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4.2 Water and Sewer Rate Study Final Report
7/10/2017 Board Docs® Pro IN Agenda Item Details Meeting Jul 11, 2017 - Special Meeting of the Committee of the Whole — Joint Village Board and Finance Commission Workshop- 7:00 P.M. Category 4. DISCUSSION ITEMS Subject 4.2 Water and Sewer Rate Study Final Report Type Discussion Goals Background This report transmits the final draft of the Water and Sewer Rate Study and recommends a multi-year rate plan featuring 8% average annual increases from 2018 to 2025. This study is the first comprehensive, formal analysis the Village has performed to assess the water/sewer enterprise revenue stream. To a large extent, the study was precipitated by the expiration of the revenue stream from Special Service Area 5 (SSA 5). SSA 5 annually generated approximately $1.5 million to fund capital improvements. It expires this year (2017). A continuing decline in water demand along with a marked increase in the cost of water also contributed to the need for the rate study. Equally as compelling was an analysis of the water system pipeline renewal rate. Industry best management practices suggest that a 1% renewal rate is appropriate for long-term sustainability. Stated another way, a 1% renewal rate equates to a 100 -year average life span for a water main pipe. Our present capacity to fund water main replacements supports an average water main life approaching 600 years. The water/sewer rate study presents a financial plan that phases in water and sewer main renewal funding at a pace that accommodates an average life of 130 years by 2025. It also includes funding for water system improvements to mitigate significant pressure variances, surges, as well as volume, and velocity problems in portions of the service area furthest from the mitigating influence of the existing elevated tank. The proposed rate plan covers an 8 -year term commencing in 2018 and concluding in 2025. It recommends average annual rate increases of 8% during this period. These increases include historically programmed 4%-5% increases resulting in net 3%-4% increases compared to the norm. The revenue stream would be supplemented by the issuance of debt in the front of the term. The increased rates would initially be utilized for debt service. The compounding effect of the proposed revenue increases would ultimately supplant the need for additional debt during the remainder of the term, beginning in 2022. By 2025, the utilities are anticipated to generate enough cash to achieve the targeted level of reinvestment in main renewal and replacement. The current water rate structure is volumetric only. The study introduces a fixed component applied to all water service connections, which is phased in over time. The Village's present sewer rate structure is primarily volumetric with the exception of the Sewer Construction Fee, which the study recommends keeping. The Finance Commission recognized the utility of adding a fixed component to mitigate declining and variable water consumption, and to provide a level of revenue stability during unusually wet weather. The recommended rate structure also includes anticipated cost of water savings generated by NSMJAWA debt service reductions in 2020. The rate study recommendations were unanimously endorsed by the Finance Commission following lengthy deliberation during meetings on February 23, March 20, and June 22. During the rate study, many alternative financial planning and rate design scenarios were evaluated. Several of these alternatives were reviewed at the Finance Commission meetings, including: http://www.boarddocs.com/il/vomp/Board.nsf/Public 1/2 7/10/2017 Board Docs® Pro • Capping the annual revenue increases at 6% per year which dramatically reduced the available funding for capital projects, including renewal and replacement. • Recognizing the potential for growth in accounts through annexation or redevelopment, which provides additional revenue but generally requires additional infrastructure investment/build-out to serve the new areas. • Incorporating anticipated savings in JAWA water supply costs resulting from planned debt restructuring, lowering the long-term forecast of water operating costs. • Evaluating rate structure options that included different fixed fee designs for the water utility. This matter is presently slated for Village Board discussion at the July 11th Committee of the Whole meeting. Appropriate staff, along with representatives from the Village's rate study consultant, Burns & McDonnell, will present findings and facilitate discussion. Staff seeks Village Board direction regarding report recommendations. Alternatives 1. Accept Water and Sewer Rate Study Final Report recommendations. 2. Action at discretion of Village Board. Staff Recommendations Staff recommends that the Village Board concur with the findings of the Water and Sewer Rate Study Final Report. Final Mt Prospect Rate Study Report 6_26_17.pdf (973 KB) http://www.boarddocs.com/il/vomp/Board.nsf/Public 2/2 61, 11 Water and Sewer Rate Study Village of Mount Prospect, Illinois Water and Sewer Rate Study Project No. 91145 Final Report 06/26/2017 Water and Sewer Rate Study prepared for Village of Mount Prospect, Illinois Water and Sewer Rate Study Mount Prospect, Illinois Project No. 91145 Final Report 06/26/2017 prepared by Burns & McDonnell Engineering Company, Inc. COPYRIGHT © 2017 BURNS & McDONNELL ENGINEERING COMPANY, INC. Water and Sewer Rate Studv Final Report Table of Contents TABLE OF CONTENTS Page No. 1.0 EXECUTIVE SUMMARY...................................................................................1-1 1.1 Project Background.............................................................................................. 1-1 1.2 Capital Improvement Program Recommendations .............................................. 1-1 1.3 Industry Trends in Water and Sewer Rates.......................................................... 1-1 1.4 Financial Planning............................................................................................... 1-3 1.5 Proposed Rates..................................................................................................... 1-4 2.0 FINANCIAL PLANNING ANALYSIS................................................................ 2-1 2.1 Project Approach................................................................................................. 2-1 2.2 Introduction to Financial Planning....................................................................... 2-2 2.3 Water and Sewer Utility Revenues under Existing Rates .................................... 2-2 3-2 2.3.1 Historical and Projected Customers...................................................... 2-2 3-3 2.3.2 Historical and Projected Volumes........................................................ 2-3 3-6 2.3.3 Existing Water and Sewer Rates........................................................... 2-4 3-7 2.3.4 User Revenues under Existing Rates .................................................... 2-6 2.4 Water and Sewer Utility Expenditures................................................................ 2-6 3.3.1 2.4.1 O&M Expenses..................................................................................... 2-7 3.3.2 2.4.2 Projected Capital Improvement Expenditures ...................................... 2-8 3.3.3 2.4.3 Existing Debt Service Requirements.................................................... 2-9 2.5 Water and Sewer Utility Financial Plan............................................................... 2-9 2.5.1 Proposed Debt..................................................................................... 2-10 2.5.2 Water Utility Flow of Funds............................................................... 2-10 2.5.3 Sewer Utility Flow of Funds............................................................... 2-13 2.5.4 Consolidated Utility Flow of Funds .................................................... 2-15 2.6 Summary of Alternate Financial Planning Scenarios ........................................ 2-17 3.0 COST OF SERVICE ANALYSIS....................................................................... 3-1 3.1 Introduction.......................................................................................................... 3-1 3.2 Water Cost of Service.......................................................................................... 3-1 3.2.1 Net Revenue Requirements................................................................... 3-1 3.2.2 Cost of Service Methodology............................................................... 3-2 3.2.3 Functional Cost Assignment................................................................. 3-3 3.2.4 Units of Service..................................................................................... 3-6 3.2.5 Unit Cost Development......................................................................... 3-7 3.2.6 Allocation of Costs to Customer Classes .............................................. 3-7 3.3 Sewer Cost of Service.......................................................................................... 3-9 3.3.1 Net Revenue Requirements................................................................... 3-9 3.3.2 Cost of Service Methodology............................................................. 3-10 3.3.3 Functional Cost Assignment............................................................... 3-10 3.3.4 Units of Service................................................................................... 3-12 Village of Mount Prospect TOC -1 Burns & McDonnell Water and Sewer Rate Study Final Report Table of Contents 3.3.5 Unit Cost Development....................................................................... 3-12 3.3.6 Allocation of Costs to Customer Classes ............................................ 3-13 4.0 PROPOSED RATE DESIGN.............................................................................4-1 4.1 Introduction.......................................................................................................... 4-1 4.2 Existing Water Rates............................................................................................ 4-1 4.3 Water Rate Structure Options.............................................................................. 4-2 2-5 4.3.1 Volume Rate Structure Concepts ..........................................................4-2 4.4 Regional Water Rate Levels and Practices .......................................................... 4-4 4.5 Proposed Water Rate Structure............................................................................ 4-6 4.6 Existing Sewer Rates........................................................................................... 4-8 4.7 Sewer Rate Structure Options.............................................................................. 4-8 4.8 Regional Sewer Rate Levels and Practices .......................................................... 4-8 4.9 Proposed Sewer Rate Structure.......................................................................... 4-10 4.10 Combined Water and Sewer Bills...................................................................... 4-12 4.11 Statement of Limitations.................................................................................... 4-13 LIST OF TABLES Page No. Table 1-1: Existing and Proposed Water Rates........................................................................... 1-4 Table 1-2: Existing and Proposed Sewer Rates........................................................................... 1-5 Table 1-3: Typical Water and Sewer Bills Under Existing and Proposed Rates ......................... 1-5 Table 2-1: Historical and Projected Water Accounts and Volume .............................................. 2-3 Table 2-2: Historical and Projected Sewer Accounts and Volume .............................................. 2-3 Table 2-3: Existing Water and Sewer Rates................................................................................ 2-5 Table 2-4: Historical and Projected Water User Revenues......................................................... 2-6 Table 2-5: Historical and Projected Sewer User Revenues......................................................... 2-6 Table 2-6: Historical and Projected Operation and Maintenance Expenses ................................ 2-8 Table 2-7: Capital Improvement Program................................................................................... 2-9 Table2-8: Proposed Debt.......................................................................................................... 2-10 Table 2-9: Water Utility Financial Plan..................................................................................... 2-12 Table 2-10: Sewer Utility Financial Plan................................................................................... 2-15 Table 2-11: Combined Water and Sewer Utility Financial Plan ............................................... 2-16 Table 2-12: Financial Planning Scenario Summary.................................................................. 2-17 Table 3-1: Test Year 2018 Water Net Revenue Requirements.................................................... 3-2 Table 3-2: Allocation of Test Year 2018 Water Operation and Maintenance Expenses ............. 3-4 Table 3-3: Allocation of Test Year 2018 Water Capital Costs .................................................... 3-6 Table 3-4: Water Units of Service............................................................................................... 3-6 Table 3-5: Water Unit Cost Development................................................................................... 3-7 Table 3-6: Water Cost Allocation to Customer Classes.............................................................. 3-8 Table 3-7: Comparison of Revenue Under Existing Rates to Allocated Cost of Service............ 3-8 Table 3-8: Test Year 2018 Sewer Net Revenue Requirements................................................... 3-9 Table 3-9: Allocation of Test Year 2018 Sewer Operation and Maintenance Expenses........... 3-11 Village of Mount Prospect TOC -2 Burns & McDonnell Water and Sewer Rate Studv Final Report Table of Contents Table 3-10: Allocation of Test Year 2018 Sewer Capital Costs ........................................ Table 3-11: Sewer Units of Service................................................................................... Table 3-12: Sewer Unit Cost Development....................................................................... Table 3-13: Sewer Cost Allocation to Customer Classes .................................................. Table 3-14: Comparison of Revenue Under Existing Rates to Allocated Cost of Service Table 4-1: Existing Water Rates........................................................................................ Table 4-2: Existing and Proposed Water Rates................................................................. Table 4-3: Typical Water Bills Under Existing and Proposed Rates ................................. Table 4-4: Existing Sewer Rates........................................................................................ Table 4-5: Existing and Proposed Sewer Rates................................................................. Table 4-6: Typical Sewer Bills Under Existing and Proposed Rates ................................ Table 4-7: Typical Water and Sewer Bills Under Existing and Proposed Rates ............... LIST OF FIGURES Figure 1-1: Changes in General Inflation and Water and Sewer Rates ............. Figure 2-1: Study Methodology......................................................................... Figure 4-1: Flat or Uniform Volume Rate Structure ......................................... Figure 4-2: Declining Block Volume Rate Structure ........................................ Figure 4-3: Inclining Block Volume Rate Structure .......................................... Figure 4-4: Seasonal Volume Rate Structure..................................................... Figure 4-5: Residential Water Bill Comparison at 5,000 Gallons per Month ... Figure 4-6: Fixed Fee Structure of Surveyed Water Utilities ............................ Figure 4-7: Volume Rate Structure of Surveyed Water Utilities ....................... Figure 4-8: Residential Sewer Bill Comparison at 5,000 Gallons per Month... Figure 4-9: Fixed Fee Structure of Surveyed Sewer Utilities ............................ Figure 4-10: Volume Rate Structure of Surveyed Sewer Utilities .................... Page No. Village of Mount Prospect TOC -3 Burns & McDonnell Water and Sewer Rate Studv Final Report List of Abbreviations LIST OF ABBREVIATIONS Abbreviation Term/Phrase/Name AWWA American Water Works Association BOD Biochemical oxygen demand Ccf Hundred cubic feet CIP Capital Improvement Program CPI Consumer Price Index FY Fiscal year IEPA Illinois Environmental Protection Agency IICP Infiltration/Inflow Control Program JAWA Northwest Suburban Municipal Joint Action Water Agency Kgal Thousand gallons of water Mgd Million gallons per day MWRDGC Metropolitan Water Reclamation District of Greater Chicago O&M Operation & Maintenance Expense SS Suspended solids SSA5 Special Service Area 5 The Village Village of Mount Prospect, Illinois WEF Water Environment Federation Village of Mount Prospect i Burns & McDonnell Water and Sewer Rate Study Final Report Executive Summa 1.0 EXECUTIVE SUMMARY 1.1 Project Background Burns & McDonnell was engaged by the Village of Mount Prospect (the Village) to develop recommended capital improvements through 2025 with specific emphasis on the transmission and distribution system, and a water and sewer rate study (Study) that (i) evaluates the financial planning implications of the recommended capital improvements, and (ii) proposes rates to adequately and equitably recover costs for the water and sewer utilities. This Report presents the major findings of the Study. 