Memorandum

City of Lawrence

Utilities Department

TO:	David L. Corliss – City Manager Diane Stoddard - Assistant City Manager Cynthia Wagner - Assistant City Manager
FROM: CC:	Dave Wagner – Director of Utilities Mike Lawless – Asst. Director of Utilities
	Philip Ciesielski – Asst. Director of Utilities Beth Frailey Krishtalka – Assistant to Director
Date:	May 10, 2011
RE:	May 17, 2011 Budget Study Session

The Utilities Department and Finance Department/Utility Billing are funded through the sale of water and wastewater services and from revenue bond proceeds. The rates that each customer class (e.g. residential, commercial, industrial, etc.) are charged for water and wastewater services are calculated from the rate model. The rate model was developed for the Department from the American Water Works Association M1 Manual, Principles of Water Rates, Fees, and Charges to calculate the cost of service for each class.

The water and wastewater rates are composed of two components: the monthly charge and the volume charge. The volume rate that Lawrence charges is a uniform rate meaning that it does not change with an increase in the volume used. In addition, the model establishes the System Development Charges (SDC) that pay a portion of the capacity costs associated with growth. Together these charges fund:

• Operations & Maintenance
• Meter Reading & Billing
• Water supply and distribution for Fire Protection
• Transfers to the General Fund & Cash Construction Fund
• Debt Service
• System Expansion for Growth

The current water and wastewater rates became effective January 1, 2010. There was no rate increase implemented for 2011. A rate comparison for area utilities and Lawrence historical rates is attached for review. Many utilities use the cost of service to set rates but not all have a uniform rate. Several have an increasing block rate, or seasonal rate, where the rate increases with an increase in the volume used. Of the utilities surveyed, Manhattan has the only declining block rate, where the rate decreases with an increase in the volume used.

Some recent developments about rates from area utilities are:

• Johnson County Wastewater is requesting a 12% revenue increase, and anticipate passage somewhere in the range of 4% to 7.5%
• In 2011, Olathe increased their rates 6% for water and 7.4% for wastewater services. For 2012, they are requesting increases of 5% for water and 9% for wastewater.
• Manhattan recently increased wastewater rates by 20% and second tier water rates by 6%
• Independence assumes increased wastewater rates by 4.5% annually until 2015 and is requesting an increase in water rates by 9% for the next three years. They also have an additional special charge for their consent order with the EPA.
• KCMO is notifying wholesale customers to plan on 15% annual wastewater increases for the foreseeable future to pay for work required to comply with an EPA consent order.

Lawrence revenues, as with many of the utilities highlighted above, are not keeping pace with the increasing cost of commodities such as fuel and energy. Conservation, whether driven by economic, technological, or other reasons, has a negative impact on the short-term revenues to operate the Department. In the long-term, conservation has the ability to save money for the department and ultimately the customer by delaying large capital projects. However, in the short-term continuing to operate with the same water and wastewater rates may require us to defer capital projects and maintenance that will ultimately increase customer cost.

Master Plans

In 2010, work began on the Wastewater and Water Master Plans. Much of last year focused on selecting the software, gathering public input, preparing the models, and developing the wastewater flows and water demands for the three scenarios studied, 2020, 2030, and build-out. The status to date and highlights of each study is summarized below:

Wastewater Master Plan

· Model has been constructed and validated, and calibration is underway

· Technical memo #2 outlining projected wastewater flows is complete with the exception of minor adjustments. (Note: Information and data from Technical memo #2 was used to identify lines for rehabilitation as part of the  second phase of the CIPP program)

· A draft memo is complete and being reviewed by staff regarding the timing of  the Wakarusa Wastewater Treatment Plant

· Review of maintenance records for the Rehabilitation and Replacement Plan has begun

Water Master Plan

· Model construction in progress

· Technical issues are being addressed with the model’s software manufacturer

· Water demand projections are being finalized

· Oread Tank site review is underway and is evaluating possible coordination with KU Alumni Association long term plans

· Kaw Water Treatment Plant Evaluation is underway

· Review of water rights and resources is underway

A deliverable of the plans will be a Capital Improvement Plan for the Department. For 2011, the only funded project is relocation of utility infrastructure related to replacement of the bridge by KDOT on 23^rd street near Learnard. A few of the major projects that are expected to be proposed that have been previously identified in prior plans include:

A. Kaw WTP Intake: $6.6 million - The project would provide a new and redundant raw surface water intake for the Kaw Water Treatment Plant. Currently there is only one operational intake to provide raw water from the Kansas River to the plant. This intake has exceeded the service life of other previous intakes. Should this intake fail or be damaged, the Kaw water treatment plant would supply a very limited amount of finished water from raw water received out of the existing well field and temporary intake pumps placed in the river.

