 12,676 13,056 As Benefits ‐ Other 514033 Life Insurance 535 551 568 585 602 620 639 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 13,947 14,923 15,968 17,086 18,111 19,197 20,349 As Benefits ‐ Medical 514035 Vision Insurance 3,818 4,085 4,371 4,677 4,958 5,255 5,571 As Benefits ‐ Medical 514037 Employee Assistance Plan 88 91 93 96 99 102 105 As Benefits ‐ Other 514042 Long Term Disability 1,732 1,784 1,837 1,893 1,949 2,008 2,068 As Benefits ‐ Other 515022 Uniforms & Clothing 300 306 312 318 325 331 338 As Miscellaneous 517031 Office & Operating Supplies 23,300 23,999 24,719 25,461 26,224 27,011 27,821 As Materials & Supplies 517033 Office Supplies ‐ Toner 0 0 0 0 0 0 0 As Miscellaneous 518033 ER&R ‐ Fuel 14,476 14,766 15,061 15,362 15,669 15,983 16,302 As Miscellaneous 520035 Small Tools/Minor Equipment 13,400 13,802 14,216 14,643 15,082 15,534 16,000 As Equipment 522041 Professional Services 16,000 16,480 16,974 17,653 18,360 19,094 19,858 As Labor 522057 PS ‐ Emerg After Hours Ans Service 0 0 0 0 0 0 0 As Miscellaneous 522110 PS ‐ Uniform Cleaning 0 0 0 0 0 0 0 As Miscellaneous 522111 PS ‐ Vadis NW Contract 10,900 11,227 11,564 12,026 12,507 13,008 13,528 As Labor 523043 Delivery Charges (FedEx, UPS) 1,000 1,020 1,040 1,061 1,082 1,104 1,126 As Miscellaneous 523048 Comm ‐ Cellular Phone 0 1,700 1,734 1,769 1,804 1,840 1,877 As Miscellaneous 525046 Advertising ‐ Legal Notices 0 0 0 0 0 0 0 As Miscellaneous 527048 Insurance ‐ Self Insurance Fund 6,916 7,123 7,337 7,557 7,784 8,018 8,258 As Insurance 528052 Public Utility ‐ Refuse 800 824 849 874 900 927 955 As Other Utilities 529048 Repairs & Maintenance 236,500 20,000 20,600 21,218 21,855 22,510 23,185 As Materials & Supplies 529084 R/M: Repairs ‐ Equipment 0 0 0 0 0 0 0 As Equipment 529106 ER&R ‐ Main/Internal 73,352 75,553 77,819 80,154 82,558 85,035 87,586 As Equipment 519108 IT&C ‐ Maint/Internal 33,441 34,110 34,792 35,488 36,198 36,922 37,660 As Miscellaneous 529109 IT&C ‐ Replacement 227 232 236 241 246 251 256 As Miscellaneous 529111 IT&C ‐ Dispatch 800 MHz Assessment 10,385 10,697 11,017 11,348 11,688 12,039 12,400 As Equipment 530050 Misc ‐ Conference Registration 0 0 0 0 0 0 0 As Miscellaneous 530052 Misc ‐ Subscriptions 0 0 0 0 0 0 0 As Miscellaneous 536063 Improvements Other Than Bldg 8,200 8,364 8,531 8,702 8,876 9,053 9,235 As Miscellaneous 536064 Machinery & Equipment 81,300 83,739 86,251 88,839 91,504 94,249 97,076 As Equipment 537075 ER&R ‐ Repl/Internal 55,015 56,665 58,365 60,116 61,920 63,777 65,691 As Equipment Total $993,864 $812,613 $840,564 $872,781 $905,194 $938,914 $973,996 Pretreatment Program Operations 517031 Office & Operating Supplies $0 $0 $0 $0 $0 $0 $0 As Materials & Supplies 520035 Small Tool/Minor Equipment 1,500 1,545 1,591 1,639 1,688 1,739 1,791 As Equipment 522041 Professional Services 6,800 7,004 7,214 7,503 7,803 8,115 8,440 As Labor 522092 PS ‐ Printing/Copying Services 2,600 2,652 2,705 2,759 2,814 2,871 2,928 As Miscellaneous 523043 Delivery Charges (FexEx, UPS) 1,000 1,020 1,040 1,061 1,082 1,104 1,126 As Miscellaneous 529048 Repairs and Maintenance 1,500 1,530 1,561 1,592 1,624 1,656 1,689 As Miscellaneous 529058 R/M Cont Maint ‐ Software/Other 0 0 0 0 0 0 0 As Labor Total $13,400 $13,751 $14,112 $14,554 $15,011 $15,485 $15,974 522120 General Fund Administration 1,552,980 1,599,569 1,647,556 1,713,459 1,781,997 1,853,277 1,927,408 As Labor Total Operations & Maintenance $6,230,826 $5,987,082 $6,176,699 $6,405,585 $6,638,955 $6,881,410 $7,133,327 Transfers Sewer COSA - Page 5 of 22 ---PAGE BREAK--- City of Puyallup Page 4 of 5 Sewer Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected 622000 Transfers In ‐ Other ($650,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) Loan Street $2.5 mil Transfers Out ‐ To Capital $0 $0 $0 $0 $0 $0 $0 ($650,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) Taxes 528056 Public Utility Tax ‐ Rates (City) $785,150 $708,513 $715,598 $722,754 $729,981 $737,281 $744,654 8% of rate revenue 528059 Public Utility Tax ‐ SDCs (City) 61,100 48,240 48,720 49,200 60,000 60,640 61,280 8% of SDC revenue 532051 Intergovernmental Charges (State) 197,950 230,110 232,411 217,943 220,122 222,324 224,547 3.852% of coll. 1.8% trt. & fee rev. Total Taxes $1,044,200 $986,863 $996,729 $989,897 $1,010,104 $1,020,245 $1,030,481 thru 2013; 1.5% thru 2016 Debt Service [PHONE REDACTED] Revenue Bonds $1,199,901 $1,204,891 $1,478,361 $1,486,440 $1,455,165 $1,426,384 $1,472,533 [PHONE REDACTED] Revenue Bonds (Series A) 375,369 374,819 379,119 378,119 376,969 374,619 376,019 [PHONE REDACTED] Revenue Bonds (Series B) 198,580 196,874 135,702 136,674 136,488 134,611 135,190 [PHONE REDACTED] PWTF Loan 402,576 398,848 395,121 391,393 387,666 383,938 380,211 541002 Bond Administration Fee 1,000 0 0 0 0 0 0 New Debt Service 0 0 34,727 34,727 34,727 40,166 40,166 Total Debt Service $2,177,425 $2,175,432 $2,423,030 $2,427,353 $2,391,014 $2,359,718 $2,404,119 Less: SDC Revenue ($180,000) ($180,900) ($182,700) ($184,500) ($225,000) ($227,400) ($229,800) 30.0% of SDC Revenue Net Total Debt Service $1,997,425 $1,994,532 $2,240,330 $2,242,853 $2,166,014 $2,132,318 $2,174,319 Capital Funded Through Rates $625,000 $700,000 $900,000 $1,150,000 $1,470,000 $1,790,000 $2,110,000 2008 Depr. = $2,247,834 Change in Working Capital $0 $40,000 $110,000 $350,000 $460,000 $470,000 $420,000 TOTAL REVENUE REQUIREMENT $9 247 451 $9 458 476 $10 173 758 $10 888 336 $11 495 074 $12 043 973 $12 618 127 TOTAL REVENUE REQUIREMENT $9,247,451 $9,458,476 $10,173,758 $10,888,336 $11,495,074 $12,043,973 $12,618,127 Balance (Def.) of Rates ($217,825) ($554,666) ($1,159,980) ($1,792,700) ($2,305,682) ($2,751,917) ($3,222,490) Plus Additional Taxes of 3.852% + 8% ($25,817) ($65,739) ($137,481) ($212,471) ($273,269) ($326,157) ($381,930) Net Balance/(Deficiency) of Funds ($243,642) ($620,406) ($1,297,461) ($2,005,171) ($2,578,951) ($3,078,074) ($3,604,420) Balance as % of Rate Adjustment Needed 2.8% 7.0% 14.5% 22.2% 28.3% 33.4% 38.7% Required Rate Adjustment to meet 1.25 DSC 11.0% 8.9% 13.3% 14.8% 15.9% 16.9% 19.1% Proposed Rate Adjustment 0.0% 7.0% 7.0% 6.7% 5.0% 4.0% 4.0% Add'l Revenue After Rate Adjustment $0 $619,949 $1,296,127 $2,002,103 $2,579,469 $3,078,115 $3,605,579 Balance (Def) After Rate Increase ($243,642) ($457) ($1,334) ($3,068) $518 $40 $1,159 Additional Rate Adjustment Needed 2.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Debt Service Coverage Ratio (SDC revenue not included) Before Rate Adjustment 0.81 0.89 0.76 0.70 0.64 0.59 0.51 After Required Rate Adjustment 0.92 1.17 1.29 1.53 1.72 1.89 2.01 After Proposed Rate Adjustment 0.81 1.17 1.29 1.53 1.72 1.89 2.01 (With SDC revenue included) Before Rate Adjustment 1.08 1.16 1.01 0.95 0.96 0.91 0.83 After Required Rate Adjustment 1.19 1.45 1.55 1.78 2.04 2.21 2.33 After Proposed Rate Adjustment 1.08 1.45 1.55 1.78 2.04 2.21 2.33 Sewer COSA - Page 6 of 22 ---PAGE BREAK--- City of Puyallup Page 5 of 5 Sewer Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected Operating Fund $6 M less $1.6 M operating leaves $4.328 M capital Beginning Cash Reserve Balance $1,671,432 $1,427,790 $1,417,334 $975,999 $772,931 $1,133,449 $1,503,489 Plus: Balance/(Deficiency) (243,642) (457) (1,334) (3,068) 518 40 1,159 Less: Uses of Funds 0 50,000 550,000 550,000 100,000 100,000 770,000 From CIP, Exhibit 4 Change in Working Capital 0 (40,000) (110,000) (350,000) (460,000) (470,000) (420,000) Ending Cash Reserve Balance $1,427,790 $1,417,334 $975,999 $772,931 $1,133,449 $1,503,489 $1,154,648 Target Fund Balance=60 Days of O&M $1,024,000 $984,000 $1,015,000 $1,053,000 $1,091,000 $1,131,000 $1,173,000 Capital/Repair Replacement Fund Beginning Cash Reserve Balance $4,328,568 $3,908,568 $2,892,568 $2,765,068 $2,152,568 $1,172,568 $1,227,568 441200 Sewer Front Footage 20,000 20,000 20,000 20,000 20,000 20,000 20,000 As Residential 441400 Hook‐up Fees 35,000 35,000 35,000 35,000 35,000 35,000 35,000 As Residential Grants 0 0 0 0 0 0 0 From CIP, Exhibit 4 SDC 0 365,000 897,500 382,500 226,000 695,000 720,000 From CIP, Exhibit 4 New Debt 0 0 415,000 0 0 65,000 0 From CIP, Exhibit 4 Transfers In ‐ Capital 0 0 0 0 0 0 0 From CIP, Exhibit 3 Reserves 0 50,000 550,000 550,000 100,000 100,000 770,000 From CIP, Exhibit 4 ULID or Developer Funding 0 0 0 0 0 0 0 City Input Capital Funded From Rates 625,000 700,000 900,000 1,150,000 1,470,000 1,790,000 2,110,000 From CIP, Exhibit 4 Less: Uses of Funds 1,100,000 2,186,000 2,945,000 2,750,000 2,831,000 2,650,000 3,600,000 From CIP, Exhibit 4 Ending Cash Reserve Balance $3,908,568 $2,892,568 $2,765,068 $2,152,568 $1,172,568 $1,227,568 $1,282,568 $ $ $ $ $ $ $ Target = Average Annual CIP $2,580,000 $2,580,000 $2,580,000 $2,580,000 $2,580,000 $2,580,000 $2,580,000 SDC Reserve $0 Beginning balance 1/1/2010 Beginning Cash Reserve Balance $0 $420,000 $477,100 $5,900 $53,900 $352,900 $188,500 441000 Plus: SDC Revenue 600,000 603,000 609,000 615,000 750,000 758,000 766,000 As Residential Less: SDC Debt Payment 180,000 180,900 182,700 184,500 225,000 227,400 229,800 Uses of Funds 0 365,000 897,500 382,500 226,000 695,000 720,000 From CIP, Exhibit 4 Ending Cash Reserve Balance $420,000 $477,100 $5,900 $53,900 $352,900 $188,500 $4,700 2% of original cost (OC) $1,770,000 $1,790,000 $1,800,000 $1,810,000 $1,810,000 $1,810,000 $1,830,000 Estimated Replacement Cost (RC) $2,790,000 $2,930,000 $3,090,000 $3,250,000 $3,420,000 $3,590,000 $3,790,000 Fund Balance (not including SDCs) Ending Fund Balance (O&M & Avg. Annual CIP) $5,336,358 $4,309,902 $3,741,067 $2,925,499 $2,306,017 $2,731,057 $2,437,216 Target Fund Balance (O&M) 1,024,000 984,000 1,015,000 1,053,000 1,091,000 1,131,000 1,173,000 Target Fund Balance (O&M & Avg. Annual CIP) 3,604,000 3,564,000 3,595,000 3,633,000 3,671,000 3,711,000 3,753,000 Above/(Below) Target Balance (O&M & Avg. CIP) $1,732,358 $745,902 $146,067 ($707,501) ($1,364,983) ($979,943) ($1,315,784) Sewer COSA - Page 7 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Summary of Capital Improvement Plan Exhibit 4 2010 2011 2012 2013 2014 2015 2016 % Growth Related Notes Capital Improvements System Improvements $250,000 $250,000 $250,000 $250,000 $300,000 $300,000 $300,000 0% From CIP Plan Treatment Plant Repairs and Upgrades 850,000 800,000 700,000 800,000 800,000 800,000 800,000 0% Modified from CIP Plan Replace Generators 0 521,000 0 0 0 0 0 0% From CIP Plan I/I Reduction 0 500,000 300,000 300,000 0 0 0 50% From CIP Plan Riverside LS Upgrade 0 115,000 630,000 0 0 0 0 100% From CIP Plan NE Street Improvement Project 0 0 415,000 0 0 0 0 0% From Updated CIP Plan Modify Influent Pump 0 0 165,000 935,000 0 0 0 50% From CIP Plan Secondary Clarifier 3 0 0 485,000 215,000 0 0 0 100% From CIP Plan W. Pioneer Line Replacement (18th to 19th St SE) 0 0 0 250,000 200,000 0 0 0% From CIP Plan North Puyallup Lift Station Upgrade 0 0 0 0 452,000 0 0 50% From CIP Plan 14th St. Line Replacement (7th to 9th Ave SW) 0 0 0 0 767,000 0 0 0% From CIP Plan 12th Ave SE Line Replacement (East of 13th St SE) 0 0 0 0 312,000 0 0 0% From CIP Plan 11th St NW (Stewart to River Rd) 0 0 0 0 0 65,000 0 100% From Updated CIP Plan East Main Force Main Upgrade 0 0 0 0 0 225,000 1,250,000 100% From CIP Plan East Main Lift Station 0 0 0 0 0 470,000 0 100% From CIP Plan Aeration Blowers Replacement 0 0 0 0 0 388,000 0 0% From CIP Plan Sewer Comp Plan Update 0 0 0 0 0 0 175,000 80% From CIP Plan Future Unidentified Capital Projects 0 0 0 0 0 402,000 1,075,000 $1,477,000 Total Capital Improvement $1,100,000 $2,186,000 $2,945,000 $2,750,000 $2,831,000 $2,650,000 $3,600,000 TOTAL CAPITAL IMPROVEMENT PROJECTS $1,100,000 $2,186,000 $2,945,000 $2,750,000 $2,831,000 $2,650,000 $3,600,000 Funding Grants $0 $0 $0 $0 $0 $0 $0 SDC 0 365,000 897,500 382,500 226,000 695,000 720,000 For Growth Portions New Debt 0 0 415,000 0 0 65,000 0 Balance of Funding Cash Reserves 0 50,000 550,000 550,000 100,000 100,000 770,000 input Cash Reserves 0 50,000 550,000 550,000 100,000 100,000 770,000 input Capital Reserves 475,000 1,071,000 182,500 667,500 1,035,000 0 0 Input ULID or other funding 0 0 0 0 0 0 0 City Provided Total Funding Sources $475,000 $1,486,000 $2,045,000 $1,600,000 $1,361,000 $860,000 $1,490,000 Capital Funded Through Rates $625,000 $700,000 $900,000 $1,150,000 $1,470,000 $1,790,000 $2,110,000 2008 Depr. = $2,247,834 Treatment Plant Repairs and Upgrades were reduced in CIP to balance available capital reserves and no