1.2 Capital Improvement Program Recommendations In past years, the Village has completed various planning documents that present recommended improvements to the potable water and wastewater systems. These proposed capital projects were reviewed with Village personnel to determine their validity and what has been completed or will be completed through 2016. Documents reviewed include: • 2017 — 2021 Community Investment Program • 2016 Water Main Replacement Program • 2008 Water System Master Plan • 2007 Sanitary Lift Station Replacement Report In collaboration with Village personnel, the proposed capital projects were summarized and prioritized. Additionally, an annual allocation was developed to address upgrades to the wastewater conveyance system with a focus on meeting the Metropolitan Water Reclamation District of Greater Chicago's (MWRDGC) Infiltration/Inflow Control Program (1ICP) requirements. From 2016 to 2025, the consolidated capital improvement plan amounts to $60.9 million, ranging annually from $3.2 million to $8.9 million. Of the total capital improvement plan, approximately $48 million is associated with water transmission and distribution main improvements and sewer collection system improvements. 1.3 Industry Trends in Water and Sewer Rates Replacement of aging infrastructure is one of several dynamics impacting water and sewer utility rates. Other dynamics may include regulatory requirements, inflation on operating and capital costs, and a general trend in declining consumption most often associated with more efficient fixtures and appliances and greater awareness of water conservation. Village of Mount Prospect 1-1 Burns & McDonnell Water and Sewer Rate Studv Final Report Executive Summa Each utility is different, and the relative importance of these dynamics will vary by utility. However, there is no doubt that water and sewer rate increases have substantially outpaced general inflation in the United States. The United States Bureau of Labor Statistics (BLS) tracks many facets of inflation. The most commonly referenced measure is the Consumer Price Index for all Urban Consumers (CPI -U) which measures inflation at the consumer level. The BLS also tracks a combined inflation index for consumer water and sewer costs. Figure 1-I compares changes in the consumer price index to changes in the water and sewer cost index. Figure 1-1: Changes in General Inflation and Water and Sewer Rates Cumulatively since 2000, the water and sewer index has risen about 120 percent, while CPI has increased about 42 percent. Annually, this equates to an approximate increase of 5 percent per year for the water and sewer index, while CPI's annual rate of change is about 2 percent per year. However, in the last five years, the gap appears to be widening. During that time, the water and sewer index has increased at approximately 5.5 percent annually, while CPI has trended upward at approximately 1.5 percent annually. Each utility may be influenced by specific circumstances that can lead to increases that are higher or lower than these industry trends. However, costs associated with renewal and replacement of existing infrastructure and the increasing cost of regulatory compliance are two of the primary dynamics contributing toward the increases in water and sewer rates. Understanding the reality of increasing costs within the water and sewer industry provides helpful context in evaluating proposed financial plans. Village of Mount Prospect 1-2 Burns & McDonnell Water and Sewer Rate Study Final Report Executive Summa 1.4 Financial Planning Comprehensive financial planning conducted for the water and sewer utilities indicates that revenues under existing rates are not sufficient to meet the projected cash obligations of the utilities over the ten- year study period. The need for revenue adjustments is influenced by the following factors: • Expectations that user charges under existing rates will be on a slightly declining trend through 2025; • Inflationary impacts on operation and maintenance expenses and future capital improvements; • Implementation of the proposed capital plans, including renewal and replacement programs for the aging water distribution system and the sewer collection system. Several financial planning scenarios were evaluated to fund the operating and capital needs of the utilities. Financial planning assumptions and scenarios are described in Section 2 of this report. Financial planning scenarios were evaluated based on the following guiding principles: 1. Minimize the need for sudden and substantial revenue adjustments. 2. Maintain projected operating reserves each year in an amount equal to a minimum of 90 days of O&M. 3. Mitigate new debt issuance where possible. 4. Funding the system renewal/replacement program targets by 2025. Based on its ability to meet the guiding principles, the recommended financial plan detailed in this report proposes the following revenue increases to be effective January 1 of each year indicated. 2018 9% 5% 2019 8% 8% 2020 8% 8% 2021 8% 8% 2022 8% 8% 2023 8% 8% 2024 8% 8% 2025 8% 8% Village of Mount Prospect 1-3 Burns & McDonnell Water and Sewer Rate Study Final Report Executive Summa 1.5 Proposed Rates A detailed cost of service analysis was performed for each utility and provided necessary context for the development of proposed rates. Additionally, utility rate levels and structures were examined for 15 neighboring communities. Existing and proposed water rates are shown in Table 1-1. Burns & McDonnell recommends modifying the existing rate structure to include a base fee that varies by meter size and is phased in over a ten-year period. Table 1-1: Existing and Proposed Water Rates Voliumetrir Fees Water Ou,uftdL.- per 1,000 gallons $. 18.38 $. 19,30 $. 20.66 $. 22.10 $ 23.70 $. 2.5.42 $. 27.32 $. 29.38 $ 31.62 Notes: (a � S'..W service rctnalr'ges ex6lec'tpd to exp' re in 265'17 ('la( Fr6rm 2018'Sr6rward, a II out side Village user chair8es are 2. Ox IInside Vrlka rates,. Existing and proposed sewer rates are shown in Table 1-2. Burns & McDonnell recommends maintaining the existing sewer rate structure, but relabeling the sewer construction fee as a base fee for consistency with the proposed water rate structure. Additionally, Outside Village sewer rates are proposed to be priced at 2.Ox Inside Village rates, consistent with the water utility rate practice. Village of Mount Prospect 1-4 Burns & McDonnell Exist ng Proposed 2017 2018. 2029. 20-10 26121 2022. 20.23 2024 26125 Water 5A1311r;e'4?t51�3g.e Base Fees -per bill 5/v $ $ 3.6161 '$ 4.6161 '$ 5.61011 $ 6.656 $ 7,4561 '$ 8.065 '$ 9.00 $ moo 3�/4" $. -. $. 3.461 '$ 4.61160 $ 5,6161 $ 65 CO $ 7.6167 $ 8.00 $ gm 161.6565 110 $ - $. 3.6165 '$, 4. CIO '$ 5,6161 $, 6.6161 $ 7.6161 '$ 8.00 $ 9..6161 '$ 165.6161 1-1/2" $ - '$ 5.6161 $ & GO '$ 8..00 $ 9..6561 $ 11.4161 $ 12.6161 $ 14.6145 $ 15.661 2"° $ - $. 7.6165 $, 9,CIO $ 11.,6105 $ 1100 $ 15.6U6tl '$ 18.00 $ 2011.nO '$ 22.6561 3`° $ - '$ 22.6161 $ 29. DO '$ 37.6116 $ 44.00 $. 51,6181 $ .59.6561 66..6561 $ 73.4564 4"° $ - '$ 28.6161 $ 37.6161 '$ 46.668 $ 55.6N05 $ 65.6X1 $ 74.00 $ 83M $ 92.6V61 6"0 $ $ 41.6161 $ 55.600 $ 68,00 $ 82.6161 $ 96.6561 $ 1659.6561 $ 123.4165 $ 13T00 81° $ $ 5&001 $ 75.6.616 $ 94.6dW1 $ 112.6&61 $ 1,31.00 $ 150.00 $ 169.6b05 $ 187'.4560 Vol,rurruetric Fees Water Inside .. per 1.,000 gallons $. 9,1.9 $. 9,65 $. 161.33 $ 11,655 $ 1 L8 $, 12.71 $.. 13.66 $ 14.69 5 1.5.81 Water CdoCharge - per 1,G00pa16r $ _ $ $ $ $ $' $ - $ $ - Water Outside village 6aiseFees per b[11 (ai 5/8"° $ 168.657 $ &00 $ 8.4165 $ MOO $ 12,665 $ 14,66 $ 16.6065 5 18.00 $ 261.6515 3 '4'" $ 15,681 '$ 6.616 $ 8.068 '$ 10.00 $ 12.06 '$ 14.6157 $ 16.00 $ 1&00 $ 20.00 11" $. 3871.00 '$ 8.6881 $ 8..6851 '$ 185.655 $ 12..605 $ 14.68 $., 16.00 $ 18..6561 $ 215.87161 1-112" $. 50.00 $. 161,6161 '$, 12,.6561 $ 18,6405 $, 18..616 $ 22.6565 $, 24.6565 $. 28.6165 '$, 365.6565 2" $. 9611,.61161 $. 14.00 $. 18..6805 $ 22,6105 $ 26.005 $.. 30.00 $. 36.00 445..65"3 $. 44.0561 3" $ 1.568.00 $. 44,06 $ 58..00 $ 74.67105 $, 88,6166 $ 1612,676 '$ 118.00 $ 132.00 '$ 146..6565 4"° $ 2566.6071 '$. 56.00 $ 74.00 '$ 92.00 $ HMO $ 1,30.6165 $ 14&00 $.. 168.6561 $ 184,.00 6" $. 475..00 '$ 82.00 $ 110.00 '$ 136.00 $ 164.61105 $ 1.92.001 $.. 218.00 $ 248.6560 $ 2765.61161 81° $ 9961.6071 '$. 112.00 $ 150.nO '$ 188.001 $ 224.600 $ 252.00 $ 36061.6545 $.. 338.6161 $ 374,.00 Voliumetrir Fees Water Ou,uftdL.- per 1,000 gallons $. 18.38 $. 19,30 $. 20.66 $. 22.10 $ 23.70 $. 2.5.42 $. 27.32 $. 29.38 $ 31.62 Notes: (a � S'..W service rctnalr'ges ex6lec'tpd to exp' re in 265'17 ('la( Fr6rm 2018'Sr6rward, a II out side Village user chair8es are 2. Ox IInside Vrlka rates,. Existing and proposed sewer rates are shown in Table 1-2. Burns & McDonnell recommends maintaining the existing sewer rate structure, but relabeling the sewer construction fee as a base fee for consistency with the proposed water rate structure. Additionally, Outside Village sewer rates are proposed to be priced at 2.Ox Inside Village rates, consistent with the water utility rate practice. Village of Mount Prospect 1-4 Burns & McDonnell Water and Sewer Rate Studv Final Report Executive Summa Table 1-2: Existing and Proposed Sewer Rates The impact of proposed water and sewer rates on typical customers has been calculated and is shown in Table 1-3. Table 1-3: Typical Water and Sewer Bills Under Existing and Proposed Rates Existing Proposed Monthty BN Und0r 2W 2M 291a Pfojxsed Proposed Proposed Proposed Proposed PmpDsed Sewer lnskIeViRage Proposed Une Mlade 2017 2018 2019 2020 2021 2022 Base Fee -peer bill $ 5M mo $ 5100 $ 5xG $, 5m $ 540 5,40 $ 5.541 $ 6.30 Volumetric Fees Rates Rates Rates KpI $ $ $ $ Sewer tnvde - per 1,000 ga flo pis $, 1.78 1.90 $ 2.09 $ 2.31 $ 2.54 $ 2.79 a.02 $ 3.26 $ 3.52 Sewer No Charge - per 1,000 gab $ - $ - $ - $ - $ - $ - $ - $ - $ - Sewer Outskle Wbge $ 76,80 $ 82,1% $ $$,a41 $ 196,80 $ 104, 55 $ '1'12,''15 2 3/4"' 10, 0 $ 114,70 Base Fee - pe; NI 1 5.00 $ 10.00 $ 1f4 00 $ 10.00 $ 10.00 $ 10.00 $ 10.90 $ IL60 $ 12,60 Volumetric Fees $ 181,25 $ I%,30 $ 210,40 $ 226,85 $ 244,50 $ 263,60 $ 2834,415 $ 306,25 CKrir-, un $ over pdor year Sewer insWe - per 1,000 gallons $ 2.78 $ ISO $ 4.18 $ 4.62 $ 5.418 $ 5.58 $ &04 $ 6.52 $ 7.04 Swr Outside V&ge, No Water $ 4.76 $ 10.00 $ 10.80 $ 11,67 $ 12,60 $ 1.161 $ 14.70 $ I5.87 $ 17.14 The impact of proposed water and sewer rates on typical customers has been calculated and is shown in Table 1-3. Table 1-3: Typical Water and Sewer Bills Under Existing and Proposed Rates The Village traditionally considers and adopts a single year of new water and sewer rates. Burns & McDonnell recommends continuing that practice. The financial plan and proposed rates provide a roadmap for future planning and rate adoption provided substantial changes in conditions are not encountered. As a matter of practice, Bums & McDonnell encourages the Village to evaluate the sufficiency of utility revenues and expenses annually as part of its budgeting process, with a comprehensive update to its financial plan every five years, or sooner if conditions change. Village of Mount Prospect 1-5 Burns & McDonnell Monthty BN Und0r Uiqng Pfojxsed Proposed Proposed Proposed Proposed PmpDsed Proposed Proposed Une Mlade 2017 2018 2019 2020 2021 2022 2023 2024 2025 Popo, Meter s4e Flow Rates Rates Rates Rates Rates Rates Rates Rates Rates KpI $ $ $ $ $ $ $ $ $ water and Se%w. r Ultflfty I S/V" 5,0 $ 515,85 $ 65.75 $ 71,10 $ 76,80 $ 82,1% $ $$,a41 $ 196,80 $ 104, 55 $ '1'12,''15 2 3/4"' 10, 0 $ 114,70 $ 12150 $ 133,20 $ 143,60 $ 154,90 $ 167,00 $ 180,20 $ 194,30 $ 209,60 3 1"' 15,0 $ 169,%55 $ 181,25 $ I%,30 $ 210,40 $ 226,85 $ 244,50 $ 263,60 $ 2834,415 $ 306,25 CKrir-, un $ over pdor year 4 5/8 5,90 5,35 5,70 6,n 6,55 7,30 7,75 $ 8,40 5 3/4" 8,80 '5,70 $' 10,40 11.30 32,10 3 3, 20 14,10 $ 15,30 6 1."' $ 11,70 $ 14,05 $ 15,10 $ 16,45 $ 37,65 39,10 $ 20,45 $ 22,20 Mmr. Vn % over W0( year 7 5/81" 9,9% 8,1%43.4139% 8,0% 7,9% 8,2% 8, M 8,0% 8 3/4" 73% 7,919% 7,8% 7,939% 7,9% 7,9% 7,8,% 7,9% 9 1° 6,9% 7,8% 7339% 7,811 7,1414% 7,8% 7,8$6 7,8*,1 The Village traditionally considers and adopts a single year of new water and sewer rates. Burns & McDonnell recommends continuing that practice. The financial plan and proposed rates provide a roadmap for future planning and rate adoption provided substantial changes in conditions are not encountered. As a matter of practice, Bums & McDonnell encourages the Village to evaluate the sufficiency of utility revenues and expenses annually as part of its budgeting process, with a comprehensive update to its financial plan every five years, or sooner if conditions change. Village of Mount Prospect 1-5 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis 2.0 FINANCIAL PLANNING ANALYSIS 2.1 Project Approach To meet the project objectives identified by the Village, Burns & McDonnell conducted the rate study in a three-step approach. This approach, depicted in Figure 2-1, is grounded in the principles established by the American Water Works Association (AWWA) MI Rate Manual and the Water Environment Federation (WEF) Financing and Charges for Wastewater Systems. Figure 2-1: Study Methodology Step 1: Financial Planning provides an indication of the adequacy of the revenue generated by current rates. The results of the financial forecast analysis answer the questions "Are the existing rates adequate?" and "If not, what level of overall revenue increase is needed?" The Financial Planning Analysis is presented in this section of our report. Step 2: Cost of Service focuses on assigning cost responsibility to customer classes. Each customer class is allocated an appropriate share of the overall system costs based on the level of service provided. The net revenue requirements (costs to be recovered from rates) identified in Step 1 are allocated to customers in accordance with industry standards and principles and system specifics. The Cost of Service Analysis is detailed in Section 3.0 of this report. Step 3: Rate Design provides for the required revenue recovery. Once the overall level of revenue required is identified and customer class responsibility for that level of revenue is determined, schedules Village of Mount Prospect 2-1 Burns & McDonnell Water and Sewer Rate Studv Final Report Financial Planning Analvsis of rates for each rate class are developed that will generate revenues accordingly. The Rate Design Analysis is detailed in Section 4.0 of this report. 2.2 Introduction to Financial Planning The primary issue addressed in the Financial Planning Analysis is revenue sufficiency. The results of the Financial Planning Analysis answer the questions: • "Are the existing rates sufficient to fund anticipated operating and capital costs?" "If not, what level of overall revenue increase is needed?" To determine if the existing schedule of rates can be expected to generate revenues sufficient to meet the Village's operating and capital costs, Burns & McDonnell prepared a ten-year financial projection of revenues and expenditures for the water and sewer utilities. A comparison of projected revenues and expenditures provides insight into the adequacy of overall revenue levels. Our approach to Financial Planning involves the following basic steps: 1. Project revenues under existing rates. 2. Project water and sewer utility expenditures, including operating and capital costs. 3. Develop a ten-year financial plan, including the budget year and a nine-year forecast period. The planning period includes the current fiscal year (FY) 2016 as a budget year and a nine-year forecast period, FY 2017 through FY 2025. The Village's fiscal year ends on December 31, and the projected periods in the financial plan recognize the same fiscal year ending December 31. 2.3 Water and Sewer Utility Revenues under Existing Rates The first step in the Financial Plan Analysis was to project revenues under the existing schedule of rates. To complete this effort required an analysis of water and sewer customers, volumes, and revenues. 2.3.1 Historical and Projected Customers Table 2-1 presents the historical water customers served by the Village from 2013 to 2015 and the projection of customers for the 2016 to 2025 planning period. In recent years, Mount Prospect has experienced minimal change in the number of accounts. Considering this trend in account growth, the projection of accounts conservatively assumes no growth in customer class accounts for 2016 through 2025. Village of Mount Prospect 2-2 Burns & McDonnell Water and Sewer Rate Studv Final Report Financial Planning Analvsis Table 2-2 presents the historical sewer customers served by the Village from 2013 to 2015 and the projection of customers for the 2016 to 2025 planning period. Similar to the water utility, Mount Prospect has experienced minimal change in the number of sewer accounts in recent years. The projection of sewer accounts assumes no growth in customer class accounts for 2016 through 2025, consistent with the approach to forecasting water accounts. Table 2-1: Historical and Projected Water Accounts and Volume Line Historical I Projected I No. 