PLACEMENT: Public Hearings
TITLE:
title
PUBLIC HEARING TO CONSIDER RENEWAL OF THE UTILITY WATER AND WASTEWATER RATES RESOLUTION TO RE-ESTABLISH AND UPDATE ANNUAL RATE INDEXING AND AN UPDATE TO CAPITAL FACILITY CHARGES SCHEDULE
end
EXECUTIVE SUMMARY:
executive summary
Board action is requested to adopt a Resolution adjusting the Utilities water and wastewater rates, fees, charges, special charges, and to establish annual indexing, and to adopt a separate Resolution adjusting the capital facility charges schedule.
body
DEPARTMENT: Utilities and Solid Waste
PREPARED BY: Name: Samuel Amerson, P.E.
Title: Utilities & Solid Waste Director
REQUESTED BY: Samuel Amerson, P.E., Utilities & Solid Waste Director
PRESET: 1:30 PM
PROCEDURES: None
BACKGROUND/RELATED STRATEGIC GOAL:
Martin County Utilities (MCU) water and wastewater system (the System) is established as an enterprise fund, and it operates in a manner similar to a business entity. As such, the System must have at minimum, revenues equal to the costs of the services provided, and the County must establish rates sufficient to cover the cost of operating, maintaining, and financing improvements for the System in accordance with Section 159.41, General Ordinances, Martin County Code and Section 4.184, Subdivision 1, Division 6, and Section 4.266, Subdivision 1, Division 7, Article 4, Land Development Regulations, Martin County Code, and to meet the rate covenant requirements pursuant to the Bond Resolution that authorized the issuance of the Outstanding senior lien bonds and the Loan Agreements executed with the Florida Department of Environmental Protection associated with the State Revolving Fund loan program.
This agenda item addresses three categories of Charges: A) User Rates, Fees, and Charges; B) Special Service Charges; and C) Capital Facility Charges.
A) User Rates, Fees, and Charges
MCU has historically used a 10-year automatic price index rate adjustment phasing program as a transparent method of adjusting rates to the System requirements and to provide the consumers with a predictable long-term plan of changes in their utility bills. The most recent rate resolution was approved by the Board of Commissioners in 2016 with a sunset date of June 1, 2025. No price index for the current fiscal year 2027 was implemented that would normally have become effective on June 1, 2026. For the prior rate resolutions, rate increases were based on annual indexing factors published by the Florida Public Services Commission (FPSC). One of the issues with the FPSC index was that over the years it did not keep up with the inflationary trends experienced by the utilities industry, including the County, that are more adequately reflected by the Water and Sewerage Maintenance Consumer Price Index (CPI); therefore, the renewal rates resolution of 2026 includes the Water and Sewerage CPI as an index for future rate increases.
Exhibit A to the rate Resolution provides a listing of all the monthly service rates that may increase annually based on the application of the Rate Indexing factor and the proposed rates that will become effective on January 1, 2027, which will subsequently be adjusted based on the annual rate index. There is no change being proposed to the rate structure and classes of service. .
In preparation for the renewal of the rates resolution and for the issuance of bonds in 2026 to fund capital projects, the MCU’s rate consultant, Raftelis Financial Consultants, Inc., has completed a 10-year financial forecast for the water and wastewater system operations. The primary purpose of the forecast was to establish revenue sufficiency of the System to adequately fund the expenditure requirements of the System, including the 10-year capital improvement plan as approved by the County Board of County Commissioners and to meet the rate covenants as a condition of the bonds being issued. To assure continued stability of the System, the 10-year financial forecast report recommends i) the implementation of a 2.5% fixed rate adjustment effective January 1, 2027 to recover the equivalent of a price index adjustment that was not placed into effect for the FY 2027 and ii) the re-establishment of an automatic annual rate index application with the index determined utilizing the Water and Sewerage Maintenance Index as reported by the Bureau of Labor Statistics (“Water and Sewerage CPI”) beginning in the FY 2028. The proposed water/sewer utility service rates would be adjusted and become effective on October 1, 2027 and each year thereafter through and including October 1, 2036 by an index equal to Water and Sewerage CPI based on the annual change of index reported as of December for the immediately preceding year, but not less than 2.0% and not more than 5.0% of the current rates at that time.