new debt. 2010 2011 2012 2013 2014 2015 2016 CIP Treatment Plant Repairs and Upgrades $850,000 $1,400,000 $700,000 $1,100,000 $1,400,000 $1,400,000 $1,400,000 Adjusted Treatment Repairs and Upgrades $850,000 $800,000 $700,000 $800,000 $800,000 $800,000 $800,000 Adjusted timing of projects and moved a portion of the project to the following year to keep SDC fund from going negative in any year Currently there are Coordination/Opportunity Projects totaling $3.9 million which are not listed within this time frame. Replacement Cost Analysis ‐ 2008 Replacement Costs to 2010$ dollars with ENR) $166,306,483 3.8% 65 year CPI U Average years of Useful Life (replacement cycle) 60 60 60 60 60 60 60 Annual Replacement Cost plus annual inflation $2,770,000 $2,896,000 $3,041,000 $3,207,000 $3,374,000 $3,550,000 $3,726,000 Plus Annual CIP Project Costs for Total Replacement Costs Annually $2,790,000 $2,930,000 $3,090,000 $3,250,000 $3,420,000 $3,590,000 $3,790,000 Depreciation Analysis Total Total Improvement Project $1,100,000 $2,186,000 $2,945,000 $2,750,000 $2,831,000 $2,650,000 $3,600,000 $18,062,000 Average years of Depreciation 50 50 50 50 50 50 50 Annual Increase in Depreciation $22,000 $43,720 $58,900 $55,000 $56,620 $53,000 $72,000 361,240 Cumulative Increase in Depreciation $22,000 $65,720 $124,620 $179,620 $236,240 $289,240 $361,240 Projected Depreciation $2,270,000 $2,310,000 $2,370,000 $2,430,000 $2,480,000 $2,540,000 $2,610,000 Plant Replacement Costs (Plant Original Cost x2%) $87,610,939 2% of Original Cost $1,750,000 2% of Original Cost Method $1,770,000 $1,790,000 $1,800,000 $1,810,000 $1,810,000 $1,810,000 $1,830,000 Sewer COSA - Page 8 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Development of the Volume Allocation Factor Exhibit 5 2010 18% Total Annual Annual flow Inflow and Flow at Plant Total Flow % of Customer Classes (CCF) Infiltration (CCF) (MGD) Total Residential 587,709 105,788 693,497 1.42 47.0% Disability/Senior 14,774 2,659 17,433 0.04 1.2% Multi‐Family 298,262 53,687 351,950 0.72 23.8% Commercial 350,952 63,171 414,123 0.85 28.0% Total 1,251,697 225,305 1,477,002 3.03 100.0% Allocation Factor 2009 Total Flow 2,008,389 4.10 (VOL) Note: From billing data based on Dec to May actual water billing. June to Nov based on average two bills of Jan to Apr Provided by City staff for 2009 at July 15, 2010 project review meeting. ‐ Inflow represents external groundwater that can enter the sewer at service connections where the pipe is broken, at defective joints, at connections to manholes, etc. ‐ Infiltration is water discharged to sewer from sources such as roof leaders, cellar, yard and drains from springs and other wet areas, storm sewers, catch basins, surface water runoff, etc and drains from springs and other wet areas, storm sewers, catch basins, surface water runoff, etc Sewer COSA - Page 9 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Development of the Strength Allocation Factor Exhibit 6 Annual Flow Avg. Factor Calculated % of Avg. Factor Calculated % of Customer Classes (CCF) (mg/l) Pounds Total (mg/l) Pounds Total Residential 693,497 253 1,095,198 47.0% 274 1,186,104 47.0% Disability/Senior 17,433 253 27,530 1.2% 274 29,816 1.2% Multi‐Family 351,950 253 555,813 23.8% 274 601,948 23.8% Commercial 414,123 253 654,001 28.0% 274 708,285 28.0% Total 1,477,002 2,332,543 100.0% 2,526,153 100.0% Allocation Factor 2,991,502 (BOD) 3,257,473 (SS) ` Note: Average BOD and SS at WWTP 2009, provided by City; BOD is 253, SS is 274. Calculated pounds equals (annual flow 748 strength factor mg/l 8.34 /1,000,000) BOD & SS strength factors assumed based on City provided data. 8/9/10 email had average WWTP lbs. multiplied by days in the month to estimate totals. Bio‐chemical Oxygen Demand Suspended Solids Sewer COSA - Page 10 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Development of the Customer Allocation Factor Exhibit 7 Number of % of Number of Weighting Weighted % of Customer Classes Units Total Units Factor Customer Total Residential 8,530 54.2% 8,530 1.0 8,530 48.3% Disability/Senior 299 1.9% 299 1.0 299 1.7% Multi‐Family 6,141 39.0% 6,141 1.3 7,676 43.5% Commercial 764 4.9% 764 1.5 1,146 6.5% Total 15,734 100.0% 15,734 17,651 100.0% Allocation Factor (AC) (WCA) City of Puyallup Sewer Utility Development of the Revenue Related Allocation Factor Exhibit 8 Projected Revenue % of Total Customer Classes 2011 Residential $4,476,488 50.5% Disability/Senior 103,290 1.2% Multi‐Family 2,303,049 26.0% Commercial 1,973,583 22.3% Total $8,856,410 100.0% Allocation Factor (RR) Actual Customer Customer Service & Accounting Sewer COSA - Page 11 of 22 ---PAGE BREAK--- City of Puyallup Page 1 of 3 Sewer Utility Functionalization and Classification of Plant in Service Exhibit 9 Weighted Bio‐Oxygen Suspended Actual Customer Original Cost Volume Demand Solids Customer Acct/Svcs Revenue Direct 2008 Plant (VOL) (BOD) (SS) (AC) (WCA) (RR) (DA) Basis of Classification Plant Assets Land Land‐Stemp Property $44,578 $44,578 $0 $0 $0 $0 $0 $0 100% VOL Land‐Pratt Property 26,645 26,645 0 0 0 0 0 0 100% VOL Land ‐ Treatment Plant 211,623 211,623 0 0 0 0 0 0 100% VOL Iron Gate Property 151,695 151,695 0 0 0 0 0 0 100% VOL Donoghue Property 78,087 78,087 0 0 0 0 0 0 100% VOL Kodiak Detention Pond 97,902 97,902 0 0 0 0 0 0 100% VOL Geinger Development 145,000 145,000 0 0 0 0 0 0 100% VOL Blackstone/Calvert Ridge Easement 160,000 160,000 0 0 0 0 0 0 100% VOL Addison Greens Land 1 1 0 0 0 0 0 0 100% VOL Total Land $915,532 $915,532 $0 $0 $0 $0 $0 $0 Other Improvements Manhole Covers 2002 $62,112 $62,112 $0 $0 $0 $0 $0 $0 100% VOL Sewer Line Evaluation 2002 25,847 25,847 0 0 0 0 0 0 100% VOL Fence, Concrete 277,000 138,500 69,250 69,250 0 0 0 0 50% VOL 25% BOD 25% SS WWTP Fencing 13,042 6,521 3,261 3,261 0 0 0 0 50% VOL 25% BOD 25% SS Reroof Bldg 31,292 15,646 7,823 7,823 0 0 0 0 50% VOL 25% BOD 25% SS Permit Renewal 62,717 31,358 15,679 15,679 0 0 0 0 50% VOL 25% BOD 25% SS Waterworks Utility Rate Study 61,165 0 0 0 0 61,165 0 0 100% WCA WWTP Quality Assurance Plan 35,852 17,926 8,963 8,963 0 0 0 0 50% VOL 25% BOD 25% SS Treatment Plant Automated Gate 12,564 6,282 3,141 3,141 0 0 0 0 50% VOL 25% BOD 25% SS Total Other Improvements $581,591 $304,193 $108,117 $108,117 $0 $61,165 $0 $0 Heavy Equipment Els Camera W/Monitor $7,507 $7,507 $0 $0 $0 $0 $0 $0 100% VOL Wells Cargo Trailer 6,359 6,359 0 0 0 0 0 0 100% VOL Impeller Pump 6,159 6,159 0 0 0 0 0 0 100% VOL 2002 Impeller Pump 6,159 6,159 0 0 0 0 0 0 100% VOL 2002 Variable Frequency Driver 8,222 8,222 0 0 0 0 0 0 100% VOL Clark Forklift 7,324 7,324 0 0 0 0 0 0 100% VOL 2002 John Deere Backhoe 5,326 5,326 0 0 0 0 0 0 100% VOL Screw Pump #1 557,763 557,763 0 0 0 0 0 0 100% VOL Electrical Controls 234,000 234,000 0 0 0 0 0 0 100% VOL Standby Generator ‐ Bldg. #8 90,500 90,500 0 0 0 0 0 0 100% VOL Magnum Press ‐ Building #7 93,188 93,188 0 0 0 0 0 0 100% VOL Liquid Polymer Feed ‐ Bldg #7 68,900 34,450 17,225 17,225 0 0 0 0 50% VOL 25% BOD 25% SS Auxiliary Pump ‐ 3 Trash Pump" 7,800 3,900 1,950 1,950 0 0 0 0 50% VOL 25% BOD 25% SS Portable Generator ‐ Bldg #6 12,800 12,800 0 0 0 0 0 0 100% VOL Digester Covers ‐ Building #3 152,610 76,305 38,153 38,153 0 0 0 0 50% VOL 25% BOD 25% SS Sludge Collector 15,400 0 7,700 7,700 0 0 0 0 50% BOD 50% SS Scum Collector 35,200 17,600 8,800 8,800 0 0 0 0 50% VOL 25% BOD 25% SS Sludge Collector ‐ Bldg #3 232,800 0 116,400 116,400 0 0 0 0 50% BOD 50% SS Scum Collector 35,200 17,600 8,800 8,800 0 0 0 0 50% VOL 25% BOD 25% SS Water Pump (1 Of 2) 31,600 31,600 0 0 0 0 0 0 100% VOL Sewage Pump Sw #3 17,276 17,276 0 0 0 0 0 0 100% VOL Cummings Generator 52,008 52,008 0 0 0 0 0 0 100% VOL Sewage Pump 14,552 14,552 0 0 0 0 0 0 100% VOL Sewage Pump Nw #1 14,552 14,552 0 0 0 0 0 0 100% VOL Sewage Pump Nw #2 14,552 14,552 0 0 0 0 0 0 100% VOL Sewage Pumps ‐ Pioneer Lift St 21,199 21,199 0 0 0 0 0 0 100% VOL Sewage Pump Nw #3 20,292 20,292 0 0 0 0 0 0 100% VOL Allis Chalmer Generator 13,442 13,442 0 0 0 0 0 0 100% VOL Sewage Pump N #1 5,187 5,187 0 0 0 0 0 0 100% VOL Sewage Pump N #2 5,187 5,187 0 0 0 0 0 0 100% VOL Customer Related Strength Related Sewer COSA - Page 12 of 22 ---PAGE BREAK--- City of Puyallup Page 2 of 3 Sewer Utility Functionalization and Classification of Plant in Service Exhibit 9 Weighted Bio‐Oxygen Suspended Actual Customer Original Cost Volume Demand Solids Customer Acct/Svcs Revenue Direct 2008 Plant (VOL) (BOD) (SS) (AC) (WCA) (RR) (DA) Basis of Classification Customer Related Strength Related Sewage Pump N #3 5,187 5,187 0 0 0 0 0 0 100% VOL Sewage Pump For Lift Station 5,517 5,517 0 0 0 0 0 0 100% VOL Ultrasonic Head Control System 12,516 6,258 3,129 3,129 0 0 0 0 50% VOL 25% BOD 25% SS Pump ‐ 18Th & E Main 6,053 6,053 0 0 0 0 0 0 100% VOL Radiator Cooler 8,448 8,448 0 0 0 0 0 0 100% VOL Pump Station Panel‐ Tacoma Rd 7,962 7,962 0 0 0 0 0 0 100% VOL Multi‐Angle Camera 29,075 29,075 0 0 0 0 0 0 100% VOL Microtox Analyzer 15,821 15,821 0 0 0 0 0 0 100% VOL Impeller Pump 5,125 5,125 0 0 0 0 0 0 100% VOL Drying/Ignition Furnace 5,316 1,329 1,329 2,658 0 0 0 0 25% VOL 25% BOD 50% SS Pure Water System 14,016 7,008 3,504 3,504 0 0 0 0 50% VOL 25% BOD 25% SS Heat Pump For Libratory 7,302 3,651 1,825 1,825 0 0 0 0 50% VOL 25% BOD 25% SS Digester Heater 12,910 6,455 3,228 3,228 0 0 0 0 50% VOL 25% BOD 25% SS Digester Pump 15,413 7,707 3,853 3,853 0 0 0 0 50% VOL 25% BOD 25% SS Sewer Pump ‐ Building #6 13,332 13,332 0 0 0 0 0 0 100% VOL Trenchbox 6,938 6,938 0 0 0 0 0 0 100% VOL Tv Inspection System 72,819 72,819 0 0 0 0 0 0 100% VOL Sewer Flowmeter 5,807 5,807 0 0 0 0 0 0 100% VOL Sewer Flowmeter 5,807 5,807 0 0 0 0 0 0 100% VOL Sewer Flowmeter 5,807 5,807 0 0 0 0 0 0 100% VOL Sewer Flowmeter 5,807 5,807 0 0 0 0 0 0 100% VOL Sewer Flowmeter 5,807 5,807 0 0 0 0 0 0 100% VOL Heating System 14,309 7,154 3,577 3,577 0 0 0 0 50% VOL 25% BOD 25% SS Rotating Asmbl 195,568 97,784 48,892 48,892 0 0 0 0 50% VOL 25% BOD 25% SS Boerger Pl300 Pump 8,197 8,197 0 0 0 0 0 0 100% VOL Hydromatic 30Hp Pump 13,205 13,205 0 0 0 0 0 0 100% VOL Total Heavy Equipment $2,297,128 $1,759,069 $268,365 $269,694 $0 $0 $0 $0 Machinery & Equipment Camera Transpo $7,060 $7,060 $0 $0 $0 $0 $0 $0 100% VOL Rigid Kd‐200 Inspection Camera 9,020 9,020 0 0 0 0 0 0 100% VOL Flood Control Tubes 45,885 45,885 0 0 0 0 0 0 100% VOL Unimag 4411E Transmitter 5,005 5,005 0 0 0 0 0 0 100% VOL A37Kbs Generator 20,304 20,304 0 0 0 0 0 0 100% VOL Fujitsu Air Conditioner 5,334 5,334 0 0 0 0 0 0 100% VOL Total Machinery & Equipment $92,608 $92,608 $0 $0 $0 $0 $0 $0 Buildings & Structures Corporate Yard Building $818,705 $409,353 $204,676 $204,676 $0 $0 $0 $0 50% VOL 25% BOD 25% SS WWTP Upgrade (Incl. Change Orders) 25,740,000 12,870,000 6,435,000 6,435,000 0 0 0 0 50% VOL 25% BOD 25% SS WWTP Facilities (Historical Cost) 10,791,900 5,395,950 2,697,975 2,697,975 0 0 0 0 50% VOL 25% BOD 25% SS Aeration Basin #3 1,235,686 308,922 617,843 308,922 0 0 0 0 25% VOL 50% BOD 25% SS Total Buildings & Structures $38,586,291 $18,984,224 $9,955,494 $9,646,573 $0 $0 $0 $0 Software Operator 10 Plus/Allmax Task Manager $22,739 $11,370 $5,685 $5,685 $0 $0 $0 $0 50% VOL 25% BOD 25% SS Lims Express Software 5,435 2,717 1,359 1,359 0 0 0 0 50% VOL 25% BOD 25% SS Total Software 28,174 14,087 7,043 7,043 0 0 0 0 Collection System Sewer Pipes $35,081,095 $28,064,876 $0 $0 $7,016,219 $0 $0 $0 80% VOL 20% AC Force Mains $5,862,483 $4,689,986 $0 $0 $1,172,497 $0 $0 $0 80% VOL 20% AC Lift Stations $4,166,038 $3,332,830 $0 $0 $833,208 $0 $0 $0 80% VOL 20% AC Total Plant Assets $87,610,939 $58,157,404 $10,339,020 $10,031,427 $9,021,923 $61,165 $0 $0 % Total Plant 100.0% 66.4% 11.8% 11.4% 10.3% 0.1% 0.0% 0.0% Sewer COSA - Page 13 of 22 ---PAGE BREAK--- City of Puyallup Page 3 of 3 Sewer Utility Functionalization and Classification of Plant in Service Exhibit 9 Weighted Bio‐Oxygen Suspended Actual Customer Original Cost Volume Demand Solids Customer Acct/Svcs Revenue Direct 2008 Plant (VOL) (BOD) (SS) (AC) (WCA) (RR) (DA) Basis of Classification Customer Related Strength Related Less: Depreciation Other Improvements $316,542 $165,563 $58,845 $58,845 $0 $33,290 $0 $0 As Other Improvements Heavy Equipment 2,181,221 1,670,311 254,824 256,086 0 0 0 0 As Heavy Equipment Machinery & Equipment 10,668 10,668 0 0 0 0 0 0 As Machinery Equipment Buildings & Structures 15,525,670 7,638,537 4,005,716 3,881,418 0 0 0 0 As Buildings & Structures Software 21,452 