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Accounts - 91 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 1Water l nside Village 12,102 12,185 12,209 12,209 12,209 12,209 12,209 12,209 12,209 12,209 12,209 12,209 12,209 2 Water No Cha rge - 6 7 7 7 7 7 7 7 7 7 7 7 3 1" Outside SSAS 5 5 7 7 7 7 7 1 7 7 7 7 7 4 1-1/2" Outside SSAS 10 9 9 9 9 9 9 9 9 9 9 9 9 S 2" Outside SSAS 2 2 2 2 2 2 2 2 2 2 2 2 2 6 5/8" Outside SSAS 33 28 32 32 32 32 32 32 32 32 32 32 32 7 Total Accounts 12,152 12,235 12,266 12,266 12,266 12,266 12,266 12,266 12,266 12,266 12,266 12,266 12,266 Billed Valume (1,O0OGollons) Historical Protected 8 Water l nside Village 1,259,831 1,167,279 1,120,859 1,187,136 1,181,200 1,175,294 1,169,417 1,163,570 1,157,753 1,151,964 1,146,204 1,140,473 1,134,771 9 Water NOCharge - 91 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 10 1" Outside SSA5 1,469 1,342 1,026 1,026 1,026 1,026 1,026 1,026 1,026 1,026 1,026 1,026 1,026 11 1-1/2" Outside 5SA5 394 393 214 214 214 214 214 214 214 214 214 214 214 12 2" Outside SSA5 712 793 703 703 703 703 703 703 703 703 703 703 703 13 5/9" Outside SSAS 11518 1,356 826 826 826 826 826 826 626 826 826 826 826 14 Tota18111ed Volume 1,263,924 1,171,254 1,126,895 1,193,172 1,187,236 1,181,330 1,175,453 1,169,606 1,163,789 1,158,000 1,152,240 1,146,509 1,140,807 Table 2-2: Historical and Projected Sewer Accounts and Volume Line Historical Protected flB. 2411 2414 2415 2010 2412 2411 2413 2424 2421 2422 2423 2024 2425 Accounts 1 Sewer Service l nside Village 12,044 12,121 12,145 12,145 12,145 12,145 12,145 12,145 12,145 12,145 12,145 12,145 12,145 2Sewer Inside Village No Water 51 50 49 49 49 49 49 49 49 49 49 49 49 3 Sewer NO Charge - 6 7 7 7 7 7 7 7 7 7 7 7 4 Sewer Service Outside Village 40 34 40 40 40 40 40 40 40 40 40 40 40 5 Sewer Outside Village No Water 1 1 1 1 1 1 1 1 1 1 1 1 6 Total Ac counts 12,135 12,212 12,242 12,242 12,242 12,242 12,242 12,242 12,242 12,242 12,242 12,242 12,242 7 Sewer Construction Fee 12,135 12,196 12,229 12,229 12,229 12,229 12,229 12,229 12,229 12,229 12,229 12,229 12,229 Billed Vol. me(1,000 Gallons) 8 Sewer Service l nside Village 1,248,348 1,154,666 1,108,184 1,174,651 1,168,778 1,162,934 1,157,119 1,151,334 1,145,577 1,139,849 1,134,150 1,128,479 1,122,837 9 Sewer Inside Village No Water - - - - - - - - - - - - - 10 Seaver No Charge - 91 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 3,267 11 Sewer Service Outside Village 3,924 5,308 5,188 5,188 5,188 5,188 5,188 5,188 5,188 5,188 5,188 5,188 5,188 12 Seaver Outside Village No Water 13 Total Billed Volume 1,252,272 1,161,065 1,116,639 1,183,106 1,177,233 1,171,389 1,165,574 1,159,789 1,154,032 1,148,304 1,142,605 1,136,934 1,131,292 2.3.2 Historical and Projected Volumes Table 2-1 and Table 2-2 also present the historical and projected volumes. Table 2-1 presents historical water volumes based on applicable water sales for 2013 to 2015, and the projection of volumes for the 2016 to 2025 planning period. The Village experienced wet weather in 2014 and 2015 which tends to suppress water use in the peak -use summer months. To develop a demand forecast more representative of "normal" weather conditions, a three-year average of water use per account was used to estimate 2016 Inside Village billed water sales. Inside Village use per account was estimated to decline 0.5 percent annually beginning in 2017. This slight decrease in average use per account reflects an industry trend associated with prevalence of more efficient appliances and fixtures, and a greater awareness regarding water use and conservation. Forecasting use per account to decline provides a slightly more conservative forecast of water sales and ultimately, revenue under existing rates. The other classes are much smaller and less impactful to the overall financial plan. These classes were estimated to remain at 2015 level of Village of Mount Prospect 2-3 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis usage per account. The projection of stable accounts and the estimated usage per account indicates water sales estimates of 1,193,172 thousand gallons in 2016, decreasing to 1,140,807 thousand gallons in 2025. Table 2-2 presents historical sewer volumes based on applicable water sales for 2013 to 2015, and the projection of volumes for the 2016 to 2025 planning period. A three-year average of sewer use per account was used to estimate 2016 Inside Village billed sewer flow, consistent in forecasting approach with the water volume projection. Inside Village sewer use per account was estimated to decline 0.5 percent annually beginning in 2017. The other classes were estimated to remain at 2015 level of sewer use per account. The projection of stable accounts and the estimated sewer usage per account indicates billable sewer flow of 1,183,106 thousand gallons in 2016, decreasing to 1,131,292 thousand gallons by 2025. 2.3.3 Existing Water and Sewer Rates The water and sewer rate schedule is shown in Table 2-3. During the Study, a 4 percent rate increase was implemented effective at the beginning of 2017. Table 2-3 shows both the 2016 rates and 2017 rates. The water rate consists of a volumetric charge per thousand gallons for both Inside and Outside Village customers. Outside customers in Special Service Area 5 (SSA5) also have a monthly charge that varies by meter size. It is understood that this monthly charge likely represents a fee to acknowledge taxes that customers within SSA5 currently contribute toward the water utility. The sewer rate consists of a volumetric charge per thousand gallons and fixed sewer construction fee per bill. Revenues derived from the volume components of the existing water and sewer rate structure provide about 95 percent of the user charge revenue received by the Village for water and sewer service. With a heavy reliance on volumetric fees, the water and sewer utility revenues will be susceptible to weather anomalies and are more likely to experience shortfalls in periods of wet weather. Municipal bond rating agencies typically view a higher percentage of revenues recovered through fixed fees to have a favorable impact on creditworthiness. For instance, Fitch Ratings considers achieving 10 percent of revenues through base or fixed fees to be "midrange," while "stronger" performance is considered to be 30 percent or greater revenue generation through fixed fees. Potential changes to the existing rate structure will be discussed in Section 4.0 of this report. Village of Mount Prospect 2-4 Burns & McDonnell Water and Sewer Rate Studv Final Report Financial PI Table 2-3: Existing Water and Sewer Rates Schedule of Water Rates Schedule of Sewer Rates 2016 2017 Volumetric Fees - per 1,000 gallons Water Inside $8.84 $9.19 Water Outside $17.68 $18.38 Fixed Fees per Bill - Outside Special Service Area 5 Only $4.76 5/8" $10.00 $10.00 3/4" $15.00 $15.00 1" $30.00 $30.00 11/2" $50.00 $50.00 2" $90.00 $90.00 3" $150.00 $150.00 4" $250.00 $250.00 6" $475.00 $475.00 8" $990.00 $990.00 Schedule of Sewer Rates Analvsis As a matter of practice, volumetric water rates for service provided to Outside Village customers are set at 2.0 times Inside Village rates. Sewer rates applicable to Outside Village customers are currently identical to sewer rates applicable to Inside Village customers. The Village has implemented annual rate increases in recent years, prompted in part by increased water supply costs. The 2016 water volumetric rates shown above reflect a 6 percent increase over 2015 rates, while the 2017 volumetric rates reflect a 4 percent increase. Water rates were increased in January of each year from 2013 through 2015 by 9.5 percent. Sewer volumetric rates were also increased 4 percent in 2017. Village of Mount Prospect 2-5 Burns & McDonnell 2016 2017 Volumetric Fees - per 1,000 gallons Sewer Inside Village $1.71 $1.78 Sewer Outside Village $1.71 $1.78 Swr Outside Village, No Water $4.58 $4.76 Fixed Fees per Bill - All Customers Sewer Construction Fee $5.00 $S.00 Analvsis As a matter of practice, volumetric water rates for service provided to Outside Village customers are set at 2.0 times Inside Village rates. Sewer rates applicable to Outside Village customers are currently identical to sewer rates applicable to Inside Village customers. The Village has implemented annual rate increases in recent years, prompted in part by increased water supply costs. The 2016 water volumetric rates shown above reflect a 6 percent increase over 2015 rates, while the 2017 volumetric rates reflect a 4 percent increase. Water rates were increased in January of each year from 2013 through 2015 by 9.5 percent. Sewer volumetric rates were also increased 4 percent in 2017. Village of Mount Prospect 2-5 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis 2.3.4 User Revenues under Existing Rates Table 2-4 and Table 2-5 present historical user charge revenues for 2013 to 2015 and a projection of user charge revenues under 2016 rates for the 2016 to 2025 planning period. The projection of user charge revenues was estimated based on the forecasted accounts and volumes factored by the schedule of 2016 water and sewer rates. The impact related to the approved 2017 water rate increase is discussed later in this section. As can be seen on Table 2-4, since 2013 historical water user charge revenues ranged from $8.5 million to $9.6 million. Forecasted user charge revenues reflect normal weather conditions, the anticipated stable levels of customers and slightly declining volumes previously presented, and the existing water rates. Overall, water user charge revenues under existing rates are projected to decline from $10.8 million in 2016 to $10.3 million in 2025. Table 2-4: Historical and Projected Water User Revenues Line Historical I I Pra'ected Projected xia 2412 2414 1415 201E 2412 291$ 2414 2424 2221 2422 2421 2424 2411 1 Water l inside Village $ 8,472,959 $ 8,938,845 $ 9,528,608 $ 10,697,600 $ 10,644,100 $ 10,590,900 $ 10,537,900 $ 10,485,200 $ 10,432,800 $ 10,380,600 $ 10,328,700 $ 10,277,100 $ 10,225,700 2 Water NO Cha rge - - - - - - - - - - - - - 3 1"Outside SSA5 19,369 23,143 18,915 18,900 18,900 18,900 18,900 18,900 18,900 18,900 18,900 18,900 18,900 4 1-1/2"Outside SSA& 10,697 11,573 8,970 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 52"Outside SSA5 11,715 14,221 14,070 14,100 14,100 14,100 14,100 14,100 14,100 14,100 14,100 14,100 14,100 6 5/8" Outside SSA5 23,619 23,715 19,339 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300 19,300 7 Tota l User Charge Revenues $ 8,538,359 $ 9,011,498 $ 9,589,901 $ 10,758,900 $ 10,705,400 $ 10,652,200 $ 10,599,200 $ 10,546,500 $ 10,494,100 $ 10,441,900 $ 10,390,000 $ 10,338,400 $ 10,287,000 Table 2-5 presents the historical sewer user charge revenues, ranging from $2.6 million to $2.8 million since 2013. Forecasted user charge revenues reflect normal weather conditions, the anticipated stable levels of customers and slightly declining volumes previously presented, and the existing sewer rates. Overall, sewer user revenues under existing rates are projected to decline from $2.7 million in 2016 to $2.6 million in 2025. Table 2-5: Historical and Projected Sewer User Revenues Line I Historical I Projected h1 2413 2414 2415 2415 2412 241& 1414 2424 2421 2422 2423 2424 242a 1 Sewer Service Inside Village $ 2,139,578 $ 2,013,270 $ 1,931,943 $ 2,047,800 $ 2,037,600 $ 2,027,400 $ 2,017,300 $ 2,007,200 $ 1,997,100 $ 1,987,100 $ 1,977,200 $ 1,967,300 $ 1,957,500 2 Sewer Inside Village No Water 2,516 2,619 2,638 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 2,600 3Seaver N, Charge - - - - - - - - - - - - - 4 S"", Service Outside Village 6,710 10,951 9,140 9,140 9,140 9,140 9,140 9,140 9,140 9,140 9,140 9,140 9,140 5 Seever Outside Village No Water - 23 55 100 100 100 100 100 100 100 100 100 100 6 Sewer Construction Fee 693,574 682,827 684,000 684,000 684,000 684,000 684,000 684,000 684,000 684,000 684,000 684,000 684,000 7 Total User Charge Revenues $ 2,842,378 $ 2,709,690 $ 2,627,776 $ 2,743,640 $ 2,733,440 $ 2,723,240 $ 2,713,140 $ 2,703,040 5 2,692,940 $ 2,682,940 $ 2,673,040 $ 2,663,140 $ 2,653,340 2.4 Water and Sewer Utility Expenditures Typically, a municipal water or sewer utility's primary cash expenditures include the following direct operating and capital costs: • Operation and Maintenance (O&M) Expenses 0 Capital Improvement Program Expenditures Village of Mount Prospect 2-6 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis • Debt Service Principal and Interest Payments Currently, the Village has no outstanding debt obligations related to its water or sewer utility systems. 2.4.1 O&M Expenses Table 2-6 presents the recent water and sewer O&M expense history and the projection of water and sewer system O&M expenses through the 2025 planning period. Expenses summarized on Table 2-6 reflect operating costs only; costs related to capital projects are excluded from Table 2-6 and are addressed in Section 2.4.2 of this report. In recent history, water O&M expenses ranged from $9.1 million in 2013 to $10.1 million in 2015. Sewer O&M expenses ranged from $1.5 million in 2015 to $1.8 million in 2013. Anticipated 2016 O&M costs are based on the Village's approved budget. In general, projected O&M expenses are anticipated to increase from budgeted 2016 amounts at approximately 3.4 percent annually. The overall inflationary increase is a function of the following inflation rate assumptions developed in collaboration with Public Works staff. • Lake Michigan Water Supply Costs: 4.0 percent annually (except for 2020 see note below) • Personal Services, Salaries & Wages: 2.0 percent annually • All other operating expenses: 3.0 percent annually During the Study, assumptions evolved in certain key areas. One such modification regarded the forecast for Lake Michigan Water Supply Costs, which is the single largest operating expense incurred by the water utility. The Village's water supply is obtained from the Northwest Suburban Municipal Joint Action Water Agency (JAWA). JAWA indicated to the Village that it expects to achieve cost savings related to the refinancing or restructuring of debt, and expects the savings to be realized by about 2020. This savings has been included in the projection of operation and maintenance costs for Lake Michigan Water Supply on Line 5 of Table 2-6 in 2020. After 2020, the Water Supply costs are anticipated to resume inflating at 4.0 percent annually. Administration and Equipment Maintenance expenses are estimated to be 50 percent related to the water Utility and 50 percent related to the sewer utility. All other cost functions are directly related to either water or sewer utility purposes. Village of Mount Prospect 2-7 Burns & McDonnell Water and Sewer Rate Studv Final Report Financial Planning Analvsis Table 2-6: Historical and Projected Operation and Maintenance Expenses Line Historical I Budgeted I Projected No. 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 1 Water D&M Water Administration 958,214 968,150 613,593 666,600 661,300 679,000 697,200 715,900 735,100 754,900 775,200 796,000 817,500 2 Equipment Maintena nce 389,644 393,323 410,144 434,000 447,000 460,500 474,300 488,500 5D3,200 518,200 533,800 549,800 566,300 3 Maintenance of Buildings 244,825 250,251 303,684 261,800 268,000 274,400 281,000 287,700 294,600 301,700 308,900 316,300 323,900 4 Maintenance of Grounds 121,499 120,930 120,994 127,200 130,400 133,600 136,900 140,300 143,800 147,400 151,100 154,900 158,700 5Lake Michigan Water Supply 5,230,614 5,962,704 6,443,522 6,946,000 7,223,800 7,512,800 7,813,300 7,448,700 7,746,60D 8,056,500 8,378,800 8,713,900 9,01 6 Water Supply Maine.&Repair 694,057 797,355 755,254 885,200 907,700 930,800 954,500 978,800 1,003,700 1,029,400 1,055,700 1,082,600 1,110,400 7 Water Distribution Maine. &Rep 672,952 666,018 606,251 745,000 764,500 784,400 804,900 826,000 847,600 869,800 892,600 916,000 940,100 8 Water Meter Maintenance & Repair 308,047 240,496 401,944 379,000 388,600 398,500 408,600 419,100 429,700 440,700 452,000 463,500 475,400 9 Water Valve/Hydrant Maint.&Rep 485,855 469,430 484,966 529,300 542,300 555,600 569,300 583,300 597,700 612,400 627,500 643,100 659,000 10 Total Water O&M 9,105,706 9,868,657 1D,142,351 10,974,100 11,333,600 11,729,600 12,140,000 11,888,300 12,31D2,00D 12,731,000 13,175,600 13,636,100 14,113,800 Sewer D&M . s" 2- s - s.sys a�� ase zis� s.s� a.�ss ass' s.s,c s.sv 11 Sewer Administration 958,214 968,150 613,593 666,600 661,300 679,000 697,200 715,900 735,100 754,900 775,200 796,000 817,500 12 Equipment Maintenance 389,644 393,323 410,144 434,000 447,000 460,500 474,300 488,500 503,200 518,200 533,800 549,800 566,300 13 Sa nita N Sewer Ma i nit. &Repair 475,777 428,524 511,997 542,500 556,400 570,700 585,400 600,400 615,900 631,800 648,100 664,800 682,000 14 Total Sewer O&M 1,823,635 1,789,996 1,535,734 1,643,100 1,664,700 1,710,200 1,756,900 1,804,800 1,854,200 1,904,900 1,957,100 2,010,600 2,065,800 15 Total Water&Sewer O&M Expenses 10,929,341 11,658,653 11,678,085 12,617,200 12,998,300 13,439,800 13,896,900 13,693,100 14,156,200 14,635,900 15,132,700 15,646,700 16,179,600 2.4.2 Projected Capital Improvement Expenditures Table 2-7 shows the projected capital improvement expenditures (CIP) for the 2016 to 2025 planning period. The utility maintains a CIP which plans for projects through 2022. This CIP is the basis for capital projects shown in Table 2-7 and represents projects that are in addition to the renewal and replacement in water and sewer mains. One of the objectives of this Study was to provide the Village recommendations regarding renewal and replacement of its water and sewer utility systems. In past years the Village has completed various planning documents that present recommended improvements to the potable water and wastewater systems. These proposed capital projects were reviewed with Village personnel to determine their validity and what has been completed or will be completed through 2016. Documents reviewed include: 0 2017 - 2021 Community Investment Program • 2016 Water Main Replacement Program 0 2008 Water System Master Plan • 2007 Sanitary Lift Station Replacement Report A combined list of projects was identified, and with input from Village personnel, the proposed capital projects were prioritized. In addition to the above listed programs, an annual allocation was developed to address upgrades to the wastewater conveyance system with a focus on meeting the Metropolitan Water Reclamation District of Greater Chicago's (MWRDGC) Infiltration/Inflow Control Program (IICP) requirements. The resultant annual capital expenditures for the prioritized projects are listed in Table 2-7. Approximately $48 million in capital projects has been included in Table 2-7 starting in 2016 to account for transmission and distribution main improvements and collection system improvements, including Line Village of Mount Prospect 2-8 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis 19 Water Main Replacement, Line 22 Water Transmission Mains, Line 33 Sewer Main Rehabilitation, and Line 34 Combined Sewer Improvements. As shown in Table 2-7, the CIP is estimated to total $60.9 million through 2025 and ranges by year from $3.2 million to $8.9 million. Table 2-7: Capital Improvement Program Line I Projected No. 206 2017 2018 2019 2020 2021 2022 2023 2024 2025 Totals Water Capltdl Impr-nn,"t PYOlects - - - 7,500 25 Geo Cortex Laserfiche Interface - 5,000 - - 1 Customer Servicelnterface-Hansen-Vlg Website - 7,500 - - - - - - - - 7,500 2 Geo Cortex Laserfiche Interface - 5,000 - - - - - - - - 5,000 3 Public Works Laptops - - 500 - - - - - - - 500 4 Water Tank Rehabilitation - Reservoir 5E - - - 650,000 - - - - - - 650,000 5 Water Tank Rehabilitation - Reservoir #11 - 315,000 - - - - - - - - 315,000 6 Locating & leak Detection Equipment 80,000 - - - - - - - - - 80,000 7 Televising Camera System Upgrades - 80,000 90,000 - - - - - - - 170,000 8 Water Facility Roof Rehab- Well House 44 65,000 - - - - - - - - - 65,000 9 Water 'ba il it, Roof Rehab- Station #11 - 70,000 - - - - - - - - 70,000 10 Water Facility Roof Rehab - Station #16 - - 70,000 - - - - - - - 70,000 11 Water Tank Rehabilitation -Reservoir 5-N - - 75,000 600,000 - - - - - - 675,000 12 Water Tank Rehabilitation -Reservoir 17 650,000 - - - - - - - - - 650,000 13 Wireless Telemetry System Remote Pressure Stations 66,000 70,300 75,000 79,200 84,000 85,500 - - - - 460,000 14 Wireless Telemetry System Upgrade -PLC Upgrades - 40,000 40,000 40,000 40,000 40,000 - - - - 200,000 15 Wireless Telemetry System Upgrade-VFD Replacement - - 30,000 50,000 50,000 50,000 - - - - 180,000 16 Deep Well Rehabilitation - Well #16 - - - 75,000 435,000 - - - - - 510,000 17 Deep Well Rehabilitation - Well #17 - - - - - 35,000 475,000 - - - 510,000 18 Hydro Excavator - - 115,000 - - - - - - - 115,000 19 Water Main Replacement 600,000 650,000 650,000 1,000,000 1,300,000 1,700,000 2,200,000 2,900,000 3,800,000 4,900,000 19,700,000 20 Booster Station Pump Rehabilitation 55,000 55,000 60,000 60,000 60,000 65,000 - - - - 355,000 21 Water System Capital Projects - Elevated Tower - - - - - - 2,000,000 - - - 2,000,000 22 Water System Capital Projects -Transmission Main - 1,100,000 1,100,000 1,100,000 1,100,000 1,100,000 1,100,000 1,600,000 1,600,000 1,600,000 11,400,000 23 Undefined Water Projects 200,000 200,000 200,000 200,000 800,000 24 Total Water Capital Improvement Projects 1,516,D00 2,392,800 2,305,500 3,654,200 3,069,000 3,075,500 5,975,000 4,700,000 5,600,000 6,700,000 38,988,000 Sewer Capital Improvement Projects 24 Customer Servicelnterface-Hansen-Vlg Website - 7,500 - - - - - - - - 7,500 25 Geo Cortex Laserfiche Interface - 5,000 - - - - - - - - 5,OOD 26 Public Works Laptops - - 500 - - - - - - - 500 27 Lift Relief Station Rehab - Louis Street 350,000 - - - - - - - - - 350,000 28 Lift Relief Station Rehab- William Street - 350,000 - - - - - - - - 350,000 29 Lift Relief Station Rehab- Huntington - - 650,000 - - - - - - - 650,000 30 Lift Relief Station Rehab- Fairview - - - 450,000 - - - - - - 450,000 31 Lift Relief Station Rehab- Lincoln Street - - - - 350,000 - - - - - 350,000 32 Lift Statin Rehab - Cottonwood - - - - - 450,000 - - - - 450,000 33 Sewer Main Rehabilitation 525,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 9,525,000 34 Combined Sewer Improvements 800,D00 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 800,000 8,000,000 35 Television Camera Upgrades - 80,000 90,000 - - - - - - - 170,000 36 Undefined Sewer Projects 400,000 400,000 400,000 400,000 1,600,000 37 Total Sewer Capital Improvement Projects 1,675,000 2,242,500 2,540,500 2,250,000 2,150,000 2,250,000 2,200,000 2,200,000 2,200,000 2,200,000 21,908,000 38 Total Water and Sewer Capital Improvement Projects 3,191,000 4,635,300 4,846,000 5,904,200 5,219,000 5,325,500 8,175,000 6,900,000 7,800,000 8,900,000 60,896,000 2.4.3 Existing Debt Service Requirements The utility does not have any existing debt obligations. 