Not Your Typical Rate Study: How a mid-sized aging utility instilled transformational change to overhaul its planning and financing strategies

Summary The pandemic hit Englewood at a time of dynamic change. Under new leadership, the City's Utility Department was in the midst of developing innovative solutions to address the aging water and wastewater infrastructure while maintaining customer affordability. Transformational change was necessary to establish a new baseline for level of service, and nothing was left untouched from the planning philosophy, prioritization of capital projects, financing alternatives and major adjustments to utility billing. Even the communication to City Council and the Water and Sewer Board was adapted to garner support for the City's new approach from the governing bodies and ultimately from customers. A series of informational presentations were made to City Council following the development of the master plans, and coupled with the financial evaluation, the case was made towards a defendable adjustment of rates and fees with a plan to invest over $140 million in the systems over the next five years. Addressing capital needs, taking advantage for new types of funding, implementing major changes to billing structure and procedures, and evaluating the impacts on customers, all hinge on a utility's ability to analyze the past and develop meaningful projections of the future. Englewood was able to accomplish its objectives in spite of the disruption introduced by the pandemic, and the results may be instructive to utility managers coping with similar disruptions in the future. Abstract The City of Englewood, Colorado serves about 11,000 water service connections and over 40,000 sewer service connections in areas just south of Denver. The City's water and sewer utilities survived for many years with little to no rate adjustments, but with significant capital investment needs uncovered by the City's master planning process, the City engaged in a financial planning and rate study process to meet its long-term financial obligations. The master plans resulted in a Capital Improvement Plan for the water and sewer systems that programmatically addresses the City's largest vulnerabilities. Prioritization of capital investment and optimizing operational strategies of the existing systems were important steps to develop a feasible and affordable plan. The City implemented a long-term financial plan incorporating debt and cash funding opportunities supported by modest, annual rate increases to maximize the Utility's financing capacity. The financial planning and rate studies (yes, multiple rate studies) included evaluation and implementation of a new water rate structure, tapping into all available financing tools, and transitioning from quarterly billing to monthly billing for many customers. This presentation will introduce each area of innovation the City considered in its financial overhaul. The master plan 'wish list' and the process City staff used to narrow down key desirable projects, such as lead service line replacements and water taste and odor improvements, will be described. The dynamic financial planning process will demonstrate how master planning and financial planning go hand-in-hand, especially in a time of disruption in customer demands. Further, financing decisions and the detailed process of applying for a WIFIA loan, will be described with a focus on data needs and on the management implications to the utility. Key decision points and lessons learned will be discussed and offered. Technical Content Through the use of dynamic financial tools, impacts of master plans, funding decisions including use of a Water Infrastructure Finance and Innovation Act (WIFIA) loan, converting flat rate water customers to volumetric billing, implementing a new billing system, and changing base billing practices from quarterly to a monthly schedule and customer bill impacts were evaluated. The City's consultants worked closely with City staff to customize financial forecast that minimized impacts on customers' bills. The Water and Sewer Board reviewed each step of the process prior to City Council consideration and acceptance. Project Status The Master Plans were developed in 2019 for the Water Fund and Sewer Fund, as well as for South Platte Renew, the water resource recovery facility co-owned with the City of Littleton and the third largest wastewater treatment facility in Colorado. Rate studies for South Platte Renew and the City's water and sewer funds were completed in 2020. The water rate structure was materially modified with a new monthly Capital Improvement Fee and increases to the variable charges. Moving into year three of implementing this change, budgets and rate increases for 2022 will be implemented, the WIFIA loan is expected to be closed in early 2022 and major components to the capital investment will be underway at the time of this presentation. Benefits and Significance Not every utility has access or the means to completely evaluate its financial sustainability. The City of Englewood proves a small to medium-sized system can thoughtfully change its approach to planning, structuring, and recovering costs. Further, the project demonstrates the ability of a focused process to achieve substantial change in the face of operational disruptions and uncertainty regarding changes in usage patterns. Finally, it demonstrates the ability of a project team to increase financial resilience while successfully maintaining a focus on affordability implications. Additional Co-Authors: Roger Austin, Vice President, Hazen and Sawyer Carol Malesky, Principal, Stantec Consulting Services Inc. Siyuan Rao, Senior Consultant, Stantec Consulting Services Inc.