10,726 5,363 5,363 0 0 0 0 As Software Sewer Pipes 15,936,580 12,749,264 0 0 3,187,316 0 0 0 As Sewer Pipes Force Mains 1,303,000 1,042,400 0 0 260,600 0 0 0 As Force Mains Lift Stations 1,962,000 1,569,600 0 0 392,400 0 0 0 As Lift Stations Total Depreciation $37,257,134 $24,857,068 $4,324,748 $4,201,711 $3,840,316 $33,290 $0 $0 Net Plant In Service $50,353,805 $33,300,336 $6,014,272 $5,829,716 $5,181,607 $27,875 $0 $0 % Net Plant in Service 100.0% 66.1% 11.9% 11.6% 10.3% 0.1% 0.0% 0.0% Sewer COSA - Page 14 of 22 ---PAGE BREAK--- City of Puyallup Page 1 of 4 Sewer Utility Functionalization and Classification of Expenses Exhibit 10 Weighted Bio‐Oxygen Suspended Actual Customer Total Volume Demand Solids Customer Acct/Svcs Revenue Direct EXPENSES 2011 (VOL) (BOD) (SS) (AC) (WCA) (RR) (DA) Basis of Classification Customer Related Strength Related Sewer Pumping Operations 510095 Payroll Contingency $17,109 $17,109 $0 $0 $0 $0 $0 $0 100% VOL 511011 Reg & Part Time Wages 74,103 74,103 0 0 0 0 0 0 100% VOL 511015 Longevity Pay 510 510 0 0 0 0 0 0 100% VOL 511017 Acting Pay 0 0 0 0 0 0 0 0 100% VOL 511025 Night Shift Pay 0 0 0 0 0 0 0 0 100% VOL 529048 Repairs & Maintenance 50,000 50,000 0 0 0 0 0 0 100% VOL 514022 State Retirement Plans 3,905 3,905 0 0 0 0 0 0 100% VOL 514027 Regence Blue Shield 17,107 17,107 0 0 0 0 0 0 100% VOL 514030 FICA Medicare 5,626 5,626 0 0 0 0 0 0 100% VOL 514032 Labor & Industries 2,781 2,781 0 0 0 0 0 0 100% VOL 514033 Life Insurance 136 136 0 0 0 0 0 0 100% VOL 514034 Dental Insurance/WA Dental 3,190 3,190 0 0 0 0 0 0 100% VOL 514035 Vision Insurance 872 872 0 0 0 0 0 0 100% VOL 514037 Employee Assistance Plan 23 23 0 0 0 0 0 0 100% VOL 514042 Long Term Disability 471 471 0 0 0 0 0 0 100% VOL 517031 Office & Operating Supplies 19,584 19,584 0 0 0 0 0 0 100% VOL 520035 Small Tools/Minor Equipment 16,171 16,171 0 0 0 0 0 0 100% VOL 522041 Professional Services 4,635 4,635 0 0 0 0 0 0 100% VOL 522111 PS ‐ Vadis NW Contract 0 0 0 0 0 0 0 0 100% VOL 523049 Comm ‐ General Phone Service 0 0 0 0 0 0 0 0 100% VOL 523052 Comm ‐ Postal Express 412 412 0 0 0 0 0 0 100% VOL 527048 Insurance ‐ Self Insurance Fund 1,983 1,983 0 0 0 0 0 0 100% VOL 528048 Public Utility ‐ Electric 71,138 71,138 0 0 0 0 0 0 100% VOL 528049 Public Utility ‐ Water 551 551 0 0 0 0 0 0 100% VOL 528050 Public Utility ‐ Sewer 226 226 0 0 0 0 0 0 100% VOL 528050 Public Utility ‐ Sewer 226 226 0 0 0 0 0 0 100% VOL 528051 Public Utility ‐ SWM 4,507 4,507 0 0 0 0 0 0 100% VOL 528053 Public Utility ‐ Natural Gas 28,252 28,252 0 0 0 0 0 0 100% VOL 528057 Public Utility ‐ Landfill Fees 52 52 0 0 0 0 0 0 100% VOL 529108 IT&C ‐ Maint/Internal 48,987 32,518 5,781 5,609 5,045 34 0 0 As Plant in Service 537064 Machinery and Equipment 25,029 16,615 2,954 2,866 2,577 17 0 0 As Plant in Service Total $397,358 $372,475 $8,735 $8,475 $7,622 $52 $0 $0 Water Poll. Control Plant Operations 510095 Payroll Contingency $27,595 $14,001 $6,901 $6,693 $0 $0 $0 $0 As Bldg Structures & Heavy Equip 511011 Reg & Part Time Wages 1,034,448 524,855 258,688 250,905 0 0 0 0 As Bldg Structures & Heavy Equip 511015 Longevity Pay 4,712 2,391 1,178 1,143 0 0 0 0 As Bldg Structures & Heavy Equip 511017 Acting Pay 7,864 3,990 1,967 1,907 0 0 0 0 As Bldg Structures & Heavy Equip 511025 Night Shift Pay 7,792 3,953 1,949 1,890 0 0 0 0 As Bldg Structures & Heavy Equip 511028 Holiday Pay 33,853 17,176 8,466 8,211 0 0 0 0 As Bldg Structures & Heavy Equip 512013 Overtime 5,990 3,039 1,498 1,453 0 0 0 0 As Bldg Structures & Heavy Equip 514022 State Retirement Plans 57,357 29,101 14,343 13,912 0 0 0 0 As Bldg Structures & Heavy Equip 514027 Regence Blue Shield 238,387 120,952 59,614 57,821 0 0 0 0 As Bldg Structures & Heavy Equip 514030 FICA Medicare 82,633 41,926 20,664 20,043 0 0 0 0 As Bldg Structures & Heavy Equip 514032 Labor & Industries 39,377 19,979 9,847 9,551 0 0 0 0 As Bldg Structures & Heavy Equip 514033 Life Insurance 1,899 964 475 461 0 0 0 0 As Bldg Structures & Heavy Equip 514034 Dental Insurance/WA Dental 44,162 22,407 11,044 10,712 0 0 0 0 As Bldg Structures & Heavy Equip 514035 Vision Insurance 11,995 6,086 3,000 2,909 0 0 0 0 As Bldg Structures & Heavy Equip 514037 Employee Assistance Plan 312 158 78 76 0 0 0 0 As Bldg Structures & Heavy Equip 514042 Long Term Disability 6,558 3,327 1,640 1,591 0 0 0 0 As Bldg Structures & Heavy Equip 515022 Uniforms & Clothing 2,987 1,516 747 724 0 0 0 0 As Bldg Structures & Heavy Equip 517031 Office & Operating Supplies 475,000 275,500 98,153 51,472 49,875 0 0 0 58% VOL Balance as Bldg Structu 517033 Office Supplies ‐ Toner 0 0 0 0 0 0 0 0 As Bldg Structures & Heavy Equip 517034 Janitorial Supplies 2,987 1,516 747 724 0 0 0 0 As Bldg Structures & Heavy Equip 518033 ER&R Fuel 5,918 3,003 1,480 1,436 0 0 0 0 As Bldg Structures & Heavy Equip Sewer COSA - Page 15 of 22 ---PAGE BREAK--- City of Puyallup Page 2 of 4 Sewer Utility Functionalization and Classification of Expenses Exhibit 10 Weighted Bio‐Oxygen Suspended Actual Customer Total Volume Demand Solids Customer Acct/Svcs Revenue Direct EXPENSES 2011 (VOL) (BOD) (SS) (AC) (WCA) (RR) (DA) Basis of Classification Customer Related Strength Related 520035 Small Tools/Minor Equipment 39,861 20,225 9,968 9,668 0 0 0 0 As Bldg Structures & Heavy Equip 520036 Small Tools ‐ Software 309 157 77 75 0 0 0 0 As Bldg Structures & Heavy Equip 522041 Professional Services 56,547 28,691 14,141 13,715 0 0 0 0 As Bldg Structures & Heavy Equip 522059 PS ‐ Engineering/Design 50,000 25,369 12,504 12,127 0 0 0 0 As Bldg Structures & Heavy Equip 522064 PS ‐ Film Processing 0 0 0 0 0 0 0 0 As Bldg Structures & Heavy Equip 522065 PS ‐ Alarm Monitoring 1,020 510 255 255 0 0 0 0 50% VOL 25% BOD 25% SS 522082 PS ‐ Medical/Vaccination 1,020 510 255 255 0 0 0 0 50% VOL 25% BOD 25% SS 522092 PS ‐ Printing/Copying Services 0 0 0 0 0 0 0 0 As Bldg Structures & Heavy Equip 522105 PS ‐ Software Support/Other 1,020 518 255 247 0 0 0 0 As Bldg Structures & Heavy Equip 522110 PS ‐ Uniform Cleaning 18,000 9,133 4,501 4,366 0 0 0 0 As Bldg Structures & Heavy Equip 522122 PS ‐ Waste Disposal Services 247,509 0 123,755 123,755 0 0 0 0 0% VOL 50% BOD 50% SS 523043 Delivery Charges (Fed Ex, UPS) 612 311 153 148 0 0 0 0 As Bldg Structures & Heavy Equip 532047 Comm ‐ Pager Services 103 52 26 25 0 0 0 0 As Bldg Structures & Heavy Equip 523048 Comm ‐ Cellular Phone 2,987 1,516 747 724 0 0 0 0 As Bldg Structures & Heavy Equip 523049 Comm ‐ General Phone Service 618 314 155 150 0 0 0 0 As Bldg Structures & Heavy Equip 523051 Comm ‐ Other Postage 0 0 0 0 0 0 0 0 As Bldg Structures & Heavy Equip 523052 Comm ‐ Postal Express 0 0 0 0 0 0 0 0 As Bldg Structures & Heavy Equip 524043 Travel ‐ Miles, Meals, Lodge 1,800 913 450 437 0 0 0 0 As Bldg Structures & Heavy Equip 526045 Operating Rentals & Leases 0 0 0 0 0 0 0 0 As Bldg Structures & Heavy Equip 527048 Insurance ‐ Self Insurance Fund 29,890 15,165 7,475 7,250 0 0 0 0 As Bldg Structures & Heavy Equip 528048 Public Utility ‐ Electric 283,590 283,590 0 0 0 0 0 0 100% VOL 528049 Public Utility ‐ Water 5,559 5,559 0 0 0 0 0 0 100% VOL 528050 Public Utility ‐ Sewer 11,818 11,818 0 0 0 0 0 0 100% VOL 528051 Public Utility ‐ SWM 10,926 10,926 0 0 0 0 0 0 100% VOL 528052 Public Utility ‐ Refuse 16,089 16,089 0 0 0 0 0 0 100% VOL 528057 Public Utility ‐ Landfill Fees 52 52 0 0 0 0 0 0 100% VOL 528057 Public Utility ‐ Landfill Fees 52 52 0 0 0 0 0 0 100% VOL 528058 Public Utility ‐ Recycling 52 52 0 0 0 0 0 0 100% VOL 529048 Repairs and Maintenance 50,000 25,369 12,504 12,127 0 0 0 0 As Bldg Structures & Heavy Equip 529058 R/M: Contractor Main ‐ Software 0 0 0 0 0 0 0 0 As Bldg Structures & Heavy Equip 529106 ER&R ‐ Maintenance/Internal 33,163 16,826 8,293 8,044 0 0 0 0 As Bldg Structures & Heavy Equip 529108 IT&C ‐ Maint/Internal 24,256 12,307 6,066 5,883 0 0 0 0 As Bldg Structures & Heavy Equip 529109 IT&C ‐ Replacement 5,833 2,960 1,459 1,415 0 0 0 0 As Bldg Structures & Heavy Equip 529111 IT&C ‐ Dispatch 800 MHz Assessment 7,132 3,618 1,783 1,730 0 0 0 0 As Bldg Structures & Heavy Equip 530049 Miscellaneous 10,000 5,074 2,501 2,425 0 0 0 0 As Bldg Structures & Heavy Equip 530050 Misc ‐ Conference Registration 1,428 725 357 346 0 0 0 0 As Bldg Structures & Heavy Equip 530051 Misc ‐ Dues 816 414 204 198 0 0 0 0 As Bldg Structures & Heavy Equip 530053 Misc ‐ Certifications 306 155 77 74 0 0 0 0 As Bldg Structures & Heavy Equip 530090 Misc Permit Fees 32,000 16,236 8,002 7,762 0 0 0 0 As Bldg Structures & Heavy Equip 537064 Machinery & Equipment 108,150 54,873 27,045 26,232 0 0 0 0 As Bldg Structures & Heavy Equip 537075 ER&R ‐ Repl/Internal 19,500 9,894 4,876 4,730 0 0 0 0 As Bldg Structures & Heavy Equip Total $3,163,790 $1,675,756 $750,362 $687,797 $49,875 $0 $0 $0 Sewer Coll/Transmission Operations 510095 Payroll Contingency ($14,498) ($11,599) $0 $0 ($2,900) $0 $0 $0 As Collection System 511011 Reg & Part Time Wages 281,388 225,110 0 0 56,278 0 0 0 As Collection System 511015 Longevity Pay 3,353 2,682 0 0 671 0 0 0 As Collection System 511017 Acting Pay 0 0 0 0 0 0 0 0 As Collection System 512012 Overtime 7,500 6,000 0 0 1,500 0 0 0 As Collection System 514022 State Retirement Plans 14,803 11,843 0 0 2,961 0 0 0 As Collection System 514027 Regence Blue Shield 85,440 68,352 0 0 17,088 0 0 0 As Collection System 514030 FICA & Medicare 21,326 17,061 0 0 4,265 0 0 0 As Collection System 514032 Labor Industries 11,262 9,010 0 0 2,252 0 0 0 As Collection System 514033 Life Insurance 551 441 0 0 110 0 0 0 As Collection System 514034 Dental Insurance/WA Dental 14,923 11,939 0 0 2,985 0 0 0 As Collection System 514035 Vision Insurance 4,085 3,268 0 0 817 0 0 0 As Collection System 514037 Employee Assistance Plan 91 73 0 0 18 0 0 0 As Collection System Sewer COSA - Page 16 of 22 ---PAGE BREAK--- City of Puyallup Page 3 of 4 Sewer Utility Functionalization and Classification of Expenses Exhibit 10 Weighted Bio‐Oxygen Suspended Actual Customer Total Volume Demand Solids Customer Acct/Svcs Revenue Direct EXPENSES 2011 (VOL) (BOD) (SS) (AC) (WCA) (RR) (DA) Basis of Classification Customer Related Strength Related 514042 Long Term Disability 1,784 1,427 0 0 357 0 0 0 As Collection System 515022 Uniforms & Clothing 306 245 0 0 61 0 0 0 As Collection System 517031 Office & Operating Supplies 23,999 19,199 0 0 4,800 0 0 0 As Collection System 517033 Office Supplies ‐ Toner 0 0 0 0 0 0 0 0 As Collection System 518033 ER&R ‐ Fuel 14,766 11,812 0 0 2,953 0 0 0 As Collection System 520035 Small Tools/Minor Equipment 13,802 11,042 0 0 2,760 0 0 0 As Collection System 522041 Professional Services 16,480 13,184 0 0 3,296 0 0 0 As Collection System 522057 PS ‐ Emerg After Hours Ans Service 0 0 0 0 0 0 0 0 As Collection System 522110 PS ‐ Uniform Cleaning 0 0 0 0 0 0 0 0 As Collection System 522111 PS ‐ Vadis NW Contract 11,227 8,982 0 0 2,245 0 0 0 As Collection System 523043 Delivery Charges (FedEx, UPS) 1,020 816 0 0 204 0 0 0 As Collection System 523048 Comm ‐ Cellular Phone 1,700 1,360 0 0 340 0 0 0 As Collection System 525046 Advertising ‐ Legal Notices 0 0 0 0 0 0 0 0 As Collection System 527048 Insurance ‐ Self Insurance Fund 7,123 5,699 0 0 1,425 0 0 0 As Collection System 528052 Public Utility ‐ Refuse 824 659 0 0 165 0 0 0 As Collection System 529048 Repairs & Maintenance 20,000 16,000 0 0 4,000 0 0 0 As Collection System 529084 R/M: Repairs ‐ Equipment 0 0 0 0 0 0 0 0 As Collection System 529106 ER&R ‐ Main/Internal 75,553 60,442 0 0 15,111 0 0 0 As Collection System 519108 IT&C ‐ Maint/Internal 34,110 27,288 0 0 6,822 0 0 0 As Collection System 529109 IT&C ‐ Replacement 232 185 0 0 46 0 0 0 As Collection System 529111 IT&C ‐ Dispatch 800 MHz Assessment 10,697 8,557 0 0 2,139 0 0 0 As Collection System 530050 Misc ‐ Conference Registration 0 0 0 0 0 0 0 0 As Collection System 530052 Misc ‐ Subscriptions 0 0 0 0 0 0 0 0 As Collection System 536063 Improvements Other Than Bldg 8,364 6,691 0 0 1,673 0 0 0 As Collection System 536064 Machinery & Equipment 83,739 66,991 0 0 16,748 0 0 0 As Collection System 537075 ER&R ‐ Repl/Internal 56 665 45 332 0 0 11 333 0 0 0 As Collection System 537075 ER&R ‐ Repl/Internal 56,665 45,332 0 0 11,333 0 0 0 As Collection System Total $812,613 $650,090 $0 $0 $162,523 $0 $0 $0 Pretreatment Program Operations 517031 Office & Operating Supplies $0 $0 $0 $0 $0 $0 $0 $0 50% BOD 50% SS 520035 Small Tool/Minor Equipment 1,545 0 773 773 0 0 0 0 50% BOD 50% SS 522041 Professional Services 7,004 0 3,502 