2.5 Water and Sewer Utility Financial Plan During the Study, multiple financial planning scenarios were examined to understand the impact of the projected operating and capital costs, with specific emphasis on funding renewal and replacement of water and sewer mains. To consistently evaluate the financial performance of the scenarios, the following guiding principles were considered in the development of financial plans. 1. Minimize the need for sudden and substantial revenue adjustments. Village of Mount Prospect 2-9 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis 2. Maintain projected operating reserves each year in an amount equal to a minimum of 90 days of O&M. 3. Mitigate new debt issuance where possible. 4. Funding the system renewal/replacement program targets by 2025. Several scenarios were evaluated that examined alternatives including the speed with which renewal and replacement programs were implemented. Options for funding the utility's financial plan were also considered, from continuing the Village's current practice of cash funding capital projects from user fees, to debt funding all renewal and replacement through 2025. After collaboration with Public Works staff, a preferred plan was developed that issues debt initially to jump-start funding for renewal and replacement projects, but by 2022 returns to the Village's current practice of funding projects through available cash. The recommended plan is detailed herein, including recommendations regarding overall increase in revenues needed to meet the Village's financial objectives. 2.5.1 Proposed Debt Table 2-8 summarizes the proposed debt service payments associated with the proposed plan. The proposed plan includes three debt issues, the first in 2017 amounting to $10.2 million, the second in 2019 amounting to $10.2 million, and the final issuance in 2021 amounting to $7.5 million. Proposed debt service payments are assumed to start in the year following debt issuance, based on an equal annual payment structure with a 20 -year term and an average interest rate of 4.0 percent. Table 2-8: Proposed Debt Line I Projected No. 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Proposed Debt Water Utility - - 450,300 450,300 900,600 900,600 1,463,500 1,463,500 1,463,500 1,463,500 Sewer Utility 315,200 315,200 630,400 630,400 630,400 630,400 630,400 630,400 Total Proposed Debt - - 765,500 765,500 1,531,000 1,531,000 2,093,900 2,093,900 2,093,900 2,093,900 Overall, $27.9 million in debt is proposed to be issued over the 10 -year study period, representing about 46 percent of the utility's total CIP. Fitch Ratings considers debt funding of capital at 50 percent or less to be a "stronger" attribute, while debt funding of capital between 50 percent and 75 percent to be "midrange." With this in mind, Burns & McDonnell recognizes the use of debt in funding utility projects to be a change from past practice, but considers the proposed debt funding strategy to be reasonable and not overly reliant on debt. 2.5.2 Water Utility Flow of Funds Detailed cash flow tables were developed individually for the water and sewer utility, and then combined to show the consolidated utility cash flow under the proposed plan. Table 2-9 presents the water utility Village of Mount Prospect 2-10 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis cash flow, Table 2-10 presents the sewer utility cash flow, and Table 2-11 shows the consolidated utility cash flow. Beginning with the water utility, Line 1 of Table 2-9 shows user revenues under 2016 rates, identified previously in Table 2-4. Lines 2 through 10 present the revenue increases including the approved 4 percent increase in 2017, a proposed 9 percent increase in 2018, and then 8 percent proposed increases per year thereafter, assumed to be effective January 1 of each year indicated. Total user revenues are summarized on Line 12. Lines 13 through 22 present other water fund revenue. The most substantial other water revenue is property taxes related to SSA5, which are indicated to retire in 2017. This funding mechanism must be replaced to meet projected operating and capital costs, requiring about a 14 percent increase in user charge revenue alone. As such, the initial proposed increases are driven by the elimination of this funding source. All other water revenues shown on Lines 14 through 22 are estimated to remain at 2016 budgeted levels, except for water penalties, which are assumed to increase in proportion to the increase in user charge revenues. Line 24 shows the total operating revenue forecasted over the study period. Including the proposed revenue adjustments, total revenue is projected to range from $12.5 million in 2016 to $20.1 million in 2025. Total water O&M expenses are shown on Line 25 of Table 2-9, shown previously in Table 2-6. The Village does not currently have any outstanding utility debt. Proposed debt service amounts on Line 27 reflect debt service payments identified previously in Table 2-8. Total revenue requirements are summarized on Line 29. This amount is deducted from Line 24 total revenue to determine the annual operating balance. With the proposed revenue adjustments, the operating balance on Line 30 is positive throughout the forecast, and increasing to provide the funding needed to eventually resume a pay-as-you-go strategy for capital improvements. Lines 31 through 34 project future operating reserves for the water utility. For 2016, a beginning balance of approximately $3.8 million was available for the water utility, as shown on Line 31. The annual operating balance is added to this amount to reflect cash produced by ongoing operations of the water utility. The utility intends to maintain a minimum operating balance of 90 days (or about 25 percent) of the next fiscal year's O&M, shown as the target on Line 35. Any balances exceeding this minimum are Village of Mount Prospect 2-11 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis considered available for use on capital projects, and are transferred for that purpose on Line 33. The water capital flow of funds is shown in Table 2-9 on Lines 36 through 42. Table 2-9: Water Utility Financial Plan Line Projected No. 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 - Water Utility Operating Flow of Funds 6,013,700 3,708,200 6,546,000 4,664,400 10,902,700 6,867,600 4,864,400 2,792,200 37 Transferfrom Operations 2,532,100 1 Revenue Under Existing Rates 10,758,900 10,705,400 10,652,200 10,599,200 10,546,500 10,494,100 10,441,900 10,390,000 10,338,400 10,287,000 Proposed Revenue Adjustments 7,500,000 39 Total Capital Sources 2,532,100 8,406,500 6,013,700 10,200,200 Year Month Increase 13,978,200 12,842,600 9,564,400 8,392,200 7,247,700 Uses 2 2017 2 4.0% 392,500 426,100 424,000 421,900 419,800 417,700 415,600 413,500 411,500 3 2018 2 9.0% 4,700,000 5,600,000 914,000 992,100 987,200 982,300 977,400 972,500 967,700 962,900 4 2019 2 8.0% 5,600,000 6,700,000 42 Ending Capital Balance 881,100 956,400 951,700 947,000 942,200 937,600 932,900 5 2020 2 8.0% 547,700 43 Debt Service Coverage 946,900 1,027,800 1,022,700 1,017,600 1,012,600 1,007,500 6 2021 2 8.0% 1,017,600 1,104,500 1,099,000 1,093,600 1,088,100 7 2022 2 8.0% 1,093,500 1,187,000 1,181,100 1,175,200 8 2023 2 8.0% 1,175,100 1,275,600 1,269,200 9 2024 2 8.0% 1,262,800 1,370,700 10 2025 2 8.0% 1,357,000 11 Total Proposed Additional Revenue 392,500 1,340,100 2,297,200 3,312,400 4,399,200 5,562,800 6,809,000 8,144,500 9,575,000 12 Total Water User Charge Revenue 10,758,900 11,097,900 11,992,300 12,896,400 13,858,900 14,893,300 16,004,700 17,199,000 18,482,900 19,862,000 Other Water Fund Revenue 13 Property Taxes 1,530,000 1,530,000 - - - - - - - - 14 Cross Conn Permit Fee 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 15 Water Meter Fees 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 16 Water Tap Fees 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 17 Water Penalties 100,000 103,200 111,500 119,900 128,800 138,400 148,700 159,800 171,700 184,500 18 Interest Income 500 500 500 500 500 500 500 500 500 500 19 Bank Account Interest 500 500 500 500 500 500 500 500 500 500 20 IMET Market Val 100 100 100 100 100 100 100 100 100 100 21 Water Fund Reim 500 500 500 500 500 500 500 500 500 500 22 Miscellaneous Income 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 23 Total Water Fund Other Revenue 1,720,600 1,723,800 202,100 210,500 219,400 229,000 239,300 250,400 262,300 275,100 24 Grand Total Water Revenue 12,479,500 12,821,700 12,194,400 13,106,900 14,078,300 15,122,300 16,244,000 17,449,400 18,745,200 20,137,100 Revenue Requirements 25 Operation and Maintenance Expense 10,974,200 11,333,700 11,729,600 12,140,000 11,888,200 12,302,100 12,731,000 13,175,500 13,636,200 14,113,700 Debt Service 26 Existing G.O. Debt - - - - - - - - - - 27 Proposed Debt 450,300 450,300 900,600 900,600 1,463,500 1,463,500 1,463,500 1,463,500 28 Total Debt Service - - 450,300 450,300 900,600 900,600 1,463,500 1,463,500 1,463,500 1,463,500 29 Total Revenue Requirements 10,974,200 11,333,700 12,179,900 12,590,300 12,788,800 13,202,700 14,194,500 14,639,000 15,099,700 15,577,200 30 Annual Operating Balance 1,505,300 1,488,000 14,500 516,600 1,289,500 1,919,600 2,049,500 2,810,400 3,645,500 4,559,900 31 Beginning Balance Operating Funds 3,821,400 2,794,600 2,892,200 2,906,700 2,931,300 3,033,400 3,139,200 3,248,800 3,362,400 3,480,100 32 Annual Operating Balance 1,505,300 1,488,000 14,500 516,600 1,289,500 1,919,600 2,049,500 2,810,400 3,645,500 4,559,900 33 Transfers to Capital (2,532,100) (1,390,400) (492,000) (1,187,400) (1,813,800) (1,939,900) (2,696,800) (3,527,800) (4,455,500) 34 Ending Operating Balance 2,794,600 2,892,200 2,906,700 2,931,300 3,033,400 3,139,200 3,248,800 3,362,400 3,480,100 3,584,500 35 Target Annual Operating Balance 2,794,600 2,892,200 2,993,400 2,931,300 3,033,400 3,139,200 3,248,800 3,362,400 3,480,100 3,584,500 Water Utility Capital Flow of Funds Sources 36 Beginning Capital Balance - 1,016,100 6,013,700 3,708,200 6,546,000 4,664,400 10,902,700 6,867,600 4,864,400 2,792,200 37 Transferfrom Operations 2,532,100 1,390,400 - 492,000 1,187,400 1,813,800 1,939,900 2,696,800 3,527,800 4,455,500 38 Debt Issuance 6,000,000 6,000,000 7,500,000 39 Total Capital Sources 2,532,100 8,406,500 6,013,700 10,200,200 7,733,400 13,978,200 12,842,600 9,564,400 8,392,200 7,247,700 Uses 40 CIP 1,516,000 2,392,800 2,305,500 3,654,200 31069,000 3,075,500 5,975,000 4,700,000 5,600,000 6,700,000 41 Total Capital Uses 1,516,000 2,392,800 2,305,500 3,654,200 3,069,000 3,075,500 5,975,000 4,700,000 5,600,000 6,700,000 42 Ending Capital Balance 1,016,100 6,013,700 3,708,200 6,546,000 4,664,400 10,902,700 6,867,600 4,864,400 2,792,200 547,700 43 Debt Service Coverage 1.0 2.1 2.4 3.1 2.4 2.9 3.5 4.1 Sources of funds for the capital plan include the transfer of available cash from operations and the issuance of debt. In 2016, the transfer from operating funds is approximately $2.5 million as shown on Village of Mount Prospect 2-12 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis Line 37. As noted previously, three debt issues are identified, amounting to about $6.0 million on a net basis in 2017 and 2019, and $7.5 million in 2021. The gross debt issued for the 2017 and 2019 bond issues amounts to approximately $6.1 million each, while the 2021 issue is sized at $7.6 million, which includes an allowance of about 2 percent for issuance expenses for each issue. Water capital improvement projects shown on Line 40 are consistent with that shown previously in Table 2-7. Line 42 of Table 2-9 shows the annual capital balance. As can be seen, forecast shows enough funding sources for the capital in each year, leaving a positive capital balance on Line 42. Balances accumulate over the study period but eventually decrease as the capital funding strategy shifts from initial reliance on debt to reliance on cash. The proposed debt is assumed to be in the form of revenue bonds. Revenue bonds typically include covenants regarding financial performance that generally require net revenues (defined as total utility revenue less O&M) to exceed annual debt service payments by a factor that may range from 1.1 Ox to 1.35x. This coverage level provides assurances to bond holders that the utility has the financial wherewithal to meet its annual debt payment. Municipal bond rating agencies evaluate many criteria regarding the credit worthiness of utility debt. Debt service coverage is one of the primary indicators that is examined, and rating agencies generally reserve their stronger ratings for debt service coverage ratios that exceed 1.50x to 2.00x. As shown on Line 43, the water utility is anticipated to be approximately 1.00x in 2017 but quickly climbs to a strong position regarding debt service coverage. Debt service coverage for the total utility is expected to be above 2.00x for all years of the study period. 2.5.3 Sewer Utility Flow of Funds Table 2-10 presents the sewer utility cash flow. Line 1 of Table 2-10 shows user revenues under 2016 rates, identified previously in Table 2-5. Lines 2 through 10 present the revenue increases beginning with approved 4 percent increase in 2017. In 2018, the proposed increase is 5 percent, with 8 percent per year increases proposed annually beginning in 2019. All increases shown are assumed to be effective in January of the calendar year indicated. Beginning with the 2018 proposed increase, all increases assume both the volume fee as well as the fixed sewer construction fee are eligible for increase. Total user revenues are summarized on Line 12. Lines 13 through 19 present other sewer fund revenue, which are projected to remain at 2016 budget levels, except for sewer penalties, which are assumed to increase in proportion to the increase in user charge revenues. Line 21 shows the total operating revenue forecasted over the study period. Including Village of Mount Prospect 2-13 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis the proposed revenue adjustments, total revenue is projected to range from $2.8 million in 2016 to $5.0 million in 2025. Total sewer O&M expenses are shown on Line 22 of Table 2-10, shown previously in Table 2-6. As noted previously, the Village does not currently have any outstanding utility debt. Proposed debt service amounts on Line 24 reflect debt service payments identified previously in Tables 2-8. Total revenue requirements are summarized on Line 26. This amount is deducted from Line 21 total revenue to determine the annual operating balance. With the proposed revenue adjustments, the operating balance on Line 27 is positive throughout the forecast. Lines 28 through 31 project future operating reserves for the sewer utility. For 2016, a beginning balance of approximately $0.6 million was available for the sewer utility, as shown on Line 28. The annual operating balance is added to this amount to reflect cash produced by ongoing operations of the sewer utility. The utility intends to maintain a minimum operating balance of 90 days (or about 25 percent) of the next fiscal year's O&M, shown as the target on Line 32. Any balances exceeding this minimum are considered available for use on capital projects, and are transferred for that purpose on Line 30. The sewer capital flow of funds is shown in Table 2-10 on Lines 33 through 39. Sources of funds include the transfer of available cash from operations and the issuance of debt. In 2016, the transfer from operating funds is approximately $1.4 million shown on Line 34. Two debt issues are identified for the sewer utility, amounting to about $4.2 million on a net basis in 2017 and 2019. The sewer gross debt amount issued for each bond issue is approximately $4.3 million, which includes an allowance of 2 percent for issuance expenses. Capital improvement projects shown on Line 37 are consistent with that shown in Table 2-7. Line 39 of Table 2-10 shows the annual capital balance. As can be seen, the 2016 ending balance is anticipated to be slightly negative, meaning the available funds shown will not cover the capital projects listed. Based on available funds in the water utility this deficiency was not considered to be a concern, and is corrected by the end of 2017. The remaining years of the forecast show enough funding sources for the capital in each year, leaving a positive capital balance on Line 39. Sewer utility debt service coverage is shown on Line 40. Similar to the water utility, debt service coverage appears strong through 2025. Village of Mount Prospect 2-14 Burns & McDonnell Water and Sewer Rate Studv Final Report Financial Planning Analvsis Table 2-10: Sewer Utility Financial Plan Line Projected No. 