Exhibit A attached to the rate Resolution is a listing of consumption-based rates that may increase annually based on the Water & Sewer CPI.
B) Special Service Charges
In preparation for the update to the special service charges, MCU’s rate consultant completed their financial forecast which addressed the Special Service Charges. The rates set forth for the special service charges would remain the same until October 1, 2036.
Exhibit B attached to the rate Resolution includes fixed rates for items other than measured consumption of water and sewer services, such as special service charges, deposits for services, service calls, meters, and other customer service fees. The rates, fees, and charges included in Exhibit B will not change annually by the re-establishment of the application of the rate indexing provisions being requested by the Department
C) Capital Facility Charges
In preparation for the update to the Capital Facility Charges (CFCs) schedule of charges, Raftelis Financial Consultants, Inc. conducted a study to establish the level of CFCs that are sufficient to fund the pro-rata cost of the projected capital requirements associated with providing water and wastewater services for new development. The purpose of CFCs is to assign the proportionate share of growth-related capital costs to new customers benefiting from the System. To cover expansion-related capital costs of the System, the study recommends an increase in the water CFC charge from $1,710 to $2,908 and an increase in the wastewater CFC charge from $2,100 to 3,092 effective January 1, 2027.
This rate would remain the same until October 1, 2036.
Exhibit A attached to the second Resolution contains the Capital Facility Charges (CFC) for new connections to the system, which are updated periodically based on a formal CFC study.
MCU has provided notice to each customer in the monthly bill, in accordance, with Section 180.136 of the Florida Statutes. Public notices of this meeting were published.
ISSUES:
MCU staff has worked consistently to control costs while not compromising the safety and reliability of the services provided. To continue providing high quality water and wastewater services and to maintain its AA+ bond rating, the MCU is asking the Board to approve the new 10-year rate resolution with the FY 2027 rate adjustment and the automatic annual rate indexing based on the Water and Sewerage CPI to be made annually through FY 2036, to approve the revised Special Service Charges, and to approve revisions to the schedule of Capital Facility Charges. If the aforementioned changes and revisions are not approved, MCU may have to defer renewal and replacement projects as well as some of the planned capital improvements putting the System on a path of greater risk of asset failure as well as long-term greater financial exposure for emergency replacement of failing assets. The requested indexing of rates will mitigate the volatility of external factors including prices for goods and services inclusive of power, fuel and chemicals. The long-term sustainability of the System depends on the continued reinvestment in capital assets. The recommended rates are designed to strike a balance between the long-term sustainability of the enterprise and the near-term impacts to our customer base. It should be noted that the proposed rate implementation plan will still continue to result in customer bills that are competitive in the Southeast Florida region.
LEGAL SUFFICIENCY REVIEW:
This item has been reviewed for legal sufficiency to determine whether it is consistent with applicable law, has identified and addressed legal risks, and has developed strategies for legal defensibility.
RECOMMENDED ACTION:
RECOMMENDATION
• Move that the Board adopt the Resolution establishing the annually indexed User Rates, Fees, and Charges and the Special Services Charges with an effective date of January 1, 2027.
• Move that the Board adopt the Resolution establishing the Capital Facilities Charges, with an effective date of January 1, 2027
ALTERNATIVE RECOMMENDATIONS
Move that the Board provide staff with additional direction.
FISCAL IMPACT:
RECOMMENDATION
The rate adjustment will result in additional annual revenues allowing MCU to meet its revenue requirements.
ALTERNATIVE RECOMMENDATIONS
None
DOCUMENT(S) REQUIRING ACTION:
☐Budget Transfer / Amendment ☐ Chair Letter ☐Contract / Agreement
☐Grant / Application ☐Notice ☐Ordinance ☒Resolution
☒Other: 2 Resolutions