3,502 0 0 0 0 50% BOD 50% SS 522092 PS ‐ Printing/Copying Services 2,652 0 1,326 1,326 0 0 0 0 50% BOD 50% SS 523043 Delivery Charges (FexEx, UPS) 1,020 0 510 510 0 0 0 0 50% BOD 50% SS 529048 Repairs and Maintenance 1,530 0 765 765 0 0 0 0 50% BOD 50% SS 529058 R/M Cont Maint ‐ Software/Other 0 0 0 0 0 0 0 0 50% BOD 50% SS Total $13,751 $0 $6,876 $6,876 $0 $0 $0 $0 522120 General Fund Administration $1,599,569 $983,736 $279,253 $256,349 $80,213 $19 $0 $0 As All Other Expenses Total Operations & Maintenance $5,987,082 $3,682,057 $1,045,224 $959,496 $300,233 $71 $0 $0 622000 Transfers In ‐ Other ($250,000) (165,332) (29,860) (28,944) (25,726) (138) 0 0 As Net Plant in Service Taxes 528056 Public Utility Tax ‐ Rates (City) $708,513 $0 $0 $0 $0 $0 $708,513 $0 100% RR 528059 Public Utility Tax ‐ SDCs (City) 48,240 0 0 0 0 0 48,240 0 100% RR 532051 Intergovernmental Charges (State) 230,110 0 0 0 0 0 230,110 0 100% RR Total Taxes $986,863 $0 $0 $0 $0 $0 $986,863 $0 Debt Service [PHONE REDACTED] Revenue Bonds $1,204,891 $796,827 $143,912 $139,496 $123,988 $667 $0 $0 As Net Plant in Service [PHONE REDACTED] Revenue Bonds (Series A) 374,819 247,904 43,517 42,167 41,230 0 0 0 36%lift 19% pipes; 45% bldg st [PHONE REDACTED] Revenue Bonds (Series B) 196,874 130,198 23,515 22,793 20,259 109 0 0 As Net Plant in Service [PHONE REDACTED] PWTF Loan 398,848 196,231 102,905 99,712 0 0 0 0 As Bldg Structures 541002 Bond Administration Fee 0 0 0 0 0 0 0 0 As Net Plant in Service Sewer COSA - Page 17 of 22 ---PAGE BREAK--- City of Puyallup Page 4 of 4 Sewer Utility Functionalization and Classification of Expenses Exhibit 10 Weighted Bio‐Oxygen Suspended Actual Customer Total Volume Demand Solids Customer Acct/Svcs Revenue Direct EXPENSES 2011 (VOL) (BOD) (SS) (AC) (WCA) (RR) (DA) Basis of Classification Customer Related Strength Related New Debt Service 0 0 0 0 0 0 0 0 As Bldg Structures Total Debt Service $2,175,432 $1,371,160 $313,850 $304,169 $185,477 $776 $0 $0 Less: SDC Revenue ($180,900) ($119,634) ($21,607) ($20,944) ($18,615) ($100) $0 $0 As Net Plant in Service Net Total Debt Service $1,994,532 $1,251,526 $292,243 $283,225 $166,862 $676 $0 $0 Capital Funded Through Rates $700,000 $462,929 $83,608 $81,043 $72,033 $388 $0 $0 As Net Plant in Service Change in Working Capital $40,000 $26,453 $4,778 $4,631 $4,116 $22 $0 $0 As Net Plant in Service Total Revenue Requirement $9,458,476 $5,257,634 $1,395,993 $1,299,451 $517,518 $1,018 $986,863 $0 Less: Misc. Revenue 440800 Late Penalty $40,400 $0 $0 $0 $0 $0 $40,400 $0 100% RR 452001 Investment Interest 7,000 0 0 0 0 0 7,000 0 100% RR Total Misc. Revenue $47,400 $0 $0 $0 $0 $0 $47,400 $0 Net Revenue Requirements $9,411,076 $5,257,634 $1,395,993 $1,299,451 $517,518 $1,018 $939,463 $0 % Net Revenue Requirements 100.0% 55.9% 14.8% 13.8% 5.5% 0.0% 10.0% 0.0% Sewer COSA - Page 18 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Allocation of Revenue Requirements Exhibit 11 Net Revenue Disability Multi Allocation Classification Components Requirement Residential Senior Family Commercial Factor Volume $5,257,634 $2,468,615 $62,055 $1,252,823 $1,474,141 (VOL) Bio‐Oxygen Demand $1,395,993 $655,460 $16,477 $332,646 $391,410 (BOD) Suspended Solids $1,299,451 $610,131 $15,337 $309,642 $364,341 (SS) Customer Related ‐Actual Customer $517,518 $280,575 $9,851 $201,969 $25,122 (AC) ‐Weighted for Cust. Acctg. 1,018 492 17 443 66 (WCA) Total Customer Related $518,535 $281,067 $9,868 $202,412 $25,188 Revenue Related $939,463 $474,853 $10,957 $244,301 $209,352 (RR) Direct Assignment $0 $0 $0 $0 $0 (DA) Revenue Requirement $9,411,076 $4,490,127 $114,693 $2,341,823 $2,464,432 Sewer COSA - Page 19 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Summary of Cost of Service Analysis Exhibit 12 2011 Disability Multi Expenses Residential Senior Family Commercial Revenues at Present Rates $8,856,410 $4,476,488 $103,290 $2,303,049 $1,973,583 Less: Allocated Revenue Requirement 9,411,076 4,490,127 114,693 2,341,823 2,464,432 Balance/(Deficiency) Before Taxes ($554,666) ($13,639) ($11,403) ($38,774) ($490,849) Add'l Taxes with rate increase ($65,739) ($1,617) ($1,352) ($4,596) ($58,175) Balance/(Deficiency) of Funds ($620,406) ($15,256) ($12,755) ($43,370) ($549,025) Required % Change in Rates 7.0% 0.3% 12.3% 1.9% 27.8% 2011 Multi Expenses Residential Family Commercial Revenues at Present Rates $8,856,410 $4,579,777 $2,303,049 $1,973,583 Less: Allocated Revenue Requirement 9,411,076 4,604,820 2,341,823 2,464,432 Balance/(Deficiency) Before Taxes ($554,666) ($25,043) ($38,774) ($490,849) Add'l Taxes with rate increase ($65,739) ($2,968) ($4,596) ($58,175) Balance/(Deficiency) of Funds ($620,406) ($28,011) ($43,370) ($549,025) Required % Change in Rates 7.0% 0.6% 1.9% 27.8% Sewer COSA - Page 20 of 22 ---PAGE BREAK--- City of Puyallup Sewer Utility Average Unt Cost Summary Exhibit 13 Total Residential Multi‐Family Commercial Volume Costs ‐ $/ccf $4.20 $4.10 $4.20 $4.20 Strength Costs ‐ $/ccf $2.15 $2.10 $2.15 $2.15 Revenue/Direct/Other ‐ $/ccf $0.75 $0.79 $0.82 $0.60 Total ‐ $/ccf $7.10 $6.99 $7.17 $6.95 Customer ‐ $5.49 $5.31 $5.49 $5.50 Proposed Revenue $/ccf $7.52 $7.45 $7.85 $7.02 Current Revenue $/ccf $7.08 $7.43 $7.72 $5.62 Basic Data: Annualized Sewer Flows ‐ ccf 1,251,697 602,482 298,262 350,952 No. of Units 15,734 8,830 6,141 764 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 Residential Multi‐Family Commercial Current Vs. Proposed Unit Cost $/ccf Proposed Revenue $/ccf Current Revenue $/ccf Sewer COSA - Page 21 of 22 ---PAGE BREAK--- City of Puyallup Development Of Revenues At Present Rates For Actual Year 2009 Rates 1/1/2009 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09 Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Total Service Charge Per Unit Residential $31.38 4,746 3,457 4,804 3,462 4,812 3,492 4,837 3,519 4,820 3,484 4,851 3,454 8,305 Disability/Senior $17.82 114 191 114 190 113 187 112 184 112 184 112 185 297 Multi‐Family $23.54 6,093 0 6,093 0 6,093 0 6,093 0 6,093 0 6,093 0 6,093 Commercial $31.38 503 256 509 251 500 248 504 247 507 245 510 248 758 Outside (50% Surcharge) Residential $47.07 49 137 49 136 50 135 49 137 49 136 49 134 183 Disability/Senior $26.73 0 1 0 1 0 1 0 1 0 1 0 1 1 Multi‐Family $35.31 17 0 17 0 17 0 17 0 17 0 17 0 17 Commercial $47.07 3 3 3 3 3 3 2 11,525 4,041 11,589 4,039 11,588 4,062 11,615 4,087 11,601 4,049 11,635 4,021 15,656 Commodity Charge Residential $4.76 54,245 40,840 60,741 34,549 53,927 37,695 57,493 37,695 57,493 37,695 57,493 40,024 569,889 Disability/Senior $4.76 978 1,593 1,048 1,324 792 1,459 1,013 1,459 1,013 1,459 1,013 1,512 14,662 Multi‐Family $4.76 23,151 26,997 24,843 24,465 21,360 25,731 23,997 25,731 23,997 25,731 23,997 25,372 295,372 Commercial $4.76 28,967 27,655 37,901 21,503 33,822 20,570 23,171 17,438 17,254 13,739 32,615 24,917 299,552 Strength Category II $6.26 334 1,271 367 1,254 409 2,157 456 1,897 452 7,583 422 1,510 18,112 Strength Category III $7.38 2,455 1,957 3,231 1,779 2,465 2,173 3,181 3,041 3,837 2,919 2,943 2,828 32,809 Strength Category III w/Discount $6.72 0 0 0 0 0 0 0 0 0 0 0 0 0 Surcharge 1,990 3,718 2,840 1,803 1,772 1,425 1,639 1,524 2,379 3,378 3,140 3,727 29,335 Outside (50% Surcharge) Residential $7.14 564 2,022 766 1,651 647 1,837 665 1,837 665 1,837 665 1,742 14,897 Disability/Senior ($13.56 Discount) $7.14 0 7 0 6 0 7 0 7 0 7 0 6 39 Multi‐Family $7.14 148 153 31 153 41 153 90 153 90 153 90 153 1,407 Commercial $7.14 26 69 39 59 17 (195) 31 (717) 61 (556) 53 (154) (1,267) 112,858 106,282 131,807 88,546 115,252 93,010 111,735 90,063 107,240 93,943 122,430 101,637 1,274,805 Revenues Residential $407,136 $302,879 $439,877 $273,091 $407,693 $289,005 $425,452 $289,852 $424,918 $288,754 $425,891 $298,901 $4,273,448 Disability/Senior 6,687 10,986 7,020 9,688 5,784 10,275 6,818 10,221 6,818 10,221 6,818 10,494 101,829 Multi‐Family 253,628 128,506 261,682 116,453 245,103 122,480 257,655 122,480 257,655 122,480 257,655 120,771 2,266,546 Commercial 175,866 165,788 225,363 133,012 199,207 136,660 154,079 126,598 131,564 145,476 198,752 160,438 1,952,803 Outside (50% Surcharge) Residential 6,333 20,886 7,776 18,190 6,973 19,467 7,055 19,561 7,055 19,514 7,055 18,745 158,609 Disability/Senior ($13.56 Discount) 0 77 0 70 0 73 0 73 0 73 0 70 435 Multi‐Family 1,657 1,092 822 1,092 893 1,092 1,239 1,092 1,239 1,092 1,239 1,092 13,644 Commercial 327 446 420 374 263 (1,439) 363 (5,166) 577 (4,017) 520 (1,147) (8,482) Total Revenues $851,634 $630,660 $942,959 $551,970 $865,915 $577,612 $852,659 $564,711 $829,825 $583,593 $897,929 $609,363 $8,758,832 2009 Actual $8,722,755 Difference $36,077 0.41% Sewer COSA - Page 22 of 22 ---PAGE BREAK--- Appendix D Storm & Surface Water Utility Analyses ---PAGE BREAK--- ---PAGE BREAK--- Budget 2010 2011 2012 2013 2014 2015 2016 Revenue Rate Revenue $3,599,700 $3,628,099 $3,664,380 $3,701,024 $3,738,034 $3,775,415 $3,813,169 Miscellaneous Revenue 91,100 17,111 61,122 56,133 76,145 72,156 19,168 Total Revenue $3,690,800 $3,645,210 $3,725,502 $3,757,157 $3,814,179 $3,847,571 $3,832,336 Expenses O&M Expenses $2,998,831 $2,955,734 $3,053,460 $3,174,552 $3,297,842 $3,426,160 $3,559,721 Taxes 414,000 404,868 408,913 412,995 404,340 408,367 412,429 Net Debt Service 399,408 394,627 261,088 332,297 369,990 481,408 481,946 Capital Funded From Rates 0 300,000 700,000 800,000 900,000 1,000,000 1,100,000 Change in Working Capital 0 (200,000) (260,000) (230,000) (115,000) (70,000) (70,000) Total Revenue Requirement $3,812,239 $3,855,229 $4,163,461 $4,489,844 $4,857,172 $5,245,934 $5,484,095 Balance (Def.) of Rates ($121,439) ($210,019) ($437,959) ($732,687) ($1,042,993) ($1,398,364) ($1,651,759) Plus Additional Taxes ($11,901) ($20,582) ($42,920) ($71,803) ($99,084) ($132,845) ($156,917) Net Balance/(Deficiency) of Funds ($133,340) ($230,601) ($480,879) ($804,490) ($1,142,078) ($1,531,208) ($1,808,676) Balance (Def.) of Rates as % of Rates 3.7% 6.4% 13.1% 21.7% 30.6% 40.6% 47.4% Proposed Rate Adjustment 0.0% 6.0% 6.5% 7.5% 7.5% 7.5% 5.0% Add'l Revenue After Rate Adjustment $0 $217,686 $472,339 $790,418 $1,138,549 $1,519,336 $1,801,914 Balance (Def) After Rate Increase ($133,340) ($12,915) ($8,540) ($14,072) ($3,528) ($11,872) ($6,762) % Bal. (Def.) of Rates After Increase 3.7% 0.4% 0.2% 0.4% 0.1% 0.3% 0.2% Average Residential Bill $20.89 [Rates from 7/1/09 ordinance] Rate After Proposed Adjustment $20 89 $22 14 $23 58 $25 35 $27 25 $29 30 $30 76 City of Puyallup Storm and Surface Water Utility Exhibit 1 Summary of Revenue and Expenses Projected Rate After Proposed Adjustment $20.89 $22.14 $23.58 $25.35 $27.25 $29.30 $30.76 Average Res. Bill Change $0.00 $1.25 $1.44 $1.77 $1.90 $2.04 $1.46 Cumulative Average Res. Bill Change $0.00 $1.25 $2.69 $4.46 $6.36 $8.41 $9.87 Debt Service Coverage Ratio (SDC revenue not included) Before Rate Adjustment 0.56 0.57 0.73 0.39 0.24 0.02 ‐0.24 After Required Rate Adjustment 0.82 1.04 2.05 2.24 2.65 2.64 2.84 After Proposed Rate Adjustment 0.56 1.01 2.03 2.21 2.64 2.61 2.83 (With SDC revenue included) Before Rate Adjustment 1.56 1.59 2.13 1.57 1.33 0.91 0.66 After Required Rate Adjustment 1.82 2.06 3.45 3.42 3.74 3.53 3.74 After Proposed Rate Adjustment 1.56 2.03 3.43 3.39 3.73 3.51 3.73 Capital Funded From Rates Capital Funded From Rates $0 $300,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 2% of original cost (OC) $670,000 $690,000 $710,000 $740,000 $770,000 $880,000 $900,000 Estimated Replacement Cost (RC) $1,140,000 $1,200,000 $1,260,000 $1,330,000 $1,400,000 $1,530,000 $1,610,000 Fund Balance (not including SDCs) Ending Fund Balance (O&M & Avg. Annual CIP) $3,289,423 $3,006,508 $2,737,968 $2,493,896 $2,375,368 $588,495 $511,734 Target Fund Balance (O&M) 493,000 486,000 502,000 522,000 542,000 563,000 585,000 Target Fund Balance (O&M & Avg. Annual CIP) 2,243,000 2,236,000 2,252,000 2,272,000 2,292,000 2,313,000 2,335,000 Above/(Below) Target Balance (O&M & Avg. CIP) $1,046,423 $770,508 $485,968 $221,896 $83,368 ($1,724,505) ($1,823,266) Storm and Surface Water COSA - Page 1 of 18 ---PAGE BREAK--- City of Puyallup Storm and Surface Water Utility Escalation Factors Exhibit 2 2010 2011 2012 2013 2014 2015 2016 Escalation Factors: Revenues: As Resident Residential 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% As Commer Commercial/Industrial 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% As Miscella Miscellaneous Revenue Budget 