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 - Sewer Utility Operating Flow of Funds 2,884,100 1,320,200 4,417,900 3,293,500 2,279,400 1,543,800 1,056,700 839,700 34 Transferfrom Operations 1,390,200 1 Revenue Under Existing Rates 2,743,600 2,733,400 2,723,200 2,713,100 2,703,000 2,692,900 2,682,900 2,673,000 2,663,100 2,653,300 Proposed Revenue Adjustments 36 Total Capital Sources 1,390,200 5,126,600 3,860,700 6,667,900 Year Month Increase 4,529,400 3,743,800 3,256,700 3,039,700 3,114,300 Uses 2 2017 2 4.0% 75,100 81,600 81,200 80,800 80,400 80,000 79,600 79,200 78,800 3 2018 2 5.0% 2,200,000 2,200,000 128,600 139,700 139,200 138,700 138,100 137,600 137,100 136,600 4 2019 2 8.0% 2,200,000 2,200,000 39 Ending Capital Balance 215,200 233,800 233,000 232,100 231,200 230,400 229,500 5 2020 2 8.0% 914,300 40 Debt Service Coverage 231,500 251,600 250,600 249,700 248,800 247,900 6 2021 2 8.0% 249,100 270,700 269,700 268,700 267,700 7 2022 2 8.0% 268,000 291,300 290,200 289,100 8 2023 2 8.0% 288,400 313,400 312,200 9 2024 2 8.0% 310,300 337,200 10 2025 2 8.0% 333,800 11 Total Proposed Additional Revenue 75,100 210,200 436,100 685,300 952,800 1,239,500 1,547,500 1,878,100 2,232,800 12 Total Sewer User Charge Revenue 2,743,600 2,808,500 2,933,400 3,149,200 3,388,300 3,645,700 3,922,400 4,220,500 4,541,200 4,886,100 Other Sewer Fund Revenue 13 Property Taxes - - - - - - - - - - 14 Cross Conn Permit Fee 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 9,000 15 Sewer Penalties 28,000 28,700 30,000 32,200 34,600 37,200 40,000 43,000 46,300 49,800 16 Interest Income 500 500 500 500 500 500 500 500 500 500 17 Bank Account Interest 500 500 500 500 500 500 500 500 500 500 18 IMET Market Val 100 100 100 100 100 100 100 100 100 100 19 Miscellaneous Income 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 40,000 20 Total Sewer Fund Other Revenue 78,100 78,800 80,100 82,300 84,700 87,300 90,100 93,100 96,400 99,900 21 Grand Total Sewer Revenue 2,821,700 2,887,300 3,013,500 3,231,500 3,473,000 3,733,000 4,012,500 4,313,600 4,637,600 4,986,000 Revenue Requirements 22 Operation and Maintenance Expense 1,643,100 1,664,700 1,710,200 1,756,800 1,804,800 1,854,200 1,904,900 1,957,000 2,010,600 2,065,700 Debt Service 23 Existing G.O. Debt - - - - - - - - - - 24 Proposed Debt 315,200 315,200 630,400 630,400 630,400 630,400 630,400 630,400 25 Total Debt Service - - 315,200 315,200 630,400 630,400 630,400 630,400 630,400 630,400 26 Total Revenue Requirements 1,643,100 1,664,700 2,025,400 2,072,000 2,435,200 2,484,600 2,535,300 2,587,400 2,641,000 2,696,100 27 Annual Operating Balance 1,178,600 1,222,600 988,100 1,159,500 1,037,800 1,248,400 1,477,200 1,726,200 1,996,600 2,289,900 28 Beginning Balance Operating Funds 622,100 410,500 421,700 433,200 445,000 457,200 469,700 482,500 495,800 509,400 29 Annual Operating Balance 1,178,600 1,222,600 988,100 1,159,500 1,037,800 1,248,400 1,477,200 1,726,200 1,996,600 2,289,900 30 Transfers to Capital (1,390,200) (1,211,400) (976,600) (1,147,700) (1,025,600) (1,235,900) (1,464,400) (1,712,900) (1,983,000) (2,274,600) 31 Ending Operating Balance 410,500 421,700 433,200 445,000 457,200 469,700 482,500 495,800 509,400 524,700 32 Target Annual Operating Balance 410,500 421,700 433,200 445,000 457,200 469,700 482,500 495,800 509,400 524,700 Sewer Utility Capital Flow of Funds Sources 33 Beginning Capital Balance - (284,800) 2,884,100 1,320,200 4,417,900 3,293,500 2,279,400 1,543,800 1,056,700 839,700 34 Transferfrom Operations 1,390,200 1,211,400 976,600 1,147,700 1,025,600 1,235,900 1,464,400 1,712,900 1,983,000 2,274,600 35 Debt Issuance 4,200,000 4,200,000 36 Total Capital Sources 1,390,200 5,126,600 3,860,700 6,667,900 5,443,500 4,529,400 3,743,800 3,256,700 3,039,700 3,114,300 Uses 37 CIP 1,675,000 2,242,500 2,540,500 2,250,000 2,150,000 2,250,000 2,200,000 2,200,000 2,200,000 2,200,000 38 Total Capital Uses 1,675,000 2,242,500 2,540,500 2,250,000 2,150,000 2,250,000 2,200,000 2,200,000 2,200,000 2,200,000 39 Ending Capital Balance (284,800) 2,884,100 1,320,200 4,417,900 3,293,500 2,279,400 1,543,800 1,056,700 839,700 914,300 40 Debt Service Coverage 4.1 4.7 2.6 3.0 3.3 3.7 4.2 4.6 2.5.4 Consolidated Utility Flow of Funds A combined water and sewer utility detailed cash flow table is presented in Table 2-11. On a consolidated basis, proposed revenue adjustments range from 8.0 percent to 8.2 percent for 2018 through 2025, as shown on Lines 3 through 11. Ending operating balances meet the 90 -day operating reserve in each year. The CIP is fully funded by the available cash and proposed debt issuance, and debt service coverage is Village of Mount Prospect 2-15 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis strong through 2025. The plan relies on debt initially but over time allows for the utility to return to a pay- as-you-go strategy for capital projects. Table 2-11: Combined Water and Sewer Utility Financial Plan Line Projected No. 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 - Water & Sewer Utility Operating Flow of Funds 8,897,800 5,028,400 10,963,900 7,957,900 13,182,100 8,411,400 5,921,100 3,631,900 39 Transferfrom Operations 1 Water Revenue Under Existing Rates 10,758,900 10,705,400 10,652,200 10,599,200 10,546,500 10,494,100 10,441,900 10,390,000 10,338,400 10,287,000 2 Sewer Revenue Under Existing Rates 2,743,600 2,733,400 2,723,200 2,713,100 2,703,000 2,692,900 2,682,900 2,673,000 2,663,100 2,653,300 9,874,400 Proposed Revenue Adjustments 13,176,900 18,507,600 16,586,400 12,821,100 11,431,900 10,362,000 Uses Year Month Increase 42 Water CIP 1,516,000 2,392,800 2,305,500 3,654,200 3 2017 2 4.0% 5,975,000 467,600 507,700 505,200 502,700 500,200 497,700 495,200 492,700 490,300 4 2018 2 8.2% 2,200,000 2,200,000 1,042,600 1,131,800 1,126,400 1,121,000 1,115,500 1,110,100 1,104,800 1,099,500 5 2019 2 8.0% 7,800,000 8,900,000 45 Ending Capital Balance 1,096,300 1,190,200 1,184,700 1,179,100 1,173,400 1,168,000 1,162,400 6 2020 2 8.0% 1,462,000 46 Debt Service Coverage 1,178,400 1,279,400 1,273,300 1,267,300 1,261,400 1,255,400 7 2021 2 8.0% 1,266,700 1,375,200 1,368,700 1,362,300 1,355,800 8 2022 2 8.0% 1,361,500 1,478,300 1,471,300 1,464,300 9 2023 2 8.0% 1,463,500 1,589,000 1,581,400 10 2024 2 8.0% 1,573,100 1,707,900 11 2025 2 8.0% 1,690,800 12 Total Proposed Additional Revenue 467,600 1,550,300 2,733,300 3,997,700 5,352,000 6,802,300 8,356,500 10,022,600 11,807,800 13 Total Utility User Charge Revenue 13,502,500 13,906,400 14,925,700 16,045,600 17,247,200 18,539,000 19,927,100 21,419,500 23,024,100 24,748,100 Other Utility Fund Revenue 14 Property Taxes 1,530,000 1,530,000 - - - - - - - - 15 Cross Conn Permit Fee 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 16 Water Meter Fees 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 17 Water Tap Fees 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 18 Water Penalties 100,000 103,200 111,500 119,900 128,800 138,400 148,700 159,800 171,700 184,500 19 Sewer Penalties 28,000 28,700 30,000 32,200 34,600 37,200 40,000 43,000 46,300 49,800 20 Interest Income 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 21 Bank Account Interest 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 22 IMET Market Val 200 200 200 200 200 200 200 200 200 200 23 Water Fund Reim 500 500 500 500 500 500 500 500 500 500 24 Miscellaneous Income 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 80,000 25 Total Water Fund Other Revenue 1,798,700 1,802,600 282,200 292,800 304,100 316,300 329,400 343,500 358,700 375,000 26 Grand Total Water Revenue 15,301,200 15,709,000 15,207,900 16,338,400 17,551,300 18,855,300 20,256,500 21,763,000 23,382,800 25,123,100 Revenue Requirements 27 Operation and Maintenance Expense 12,617,300 12,998,400 13,439,800 13,896,800 13,693,000 14,156,300 14,635,900 15,132,500 15,646,800 16,179,400 Debt Service 28 Existing G.O. Debt - - - - - - - - - - 29 Proposed Debt 765,500 765,500 1,531,000 1,531,000 2,093,900 2,093,900 2,093,900 2,093,900 30 Total Debt Service - - 765,500 765,500 1,531,000 1,531,000 2,093,900 2,093,900 2,093,900 2,093,900 31 Total Revenue Requirements 12,617,300 12,998,400 14,205,300 14,662,300 15,224,000 15,687,300 16,729,800 17,226,400 17,740,700 18,273,300 32 Annual Operating Balance 2,683,900 2,710,600 1,002,600 1,676,100 2,327,300 3,168,000 3,526,700 4,536,600 5,642,100 6,849,800 33 Beginning Balance Operating Funds 4,443,500 3,205,100 3,313,900 3,339,900 3,376,300 3,490,600 3,608,900 3,731,300 3,858,200 3,989,500 34 Annual Operating Balance 2,683,900 2,710,600 1,002,600 1,676,100 2,327,300 3,168,000 3,526,700 4,536,600 5,642,100 6,849,800 35 Transfers to Capital (3,922,300) (2,601,800) (976,600) (1,639,700) (2,213,000) (3,049,700) (3,404,300) (4,409,700) (5,510,800) (6,730,100) 36 Ending Operating Balance 3,205,100 3,313,900 3,339,900 3,376,300 3,490,600 3,608,900 3,731,300 3,858,200 3,989,500 4,109,200 37 Target Annual Operating Balance 3,205,100 3,313,900 3,426,600 3,376,300 3,490,600 3,608,900 3,731,300 3,858,200 3,989,500 4,109,200 Utility Capital Flow of Funds Sources 38 Beginning Capital Balance - 731,300 8,897,800 5,028,400 10,963,900 7,957,900 13,182,100 8,411,400 5,921,100 3,631,900 39 Transferfrom Operations 3,922,300 2,601,800 976,600 1,639,700 2,213,000 3,049,700 3,404,300 4,409,700 5,510,800 6,730,100 40 Debt Issuance 10,200,000 10,200,000 7,500,000 41 Total Capital Sources 3,922,300 13,533,100 9,874,400 16,868,100 13,176,900 18,507,600 16,586,400 12,821,100 11,431,900 10,362,000 Uses 42 Water CIP 1,516,000 2,392,800 2,305,500 3,654,200 3,069,000 3,075,500 5,975,000 4,700,000 5,600,000 6,700,000 43 Sewer CIP 1,675,000 2,242,500 2,540,500 2,250,000 2,150,000 2,250,000 2,200,000 2,200,000 2,200,000 2,200,000 44 Total Capital Uses 3,191,000 4,635,300 4,846,000 5,904,200 5,219,000 5,325,500 8,175,000 6,900,000 7,800,000 8,900,000 45 Ending Capital Balance 731,300 8,897,800 5,028,400 10,963,900 7,957,900 13,182,100 8,411,400 5,921,100 3,631,900 1,462,000 46 Debt Service Coverage 2.3 3.2 2.5 3.1 2.7 3.2 3.7 4.3 Village of Mount Prospect 2-16 Burns & McDonnell Water and Sewer Rate Studv Final Report Financial Planning Analvsis 2.6 Summary of Alternate Financial Planning Scenarios As noted previously, multiple financial planning scenarios were examined during the Study. The financial plan presented in Section 2.5 represents the scenario preferred by the project team, based on its overall compliance with the following guiding principles. 1. Minimize the need for sudden and substantial revenue adjustments. 2. Maintain projected operating reserves each year in an amount equal to a minimum of 90 days of O&M. 3. Mitigate new debt issuance where possible. 4. Funding the system renewal/replacement program targets by 2025. Table 2-12 summarizes alternatives considered by the project team that are representative of many scenarios considered during the Study. At the time these scenarios were developed, the JAWA savings on Lake Michigan Water Supply costs were not available. However, these scenarios demonstrate the types of options considered by the Village in funding the proposed capital plans. Table 2-12: Financial Planning Scenario Summary The preferred plan presented in Section 2.5 of this report is essentially the same as Scenario 1 in Table 2- 12, excluding the impact of JAWA savings. As such, water rate increases are slightly higher in Table 2-12 than the plan presented previously in Section 2.5. Scenarios 2 and 3 examined the impact of implementing renewal and replacement projects more rapidly, mainly for the water utility. All scenarios share the same basic CIP program, but differ in the speed with which the renewal and replacement program spending is Village of Mount Prospect 2-17 Burns & McDonnell Scenario 1 Scenario 2 Scenario 3 Low Mid High Capital Plan Approach CIP Plan CIP Plan CIP Plan Percent of CIP Funded with Debt 46% 71% 76% Total Water CIP $38,988,000 $56,588,000 $63,438,000 Total Sewer CIP $21,908,000 $21,908,000 $21,908,000 Combined Total CIP $60,896,000 $78,496,000 $85,346,000 Number of Debt Issues 3 3 3 Total Debt Issued $27,900,000 $56,000,000 $64,500,000 Water Sewer Water Sewer Water Sewer FY 2017 (Impl Jan 1 of each year) 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% FY 2018 9.00% 5.00% 12.00% 5.00% 15.00% 5.00% FY 2019 9.00% 8.00% 12.00% 8.00% 12.00% 8.00% FY 2020 9.00% 8.00% 12.00% 8.00% 12.00% 8.00% FY 2021 9.00% 8.00% 12.00% 8.00% 12.00% 8.00% FY 2022 9.00% 8.00% 12.00% 8.00% 8.00% 8.00% FY 2023 9.00% 8.00% 8.00% 8.OD% 8.00% 8.00% FY 2024 9.00% 8.00% 0.00% 8.OD% 0.00% 8.00% FY 2025 9.00% 8.00% 0.00% 8.OD% 0.00% 8.00% Cumulative Increase 107.23% 87.15% 97.95% 87.15% 95.99% 87.15% The preferred plan presented in Section 2.5 of this report is essentially the same as Scenario 1 in Table 2- 12, excluding the impact of JAWA savings. As such, water rate increases are slightly higher in Table 2-12 than the plan presented previously in Section 2.5. Scenarios 2 and 3 examined the impact of implementing renewal and replacement projects more rapidly, mainly for the water utility. All scenarios share the same basic CIP program, but differ in the speed with which the renewal and replacement program spending is Village of Mount Prospect 2-17 Burns & McDonnell Water and Sewer Rate Study Final Report Financial Planning Analysis phased in. As shown in Table 2-12, Scenario 1 funds nearly $61 million in total CIP through 2025, while Scenario 2 funds over $78 million in CIP, and Scenario 3 funds over $85 million in CIP. To achieve higher level of CIP funding, two adjustments were made for Scenarios 2 and 3. First, additional debt was issued in both scenarios. In Scenario 2, total debt issued was $56 million, representing about 71 percent of the CIP funded through debt. Scenario 3 issues $64.5 million in debt, representing about 75 percent of the CIP. One of the reasons the project team preferred Scenario 1 was that it only relies on debt to fund about 46 percent of the CIP. Second, water rate increases were more substantial for Scenarios 2 and 3. Beginning in 2018, Scenario 2 required several years of 12 percent annual increases in water rates, while Scenario 2 required a 15 percent increase in 2018 followed by 12 percent annual increases through 2021. The sharper increase in water rates was the other primary reason Scenarios 2 and 3 were viewed less favorably than Scenario 1. All three scenarios achieve comparable funding levels for renewal and replacement by 2025; they differ in how rapidly they reach that spending threshold for water main renewal and replacement. Both Scenarios 2 and 3 require higher water rate increases and greater reliance on debt to implement. Because Scenarios 2 and 3 do accomplish more renewal and replacement projects during the study period, in concept the utility should be exposed to lower risk of main failure compared to Scenario 1. However, the project team considered the more gradual phase-in of renewal and replacement in Scenario 1 to be a reasonable balance of the needs of the systems, the desire to rely less on debt, and the desire mitigate the risk of rate shock. Sections 3.0 and 4.0 of this report discuss the cost of service analysis and the proposed rate design. In each of those sections, the analysis is focused on the preferred financial plan described in detail in Section 2.5 of this report. Village of Mount Prospect 2-18 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service 3.0 COST OF SERVICE ANALYSIS 3.1 Introduction The cost of service analysis is focused on determining revenue responsibility. Once the overall need for revenue increases is identified through financial planning, the results of the cost of service analysis help answer the following question: • "Which customer class or classes are responsible for the costs incurred to provide service?" To determine each customer class' equitable share of the cost of providing utility service, the cost of service analysis compares the revenues received from each customer class under the existing schedule of rates with the allocated cost responsibility for that class. The cost of service analysis was developed in the following steps: 1. Determine the net revenue requirements to be recovered from user charges. 2. Allocate test period operating and capital costs. 3. Estimate the system test period units of service. 4. Develop test period unit costs of service by class. 5. Assign the costs of service to customer classes. To equitably develop rates for water and sewer service, the water and sewer utility's customer classes are allocated their respective share of the total cost of service according to their use of the system. Cost are assigned through consideration of volume, peak demand characteristics, customer costs, and other relevant factors. Ultimately, proposed rates must be sufficient to meet the net revenue requirements forecasted for the water and sewer utility. 