B. Kaw WTP Transmission Main: $23.7 million – This three phase project would construct a new water transmission main from the Kaw WTP east under the Kansas River to North Lawrence, east through North Lawrence, and south under the Kansas River to the southeast area of the City at approximately 23^rd and O’Connell. The project will supply a second water source for North Lawrence and the Farmland Property, as well as a future extension to the Wakarusa Wastewater Treatment Facility. The project is approximately 31,000 feet of 30” and 36” diameter pipe. Design and property acquisition of Phase I of this project are in progress. A fourth phase of the project would extend from 23^rd and O’Connell south to the Wakarusa Wastewater Treatment Plant. The estimated cost is $5 to $10 million and would provide service to the Wakarusa facility as well at Baldwin City and RWD No. 4.

C. Oread Water Tank Replacement: $3.5 million - The two existing Oread water storage tanks and pump station were constructed in the 1931 (1.0 MG) and 1954 (1.4 MG) and have reached the end of their useful lives due to corrosion of the tank shells and accessories. The 2003 Water Master Plan CIP included the replacement of the 1.0 MG 1931 tank in 2011 and the 1.4 MG 1954 tank beyond 2013. The current Water Master Plan is studying the feasibility of the replacement of the two existing tanks with a single tank, and is evaluating available tank design and construction methods and materials. The study will also investigate the feasibility of the water system to function temporarily without the two tanks, or the interim measures that would be needed to operate the system, while a new tank is constructed. Pending the outcome of the study, the project would move to the design of the recommended improvements.

D. Water Main Replacement Program: $1.3 million – Prior Rate Plans funded capital improvements for the replacement of existing water mains on an annual basis. The plan included, and the rates funded $1,216,700 in 2008; $1,265,300 in 2009; and $1,315,900 in 2010. There are no funds budgeted in 2011. The program addresses the replacement of water mains based on pipe age, reliability expectation and experience, water quality, and capacity issues. In 2005 through 2007, the program funded replacement of the 100+ year old water mains along Massachusetts Street from 6^th Street to North Park Street. In addition, Department staff also replaced several smaller water mains during this period with in-house crews. Staff is using and refining a “pipe condition index” that utilizes GIS and work order data to identify aging and/or compromised infrastructure to prioritize repair and rehabilitation plans. This index has identified a $19 million backlog of capital improvements necessary to maintain system reliability. See attached graph.

E. Large Valve Replacement Program: $350,000 - Utilities Department staff has identified several large diameter water distribution system isolation valves at various locations that either leak or will not operate. These valves are 16” in diameter or larger and on water transmission lines of similar diameters. By design, the number of valves on large diameter water transmission mains are fewer, and they are located at greater distances apart than those on the smaller mains that make up the bulk of the distribution system. It is critical for each valve to be fully operational since the inability to isolate increases the service area affected in the event of main failure.

a. Initially we have indentified replacement of four (4) valves around the Kaw WTP ranging in size from 16” to 24” in diameter. Three of these valves have been in service since the mid 1950’s and one since 1886. The current condition of these valves will not allow the Kaw WTP to be isolated from the distribution system.

F. In-House Water Main Replacement Program: $500,000 – The program targets the replacement of small water mains using Department field crews. The water mains targeted often do not meet current capacity requirements for fire protection, have been the source of water quality complaints due to the type of material, or have a high incidence of leaks.

G. Wakarusa Wastewater Treatment Plant: $TBD – The project would construct a new wastewater treatment plant and the conveyance piping system on the Wakarusa River. The current wastewater treatment plant has a design capacity to serve a population of about 100,000 people. The Wastewater Master Plan anticipates beginning design of the new plant as early as 2012 in order to have the plant in service by 2017.

H. Cured-In-Place-Pipe: $900,000 - The project is part of the Utilities Department’s efforts to reduce  Inflow/Infiltration (I/I) into the wastewater collection system by “lining in place” existing compromised sewer lines. The Cured-in-place-pipe (CIPP) method involves lining the inside of sanitary sewer mains without excavation, minimizing disruption above ground and service interruption. CIPP is very cost effective when compared to an open cut construction method. The current CIPP price is $20.40 per foot compared to our recent experiences with open cut methods that cost over $275 per foot.

I. The Master Planning process will identify additional projects for funding consideration.

City Manager Report Slides