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Expenses: As Labor Labor Budget 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% As Benefit Benefits ‐ Medical Budget 7.0% 7.0% 7.0% 6.0% 6.0% 6.0% As Benefit Benefits ‐ Other Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Materi Materials & Supplies Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Equipm Equipment Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Miscell Miscellaneous Budget 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% As Other U Other Utilities Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Electric Electricity Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Natura Natural Gas Budget 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% As Insuran Insurance Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Debt Service: Term 20 20 20 20 20 20 20 Interest Rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% Interest Income 0.5% 0.5% 2.0% 2.0% 3.0% 3.0% 3.0% Storm and Surface Water COSA - Page 2 of 18 ---PAGE BREAK--- City of Puyallup Page 1 of 4 Storm and Surface Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 REVENUE 443000 Rate Revenue Retail Sales Residential $1,059,502 $1,064,800 $1,075,448 $1,086,202 $1,097,065 $1,108,035 $1,119,115 As Residential Disability/Senior 27,134 27,270 27,543 27,818 28,096 28,377 28,661 As Residential Multi‐Family 432,908 435,073 439,424 443,818 448,256 452,739 457,266 As Residential Commercial 2,080,155 2,100,957 2,121,966 2,143,186 2,164,618 2,186,264 2,208,126 As Commercial/Industrial Total Rate Revenue $3,599,700 $3,628,099 $3,664,380 $3,701,024 $3,738,034 $3,775,415 $3,813,169 Adjusted to 2010 budgeted rev. Miscellaneous Revenue Revenue ties to budgeted amount 440800 Late Pay Penalty $1,000 $1,010 $1,020 $1,030 $1,041 $1,051 $1,062 As Miscellaneous Revenue 452001 Interest Income 90,000 16,000 60,000 55,000 75,000 71,000 18,000 Calculated 458600 Other Misc Revenue 100 101 102 103 104 105 106 As Miscellaneous Revenue Total Miscellaneous Revenue $91,100 $17,111 $61,122 $56,133 $76,145 $72,156 $19,168 TOTAL REVENUE $3,690,800 $3,645,210 $3,725,502 $3,757,157 $3,814,179 $3,847,571 $3,832,336 EXPENSES Collection & Transmission 510095 Payroll Contingency $27,668 $28,498 $29,353 $30,527 $31,748 $33,018 $34,339 As Labor 511011 Reg & Part Time Wages 450,537 464,053 477,975 497,094 516,977 537,657 559,163 As Labor 511015 Longevity Pay 1,725 1,777 1,830 1,903 1,979 2,059 2,141 As Labor 511017 Acting Pay 0 0 0 0 0 0 0 As Labor 511025 Standby Pay 0 14,000 14,420 14,997 15,597 16,221 16,869 As Labor 512012 Overtime 0 8,500 8,755 9,105 9,469 9,848 10,242 As Labor 514022 State Retirement Plans 23,760 24,473 25,207 25,963 26,742 27,544 28,371 As Benefits ‐ Other 514027 Regence Blue Shield 121,942 130,478 139,611 149,384 158,347 167,848 177,919 As Benefits ‐ Medical 514030 FICA & Medicare 34,231 35,258 36,316 37,405 38,527 39,683 40,874 As Benefits ‐ Other 514032 Labor Industries 22,017 22,678 23,358 24,059 24,780 25,524 26,289 As Benefits ‐ Other 514033 Life Insurance 920 948 976 1,005 1,035 1,067 1,099 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 22,456 24,028 25,710 27,510 29,160 30,910 32,764 As Benefits ‐ Medical 514035 Vision Insurance 6,070 6,252 6,440 6,633 6,832 7,037 7,248 As Benefits ‐ Other 514037 Employee Assistance Plant 151 156 160 165 170 175 180 As Benefits ‐ Other 514042 Long Term Disability 2,663 2,743 2,825 2,910 2,997 3,087 3,180 As Benefits ‐ Other 515022 Uniforms & Clothing 200 206 212 219 225 232 239 As Materials & Supplies 517031 Office & Operating Supplies 24,500 24,990 25,490 26,000 26,520 27,050 27,591 As Miscellaneous 517033 Office Supplies ‐ Toner 0 0 0 0 0 0 0 As Materials & Supplies 518033 ER&R ‐ Fuel 25,717 26,489 27,283 28,102 28,945 29,813 30,707 As Materials & Supplies 520035 Small Tools/Minor Equipment 13,900 14,317 14,747 15,189 15,645 16,114 16,597 As Equipment 522041 Professional Services 162,500 60,000 61,800 64,272 66,843 69,517 72,297 As Labor 526045 Operating Rentals & Leasese 0 9,000 9,270 9,548 9,835 10,130 10,433 As Materials & Supplies 522110 PS ‐ Uniform Cleaning 0 3,000 3,090 3,183 3,278 3,377 3,478 As Materials & Supplies 522111 PS ‐ Vadis NW Contract 10,900 11,227 11,564 11,911 12,268 12,636 13,015 As Materials & Supplies 522114 PS ‐ Weather Services 1,800 1,854 1,910 1,967 2,026 2,087 2,149 As Materials & Supplies 522122 PS ‐ Waste Disposal Services 20,100 20,703 21,324 21,964 22,623 23,301 24,000 As Other Utilities 523048 Comm ‐ Cellular Phone 0 0 0 0 0 0 0 As Other Utilities 525046 Advertising ‐ Legal Notices 500 510 520 531 541 552 563 As Miscellaneous 527048 Insurance ‐ Self Insurance Fund 16,238 16,725 17,227 17,744 18,276 18,824 19,389 As Insurance 528048 Public Utility ‐ Electric 13,510 13,915 14,333 14,763 15,206 15,662 16,132 As Electricity 528049 Public Utility ‐ Water 31 32 33 34 35 36 37 As Other Utilities 528050 Public Utility ‐ Sewer 31 32 33 34 35 36 37 As Other Utilities 528051 Public Utility ‐ SWM 265 273 281 290 298 307 316 As Other Utilities 528052 Public Utility ‐ Refuse 770 793 817 841 867 893 919 As Other Utilities 528053 Public Utility ‐ Natural Gas 1,487 1,546 1,608 1,657 1,706 1,757 1,810 As Natural Gas Projected Storm and Surface Water COSA - Page 3 of 18 ---PAGE BREAK--- City of Puyallup Page 2 of 4 Storm and Surface Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected 528057 Public Utility ‐ Landfill Fees 10 10 11 11 11 12 12 As Other Utilities 528058 Public Utility ‐ Recycling 80 83 87 89 92 95 97 As Natural Gas 529048 Repair & Maintenance 141,813 50,000 51,500 53,045 54,636 56,275 57,964 As Other Utilities 529106 ER&R Maint/Internal 50,782 52,305 53,875 55,491 57,156 58,870 60,636 As Other Utilities 529108 IT&C Maint/Internal 33,441 34,444 35,478 36,542 37,638 38,767 39,930 As Materials & Supplies 529109 IT&C Replacement 5,507 5,672 5,842 6,018 6,198 6,384 6,576 As Materials & Supplies 529111 IT&C Dispatch 800 MHz Assessment 10,385 10,697 11,017 11,348 11,688 12,039 12,400 As Materials & Supplies 530049 Miscellaneous 1,600 15,000 15,450 15,914 16,391 16,883 17,389 As Materials & Supplies 530050 Misc ‐ Conference Registration 600 612 624 637 649 662 676 As Miscellaneous 530051 Misc ‐ Dues 100 102 104 106 108 110 113 As Miscellaneous 530052 Misc ‐ Subscriptions 200 204 208 212 216 221 225 As Miscellaneous 530053 Misc ‐ Certification 0 0 0 0 0 0 0 As Miscellaneous 536063 Improvements Other Than BLdg 8,200 8,364 8,531 8,702 8,876 9,053 9,235 As Miscellaneous 537064 Machinery and Equipment 99,300 101,286 103,312 105,378 107,486 109,635 111,828 As Miscellaneous 537075 ER&R ‐ Repl/Internal 77,559 79,886 82,282 84,751 87,293 89,912 92,610 As Equipment Total Collection & Transmission $1,436,166 $1,328,118 $1,372,798 $1,425,148 $1,477,972 $1,532,919 $1,590,080 Storm Street Cleaning 510095 Payroll Contingency $6,649 $6,848 $7,054 $7,336 $7,630 $7,935 $8,252 As Labor 511011 Reg & Part Time Wages 87,347 89,967 92,666 96,373 100,228 104,237 108,407 As Labor 511015 Longevity Pay 1,350 1,391 1,432 1,490 1,549 1,611 1,675 As Labor 511017 Acting Pay 0 0 0 0 0 0 0 As Labor 511028 Night Shift Pay 0 0 0 0 0 0 0 As Labor 512012 Overtime 5,382 5,543 5,710 5,938 6,176 6,423 6,680 As Labor 514022 State Retirement Plans 4,924 5,072 5,224 5,381 5,542 5,708 5,880 As Benefits ‐ Other 514027 Regence Blue Shield 14,742 15,774 16,878 18,060 19,143 20,292 21,509 As Benefits ‐ Medical 514030 FICA & Medicare 7,094 7,307 7,526 7,752 7,984 8,224 8,471 As Benefits ‐ Other 514032 Labor Industries 3,663 3,773 3,886 4,003 4,123 4,246 4,374 As Benefits ‐ Other 514033 Life Insurance 180 185 191 197 203 209 215 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 3,364 3,599 3,851 4,121 4,368 4,630 4,908 As Benefits ‐ Medical 514035 Vision Insurance 813 870 931 996 1,056 1,119 1,186 As Benefits ‐ Medical 514037 Employee Assistance Plant 30 31 32 33 34 35 36 As Benefits ‐ Other 514042 Long Term Disability 559 576 593 611 629 648 667 As Benefits ‐ Other 517031 Office & Operating Supplies 8,800 9,064 9,336 9,616 9,904 10,202 10,508 As Materials & Supplies 520035 Small Tools/Minor Equipment 400 412 424 437 450 464 478 As Equipment 522041 Professional Services 5,700 5,871 6,047 6,289 6,541 6,802 7,074 As Labor 522122 PS ‐ Waste Disposal Services 5,700 20,000 20,600 21,218 21,855 22,510 23,185 As Other Utilities 527048 Insurance ‐ Self Insurance Fund 3,137 3,231 3,328 3,428 3,531 3,637 3,746 As Insurance 529106 ER&R ‐ Maint Internal 38,551 39,708 40,899 42,126 43,389 44,691 46,032 As Equipment 537075 ER&R ‐ Repl/Internal 41,846 43,101 44,394 45,726 47,098 48,511 49,966 As Equipment Total Storm Street Cleaning $240,231 $262,324 $271,003 $281,129 $291,432 $302,133 $313,249 New NPDES Regulations 510095 Payroll Contingency ($21,982) ($22,641) ($23,321) ($24,254) ($25,224) ($26,233) ($27,282) As Labor 511011 Reg & Part Time Wages 288,452 297,106 306,019 318,259 330,990 344,229 357,999 As Labor 511015 Longevity Pay 3,300 3,399 3,501 3,641 3,787 3,938 4,096 As Labor 511018 Car Allowance 3,300 3,399 3,501 3,641 3,787 3,938 4,096 As Labor 514022 State Retirement Plans 14,993 15,443 15,906 16,383 16,875 17,381 17,902 As Benefits ‐ Other 514027 Regence Blue Shield 64,714 69,244 74,091 79,277 84,034 89,076 94,421 As Benefits ‐ Medical 514030 FICA & Medicare 21,600 22,248 22,915 23,603 24,311 25,040 25,792 As Benefits ‐ Other 514032 Labor Industries 8,640 8,899 9,166 9,441 9,724 10,016 10,317 As Benefits ‐ Other 514033 Life Insurance 479 493 508 523 539 555 572 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 11,718 12,538 13,416 14,355 15,216 16,129 17,097 As Benefits ‐ Medical 514035 Vision Insurance 3,200 3,424 3,664 3,920 4,155 4,405 4,669 As Benefits ‐ Medical 514037 Employee Assistance Plan 79 81 84 86 89 92 94 As Benefits ‐ Other 514042 Long Term Disability 1,807 1,861 1,917 1,975 2,034 2,095 2,158 As Benefits ‐ Other Storm and Surface Water COSA - Page 4 of 18 ---PAGE BREAK--- City of Puyallup Page 3 of 4 Storm and Surface Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected 517031 Office & Operating Supplies 0 0 0 0 0 0 0 As Miscellaneous 520035 Small Tools/Minor Equipment 0 0 0 0 0 0 0 As Equipment 522041 Professional Service 50,000 51,500 53,045 55,167 57,373 59,668 62,055 As Labor Total NEW NPDES Regulations $450,300 $466,994 $484,412 $506,019 $527,691 $550,331 $573,984 522120 General Fund Administration 872,134 898,298 925,247 962,257 1,000,747 1,040,777 1,082,408 As Labor Total Operations & Maintenance $2,998,831 $2,955,734 $3,053,460 $3,174,552 $3,297,842 $3,426,160 $3,559,721 Taxes 528056 Public Utility Tax ‐ Rates (City) $276,900 $290,248 $293,150 $296,082 $299,043 $302,033 $305,054 8% of rate revenue 528059 Public Utility Tax ‐ SDCs (City) 57,200 40,240 40,640 41,040 41,440 41,840 42,240 8% of SDC revenue 532051 Intergovernmental Charges (State) 79,900 74,380 75,123 75,873 63,858 64,494 65,135 1.8% of rate and SDC revenue Total Taxes $414,000 $404,868 $408,913 $412,995 $404,340 $408,367 $412,429 thru 2013; 1.5% thru 2016 Debt Service [PHONE REDACTED] Revenue Bonds $4,910 $4,931 $6,050 $6,083 $5,955 $5,837 $6,026 2009 Revenue Bonds (Series B) 482,334 478,190 329,609 331,970 331,518 326,960 328,366 [PHONE REDACTED] PWTF Loan 12,164 12,107 12,051 11,994 11,937 11,880 11,823 New Debt Service 0 0 14,979 84,851 124,180 241,331 241,331 Total Debt Service $499,408 $495,227 $362,688 $434,897 $473,590 $586,008 $587,546 Less: SDC Revenue ($100,000) ($100,600) ($101,600) ($102,600) ($103,600) ($104,600) ($105,600) 20.0% of SDC Revenue Net Total Debt Service $399,408 $394,627 $261,088 $332,297 $369,990 $481,408 $481,946 Capital Funded Through Rates $0 $300,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 2008 Depr. = $628,764 Change in Working Capital $0 ($200,000) ($260,000) ($230,000) ($115,000) ($70,000) ($70,000) TOTAL REVENUE REQUIREMENT $3,812,239 $3,855,229 $4,163,461 $4,489,844 $4,857,172 $5,245,934 $5,484,095 Balance (Def.) of Rates ($121,439) ($210,019) ($437,959) ($732,687) ($1,042,993) ($1,398,364) ($1,651,759) Plus Additional Taxes 1.8% & 8% ($11,901) ($20,582) ($42,920) ($71,803) ($99,084) ($132,845) ($156,917) Net Balance/(Deficiency) of Funds ($133,340) ($230,601) ($480,879) ($804,490) ($1,142,078) ($1,531,208) ($1,808,676) Balance as % of Rate Adjustment Required 3.7% 6.4% 13.1% 21.7% 30.6% 40.6% 47.4% Required Rate Adjustment to meet 1.25 DSC 9.6% 9.2% 5.2% 10.1% 12.8% 19.1% 22.9% Proposed Rate Adjustment 0.0% 6.0% 6.5% 7.50% 7.50% 7.50% 5.0% Add'l Revenue After Rate