3.2 Water Cost of Service 3.2.1 Net Revenue Requirements As described in Section 2.0 of this report, the cash needs of the water utility were projected over a ten- year study period. The test period for the cost of service analysis is 2018, which corresponds to the first year for which revenue adjustments are proposed. For the water utility, the revenue adjustment amounts to a 9 percent increase. Village of Mount Prospect 3-1 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service Table 3-1 summarizes the development of the net revenue requirements to be recovered from water rates in the 2018 test year. The net revenue requirements represent the level of costs that must be recovered from water sales under the established water rate schedule and are equal to total operating and capital cost expenditures less all sources of other revenue. As presented in Table 3-1, the net operating costs are equal to $11,621,900 and the net capital costs are equal to $453,400 for a total net revenue requirement of $12,075,300. This is 9.0 percent higher than revenues under existing water rates which is consistent with the 2018 revenue increase identified in the recommended water utility financial plan. Table 3-1: Test Year 2018 Water Net Revenue Requirements Line Operating Capital No. Description Expense cost Total Revenue Requirements 1 Operating Expense 11,729,600 - 11,729,600 2 Debt Service - 450,300 450,300 3 Revenue Capital Financing - - - 4 Total 11,729,600 450,300 12,179,900 Revenue Requirements Met from Other Sources 5 Other Operating Revenue 202,100 - 202,100 6 Annualized Increase (79,900) (3,1DD) (83,000) 7 Use of/ (Deposit to) Reserves (14,500) (14,500) 8 Total 107,700 (3,100) 104,600 Cost of Service to be met 9 11,621,900 453,400 12,075,300 by User Charges 10 Revenue under Existing Rates 11,078,300 11 Indicated System Revenue Adjustment 9.0% 3.2.2 Cost of Service Methodology Two alternative water cost allocation methodologies are generally accepted by the American Water Works Association as described in AWWA Manual MI, Principles of Water Rates, Fees, and Charges: (1) the Base -Extra Capacity Method, and (2) the Commodity -Demand Method. Both methods are similar in that each customer class' average water usage requirements and peak demand water usage requirements are reflected in the allocation process. Although the allocation approach varies slightly in the assignment of costs, both approaches are centered on the recovery of costs related to both average and peak conditions. For this Study, the Base -Extra Capacity method was followed. Under the Base -Extra Capacity method, costs are assigned to functional components including base, extra capacity, customer costs and fire protection. Base costs vary directly with the volume of water used and reflect the costs associated with serving customers under average load conditions. Base costs tend to include items such as power and chemicals costs. Village of Mount Prospect 3-2 Burns & McDonnell Water and Sewer Rate Study Final Report Cost of Service Analys Extra capacity costs reflect costs incurred to meet the peak demand at both a maximum day and a maximum hour. These costs include operating and capital costs necessary to provide additional capacity beyond average load conditions. Public fire protection service requires capacity to provide the service on demand and is therefore allocated a portion of maximum day and maximum hour costs. Customer costs are those that generally vary in accordance with the quantity of customers served. Such costs typically include meter reading, billing, customer care, and related support costs. 3.2.3 Functional Cost Assignment The water utility system includes a variety of facilities that work in concert with one another to meet the average and peak demands of the system. Water systems are designed to meet peak coincidental demands of the system as a whole. For every volume -related element within the water system, an average demand is served and therefore a portion of such costs is attributable to the base cost component. Water system elements designed to primarily meet average day demand are assigned 100 percent to the base component. Extra capacity requirements exceeding the base are distinguished between maximum day and maximum hour demands. On average, the water system produces approximately 3.2 million gallons per day (mgd). A ratio of maximum day to average day demand of 1.55 was used based on system operating history and engineering analysis. For a system element whose purpose is to meet maximum day requirements of the system, this ratio results in approximately 64 percent (1/1.55) of costs being allocated to the base component. The remaining 36 percent ([1.55-1]/1.55) is assigned to the maximum day extra capacity component. A ratio of maximum hour to average day demand of 2.34 was estimated based on system operating characteristics, engineering analysis, and professional judgment. For a system element whose purpose is to meet maximum hour requirements, this ratio results in approximately 43 percent (1/2.34) of costs being allocated to the base component. Approximately 23 percent ([1.55-1]/2.34) percent is assigned to the maximum day extra capacity component, while the remaining 34 percent ([2.34-1.55]/2.34) is assigned to the maximum hour extra capacity demand component. 3.2.3.1 Operating Expenses Operating expenses for the water system are budgeted and actual expenses are recorded to reflect costs associated with water treatment, the distribution system, and other general costs. These costs were forecasted previously in Table 2-6 of this report. Test year 2018 operating costs are assigned to functional components in Table 3-2. Village of Mount Prospect 3-3 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service Table 3-2: Allocation of Test Year 2018 Water Operation and Maintenance Expenses Test Year Line 2018 Maximum Maximum Customer Fire Allocation No. Description Total Base Day Hour Meters Billing Protection Basis Water Administrative Contractual Services 1 Other Prof. Serv. 2 Postage Expense 3 Service Charge - Water 4 All Other Contractual Services 5 All Other Water Administrative 6 Total Water Administrative 7 Total Equipment Maintenance 8 Total Maintenance of Buildings 9 Total Maintenance of Grounds 10 Total Lake Michigan Water Supply Water Supply Maint. & Repair 11 Utilities 12 All Other Water Supply Maint. & Repair Total Water Supply Maint. & Repair 13 Total Water Distribution Maint. & Repair 14 Total Water Meter Maintenance & Repair 15 Total Water Valve/Hydrant Maint & Rep 16 Tota l Water Utility 0&M Less Other Operating Revenue 17 Other Operating Revenue 18 Annualized Increase 19 Use of/ (Deposit to) Reserves 20 Subtotal Other Operating Revenue 21 Net Water O&M Expense 27,000 - - - - 27,000 - Customer 27,100 - - - - 27,100 - Customer 132,600 - - - - 132,600 - Customer 43,200 25,200 11,900 1,500 1,600 700 2,200 System General 449,100 261,900 124,100 15,600 16,500 7,700 23,200 System General 679,000 287,100 136,000 17,100 18,100 195,100 25,400 460,500 204,000 42,200 53,400 56,200 26,300 78,400 System General (Vehicles) 274,500 127,600 70,500 76,500 - - - Water Mains (Inch -mile) 133,500 62,000 34,300 37,100 - - - Water Mains (Inch -mile) 7,512,800 4,837,100 2,675,700 - - - - Base MD 93,800 84,400 9,400 - - - - Pumping 837,000 837,000 Base 930,800 921,400 9,400 - - - - 784,400 334,700 185,200 264,600 - - - Base MD MH 398,400 - - - 398,400 - - Meters 555,500 - - - - - 555,500 Fire Protection 11,729,400 6,773,900 3,153,300 448,700 472,700 221,400 659,300 202,100 117,800 55,800 7,100 7,500 3,500 10,400 System General (79,900) (46,600) (22,100) (2,800) (3,000) (1,400) (4,100) System General (14,S00) (81500) (4,000) (500) (500) (300) (700) System General 107,700 62,700 29,700 3,800 4,000 1,800 5,600 11,621,700 6,711,200 3,123,600 444,900 468,700 219,600 653,700 100.0% 57.796 26.91 3.8% 4.096 1.9% 5.6% Water utility operating costs were allocated based on several considerations, including: • Water utility input regarding the functional purpose of certain costs. • The design basis of the supply infrastructure, which is influenced primarily by average and maximum day service requirements. • The design basis of the transmission and distribution system, which is influenced primarily by the maximum day and maximum hour service requirements. • Directly assignable costs such as meter reading and maintenance and customer billing. Water O&M costs were reviewed with Village staff. Costs associated with billing such as professional services, postage, and service charges were allocated directly to the billing function, as shown on Lines 1 through 3 of Table 3-2. Other water administrative costs included salaries, wages and benefits, system insurance and other costs. These costs are more general in nature and are allocated based on the sum of all other direct O&M allocations. Village of Mount Prospect 3-4 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service Equipment maintenance costs are allocated on the basis of all other water O&M costs, excluding the Lake Michigan water supply costs. Costs associated with the maintenance of buildings and grounds are based on an evaluation that included feet of main by diameter, and the Village's fixed asset records that indicate investment by diameter of main. Assuming mains that are 16 inches and larger are primarily with the transmission system, and smaller mains are associated with the distribution system, costs related to the maintenance of underground infrastructure are allocated to base, maximum day, and maximum hour. Lake Michigan water supply costs are allocated on a base -maximum day basis, reflecting the use of that water supply connection in meeting both base and maximum day service needs. Water supply maintenance and repair are allocated primarily to the base component, with utilities allocated 90 percent to the base component and 10 percent to maximum day. Water distribution maintenance and repair is allocated to the basis of base -maximum day -maximum hour, reflecting that the majority of that expense is incurred in the maintenance of the smaller mains in the Village's water distribution system. Meter maintenance is allocated directly to the meter component; similarly, water valve/hydrant maintenance and repair costs are allocated directly to fire protection. Other operating revenues applicable to the utility operations are allocated on the basis of previously assigned water O&M costs. These sources of funds are deducted from operation and maintenance expenses to determine the net water operation and maintenance expenses by function shown on Line 21 of Table 3-2. 3.2.3.2 Capital Costs Cash capital costs for the water utility include pay-as-you-go (or revenue -financed) capital projects and payments on proposed debt. As shown in Table 3-3, Test Year 2018 capital costs include the first payment associated with the issuance of revenue bonds. Additionally, Test Year 2018 is the first year of utility operation without revenues from SSA5, and as such no additional revenue -financed capital is anticipated; as these revenues are replenished through the proposed rate increases, the utility will quickly return to financing a substantial portion of its capital plan through available cash. Capital costs are assigned to functional components in Table 3-3. Capital costs are allocated on the basis of the planned investment from the CIP and the cost -causative design associated with these projects over the first five years of the study period. Village of Mount Prospect 3-5 Burns & McDonnell Water and Sewer Rate Study Final Report Cost of Service Analysis Table 3-3: Allocation of Test Year 2018 Water Capital Costs Test Year Line 2018 Maximum Maximum Customer No. Description Total Base Day Hour Meters Billin Capital Costs 1 Existing & Proposed Debt 450,300 251,200 92,600 106,500 2 Revenue Financed Capital 3 Total Water Capital Costs Less Other Sources 4 Other Operating Revenue 5 Annualized Increase 6 Use of / (Deposit to) Reserves 7 Subtotal Other Revenue 8 Net Water Capital Expense 9 Distribution 450,300 251,200 92,600 106,500 (3,100) (1,800) (600) (700) 453,400 253,000 93,200 107,200 - 100.0% 55.8% 20.6% 23.6% 0.0% Allocation Basis Future Plant Allocation - Future Plant Allocation Total Water Capital Costs - Total Water Capital Costs Total Water Capital Costs 0.0% 3.2.4 Units of Service Functional costs responsibility of each customer class may be established based on the respective service requirements of each class. These service requirements are referred to as units of service and are summarized in Table 3-4. Base cost responsibility is determined by the water volume used under average day conditions. Average day quantities reflect historical and forecasted demand. Extra capacity costs are assigned to classes based on the estimate of individual class peak demand characteristics and the relationship of these peaks to average use. The estimated capacity factors were developed based on an examination of peak to average demand available from the water utility's billing data, experience and judgment. Table 3-4: Water Units of Service Usage Maximum Day Maximum Hour Customer Line Total Average Capacity Total Extra Capacity Total Extra Equivalent No. Customer Class Annual " Factor Capacity Capacity (a) Factor Capacity Capacity (b) Meters Bills Kgal Kgal/day % Kgal/day Kgal/day % Kgal/day Kgal/day 1 Water Inside Village 1,175,294 3,220.0 200% 6,440.0 3,220.0 325% 10,464.9 4,024.9 14,632 146,508 2 Water No Charge 3,267 9.0 200% 17.9 8.9 325% 29.1 11.2 7 84 3 1" Outside SSA5 2,052 5.6 200% 11.2 5.6 325% 18.3 7.1 20 168 4 1-1/2" Outside SSA5 428 1.2 200% 2.3 1.1 325% 3.8 1.5 32 216 5 2" Outside SSA5 1,406 3.9 200% 7.7 3.8 325% 12.5 4.8 12 48 6 5/8" Outside SSA5 1,652 4.5 200% 9.1 4.6 325% 14.7 5.6 64 768 7 Fire Protection - - 540.0 540.0 4,320.0 3,780.0 - - 8 Total 1,184,099 3,244.1 7,028.2 3,784.1 14,863.3 7,835.1 14,767 147,792 (a) Extra capacity in excess of average day usage. (b) Extra capacity in excess of maximum day demand. Projected customers for Test Year 2018 are the basis for the customer -related units of service. Equivalent meter ratios documented in the AWWA M1 manual reflect the relationship of the costs to install and maintain various sized meters to a standard 5/8 -inch. These ratios are used to estimate 5/8 inch Village of Mount Prospect 3-6 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service equivalents for each customer class. Billing costs are allocated to classes based on the projected number of billed units. 3.2.5 Unit Cost Development Based on the functionalized operation and maintenance expenses and capital costs shown in Tables 3-2 and 3-3, respectively, and the units of service developed in Table 3-4, unit costs of service for each functional cost component may be determined. Table 3-5 indicates, for each functional component, the unit of measure and applicable unit cost. Line No. Description 1 Total Units of Service 2 Unit of Measure 3 Net Operating Expense - $ 4 Unit Cost - $/Unit 5 Net Capital Costs - $ 6 Unit Cost - $/Unit 7 Total Cost of Service 8 Unit Cost - $/Unit Table 3-5: Water Unit Cost Development Test Year 2018 Maximum Maximum Customer Fire Total Base Day Hour Meters Billine Protection 1,184,099 3,784 7,835 14,767 147,792 1 KgaI Kgal/Day Kga I/Day Eq. Meters Billed Units 11,621,700 6,711,200 3,123,600 444,900 468,700 219,600 653,700 5.6678 825.4553 56.7829 31.7397 1.4859 653,700 453,400 253,000 93,200 107,200 - - - 0.2137 24.6294 13.6820 - - - 12,075,100 6,964,200 3,216,800 552,100 468,700 219,600 653,700 5.8815 850.0847 70.4649 31.7397 1.4859 653.700 3.2.6 Allocation of Costs to Customer Classes Applying the unit costs by function to each customer class' units of service allows for the distribution of costs to customer classes, as shown in Table 3-6. Units of service for each class are as developed previously in Table 3-5. By applying the unit cost for each function against the level of service provided to each customer class, the total cost of service by customer class may be determined. Village of Mount Prospect 3-7 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service Table 3-6: Water Cost Allocation to Customer Classes Village of Mount Prospect 3-8 Burns & McDonnell Test Year Line 2018 Maximum Maximum Customer Fire No. Description Total Base Day Hour Meters Billbig Protection 1 Unit Cost of Service - $/Unit 5.8815 850.0847 70.4649 31.7397 1.4859 653,700 Water Inside Village 2 Units of Service 1,175,294 3,220 4,025 14,632 146,508 3 Allocated Cost - $ 10,615,500 6,912,500 2,737,300 283,600 464,400 217,700 Water No Charge 4 Units of Service 3,267 9 11 7 84 5 Allocated Cost - $ 27,900 19,200 7,600 800 200 100 1" Outside SSA5 6 Units of Service 2,052 6 7 20 168 7 Allocated Cost - $ 18,100 12,100 4,700 500 600 200 1-1/2" Outside SSA5 8 Units of Service 428 1 2 32 216 9 Allocated Cost - $ 4,900 2,500 1,000 100 1,000 300 2" Outside SSA5 10 Units of Service 1,406 4 5 12 48 11 Allocated Cost - $ 12,400 8,300 3,300 300 400 100 5/8" Outside SSA5 12 Units of Service 1,652 5 6 64 768 13 Allocated Cost - $ 17,100 9,700 3,900 400 2,000 1,100 Fire Protection 14 Units of Service - 540 3,780 - - 1 15 Allocated Cost - $ 1,379,100 - 459,000 266,400 - - 653,700 16 Total Units of Service 1,184,099 3,784 7,835 14,767 147,792 1 17 Total Cost of Service 12,075,000 6,964,300 3,216,800 552,100 468,600 219,500 653,700 After Test Year 2018 costs are assigned to customer classes, they may be compared against revenue under existing rates. This comparison provides an indication of equity in the recovery of costs through revenues under existing 2017 rates. As shown in Table 3-7, the total system adjustment is indicated to be 9.0 percent. Inside Village is indicated to increase approximately 9.1 percent. Table 3-7: Comparison of Revenue Under Existing Rates to Allocated Cost of Service Revenue Total Under Allocated Indicated Indicated Line Existing Cost of Increase / Increase / No. Description Rates Service (Decrease) (Decrease) 1 Water Inside Village 11,014,500 12,015,700 1,001,200 9.1% 2 Water Outside Village 63,800 59,200 (4,600) -7.2% 3 Total 11,078,300 12,074,900 996,600 9.0% Village of Mount Prospect 3-8 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service It is important to note that cost of service results are instructive but for many reasons should not be interpreted as prescriptive in the development of proposed rates. Section 4.0 will discuss proposed rates for the water utility. 3.3 Sewer Cost of Service 3.3.1 Net Revenue Requirements As described in Section 2.0 of this report, the cash needs of the sewer utility were projected over a ten- year study period. The test period for the cost of service analysis is 2018, which corresponds to the first year for which revenue adjustments are proposed. For the sewer utility, the revenue adjustment amounts to a 5 percent increase. Table 3-8 summarizes the development of the net revenue requirements to be recovered from sewer rates in the 2018 test year. The net revenue requirements represent the level of costs that must be recovered from sewer rates and are equal to total operating and capital cost expenditures less all sources of other revenue. As presented in Table 3-8, the net operating costs are equal to $1,648,200 and the net capital costs are equal to $1,296,800 for a total net revenue requirement of $2,945,000. This is 5.0 percent higher than revenues under existing sewer volume rates, consistent with the 2018 revenue increase identified in the recommended sewer utility financial plan. Table 3-8: Test Year 2018 Sewer Net Revenue Requirements Line Operating Capital No. Description Expense Cost Total Revenue Requirements 1 Operating Expense 1,710,200 - 1,710,200 2 Debt Service - 315,200 315,200 3 Revenue Capital Financing - 976,600 976,600 4 Total 1,710,200 1,291,800 3,002,000 Revenue Requirements Met from Other Sources 5 Other Operating Revenue 80,100 - 80,100 6 Annualized Increase (6,600) (5,000) (11,600) 7 Use of / (Deposit to) Reserves (11,500) (11,500) 8 Total 62,000 (5,000) 57,000 Cost of Service to be met 9 1,648,200 1,296,800 2,945,000 by User Charges 10 Revenue under Existing Rates 2,804,800 11 Indicated System Revenue Adjustment 5.0% Village of Mount Prospect 3-9 Burns & McDonnell Water and Sewer Rate Study Final Report Cost of Service 3.3.2 Cost of Service Methodology According to the Water Environment Federation (WEF) publication Financing and Charges for Wastewater Systems, three cost allocation methodologies are generally used in the identification and allocation of wastewater utility costs. They are: • Design -Basis Cost Allocation Methodology, whereby costs are allocated to functions based on engineering design considerations that influence the size and purpose of facilities. Functional Cost Allocation Methodology, whereby costs are allocated to functions based on the operational purpose of facilities rather than engineering design. Hybrid Approach, where in general capital costs are allocated on the design basis while operating costs are allocated on the functional basis. For this analysis, the functional cost allocation basis was followed, which aligns well with the current sewer cost structure and services related to its collection system. 3.3.3 Functional Cost Assignment The sewer utility system includes a variety of facilities that work in concert with one another to meet necessary service requirements. For the Village, sewer system assets are limited primarily to collection system infrastructure, with treatment provided by MWRDGC. Volume costs are those which vary directly with the quantity of wastewater contributed. For systems that include the treatment function, the strength of wastewater as measured in biochemical oxygen demand (BOD) and suspended solids (SS) is typically considered. However, strength related services are provided by MWRDGC. Based on the services provided by the Village, the volume cost function represents the primary service provided. Customer costs are those that generally vary in accordance with the quantity of customers served. Such costs may include a portion of meter reading, billing, customer care, and related support costs. 3.3.3.1 Operating Expenses Operating expenses for the sewer system were forecasted previously in Table 2-6 of this report. Test year 2018 operating costs are assigned to functional components in Table 3-9. In general operation and maintenance costs were allocated based on several considerations, including: • The cost causative or functional nature of the underlying expense. Village of Mount Prospect 3-10 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service • Directly assignable costs such as customer costs. • Village input regarding the functional purpose of certain costs. In light of these considerations, sewer system expenses were allocated to the volume component, while customer -related administrative costs that are shared with the water utility were allocated to the billing component. Table 3-9: Allocation of Test Year 2018 Sewer Operation and Maintenance Expenses Test Year Line 2018 Allocation No. Description Total Volume Billing Basis Sewer Administrative Contractual Services 1 Other Prof. Serv. 27,000 27,000 Billing 2 Postage Expense 27,100 - 27,100 Billing 3 Service Charge - Water 132,600 - 132,600 Billing 4 All Other Contractual Services 43,200 41,000 2,200 System General 5 All Other Sewer Administrative 449,100 426,600 22,500 System General 6 Total Sewer Administrative 679,000 467,600 211,400 7 Total Equipment Maintenance 460,500 437,500 23,000 System General 8 Total Sanitary Sewer Maint. & Repair 570,700 570,700 - Volume 9 Total Sewer Utility O&M 1,710,200 1,475,800 234,400 Less Other Operating Revenue 10 Other Operating Revenue 80,100 76,100 4,000 System General 11 Annualized Increase (6,600) (6,300) (300) System General 12 Use of/(Deposit to) Reserves (11,500) (10,900) (600) System General 13 Subtotal Other Operating Revenue 62,000 58,900 3,100 14 Net Sewer O&M Expense 1,648,200 1,416,900 231,300 100.0% 86.0% 14.0% 3.3.3.2 Capital Costs Cash capital costs for the sewer utility include pay-as-you-go (or revenue -financed) capital projects and payment on proposed debt. As shown in Table 3-10, Test Year 2018 capital costs include both revenue - financed capital and a payment on proposed revenue bonds. These costs are assigned to functional components in Table 3-10 on the basis of the planned investment from the CIP and the cost -causative design associated with these projects over the first five years of the study period. Village of Mount Prospect 3-11 Burns & McDonnell Water and Sewer Rate Studv Final Report Cost of Service 3.3.4 Units of Service Functional costs responsibility of each customer class may be established based on the respective service requirements of each class. These service requirements are referred to as units of service and are summarized in Table 3-11. Billable flow or volume is that portion of each customer's annual water use discharged directly into the sewer system. Billable flow is based upon water billing records. Billing costs are allocated to classes based on the projected number of billed units. Table 3-11: Sewer Units of Service Line No. Description Volume Bills KgaI 1 Sewer Service Inside Village Table 3-10: Allocation of Test Year 2018 Sewer Capital Costs 145,740 2 Sewer Inside Village No Water (a) Test Year 588 3 Sewer No Charge Line 84 2018 - Allocation No. Description Total Volume Billine Basis 12 7 Total 1,174,389 146,904 Capital Costs 1 Existing & Proposed Debt 315,200 315,200 - Volume 2 Revenue Financed Capital 976,600 976,600 - Volume 3 Total Sewer Capital Costs 1,291,800 1,291,800 - Less Other Sources 4 Other Operating Revenue - - - Total Sewer Capital Costs 5 Annualized Increase (5,000) (5,000) - Total Sewer Capital Costs 6 Use of / (Deposit to) Reserves - - - Total Sewer Capital Costs 7 Subtotal Other Revenue (5,000) (5,000) - 8 Net Sewer Capital Expense 1,296,800 1,296,800 - 9 Distribution 100.0% 100.0% 0.0% 3.3.4 Units of Service Functional costs responsibility of each customer class may be established based on the respective service requirements of each class. These service requirements are referred to as units of service and are summarized in Table 3-11. Billable flow or volume is that portion of each customer's annual water use discharged directly into the sewer system. Billable flow is based upon water billing records. Billing costs are allocated to classes based on the projected number of billed units. Table 3-11: Sewer Units of Service Line No. Description Volume Bills KgaI 1 Sewer Service Inside Village 1,162,934 145,740 2 Sewer Inside Village No Water (a) 2,940 588 3 Sewer No Charge 3,267 84 4 Sewer Construction Fee - - 5 Sewer Service Outside Village 5,188 480 6 Sewer Outside Village No Water (a) 60 12 7 Total 1,174,389 146,904 (a) Volume estimated assuming 5,000 gallons/month usage. 3.3.5 Unit Cost Development Based on the functionalized operation and maintenance expenses and capital costs shown in Tables 3-9 and 3-10, respectively, and the units of service developed in Table 3-11, unit costs of service for each functional cost component may be determined. Table 3-12 indicates, for each functional component, the unit of measure and applicable unit cost. Village of Mount Prospect 3-12 Burns & McDonnell Water and Sewer Rate Studv Final Table 3-12: Sewer Unit Cost Development Billine 146,904 Bills 231,300 1.5745 231,300 1.5745 Cost of Service 3.3.6 Allocation of Costs to Customer Classes Applying the unit costs by function to each customer class' units of service allows for the distribution of costs to customer classes, as shown in Table 3-13. Units of service for each class are as developed previously in Table 3-11. By applying the unit cost for each function against the level of service provided to each customer class, the total cost of service by customer class may be determined. After Test Year 2018 costs are assigned to customer classes, they may be compared against revenue under existing rates. This comparison provides an indication of equity in the recovery of costs through revenues under existing 2017 rates. As shown in Table 3-14, the total system adjustment is indicated to be 5.0 percent overall, consistent with the recommended financial plan. Village of Mount Prospect 3-13 Burns & McDonnell Test Year Line 2018 No. Description Total Volume 1 Total Units of Service 1,174,389 2 Unit of Measure Kgal 3 Net Operating Expense - $ 1,648,200 1,416,900 4 Unit Cost - $/Unit 1.2065 5 Net Capital Costs - $ 1,296,800 1,296,800 6 Unit Cost - $/Unit 1.1042 7 Total Cost of Service 2,945,000 2,713,700 8 Unit Cost - $/Unit 2.3107 Billine 146,904 Bills 231,300 1.5745 231,300 1.5745 Cost of Service 3.3.6 Allocation of Costs to Customer Classes Applying the unit costs by function to each customer class' units of service allows for the distribution of costs to customer classes, as shown in Table 3-13. Units of service for each class are as developed previously in Table 3-11. By applying the unit cost for each function against the level of service provided to each customer class, the total cost of service by customer class may be determined. After Test Year 2018 costs are assigned to customer classes, they may be compared against revenue under existing rates. This comparison provides an indication of equity in the recovery of costs through revenues under existing 2017 rates. As shown in Table 3-14, the total system adjustment is indicated to be 5.0 percent overall, consistent with the recommended financial plan. Village of Mount Prospect 3-13 Burns & McDonnell Water and Sewer Rate Study Final Report Cost of Service Table 3-13: Sewer Cost Allocation to Customer Classes Test Year Line 2018 No. Description Total Volume Billing 1 Unit Cost of Service - $/Unit Sewer Service Inside Village 2 Units of Service 3 Allocated Cost - $ Sewer Inside Village No Water 4 Units of Service 5 Allocated Cost - $ Sewer No Charge 6 Units of Service 7 Allocated Cost - $ Sewer Service Outside Village 8 Units of Service 9 Allocated Cost - $ Sewer Outside Village No Water 10 Units of Service 11 Allocated Cost - $ 12 Total Units of Service 13 Total Cost of Service 2.3107 1.5745 1,162,934 145,740 2,916,700 2,687,200 229,500 2,940 588 7,700 6,800 900 2,052 7 7,600 7,500 100 5,188 480 12,800 12,000 800 60 12 100 100 - 1,173,174 146,827 2,944,900 2,713,600 231,300 Table 3-14: Comparison of Revenue Under Existing Rates to Allocated Cost of Service It is important to note that cost of service results are instructive but for many reasons should not be interpreted as prescriptive in the development of proposed rates. Section 4.0 will discuss proposed rates for the sewer utility. Village of Mount Prospect 3-14 Burns & McDonnell Revenue Total Under Allocated Indicated Indicated Line Existing Cost of Increase / Increase / No. Description Rates Service (Decrease) (Decrease) 1 Sewer Service Inside Village 2,792,900 2,932,000 139,100 5.0% 2 Sewer Service Outside Village 11,900 12,900 1,000 8.4% 3 Total 2,804,800 2,944,900 140,100 5.0% It is important to note that cost of service results are instructive but for many reasons should not be interpreted as prescriptive in the development of proposed rates. Section 4.0 will discuss proposed rates for the sewer utility. Village of Mount Prospect 3-14 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design 4.0 PROPOSED RATE DESIGN 4.1 Introduction The primary focus of Step 3, Rate Design is the examination of revenue recovery. Generally speaking, the objective is to design rates for each utility to progress toward the following goals: • Generate adequate revenues to meet the projected operating and capital costs, while maintaining sound financial performance. • Provide revenue stability. • Provide cost recovery that is reasonably commensurate with the cost of providing service. 4.2 Existing Water Rates The current 2017 water rate schedule is shown in Table 4-1. The water rate consists of a volumetric charge per thousand gallons for both Inside and Outside Village customers. The only fixed -fee component of the existing water rate schedule is for SSA5 customers, who pay a monthly charge that varies by meter size. It is understood that this monthly charge likely represents a fee to acknowledge taxes that customers within SSA5 currently contribute toward the water utility. Table 4-1: Existing Water Rates 2017 Volumetric Fees - per 1,000 gallons Water Inside $9.19 Water Outside $18.38 Fixed Fees per Bill - Outside Special Service Area 5 Only 5/8" $10.00 3/4" $15.00 V. $30.00 1 1/2" $50.00 2" $90.00 3" $150.00 4" $250.00 6" $475.00 8" $990.00 One of the advantages of the current rate structure is that it is understood by water customers and is easy to explain. However, the current water rate structure provides no material fixed cost recovery, and as the SSA5 fees phase out, will be entirely dependent on volumetric fees. This type of structure exposes the water utility to higher revenue volatility that may result from weather anomalies. Village of Mount Prospect 4-1 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design 4.3 Water Rate Structure Options Typical water rate structures include a base or fixed fee and a volumetric fee. Base or fixed fees are usually designed to recover costs associated with meter reading, meter cost recovery, billing and customer service, all functions that are not generally related to the amount of water consumed in a given month. Base or fixed fees may be uniform, meaning the same fixed fee applies to all types of user or size of meter. Alternately, the base fee can be designed to increase in accordance with meter size, recognizing the higher cost of larger meters. 4.3.1 Volume Rate Structure Concepts Volume fees are priced per unit of use. Unit prices can be uniform, meaning the same price applies to each billed unit. This structure is essentially what is used by the Village today, where Inside Village water volume is charged $9.19 for every 1,000 gallons used. The structure is depicted in Figure 4-1. Figure 4-1: Flat or Uniform Volume Rate Structure Uniform, (Flat) ate uamizy Alternately, pricing for water use can be structured in blocks whereby the price changes as usage surpasses certain thresholds. In a declining block rate structure, the price per unit of water decreases as consumption increases. Declining block rate structures were once a commonly used structure for communities to differentiate pricing in accordance with peak demands. However, declining block structures are less prevalent now, in part because the pricing signals delivered by this structure suggest that pricing becomes cheaper as more water is used. In communities with water availability challenges, this pricing message is not compatible with water demand management objectives. Figure 4-2 illustrates a declining block concept. Village of Mount Prospect 4-2 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design Figure 4-2: Declining Block Volume Rate Structure For communities with water availability challenges and water conservation goals, other volume structures are more frequently used. Inclining block structures increase the price per unit as the quantity of water used increases. This structure is often developed for residential customers only, whose summer use and irrigation generally place the highest peak demand on water systems. The inclining block structure is depicted in Figure 4-3. Figure 4-3: Inclining Block Volume Rate Structure I Another conservation -oriented water volume rate structure is a seasonal rate, where the price of a unit of water varies by time of year. Under a seasonal rate structure, the price of water is generally higher in the peak -use summer months than in winter periods where water use is more limited to indoor consumption. Because a substantial amount of a water utility's cost is driven by the need to meet peak summer demands, this type of rate structure correlates price to the level of service provided over the course of a year. Figure 4-4 illustrates a seasonal rate concept. Village of Mount Prospect 4-3 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design Figure 4-4: Seasonal Volume Rate Structure Seasonal (Time c Use) Rate POfine rc'Uf'NM1 al, 4.4 Regional Water Rate Levels and Practices A comparison of rates and rate structures for sixteen regional water utilities (including Mount Prospect) was conducted. Figure 4-5 shows what a water bill for a 5/8 -inch meter using 5,000 gallons a month amounts to across these regional water providers. As shown in Figure 4-5, the regional water typical bill ranges from about $21 per month to about $62 per month, with Mount Prospect currently at about $46 a month. Figure 4-5: Residential Water Bill Comparison at 5,000 Gallons per Month Residential Water Bill 5,000 gallons per month $1U r........ �" .... �... it— $30 .........