Adjustment $0 $217,686 $472,339 $790,418 $1,138,549 $1,519,336 $1,801,914 Balance (Def) After Rate Increase ($133,340) ($12,915) ($8,540) ($14,072) ($3,528) ($11,872) ($6,762) % Bal. (Def.) of Rates After Increase 3.7% 0.4% 0.2% 0.4% 0.1% 0.3% 0.2% Debt Service Coverage Ratio (SDC revenue not included) Before Rate Adjustment 0.56 0.57 0.73 0.39 0.24 0.02 ‐0.24 After Required Rate Adjustment 0.82 1.04 2.05 2.24 2.65 2.64 2.84 After Proposed Rate Adjustment 0.56 1.01 2.03 2.21 2.64 2.61 2.83 (With SDC revenue included) Before Rate Adjustment 1.56 1.59 2.13 1.57 1.33 0.91 0.66 After Required Rate Adjustment 1.82 2.06 3.45 3.42 3.74 3.53 3.74 After Proposed Rate Adjustment 1.56 2.03 3.43 3.39 3.73 3.51 3.73 Storm and Surface Water COSA - Page 5 of 18 ---PAGE BREAK--- City of Puyallup Page 4 of 4 Storm and Surface Water Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected Operating Fund $3,734,813 Beginning balance 1/1/2010 Beginning Cash Reserve Balance $3,734,813 $3,289,423 $3,006,508 $2,737,968 $2,493,896 $2,375,368 $588,495 Plus: Balance/(Deficiency) (133,340) (12,915) (8,540) (14,072) (3,528) (11,872) (6,762) Less: Uses of Funds 312,050 70,000 0 0 0 1,705,000 0 From CIP, Exhibit 4 Change in Working Capital 0 200,000 260,000 230,000 115,000 70,000 70,000 Ending Cash Reserve Balance $3,289,423 $3,006,508 $2,737,968 $2,493,896 $2,375,368 $588,495 $511,734 Target Fund Balance=60 Days of O&M $493,000 $486,000 $502,000 $522,000 $542,000 $563,000 $585,000 Capital/Repair Replacement Fund $0 Beginning Cash Reserve Balance $0 $0 $0 $0 $0 $0 $0 Plus: Grants 0 0 0 0 0 0 0 From CIP, Exhibit 4 SDC 22,950 770,000 252,000 15,000 0 1,295,000 127,500 City provided growth related % New Debt 0 0 179,000 835,000 470,000 1,400,000 0 Project costs less other funding Reserves 312,050 70,000 0 0 0 1,705,000 0 Input Developer Contributions 0 0 0 0 0 0 0 Input Capital Funded From Rates 0 300,000 700,000 800,000 900,000 1,000,000 1,100,000 Input Less: Uses of Funds 335,000 1,140,000 1,131,000 1,650,000 1,370,000 5,400,000 1,227,500 From CIP, Exhibit 4 Ending Cash Reserve Balance $0 $0 $0 $0 $0 $0 $0 Target = Average Annual R&R CIP $1,750,000 $1,750,000 $1,750,000 $1,750,000 $1,750,000 $1,750,000 $1,750,000 SDC Reserve $0 Beginning balance 1/1/2010 Beginning Cash Reserve Balance $0 $377,050 $9,450 $163,850 $559,250 $973,650 $97,050 Plus: SDC Revenue 500,000 503,000 508,000 513,000 518,000 523,000 528,000 As Residential Less: SDC Debt Payment 100,000 100,600 101,600 102,600 103,600 104,600 105,600 Uses of Funds 22,950 770,000 252,000 15,000 0 1,295,000 127,500 From CIP, Exhibit 4 Ending Cash Reserve Balance $377,050 $9,450 $163,850 $559,250 $973,650 $97,050 $391,950 Minimum of Annual Depreciation Expense $640,000 $660,000 $680,000 $710,000 $740,000 $850,000 $870,000 2% of original cost (OC) $670,000 $690,000 $710,000 $740,000 $770,000 $880,000 $900,000 Estimated Replacement Cost (RC) $1,140,000 $1,200,000 $1,260,000 $1,330,000 $1,400,000 $1,530,000 $1,610,000 Fund Balance (not including SDCs) Ending Fund Balance (O&M & Avg. Annual CIP) $3,289,423 $3,006,508 $2,737,968 $2,493,896 $2,375,368 $588,495 $511,734 Target Fund Balance (O&M) 493,000 486,000 502,000 522,000 542,000 563,000 585,000 Target Fund Balance (O&M & Avg. Annual CIP) 2,243,000 2,236,000 2,252,000 2,272,000 2,292,000 2,313,000 2,335,000 Above/(Below) Target Balance (O&M & Avg. CIP) $1,046,423 $770,508 $485,968 $221,896 $83,368 ($1,724,505) ($1,823,266) Storm and Surface Water COSA - Page 6 of 18 ---PAGE BREAK--- City of Puyallup Storm and Surface Water Utility Summary of Capital Improvement Plan Exhibit 4 2010 2011 2012 2013 2014 2015 2016 % Growth Related Notes Capital Improvements System Improvements $200,000 $200,000 $170,000 $170,000 $200,000 $200,000 $250,000 0% From CIP Plan Basin Plan Update 0 150,000 0 0 0 0 0 80% From City CIP 12th Ave SE Regional Stormwater Facility (Land Acq.) 0 700,000 0 0 0 0 0 100% From CIP Plan E Main Deer Creek Crossing 0 60,000 0 0 0 0 0 50% From CIP Plan Puyallups contributions to US Army Corps Eng. GI Study 0 30,000 30,000 30,000 0 0 0 50% From CIP Plan NE Street Improvement Project 0 0 179,000 0 0 0 0 0% From CIP Plan Stormwater Flow Calibrations 0 0 237,000 0 0 0 0 100% From CIP Plan 9th St SW (15th Ave to 31st Ave) 0 0 0 835,000 0 0 0 50% From CIP Plan 21st St. Deer Creek Railroad Crossing 0 0 0 310,000 0 0 0 17% From CIP Plan Tacoma Road Improvements 0 0 0 0 470,000 0 0 50% From CIP Plan 8th Ave Low Impact Development Retrofit 0 0 0 0 482,510 0 0 17% From CIP Plan East Main Sidewalk 0 0 0 0 0 346,000 0 100% From CIP Plan 11th St NW (Stewart to River Rd) 0 0 0 0 0 1,054,000 0 100% From CIP Plan 39th AVE SE Regional Stormwater Detention Facility (Land Acq.) 0 0 0 0 0 3,000,000 0 100% From CIP Plan Bradley Lake and Puyallup Downs Wetland Outfalls Modifications 0 0 0 0 0 0 255,000 50% From Budget page 5‐14 Future Unidentified Capital Projects 0 0 515,000 305,000 217,490 800,000 722,500 Input; Total $2.6 million Total Capital Improvement $200,000 $1,140,000 $1,131,000 $1,650,000 $1,370,000 $5,400,000 $1,227,500 Coordination/Opportunity Projects Other System Opportunity Projects NPDES Dat Management System 35,000 0 0 0 0 0 0 17% From Budget page 5‐14 NPDES DeCoursy Pond Retrofit 100,000 0 0 0 0 0 0 17% From Budget page 5‐14 Total 135,000 0 0 0 0 0 0 Total Opportunity Projects $135,000 $0 $0 $0 $0 $0 $0 TOTAL CAPITAL IMPROVEMENT PROJECTS $335,000 $1,140,000 $1,131,000 $1,650,000 $1,370,000 $5,400,000 $1,227,500 Funding Funding Grants $0 $0 $0 $0 $0 $0 $0 Input SDC 22,950 770,000 252,000 15,000 0 1,295,000 127,500 Growth portion New Debt 0 0 179,000 835,000 470,000 1,400,000 0 Input Reserves 312,050 70,000 0 0 0 1,705,000 0 Input Developer Funding 0 0 0 0 0 0 0 Input Total Funding Sources $335,000 $840,000 $431,000 $850,000 $470,000 $4,400,000 $127,500 Capital Funded Through Rates $0 $300,000 $700,000 $800,000 $900,000 $1,000,000 $1,100,000 2008 Depr. = $628,764 Currently there are Opportunity Projects totaling $5.5 million. This project is anticipated to come from either grants or sale of a bond. Replacement Cost Analysis (2008 Replacement Costs to 2010 dollars with ENR) $74,320,319 3.8% 65 year CPI U Average years of Useful Life (replacement cycle) 66 66 66 66 66 66 66 Annual Replacement Cost plus annual inflation $1,130,000 $1,183,000 $1,246,000 $1,308,000 $1,381,000 $1,453,000 $1,588,000 Plus Annual CIP Project Costs for Total Replacement Costs Annually $1,140,000 $1,200,000 $1,260,000 $1,330,000 $1,400,000 $1,530,000 $1,610,000 Depreciation Analysis Total Total Improvement Project $335,000 $1,140,000 $1,131,000 $1,650,000 $1,370,000 $5,400,000 $1,227,500 $12,253,500 Average years of Depreciation 50 50 50 50 50 50 50 Annual Increase in Depreciation $6,700 $22,800 $22,620 $33,000 $27,400 $108,000 $24,550 245,070 Cumulative Increase in Depreciation $6,700 $29,500 $52,120 $85,120 $112,520 $220,520 $245,070 Projected Depreciation $640,000 $660,000 $680,000 $710,000 $740,000 $850,000 $870,000 Plant Replacement Costs (Plant Original Cost x2%) $33,531,393 2% of Original Costs $670,000 2% of Original Cost Method Plus Annual CIP $670,000 $690,000 $710,000 $740,000 $770,000 $880,000 $900,000 Storm and Surface Water COSA - Page 7 of 18 ---PAGE BREAK--- City of Puyallup Storm and Surface Water Utility ESU Allocation Factors Exhibit 5 ESU % of Count Total Residential 8,707 29.4% Disability/Senior (Discount $7.41) 351 1.2% Multi‐Family 3,523 11.9% Commercial 17,034 57.5% 29,614 100.0% ALLOCATION (AC) City of Puyallup Storm and Surface Water Utility Impervious Area and Water Quality Allocation Factors Exhibit 6 Weighted Impervious % of Weighting Water % of # of ESUs Area Sq. Ft Total Factor Quality Total Residential 8,707 24,380,496 29.4% 1.0 8,707 18.0% Disability/Senior (Discount $7.41) 351 982,086 1.2% 1.0 351 0.7% Multi‐Family 3,523 9,863,070 11.9% 1.5 5,284 10.9% Commercial 17,034 47,694,486 57.5% 2.0 34,067 70.4% Total Billable Area 29,614 82,920,138 100.0% 48,409 100.0% ALLOCATION (VOL) (WQ) Notes: Based on one equivalent residential unit (ERU) is equal to 2,800 square feet of impervious area. Impervious area should be revised when available from Storm & Surface Water Comprehensive Plan update currently in progress. City stated field staff necessary to educate commercial customers perform pond maintenance etc. Storm and Surface Water COSA - Page 8 of 18 ---PAGE BREAK--- Storm and Surface Water Utility Customer Allocation Factors Exhibit 7 2010 Weighting Weighted Percent of Customer Count Factor Customer Total Residential 9,206 1.0 9,206 78.6% Disability/Senior 324 1.3 421 3.6% Multi‐Family 476 2.0 952 8.1% Commercial 753 1.5 1,130 9.6% Total Customer Count 10,759 11,709 100.0% ALLOCATION (AC) Notes: From City provided billing information report. City of Puyallup Storm and Surface Water Utility Revenue Related Allocation Factors Exhibit 8 2011 Revenues Percent of at Present Rates Total Residential $1,064,800 29.3% Disability/Senior 27,270 0.8% Multi‐Family 435,073 12.0% Commercial 2,100,957 57.9% Total Billable Revenue $3,628,099 100.0% ALLOCATION (RR) Storm and Surface Water COSA - Page 9 of 18 ---PAGE BREAK--- City of Puyallup Page 1 of 2 Storm and Surface Water Utility Functionalization and Classification of Plant in Service Exhibit 9 Impervious Water Actual Revenue Direct As of Area/ESU Quality Customer Related Assignment Description 12/31/2008 (VOL) (WQ) (AC) (RR) (DA) Basis of Classification LAND 2002 LAND‐MORTENSEN PROPERTY $180,359 $180,359 $0 $0 $0 $0 100% VOL 0% AC 2002 E PIONEER LAND 67,883 67,883 0 0 0 0 100% VOL 0% AC 2001 LAND ‐ 1023 11TH ST SW 36,808 36,808 0 0 0 0 100% VOL 0% AC 2002 EASEMENT‐925 18TH ST SW/MEEKER 12,864 12,864 0 0 0 0 100% VOL 0% AC 1989 LAND‐STEMP PROPERTY 44,578 44,578 0 0 0 0 100% VOL 0% AC 1990 LAND‐PRATT PROPERTY 26,645 26,645 0 0 0 0 100% VOL 0% AC 1998 LAND ‐ E. PIONEER AVE. 118,878 118,878 0 0 0 0 100% VOL 0% AC 1998 LAND ‐ 1016 12TH AVE SW 147,217 147,217 0 0 0 0 100% VOL 0% AC 1989 LAND ‐ ARCO 15TH AVE SE 196,615 196,615 0 0 0 0 100% VOL 0% AC 1998 LAND ‐ SAFEWAY WETLANDS 17,513 17,513 0 0 0 0 100% VOL 0% AC 2001 1919 PIONEER PLACE PROPERTY 26,032 26,032 0 0 0 0 100% VOL 0% AC 1999 LAND ‐ 10TH ST SE 29,951 29,951 0 0 0 0 100% VOL 0% AC 1999 LAND ‐ O'MALLEY 60,911 60,911 0 0 0 0 100% VOL 0% AC 1999 LAND ‐ WWF/SILVER LOT 31,137 31,137 0 0 0 0 100% VOL 0% AC 2004 HANSEN 25TH ST SE‐DEER CREEK 57,866 57,866 0 0 0 0 100% VOL 0% AC 2008 PUYALLUP HIGHLANDS (SHAW ROAD POND) 300,633 300,633 0 0 0 0 100% VOL 0% AC 1,355,890 1,355,890 0 0 0 0 OTHER IMPROVEMENTS 1995 PAVING ON 12TH AVE SE 5,648 5,648 0 0 0 0 100% VOL 0% AC 1999 SILVER PARKING LOT 115,106 115,106 0 0 0 0 100% VOL 0% AC 2004 WATERWORKS UTILITY RATE STUDY 31,262 31,262 0 0 0 0 100% VOL 0% AC 2005 CLARKS CREEK TMDL 317,359 317,359 0 0 0 0 100% VOL 0% AC 2007 HIGHWAY BASIN PLAN 101,520 101,520 0 0 0 0 100% VOL 0% AC 570,895 570,895 0 0 0 0 HEAVY EQUIPMENT 2000 ULTRASONIC FLOWMETER 5,582 5,582 0 0 0 0 100% VOL 0% AC 1991 TRENCHBOX 5,501 5,501 0 0 0 0 100% VOL 0% AC 1994 WEED‐CUTTING BOAT 14,011 14,011 0 0 0 0 100% VOL 0% AC 1996 DATASONDE MUTLIPROBE 6,928 6,928 0 0 0 0 100% VOL 0% AC 1996 STEWART GARDENTS CONTROL PANEL 44,738 44,738 0 0 0 0 100% VOL 0% AC 1997 TRASH PUMP ‐ 6" 14,917 14,917 0 0 0 0 100% VOL 0% AC 2002 PUMP 21,671 21,671 0 0 0 0 100% VOL 0% AC 113,348 113,348 0 0 0 0 MACHINERY & EQUIPMENT 2008 FLOOD CONTROL TUBES 45,885 45,885 0 0 0 0 100% VOL 0% AC 2008 TRIMBLE GEO XH SYSTEM 11,451 11,451 0 0 0 0 100% VOL 0% AC 57,336 57,336 0 0 0 0 STORM PIPES 30,702,723 30,702,723 0 0 0 0 100% VOL 0% AC 30,702,723 30,702,723 0 0 0 0 PUMP STATIONS 1960 10th Ave SW and 14th St SW (old) 10,300 10,300 0 0 0 0 100% VOL 0% AC 1989 10th Ave SW and 14th St SW (new) 65,700 65,700 0 0 0 0 100% VOL 0% AC 1979 200 Block of Todd Road 73,100 73,100 0 0 0 0 100% VOL 0% AC 1994 E Pioneer and 21st Street SE 79,900 79,900 0 0 0 0 100% VOL 0% AC 1978 1201 4th Street NW 55,000 55,000 0 0 0 0 100% VOL 0% AC 284,000 284,000 0 0 0 0 PONDS 1970 790' N of W. Stewart / 75' W of 23rd St. NW 4,200 4,200 0 0 0 0 100% VOL 0% AC Storm and Surface Water COSA - Page 10 of 18 ---PAGE BREAK--- City of Puyallup Page 2 of 2 Storm and Surface Water Utility Functionalization and Classification of Plant in Service Exhibit 9 Impervious Water Actual Revenue Direct As of Area/ESU Quality Customer Related Assignment Description 12/31/2008 (VOL) (WQ) (AC) (RR) (DA) Basis of Classification 1970 N end of 16th Pl. NW cul‐de‐sac 