% $10 FEE �% l% % 1...041 P, 5a Village of Mount Prospect 4-4 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design The types of rate structures used by these utilities were also examined. Figure 4-6 shows that about 64 percent of utilities surveyed had a fixed fee component in their water rate structure. When used, the fixed fee design varied evenly between a flat rate per account, a fee increasing by meter size, or a required minimum bill for a certain quantity of water. Figure 4-6: Fixed Fee Structure of Surveyed Water Utilities Use of Fuzed Fees Tie of Fuzed Fees Used Nu � drvz ukP it AArievA p4¢. ut V axed N ef,',sb Uffwa'U:4 V 9U6li Ps%'uE4h g.:aXod U (2viu Volume rate structures used by the surveyed communities most commonly reflected a uniform rate per unit of water use, as shown in Figure 4-7. Of communities surveyed, about 86 percent of water utilities used a uniform rate for all classes and for all usage, while 14 percent used an inclining block structure. Figure 4-7: Volume Rate Structure of Surveyed Water Utilities �o a+�,u9nzr(,r� Vt �r�,n, s Ict Jj� ,j4 jtg block Village of Mount Prospect 4-5 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design 4.5 Proposed Water Rate Structure Burns & McDonnell recommends implementing a water rate structure that includes a fixed fee component. Doing so will improve the stability and predictability of revenues and is consistent with industry and regional practice. After discussion with Village staff, the recommended fixed fee structure will provide a fee that increases by meter size. The current water volume rate structure is a uniform rate applicable to all volume in 1,000 gallon increments. This structure is commonly used in the industry and the most common volume rate structure observed in the regional survey. Burns & McDonnell recommends keeping this structure for future rate design. Outside Village rates are currently based on a 2.0 multiplier of Inside Village rates. After discussion with Village staff, Burns & McDonnell recommends maintaining this multiplier, which is a common method of administering utility rates for non -owner users of water systems such as the one owned and operated by the Village. Table 4-2 shows existing and proposed water rates. In 2017, the Village implemented a 4 percent water rate increase, maintaining the existing rate structure. Also during 2017, the SSA5 Outside Village fees are anticipated to be retired as the SSA5 property tax expires in 2017. In 2018, a new water rate structure is proposed that includes a base fee that varies by meter size. For small meters, defined to include 5/8-, 3/4-, and 1 -inch meters, the 2018 fixed fee amounts to $3.00 per bill. Inside Village volumetric fees are proposed to be $9.65 per 1,000 gallons. Outside Village rates, both base and volumetric, are set at 2.Ox Inside Village rates. The base fee is designed to be phased in, such that in each subsequent fiscal year, the base fee increases gradually to improve fixed cost recovery. By 2025, the base fee for small meters is proposed to be $10.00 per bill. At this level, the utility is anticipated to derive about 8 percent of its revenue from fixed fees. Table 4-3 shows the changes in water bills over the study period, assuming all rate increases and proposed rates are implemented through 2025. For a 5/8 -inch meter using 5,000 gallons per month, water bills are anticipated to increase $5.30 per bill in 2018, reflecting the impact of the new fixed fee in the water rate structure. Over time, as the base fee is phased in, the range of impact to the different user types shown in Table 4-3 diminishes. Village of Mount Prospect 4-6 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design Volumetric Fees Water Outside - per 1,000 gallons $ 18.38 $ 19.30 $ 20.66 $ 22.10 $ 23.70 $ 25.42 $ 27.32 $ 29.38 $ 31.62 Notes: (a) SSAS service charges expected to expire in 2017 (b) From 2018 forward, all Outside Village user charges are 2.Ox Inside Village rates. Table 4-2: Existing and Proposed Water Rates Existing Proposed Monthly Bill Under 2017 2018 2019 2020 2021 2022 2023 2024 2025 Water Inside Village Proposed Proposed Proposed Proposed Line Billable 2017 2018 Base Fees -per bill 2020 2021 2022 2023 2024 2025 No. Meter Size Flow 5/8" $ - $ 3.00 $ 4.00 $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 9.00 $ 10.00 3/4" $ $ 3.00 $ 4.00 $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 9.00 $ 10.00 V, $ - $ 3.OD $ 4.00 $ 5.00 $ 6.00 $ 7.00 $ 8.00 $ 9.00 $ 10.00 1-1/2" $ $ 5.00 $ 6.00 $ 8.00 $ 9.00 $ 11.00 $ 12.00 $ 14.00 $ 15.00 2" $ $ 7.00 $ 9.00 $ 11.00 $ 13.00 $ 15.00 $ 18.00 $ 20.00 $ 22.00 3" $ $ 22.00 $ 29.00 $ 37.00 $ 44.00 $ 51.00 $ 59.00 $ 66.00 $ 73.00 4" $ $ 28.00 $ 37.00 $ 46.00 $ 55.00 $ 65.00 $ 74.00 $ 83.00 $ 92.00 6" $ $ 41.00 $ 55.00 $ 68.00 $ 82.00 $ 96.00 $ 109.00 $ 123.00 $ 137.00 8" $ $ 56.00 $ 75.00 $ 94.00 $ 112.00 $ 131.00 $ 150.00 $ 169.00 $ 187.00 Volumetric Fees $ 6.15 $ 6.60 5 3/4" $ 7.60 $ 7.80 $ 8.20 Water Inside - per 1,000 gallons $ 9.19 $ 9.65 $ 10.33 $ 11.05 $ 11.85 $ 12.71 $ 13.66 $ 14.69 $ 15.81 Water No Charge - per 1,000 gallc $ $ 11.80 $ - $ - $ - $ - $ - $ - $ - $ - Water Outside Village 7 Base Fees -per bill (a) 11.5% 8.6% 8.3% 8.3% 8.1% 8.2% 8.1% 5/8" $ 10.00 $ 6.00 $ 8.00 $ 10.00 $ 12.00 $ 14.00 $ 16.00 $ 18.00 $ 20.00 3/4" $ 15.00 $ 6.00 $ 8.00 $ 10.00 $ 12.00 $ 14.00 $ 16.00 $ 18.00 $ 20.00 1" $ 30.00 $ 6.00 $ 8.00 $ 10.00 $ 12.00 $ 14.00 $ 16.00 $ 18.00 $ 20.00 1-1/2" $ 50.00 $ 10.00 $ 12.00 $ 16.00 $ 18.00 $ 22.00 $ 24.00 $ 28.00 $ 30.00 2" $ 90.00 $ 14.00 $ 18.00 $ 22.00 $ 26.00 $ 30.00 $ 36.00 $ 40.00 $ 44.00 3" $ 150.00 $ 44.00 $ 58.00 $ 74.00 $ 88.00 $ 102.00 $ 118.00 $ 132.00 $ 146.00 4" $ 250.00 $ 56.00 $ 74.00 $ 92.00 $ 110.00 $ 130.00 $ 148.00 $ 166.00 $ 184.00 6" $ 475.00 $ 82.00 $ 110.00 $ 136.00 $ 164.00 $ 192.00 $ 218.00 $ 246.00 $ 274.00 8" $ 990.00 $ 112.00 $ 150.00 $ 188.00 $ 224.00 $ 262.00 $ 300.00 $ 338.00 $ 374.00 Volumetric Fees Water Outside - per 1,000 gallons $ 18.38 $ 19.30 $ 20.66 $ 22.10 $ 23.70 $ 25.42 $ 27.32 $ 29.38 $ 31.62 Notes: (a) SSAS service charges expected to expire in 2017 (b) From 2018 forward, all Outside Village user charges are 2.Ox Inside Village rates. Table 4-3: Typical Water Bills Under Existing and Proposed Rates Monthly Bill Under Existing Proposed Proposed Proposed Proposed Proposed Proposed Proposed Proposed Line Billable 2017 2018 2019 2020 2021 2022 2023 2024 2025 No. Meter Size Flow Rates Rates Rates Rates Rates Rates Rates Rates Rates Kgal $ $ $ $ $ $ $ $ $ Monthly Bill 1 5/8" 5.0 $ 45.95 $ 51.25 $ 55.65 $ 60.25 $ 65.25 $ 70.55 $ 76.30 $ 82.45 $ 89.05 2 3/4" 10.0 $ 91.90 $ 99.50 $ 107.30 $ 115.50 $ 124.50 $ 134.10 $ 144.60 $ 155.90 $ 168.10 3 1" 15.0 $ 137.85 $ 147.75 $ 158.95 $ 170.75 $ 183.75 $ 197.65 $ 212.90 $ 229.35 $ 247.15 Change in $ over prioryear 4 5/8" $ 5.30 $ 4.40 $ 4.60 $ 5.00 $ 5.30 $ 5.75 $ 6.15 $ 6.60 5 3/4" $ 7.60 $ 7.80 $ 8.20 $ 9.D0 $ 9.60 $ 10.50 $ 11.30 $ 12.20 6 1" $ 9.90 $ 11.20 $ 11.80 $ 13.00 $ 13.90 $ 15.25 $ 16.45 $ 17.80 Change in %over prior year 7 5/8" 11.5% 8.6% 8.3% 8.3% 8.1% 8.2% 8.1% 8.0% 8 3/4" 8.3% 7.8% 7.6% 7.8% 7.7% 7.8% 7.8% 7.8% 9 1" 7.2% 7.6% 7.4% 7.6% 7.6% 7.7% 7.7% 7.8% Village of Mount Prospect 4-7 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design 4.6 Existing Sewer Rates The current 2017 sewer rate schedule is shown in Table 4-4. The sewer rate consists of an identical volumetric charge per thousand gallons for both Inside and Outside Village customers of $1.78 per 1,000 gallons. A fixed -fee component of the existing sewer rate schedule is a $5.00 per month construction fee. Table 4-4: Existing Sewer Rates 2017 Volumetric Fees - per 1,000 gallons Sewer Inside Village $1.78 Sewer Outside Village $1.78 Swr Outside Village, No Water $4.76 Fixed Fees per Bill - All Customers Sewer Construction Fee $5.00 One of the advantages of the current sewer rate structure is that it is understood by sewer customers and is easy to explain. It also includes a fixed fee component, whereas the existing water rate schedule did not. However, there is no distinction between rates charged to Inside Village, or owner customers of the sewer system, and Outside Village, or non -owners of the sewer system. Typical industry practice is to charge higher rates for non -owners to reflect the risk in owning and operating the utility system. 4.7 Sewer Rate Structure Options As a general matter, sewer rate structures do not vary as much as water rate structures. Typical sewer rate structures include a fixed or base fee and a volumetric fee. Generally, sewer fixed fees do not vary by meter size, but some utilities will apply this practice to sewer rate design. Volumetric fees for sewer are generally not structured into blocks like some water rate structures, and are usually designed to charge the same price per unit of use regardless of usage. If the Village were responsible for treatment of wastewater, the issue of the strength of contributed flows would introduce the possibility of varying charges by types of users. However, given the utility's responsibility for collection and conveyance only, Burns & McDonnell is of the opinion that the existing uniform volume rate is a good fit. 4.8 Regional Sewer Rate Levels and Practices A comparison of rates and rate structures for sixteen regional sewer utilities (including Mount Prospect) was conducted. Figure 4-8 shows what a sewer bill for a 5/8 -inch meter using 5,000 gallons a month amounts to across these regional sewer providers. As shown in Figure 4-8, the regional sewer typical bill Village of Mount Prospect 4-8 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design ranges from about $0 per month (it is assumed that sewer collection costs are included in the water rate) to about $19 per month, with Mount Prospect currently at about $13.90 a month. Figure 4-8: Residential Sewer Bill Comparison at 5,000 Gallons per Month Residential Sewer Bill (Collection Only) 5,000 gallons per month $ 2fD $14 $12 ........ j .... ...... .... $10 ....... .... ....._ .... j......: ...... j � $ ...%... 7 11/x......_ .�....... ........ 1/..._......_ .l1--r- Ae zq.c...�.... e�...e..� ...�G... ...._..g...,u e Ctie .....r The types of sewer rate structures used by these utilities were also examined. Figure 4-9 shows that about 57 percent of utilities surveyed had a fixed fee component in their sewer rate structure, slightly less than the 64 percent observed for water fixed fees. When used, the sewer fixed fee design was most frequently a flat rate per account, although some instances of minimum bills and fees increasing by meter size were noted. Village of Mount Prospect 4-9 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design Figure 4-9: Fixed Fee Structure of Surveyed Sewer Utilities Use of Fixed Fees Type of Fixed Fees Used wk? ti�B li'1'.I kPut r[i`�'Md;:aus1 [ iXcd, V p "ps Ve w�?tt Nt I�liVeprs_ �rrrrt�� U ¢rr Y Q �akk"'� Fee Increasing by Meter Size, 11% Sewer volume rate structures used by the surveyed communities most commonly reflected a uniform rate per unit of billable sewer volume, as shown in Figure 4-10. Of communities surveyed, the most prevalent sewer volume rate structure is a uniform rate for all classes and for all usage. Figure 4-10: Volume Rate Structure of Surveyed Sewer Utilities 40A 2 01111111 Ulyl Vcflunie II'1ate Design Used M Urii rxm Rare, e fridhnhng Bgca k Rate 4.9 Proposed Sewer Rate Structure Burns & McDonnell recommends maintaining the current sewer rate structure that includes a uniform fixed fee. Doing so is consistent with industry and regional practice. The current fixed fee is referred to as a construction fee. Burns & McDonnell recommends referring to this fee as a base fee, consistent with the water fixed fees. Burns & McDonnell does not recommend a sewer base fee that varies by meter size as Village of Mount Prospect 4-10 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design this technique is generally intended to recover costs associated with larger meters, and those costs are appropriately recovered by the water utility. The current sewer volume rate structure is a uniform rate applicable to all volume in 1,000 gallon increments. This structure is commonly used in the industry and the most common volume rate structure observed in the regional survey. Burns & McDonnell recommends keeping this structure for future rate design. Outside Village volumetric rates are currently identical to Inside Village volumetric rates. Burns & McDonnell recommends applying the same 2.0 multiplier to Outside Village sewer rates. The multiplier is a common methodology for setting rates for non -owner users of sewer systems such as the one owned and operated by the Village. Table 4-5 shows existing and proposed sewer rates. In 2017, the Village implemented a 4 percent increase on the volume rate. In 2018, the same sewer rate structure is maintained, with increases to the volumetric fees to meet 2018 system funding needs. Also in 2018, the new Outside Village multiplier of 2.Ox is expected to take effect, applying to both the base fee and the volumetric fee. Table 4-5: Existing and Proposed Sewer Rates Existing 2017 Proposed 2018 2019 2020 2021 2022 2023 2024 2025 Sewer Inside Village Base Fee -per bill $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.40 $ 5.80 $ 6.30 Volumetric Fees Sewer Inside - per 1,000 gallons $ 1.78 $ 1.90 $ 2.09 $ 2.31 $ 2.54 $ 2.79 $ 3.02 $ 3.26 $ 3.52 Sewer No Charge - per 1,000 gallons $ - $ - $ - $ - $ - $ - $ - $ - $ - Sewer Outside Village Base Fee -per bill $ 5.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.80 $ 11.60 $ 12.60 Volumetric Fees Sewer Inside - per 1,000 gallons $ 1.78 $ 3.80 $ 4.18 $ 4.62 $ 5.08 $ 5.58 $ 6.04 $ 6.52 $ 7.04 Swr Outside Village, No Water $ 4.76 $ 10.00 $ 10.80 $ 11.67 $ 12.60 $ 13.61 $ 14.70 $ 15.87 $ 17.14 By 2025, the proposed sewer rates are anticipated to provide about 19 percent of sewer revenue from fixed fees. Table 4-6 shows the changes in sewer bills over the study period, assuming all rate increases and proposed rates are implemented through 2025. For a 5/8" meter using 5,000 gallons per month, sewer bills are anticipated to increase $0.60 in 2018. Village of Mount Prospect 4-11 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design Table 4-6: Typical Sewer Bills Under Existing and Proposed Rates 4.10 Combined Water and Sewer Bills Table 4-7 consolidates the proposed adjustments to water and sewer bills to show the combined impact of proposed changes. As shown on Table 4-7, the total water and sewer utility bill for a typical 5/8" customer would increase approximately $5.90 per month in 2018. As the base fee becomes implemented, the percentage impact to the monthly typical bill is relatively consistent among the customer profiles shown in Table 4-7. By 2025, proposed rates are anticipated to provide about 10 percent of the user charges from fixed fees for the combined utility. Table 4-7: Typical Water and Sewer Bills Under Existing and Proposed Rates Monthly Bill Under Monthly Bill Under Existing Proposed Proposed Proposed Proposed Proposed Proposed Proposed Proposed Line Proposed Billable 2017 2018 2019 2020 2021 2022 2023 2024 2025 No. Meter Size Flow Rates Rates Rates Rates Rates Rates Rates Rates Rates Rates Rates Kgal $ $ $ $ $ $ $ $ $ $ Sewer Utility $ Water and Sewer Utility 1 5/8" 5.0 $ 13.90 $ 14.50 $ 15.45 $ 16.55 $ 17.70 $ 18.95 $ 20.50 $ 22.10 $ 23.90 2 3/4" 10.0 $ 22.80 $ 24.00 $ 25.90 $ 28.10 $ 30.40 $ 32.90 $ 35.60 $ 38.40 $ 41.50 3 1" 15.0 $ 31.70 $ 33.50 $ 36.35 $ 39.65 $ 43.10 $ 46.85 $ 50.70 $ 54.70 $ 59.10 $ 263.60 Change in $ over prior year $ 306.25 Change in $ over prior year 4 5/8" 4 $ 0.60 $ 0.95 $ 1.10 $ 1.15 $ 1.25 $ 1.55 $ 1.60 $ 1.80 5 3/4" $ 8.40 5 $ 1.20 $ 1.90 $ 2.20 $ 2.30 $ 2.50 $ 2.70 $ 2.80 $ 3.10 6 1" $ 15.30 6 $ 1.80 $ 2.85 $ 3.30 $ 3.45 $ 3.75 $ 3.85 $ 4.00 $ 4.40 $ 19.10 Change in % over prior year $ 22.20 Change in %over prior year 7 5/8" 7 4.3% 6.6% 7.1% 6.9% 7.1% 8.2% 7.8% 8.1% 8 3/4" 8.0% 8 5.3% 7.9% 8.5% 8.2% 8.2% 8.2% 7.9% 8.1% 9 1" 7.9% 9 5.7% 8.5% 9.1% 8.7% 8.7% 8.2% 7.9% 8.0% 4.10 Combined Water and Sewer Bills Table 4-7 consolidates the proposed adjustments to water and sewer bills to show the combined impact of proposed changes. As shown on Table 4-7, the total water and sewer utility bill for a typical 5/8" customer would increase approximately $5.90 per month in 2018. As the base fee becomes implemented, the percentage impact to the monthly typical bill is relatively consistent among the customer profiles shown in Table 4-7. By 2025, proposed rates are anticipated to provide about 10 percent of the user charges from fixed fees for the combined utility. Village of Mount Prospect 4-12 Burns & McDonnell Table 4-7: Typical Water and Sewer Bills Under Existing and Proposed Rates Monthly Bill Under Existing Proposed Proposed Proposed Proposed Proposed Proposed Proposed Proposed Line Billable 2017 2018 2019 2020 2021 2022 2023 2024 2025 No. Meter Size Flow Rates Rates Rates Rates Rates Rates Rates Rates Rates Kga I $ $ $ $ $ $ $ $ $ Water and Sewer Utility 1 5/8" 5.0 $ 59.85 $ 65.75 $ 71.10 $ 76.80 $ 82.95 $ 89.50 $ 96.80 $ 104.55 $ 112.95 2 3/4" 10.0 $ 114.70 $ 123.50 $ 133.20 $ 143.60 $ 154.90 $ 167.00 $ 180.20 $ 194.30 $ 209.60 3 1" 15.0 $ 169.55 $ 181.25 $ 195.30 $ 210.40 $ 226.85 $ 244.50 $ 263.60 $ 284.05 $ 306.25 Change in $ over prior year 4 5/8" $ 5.90 $ 5.35 $ 5.70 $ 6.15 $ 6.55 $ 7.30 $ 7.75 $ 8.40 5 3/4" $ 8.80 $ 9.70 $ 10.40 $ 11.30 $ 12.10 $ 13.20 $ 14.10 $ 15.30 6 1" $ 11.70 $ 14.05 $ 15.10 $ 16.45 $ 17.65 $ 19.10 $ 20.45 $ 22.20 Change in %over prior year 7 5/8" 9.9% 8.1% 8.0% 8.0% 7.9% 8.2% 8.0% 8.0% 8 3/4" 7.7% 7.9% 7.8% 7.9% 7.8% 7.9% 7.8% 7.9% 9 1" 6.9% 7.8% 7.7% 7.8% 7.8% 7.8% 7.8% 7.8% Village of Mount Prospect 4-12 Burns & McDonnell Water and Sewer Rate Study Final Report Proposed Rate Design 4.11 Statement of Limitations In preparation of the Village of Mount Prospect Rate Study (Study), Burns & McDonnell relied upon information provided by the Village. The information included various analyses, computer-generated information and reports, audited financial reports, and other financial and statistical information, as well as other documents such as operating budgets and current retail water rate schedules. In addition, input to key assumptions regarding expected future levels of revenue, sales, and expenditures was provided by Village staff to Burns & McDonnell. While Burns & McDonnell has no reason to believe that the information provided, and upon which Burns & McDonnell has relied, is inaccurate or incomplete in any material respect, Burns & McDonnell has not independently verified such information and cannot guarantee its accuracy or completeness. Estimates and projections prepared by Burns & McDonnell relating to financial forecasting and costs are based on Burns & McDonnell's experience, qualifications, and judgment as a professional consultant. Since Burns & McDonnell has no control over weather, cost and availability of labor, material and equipment, labor productivity, contractors' procedures and methods, unavoidable delays, economic conditions, government regulations and laws (including interpretation thereof), competitive bidding, and market conditions or other factors affecting such estimates or projections, Burns & McDonnell does not guarantee the accuracy of its estimates or predictions. Village of Mount Prospect 4-13 Burns & McDonnell CREATE AMAZING. Burns & McDonnell World Headquarters 9400 Ward Parkway Kansas City, MO 64114 O 816-333-9400 F 816-333-3690 www.burnsmcd.com