1,200 1,200 0 0 0 0 100% VOL 0% AC 1970 Behind fire station #1 on 7th St. NW 3,800 3,800 0 0 0 0 100% VOL 0% AC 1970 135' W of 11th Pl. SW / 12th Ave. SW int'n 1,200 1,200 0 0 0 0 100% VOL 0% AC 1970 12th Ave. SW / 10th St. SW 1,400 1,400 0 0 0 0 100% VOL 0% AC 1971 330' W of 12th St. SW / 15th Ave. SW int'n 3,700 3,700 0 0 0 0 100% VOL 0% AC 1971 15th Ave. SW / 14th St. SW (Ridgewest) 8,300 8,300 0 0 0 0 100% VOL 0% AC 1970 NE of 17th Ave. SW / 5th St. SW int'n 500 500 0 0 0 0 100% VOL 0% AC 1984 W of 9th St. SW / 21st Ave. SW int'n 10,500 10,500 0 0 0 0 100% VOL 0% AC 1997 N. Meridian / Spencer Road 20,000 20,000 0 0 0 0 100% VOL 0% AC 1980 NW of Park Ave. / 15th St. SE int'n 3,600 3,600 0 0 0 0 100% VOL 0% AC 1970 SE of SR 512 / 15th Ave. SW int'n 8,000 8,000 0 0 0 0 100% VOL 0% AC 1990 Katmandu Sand Filter ‐ 15th Ave. SE 16,300 16,300 0 0 0 0 100% VOL 0% AC 1984 620' N of Wildwood Pk Dr / 23rd Ave SE 1,300 1,300 0 0 0 0 100% VOL 0% AC 1984 19th St. SE / 20th Ave. SE (Stonegate) 10,700 10,700 0 0 0 0 100% VOL 0% AC 1995 NW of 19th St. SE / 21st Ave. SE int'n 18,400 18,400 0 0 0 0 100% VOL 0% AC 1970 NE of Meridian St. S / 28th Ave. SE int'n 1,000 1,000 0 0 0 0 100% VOL 0% AC 1990 NE of Wildwood Pk Dr. / 26th Ave. SE int'n 10,400 10,400 0 0 0 0 100% VOL 0% AC 1991 18th St. SE / Larkspur Dr. (The Farms) 89,000 89,000 0 0 0 0 100% VOL 0% AC 1979 N of 37th Ave. SE / Manorwood Dr. int'n 61,700 61,700 0 0 0 0 100% VOL 0% AC 1979 NW of 21st St. SE / 37th Ave. SE int'n 3,900 3,900 0 0 0 0 100% VOL 0% AC 1981 SE of 10th St. SE / 39th Ave. SE int'n 4,300 4,300 0 0 0 0 100% VOL 0% AC 1981 SW of Wildwood Pk Dr. / 39th Ave. SE int'n 12,500 12,500 0 0 0 0 100% VOL 0% AC 1985 NE of 15th Ave. SE / Shaw Road int'n 2,700 2,700 0 0 0 0 100% VOL 0% AC 1990 SE of 27th St. SE / 15th Ave. SE int'n 28,700 28,700 0 0 0 0 100% VOL 0% AC 1990 NE of Brookmonte Dr. / 24th St. SE int'n 1,200 1,200 0 0 0 0 100% VOL 0% AC 1990 SE of Brookmonte Dr. / 24th St. SE int'n 13,800 13,800 0 0 0 0 100% VOL 0% AC 1996 340' E of Shaw Road / 885' N of 20th Ave 13,300 13,300 0 0 0 0 100% VOL 0% AC 1996 E of 34th St. SE 12,600 12,600 0 0 0 0 100% VOL 0% AC 1995 SE of 15th Ave. SE / Amber Blvd int'n 8,600 8,600 0 0 0 0 100% VOL 0% AC 1995 NW of Ridge Dr. / Ln Loop 16,000 16,000 0 0 0 0 100% VOL 0% AC 1990 NE of 26th Ave. SE / Shaw Road int'n 27,400 27,400 0 0 0 0 100% VOL 0% AC 1979 Manorwood Dr. 210' SW of 26th St. SE 20,200 20,200 0 0 0 0 100% VOL 0% AC 1970 9th St. SW / S of SR 512 2,300 2,300 0 0 0 0 100% VOL 0% AC 1984 N end of 13th St. SW cul‐de‐sac 4,500 4,500 0 0 0 0 100% VOL 0% AC 447,200 447,200 0 0 0 0 TOTAL STORM & SURFACE WATER ASSETS $33,531,393 $33,531,393 $0 $0 $0 $0 Less: Accumulated Depreciation 12,758,121 12,758,121 0 0 0 0 100% VOL 0% AC Developer Contributions 1,802,628 1,802,628 0 0 0 0 100% VOL 0% AC Total Deductions $14,560,749 $14,560,749 $0 $0 $0 $0 Net Plant in Service $18,970,643 $18,970,643 $0 $0 $0 $0 Storm and Surface Water COSA - Page 11 of 18 ---PAGE BREAK--- City of Puyallup Page 1 of 3 Storm and Surface Water Utility Functionalization and Classification of Expenses Exhibit 10 Impervious Water Actual Revenue Direct Total Area/ESU Quality Customer Related Assignment EXPENSES 2011 (VOL) (WQ) (AC) (RR) (DA) Basis of Classification Collection & Transmission Payroll Contingency $28,498 $28,498 $0 $0 $0 $0 As Plant in Service Reg & Part Time Wages 464,053 464,053 0 0 0 0 As Plant in Service Longevity Pay 1,777 1,777 0 0 0 0 As Plant in Service Acting Pay 0 0 0 0 0 0 As Plant in Service Standby Pay 14,000 14,000 0 0 0 0 As Plant in Service Overtime 8,500 8,500 0 0 0 0 As Plant in Service State Retirement Plans 24,473 24,473 0 0 0 0 As Plant in Service Regence Blue Shield 130,478 130,478 0 0 0 0 As Plant in Service FICA & Medicare 35,258 35,258 0 0 0 0 As Plant in Service Labor Industries 22,678 22,678 0 0 0 0 As Plant in Service Life Insurance 948 948 0 0 0 0 As Plant in Service Dental Insurance/WA Dental 24,028 24,028 0 0 0 0 As Plant in Service Vision Insurance 6,252 6,252 0 0 0 0 As Plant in Service Employee Assistance Plant 156 156 0 0 0 0 As Plant in Service Long Term Disability 2,743 2,743 0 0 0 0 As Plant in Service Uniforms & Clothing 206 206 0 0 0 0 As Plant in Service Office & Operating Supplies 24,990 24,990 0 0 0 0 As Plant in Service Office Supplies ‐ Toner 0 0 0 0 0 0 As Plant in Service ER&R ‐ Fuel 26,489 26,489 0 0 0 0 As Plant in Service Small Tools/Minor Equipment 14,317 14,317 0 0 0 0 As Plant in Service Professional Services 60,000 60,000 0 0 0 0 As Plant in Service Operating Rentals & Leasese 9,000 9,000 0 0 0 0 As Plant in Service PS ‐ Uniform Cleaning 3,000 3,000 0 0 0 0 As Plant in Service PS ‐ Vadis NW Contract 11,227 11,227 0 0 0 0 As Plant in Service PS ‐ Weather Services 1,854 1,854 0 0 0 0 As Plant in Service PS ‐ Waste Disposal Services 20,703 20,703 0 0 0 0 As Plant in Service Comm ‐ Cellular Phone 0 0 0 0 0 0 As Plant in Service Advertising ‐ Legal Notices 510 510 0 0 0 0 As Plant in Service Insurance ‐ Self Insurance Fund 16,725 16,725 0 0 0 0 As Plant in Service Public Utility ‐ Electric 13,915 13,915 0 0 0 0 As Plant in Service Public Utility ‐ Water 32 32 0 0 0 0 As Plant in Service Public Utility ‐ Sewer 32 32 0 0 0 0 As Plant in Service Public Utility ‐ SWM 273 273 0 0 0 0 As Plant in Service Public Utility ‐ Refuse 793 793 0 0 0 0 As Plant in Service Public Utility ‐ Natural Gas 1,546 1,546 0 0 0 0 As Plant in Service Public Utility ‐ Landfill Fees 10 10 0 0 0 0 As Plant in Service Public Utility ‐ Recycling 83 83 0 0 0 0 As Plant in Service Repair & Maintenance 50,000 50,000 0 0 0 0 As Plant in Service ER&R Maint/Internal 52,305 52,305 0 0 0 0 As Plant in Service IT&C Maint/Internal 34,444 34,444 0 0 0 0 As Plant in Service IT&C Replacement 5,672 5,672 0 0 0 0 As Plant in Service IT&C Dispatch 800 MHz Assessment 10,697 10,697 0 0 0 0 As Plant in Service Miscellaneous 15,000 15,000 0 0 0 0 As Plant in Service Misc ‐ Conference Registration 612 612 0 0 0 0 As Plant in Service Misc ‐ Dues 102 102 0 0 0 0 As Plant in Service Misc ‐ Subscriptions 204 204 0 0 0 0 As Plant in Service Misc ‐ Certification 0 0 0 0 0 0 As Plant in Service Improvements Other Than BLdg 8,364 8,364 0 0 0 0 As Plant in Service Machinery and Equipment 101,286 101,286 0 0 0 0 As Plant in Service ER&R ‐ Repl/Internal 79,886 79,886 0 0 0 0 As Plant in Service Total Collection & Transmission $1,328,118 $1,328,118 $0 $0 $0 $0 Storm Street Cleaning Payroll Contingency $6,848 $6,848 $0 $0 $0 $0 As Plant in Service Reg & Part Time Wages 89,967 89,967 0 0 0 0 As Plant in Service Storm and Surface Water COSA - Page 12 of 18 ---PAGE BREAK--- City of Puyallup Page 2 of 3 Storm and Surface Water Utility Functionalization and Classification of Expenses Exhibit 10 Impervious Water Actual Revenue Direct Total Area/ESU Quality Customer Related Assignment EXPENSES 2011 (VOL) (WQ) (AC) (RR) (DA) Basis of Classification Longevity Pay 1,391 1,391 0 0 0 0 As Plant in Service Acting Pay 0 0 0 0 0 0 As Plant in Service Night Shift Pay 0 0 0 0 0 0 As Plant in Service Overtime 5,543 5,543 0 0 0 0 As Plant in Service State Retirement Plans 5,072 5,072 0 0 0 0 As Plant in Service Regence Blue Shield 15,774 15,774 0 0 0 0 As Plant in Service FICA & Medicare 7,307 7,307 0 0 0 0 As Plant in Service Labor Industries 3,773 3,773 0 0 0 0 As Plant in Service Life Insurance 185 185 0 0 0 0 As Plant in Service Dental Insurance/WA Dental 3,599 3,599 0 0 0 0 As Plant in Service Vision Insurance 870 870 0 0 0 0 As Plant in Service Employee Assistance Plant 31 31 0 0 0 0 As Plant in Service Long Term Disability 576 576 0 0 0 0 As Plant in Service Office & Operating Supplies 9,064 9,064 0 0 0 0 As Plant in Service Small Tools/Minor Equipment 412 412 0 0 0 0 As Plant in Service Professional Services 5,871 5,871 0 0 0 0 As Plant in Service PS ‐ Waste Disposal Services 20,000 20,000 0 0 0 0 As Plant in Service Insurance ‐ Self Insurance Fund 3,231 3,231 0 0 0 0 As Plant in Service ER&R ‐ Maint Internal 39,708 39,708 0 0 0 0 As Plant in Service ER&R ‐ Repl/Internal 43,101 43,101 0 0 0 0 As Plant in Service Total Storm Street Cleaning $262,324 $262,324 $0 $0 $0 $0 New NPDES Regulations Payroll Contingency ($22,641) $0 ($22,641) $0 $0 $0 100% WQ Reg & Part Time Wages 297,106 0 297,106 0 0 0 100% WQ Longevity Pay 3,399 0 3,399 0 0 0 100% WQ Car Allowance 3,399 0 3,399 0 0 0 100% WQ State Retirement Plans 15,443 0 15,443 0 0 0 100% WQ Regence Blue Shield 69,244 0 69,244 0 0 0 100% WQ FICA & Medicare 22,248 0 22,248 0 0 0 100% WQ Labor Industries 8,899 0 8,899 0 0 0 100% WQ Life Insurance 493 0 493 0 0 0 100% WQ Dental Insurance/WA Dental 12,538 0 12,538 0 0 0 100% WQ Vision Insurance 3,424 0 3,424 0 0 0 100% WQ Employee Assistance Plan 81 0 81 0 0 0 100% WQ Long Term Disability 1,861 0 1,861 0 0 0 100% WQ Office & Operating Supplies 0 0 0 0 0 0 100% WQ Small Tools/Minor Equipment 0 0 0 0 0 0 100% WQ Professional Service 51,500 0 51,500 0 0 0 100% WQ Total NEW NPDES Regulations $466,994 $0 $466,994 $0 $0 $0 General Fund Administration $898,298 $486,082 $142,726 $269,489 $0 $0 30% AC 70% As Above Total Operations & Maintenance $2,955,734 $2,076,524 $609,720 $269,489 $0 $0 Taxes Public Utility Tax ‐ Rates (City) $290,248 $0 $0 $0 $290,248 $0 100% RR Public Utility Tax ‐ SDCs (City) 40,240 0 0 0 40,240 0 100% RR Intergovernmental Charges (State) 74,380 0 0 0 74,380 0 100% RR Total Taxes $404,868 $0 $0 $0 $404,868 $0 Debt Service 2004 Revenue Bonds $4,931 $4,931 $0 $0 $0 $0 As Plant in Service 2009 Revenue Bonds (Series B) 478,190 478,190 0 0 0 0 As Plant in Service 2003 PWTF Loan 12,107 12,107 0 0 0 0 As Plant in Service New Debt Service 0 0 0 0 0 0 As Plant in Service Storm and Surface Water COSA - Page 13 of 18 ---PAGE BREAK--- City of Puyallup Page 3 of 3 Storm and Surface Water Utility Functionalization and Classification of Expenses Exhibit 10 Impervious Water Actual Revenue Direct Total Area/ESU Quality Customer RelatedAssignment EXPENSES 2011 (VOL) (WQ) (AC) (RR) (DA) Basis of Classification Total Debt Service $495,227 $495,227 $0 $0 $0 $0 Less: SDC Revenue ($100,600) ($100,600) $0 $0 $0 $0 As Plant in Service Net Total Debt Service $394,627 $394,627 $0 $0 $0 $0 Capital Funded Through Rates $300,000 $300,000 $0 $0 $0 $0 As Plant in Serivice Change in Working Capital ($200,000) ($200,000) $0 $0 $0 $0 As Plant in Serivice Total Revenue Requirement $3,855,229 $2,571,152 $609,720 $269,489 $404,868 $0 Less: Misc. Revenue Late Pay Penalty $1,010 $0 $0 $0 $1,010 $0 100% RR Interest Income 16,000 0 0 0 16,000 0 100% RR Other Misc Revenue 101 0 0 0 101 0 100% RR Total Misc. Revenue $17,111 $0 $0 $0 $17,111 $0 Net Revenue Requirements $3,838,118 $2,571,152 $609,720 $269,489 $387,757 $0 % Net Revenue Requirements 100.0% 67.0% 15.9% 7.0% 10.1% 0.0% Storm and Surface Water COSA - Page 14 of 18 ---PAGE BREAK--- City of Puyallup Storm and Surface Water Utility Allocation of Revenue Requirements Exhibit 11 Net Revenue Disability/ Allocation Classification Components Requirement Residential Senior Multi‐Family Commercial Factor Volume $2,571,152 $755,980 $30,452 $305,830 $1,478,890 (VOL) Water Quality $609,720 109,670 4,418 66,550 429,083 (WQ) Actual Customer $269,489 211,887 9,694 21,911 25,997 (CUST) Revenue Related $387,757 113,802 2,914 46,499 224,542 (RR) Direct Assignment $0 0 0 0 0 (DA) Revenue Requirement $3,838,118 $1,191,338 $47,479 $440,790 $2,158,512 Storm and Surface Water COSA - Page 15 of 18 ---PAGE BREAK--- City of Puyallup Storm and Surface Water Utility Summary of Cost of Service Analysis Exhibit 12 2011 Disability/ Expenses Residential Senior Multi‐Family Commercial Revenues at Present Rates $3,628,099 $1,064,800 $27,270 $435,073 $2,100,957 Less: Allocated Revenue Requirement 3,838,118 1,191,338 47,479 440,790 2,158,512 Balance/(Deficiency) Before Taxes ($210,019) ($126,538) ($20,209) ($5,717) ($57,555) Add'l Taxes with rate increase ($20,582) ($12,401) ($1,980) ($560) ($5,640) Balance/(Deficiency) of Funds ($230,601) ($138,939) ($22,189) ($6,277) ($63,196) Required % Change in Rates 6.4% 13.0% 81.4% 1.4% 3.0% 2011 Expenses Residential Multi‐Family Commercial Revenues at Present Rates $3,628,099 $1,092,070 $435,073 $2,100,957 Less: Allocated Revenue Requirement 3,838,118 1,238,816 440,790 2,158,512 Balance/(Deficiency) Before Taxes ($210,019) ($146,747) ($5,717) ($57,555) Add'l Taxes with rate increase ($20,582) ($14,381) ($560) ($5,640) Balance/(Deficiency) of Funds ($230,601) ($161,128) ($6,277) ($63,196) Required % Change in Rates 6.4% 14.8% 1.4% 3.0% Storm and Surface Water COSA - Page 16 of 18 ---PAGE BREAK--- City of Puyallup Storm and Surface Water Utility Average Unit Cost Summary Exhibit 13 Total Residential Multi‐Family Commercial Total Costs $/Square foot Impervious per year $0.046 $0.049 $0.045 $0.045 Total Costs $/Customer per $59.46 $21.67 $154.34 $97.56 Proposed Revenue $/ESU per $21.60 $21.92 $2.25 $4.31 Current Revenue $/ESU per $20.42 $19.59 $1.29 $4.26 Base Data: Number of Square 82,920,138 25,362,582 9,863,070 47,694,486 Total Billed ESUs 29,614 9,058 3,523 17,034 Total Customers 10,759 9,530 476 753 C t V P d U it C t f $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 Residential Multi‐Family Commercial Current Vs. Proposed Unit Cost $/ccf Proposed Revenue $/ESU per Current Revenue $/ESU per Storm and Surface Water COSA - Page 17 of 18 ---PAGE BREAK--- City of Puyallup ‐ Storm and Surface Water Utility Development Of Revenues At Present Rates For Actual Year 2009 Rates 1/1/2009 Jan‐09 Feb‐09 Mar‐09 Apr‐09 May‐09 Jun‐09 Jul‐09 Aug‐09 Sep‐09 Oct‐09 Nov‐09 Dec‐09 Total Service Charge Per E.S.U Residential $20.89 5,041 3,516 5,062 3,534 5,054 3,523 5,077 3,547 5,101 3,536 5,120 3,544 8,664 Disability/Senior (Discount $7.41) $13.48 134 212 133 209 133 208 131 207 132 207 132 218 349 Multi‐Family $20.89 1,620 1,899 1,621 1,898 1,621 1,898 1,622 1,900 1,621 1,900 1,621 1,884 3,505 Commercial $20.89 7,455 9,354 7,632 9,150 7,640 9,150 7,663 9,367 7,718 9,333 7,605 9,344 16,949 14,249 14,981 14,447 14,791 14,447 14,778 14,493 15,021 14,571 14,976 14,478 14,990 29,467 Revenues Residential $105,296 $73,449 $105,735 $73,825 $105,568 $73,585 $106,059 $74,097 $106,549 $73,867 $106,957 $74,034 $1,079,021 Disability/Senior 1,800 2,851 1,786 2,811 1,786 2,797 1,759 2,784 1,773 2,784 1,773 2,932 27,634 Multi‐Family 33,842 39,670 33,863 39,649 33,863 39,649 33,884 39,691 33,863 39,691 33,863 39,357 440,883 Commercial 155,735 195,405 159,432 191,144 159,600 191,144 160,080 195,677 161,229 194,966 158,868 195,196 2,118,476 Total Revenues $296,672 $311,375 $300,816 $307,429 $300,816 $307,175 $301,781 $312,248 $303,414 $311,308 $301,461 $311,519 $3,666,014 2009 Actual $3,598,031 Difference $67,983 1.89% City of Puyallup ‐ Storm and Surface Water Utility Development Of Revenues At Present Rates For Test Year 2010 Rates 1/1/2009 Jan‐10 Feb‐10 Mar‐10 Apr‐10 May‐10 Jun‐10 Jul‐10 Aug‐10 Sep‐10 Oct‐10 Nov‐10 Dec‐10 Total Service Charge Per E.S.U Residential $20.89 5,066 3,534 5,087 3,552 5,079 3,540 5,102 3,565 5,126 3,554 5,146 3,562 8,707 Disability/Senior $13.48 134 213 133 210 133 209 131 208 132 208 132 219 351 Multi‐Family $20.89 1,628 1,908 1,629 1,907 1,629 1,907 1,630 1,910 1,629 1,910 1,629 1,893 3,523 Commercial $20.89 7,492 9,401 7,670 9,196 7,678 9,196 7,701 9,414 7,757 9,380 7,643 9,391 17,034 14,320 15,055 14,519 14,864 14,519 14,852 14,565 15,096 14,644 15,050 14,550 15,064 29,614 Revenues Residential $105,823 $73,816 $106,263 $74,194 $106,095 $73,953 $106,589 $74,467 $107,082 $74,236 $107,492 $74,404 $1,084,416 Disability/Senior 1,809 2,865 1,795 2,825 1,795 2,811 1,768 2,798 1,781 2,798 1,781 2,947 27,772 Multi‐Family 34,011 39,868 34,032 39,847 34,032 39,847 34,053 39,889 34,032 39,889 34,032 39,554 443,088 Commercial 156,514 196,382 160,230 192,099 160,398 192,099 160,880 196,655 162,035 195,941 159,663 196,172 2,129,068 Total Revenues $298,156 $312,932 $302,320 $308,966 $302,320 $308,711 $303,290 $313,809 $304,931 $312,865 $302,968 $313,077 $3,684,344 2010 Budget $3,599,700 Difference $84,644 2.35% Storm and Surface Water COSA - Page 18 of 18 ---PAGE BREAK--- Appendix E Sanitation Utility Analyses ---PAGE BREAK--- ---PAGE BREAK--- Budget 2010 2011 2012 2013 2014 2015 2016 Revenue Rate Revenue $148,100 $148,841 $150,329 $151,832 $153,351 $154,884 $156,433 Miscellaneous Revenue 500,100 250,101 102 103 104 105 106 Total Revenues $648,200 $398,942 $150,431 $151,935 $153,455 $154,989 $156,539 Expenses O&M Expenses $705,118 $461,185 $217,443 $225,612 $234,040 $242,797 $251,897 Transfers In/Other (85,000) 0 0 0 0 0 0 Taxes 0 0 0 0 0 0 0 Debt Service 32,251 111,346 148,063 146,231 144,337 142,352 140,499 Change in Working Capital 0 0 0 0 5,000 10,000 13,000 Total Revenue Requirement $652,369 $572,531 $365,506 $371,843 $383,377 $395,149 $405,396 Balance (Def.) of Rates ($4,169) ($173,589) ($215,075) ($219,908) ($229,922) ($240,160) ($248,857) Balance (Def.) of Rates as % of Rates 2.8% 116.6% 143.1% 144.8% 149.9% 155.1% 159.1% Proposed Rate Adjustment 0.0% 120.0% 11.5% 0.0% 2.0% 2.0% 1.5% Add'l Revenue After Rate Adjustment $0 $178,609 $218,428 $220,612 $230,342 $240,396 $248,788 Balance (Def) After Rate Increase ($4,169) $5,019 $3,353 $704 $420 $236 ($69) % Bal. (Def.) of Rates After Increase 2.8% ‐3.4% ‐2.2% ‐0.5% ‐0.3% ‐0.2% 0.0% Average Residential Bill $1.25 Rate After Proposed Adjustment $1.25 $2.75 $3.07 $3.07 $3.13 $3.19 $3.24 Average Bill Change $0.00 $1.50 $0.32 $0.00 $0.06 $0.06 $0.05 Cumulative Average Bill Change $0.00 $1.50 $1.82 $1.82 $1.88 $1.94 $1.99 Debt Service Coverage Ratio Before Rate Adjustment ‐1.76 ‐0.56 ‐0.45 ‐0.50 ‐0.56 ‐0.62 ‐0.68 After Required Rate Adjustment ‐1.64 1.00 1.00 1.00 1.03 1.07 1.09 After Proposed Rate Adjustment 0.87 1.05 1.02 1.00 1.04 1.07 1.09 Fund Balance Ending Fund Balance ($2,004) $3,015 $6,368 $7,072 $12,492 $22,728 $35,659 Target Fund Balance 116,000 76,000 36,000 37,000 38,000 40,000 41,000 Balance (Deficiency) ($118,004) ($72,985) ($29,632) ($29,928) ($25,508) ($17,272) ($5,341) Average Unit Cost Summary Proposed Rev. Req $/Customer $5.51 $4.81 $3.04 $3.06 $3.13 $3.19 $3.24 Current Revenue $/Customer $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 $1.25 Base Data: Total Customers 19,747 19,845 20,044 20,244 20,447 20,651 20,858 City of Puyallup Sanitation Utility Projected Exhibit 1 Summary of Revenues and Expenses 8/25/2010 Sanitation 1 of 4 ---PAGE BREAK--- City of Puyallup Sanitation Utility Escalation Factors Exhibit 2 2010 2011 2012 2013 2014 2015 2016 Escalation Factors: Revenues: As Rate Rate Revenue 0.5% 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% As Misc Miscellaneous Revenue Budget 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% As Expen Expenses: #REF! #REF! #REF! #REF! #REF! #REF! #REF! As Labo Labor Budget 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% As Bene Benefits ‐ Medical Budget 7.0% 7.0% 7.0% 6.0% 6.0% 6.0% As Bene Benefits ‐ Other Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Mat Materials & Supplies Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Equi Equipment Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Misc Miscellaneous Budget 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% As Othe Other Utilities Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Elec Electricity Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% As Natu Natural Gas Budget 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% As Insu Insurance Budget 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Debt Service: Term 20 20 20 20 20 20 20 Interest Rate 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% Interest Income 0.5% 0.5% 2.0% 2.0% 3.0% 3.0% 3.0% 8/25/2010 Sanitation 2 of 4 ---PAGE BREAK--- City of Puyallup Page 1 of 2 Sanitation Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 REVENUE Rate Revenue Landfill Fees $148,100 $148,841 $150,329 $151,832 $153,351 $154,884 $156,433 As Rate Revenue Miscellaneous Income Late Pay Penalty $100 $101 $102 $103 $104 $105 $106 As Miscellaneous Revenue Interfund Loan 500,000 250,000 0 0 0 0 0 Input for Legal Fees Interest Income 0 0 0 0 0 0 0 As Miscellaneous Revenue Total Revenue $500,100 $250,101 $102 $103 $104 $105 $106 TOTAL REVENUE $648,200 $398,942 $150,431 $151,935 $153,455 $154,989 $156,539 EXPENSES General Administration Christmas Tree Disposal $6,500 $6,630 $6,763 $6,898 $7,036 $7,177 $7,320 As Miscellaneous Total General Administration $6,500 $6,630 $6,763 $6,898 $7,036 $7,177 $7,320 Landfill Operations 510095 Payroll Contingency $1,571 $1,618 $1,667 $1,733 $1,803 $1,875 $1,950 As Labor 511011 Reg & Part Time Wages 24,211 24,937 25,685 26,713 27,781 28,893 30,048 As Labor 511015 Longevity Pay 150 155 159 166 172 179 186 As Labor 512012 Overtime 0 0 0 0 0 0 0 As Labor 514022 State Retirement Plans 1,270 1,308 1,347 1,388 1,429 1,472 1,516 As Benefits ‐ Other 514027 Regence Blue Shield 4,409 4,718 5,048 5,401 5,725 6,069 6,433 As Benefits ‐ Medical 514030 FICA & Medicare 1,830 1,885 1,941 2,000 2,060 2,121 2,185 As Benefits ‐ Other 514032 Labor Industries 853 879 905 932 960 989 1,019 As Benefits ‐ Other 514033 Life Insurance 42 43 45 46 47 49 50 As Benefits ‐ Other 514034 Dental Insurance/WA Dental 828 886 948 1,014 1,075 1,140 1,208 As Benefits ‐ Medical 514035 Vision Insurance 226 242 259 277 293 311 330 As Benefits ‐ Medical 514037 Employee Assistance Plant 7 7 7 8 8 8 8 As Benefits ‐ Other 514042 Long Term Disability 153 158 162 167 172 177 183 As Benefits ‐ Other 517031 Office & Operating Supplies 20,700 21,114 21,536 21,967 22,406 22,854 23,312 As Miscellaneous 522041 Professional Services 60,000 61,800 63,654 66,200 68,848 71,602 74,466 As Labor 527048 Insurance ‐ Self Insurance Fund 642 661 681 702 723 744 767 As Insurance 528048 Public Utility ‐ Electric 936 964 993 1,023 1,053 1,085 1,118 As Electricity 528053 Public Utility ‐ Natural Gas 0 0 0 0 0 0 0 As Natural Gas 529048 Repairs & Maintenance 1,900 1,957 2,016 2,076 2,138 2,203 2,269 As Materials & Supplies 529049 Miscellaneous 1,700 1,734 1,769 1,804 1,840 1,877 1,914 As Miscellaneous 531056 Puget Sound Health 1,614 1,646 1,679 1,713 1,747 1,782 1,818 As Miscellaneous Total Landfill Operations $123,042 $126,712 $130,502 $135,329 $140,283 $145,430 $150,779 Gas Mitigation System Professional Services $0 $0 $0 $0 $0 $0 $0 As Labor Legal Fees 500,000 250,000 0 0 0 0 0 Costs provided by City Attorney Total Other Operations $500,000 $250,000 $0 $0 $0 $0 $0 Transfer Out ‐ Gen. Fund Admin $75,576 $77,843 $80,179 $83,386 $86,721 $90,190 $93,798 As Labor Total Operations & Maintenance $705,118 $461,185 $217,443 $225,612 $234,040 $242,797 $251,897 61102 Transfers In ‐ Other ($85,000) $0 $0 $0 $0 $0 $0 Projected 8/25/2010 Sanitation 3 of 4 ---PAGE BREAK--- City of Puyallup Sanitation Utility Revenue Requirement Analysis Exhibit 3 Budget 2010 2011 2012 2013 2014 2015 2016 Projected Taxes City Taxes $0 $0 $0 $0 $0 $0 $0 State Taxes 0 0 0 0 0 0 0 Total Taxes $0 $0 $0 $0 $0 $0 $0 Debt Service 2009 Revenue Bonds (Series B) $10,659 $10,567 $7,284 $7,336 $7,326 $7,225 $7,256 2006 Interfund Loan 9,420 9,420 49,420 47,536 45,652 43,768 41,884 2007 Interfund Loan 12,172 12,172 12,172 12,172 12,172 12,172 12,172 New Interfund Loan for Legal Fees 0 79,187 79,187 79,187 79,187 79,187 79,187 New Debt Service 0 0 0 0 0 0 0 Total Debt Service $32,251 $111,346 $148,063 $146,231 $144,337 $142,352 $140,499 Change in Working Capital $0 $0 $0 $0 $5,000 $10,000 $13,000 TOTAL REVENUE REQUIREMENT $652,369 $572,531 $365,506 $371,843 $383,377 $395,149 $405,396 Balance (Deficiency) of Rates ($4,169) ($173,589) ($215,075) ($219,908) ($229,922) ($240,160) ($248,857) Balance (Deficiency) as % of Rates ‐2.8% ‐116.6% ‐143.1% ‐144.8% ‐149.9% ‐155.1% ‐159.1% Proposed Rate Adjustment 0.0% 120.0% 11.5% 0.0% 2.0% 2.0% 1.5% Add'l Revenue After Rate Adjustment $0 $178,609 $218,428 $220,612 $230,342 $240,396 $248,788 Balance (Def) After Rate Increase ($4,169) $5,019 $3,353 $704 $420 $236 ($69) % Bal. (Def.) of Rates After Increase 2.8% ‐3.4% ‐2.2% ‐0.5% ‐0.3% ‐0.2% 0.0% Debt Service Coverage Ratio Before Rate Adjustment ‐1.76 ‐0.56 ‐0.45 ‐0.50 ‐0.56 ‐0.62 ‐0.68 After Required Rate Adjustment ‐1.64 1.00 1.00 1.00 1.03 1.07 1.09 After Proposed Rate Adjustment 0.87 1.05 1.02 1.00 1.04 1.07 1.09 Operating Fund $2,165 Beginning Cash Reserve Balance $2,165 ($2,004) $3,015 $6,368 $7,072 $12,492 $22,728 Plus: Balance/(Deficiency) (4,169) 5,019 3,353 704 5,420 10,236 12,931 Less: Uses of Funds 0 0 0 0 0 0 0 Ending Cash Reserve Balance ($2,004) $3,015 $6,368 $7,072 $12,492 $22,728 $35,659 Target Fund Balance= 60 Days of O&M $116,000 $76,000 $36,000 $37,000 $38,000 $40,000 $41,000 Fund Balance Ending Fund Balance ($2,004) $3,015 $6,368 $7,072 $12,492 $22,728 $35,659 Target Fund Balance 116,000 76,000 36,000 37,000 38,000 40,000 41,000 Balance (Deficiency) ($118,004) ($72,985) ($29,632) ($29,928) ($25,508) ($17,272) ($5,341) 8/25/2010 Sanitation 4 of 4