ORDER-2016-120 : Presentation by Raftelis Financial Consulting & Woodcock & Associates regarding water and sewer utility rate setting.

Transcript (~56 min @ 27:30)

Speakers identified by voice; unnamed voices are numbered within this recording. Auto-caption text — verify against the video.

▶ 27:29 Speaker 1: Tabled Order No. 2016-120, presentation by Raftelis Financial Consulting and Woodcock and associates regarding water and sewer utility rate setting motion to remove

▶ 27:43 Speaker 1: from the table second alderman Medeiros moves to remove order to 2016 120 from the table the motion seconded by alderman Mortimer all those in favor of the motion indicate by saying aye aye is there anybody opposed motion passes the order is removed from the table the chair would welcome a motion to suspend the rules so moved second alderman Medeiros moves to suspend the

▶ 28:32 Speaker 5: rules. The motion is seconded by Alderman Inferno. On the motion, all those in favor? Aye. Anyone opposed? Motion passes. The rules are suspended so that we can hear from the appropriate parties who are here to enlighten us this evening. As we begin the FY 2017 discussion of the water and source service program of the city, I'd like to give a brief recap of where we have been the past few years. Three years ago, the board of aldermen unanimously voted on two important initiatives which have been carried out one was the creation of a water and soil committee that included a member of the esteemed board today president Kahn alderman Tramontozzi and now alderman Forbes have been participating in voting members of this important committee this committee meets periodically and that meeting is open to the public all votes are taken in public each member is invited to attend the goal is that the automatic member of the committee keeps the board abreast of issues pertinent to the city in your constituents secondly we were called upon to hire a consultant to offer independent professional analysis of best practices as well as water and sewer enterprise fund finances pioneer consulting was hired over the last three years and a new firm Rift Ellis financial consulting and wood caulking associates was hired this year after careful research that culminated in a vote from the water and sewer committee and again Alderman Forbes is now on the committee we appreciate that thank you with us this evening is mr. David Fox who is here to make a presentation regarding their background experience and approach we're pleased to have them thank you again to the board and mr. Fox

▶ 30:37 Speaker 6: does anybody need a copy of the presentation before we get

▶ 30:48 Speaker 1: could you also make the some available to members of the public if they don't have them

▶ 31:25 Speaker 6: thank you for having me this evening my name is dave fox i work with raftel's financial consultants i lead our new england office based out of worcester massachusetts chris woodcock is my associate from woodcock and associates he was unable to be here this evening due to whether he apologizes he will be here at a future meeting and i will let him answer all your questions to make up for me having to be here tonight by myself so can we maybe move on to one more one more there we go great thank you I've been told that we don't have a whole lot of time this evening so I will get through this presentation as efficiently as possible really all I wanted to do tonight was to come here introduce myself introduce Chris Woodcock I give a brief introduction of what we've been hired and what we've been brought in to do and then go through kind of at a very high level what that process entails from start to finish not speaking anything tonight on specifics or actual recommendations for fiscal year 17 just speaking at a high level some of the things that we're going to be analyzing we already are analyzed we're in the middle of analyzing and we're going to provide over the next two weeks of water and sewer committee with a document of recommended rate structures some of those being recommended so those being rate structures that we just analyzed and the pros and cons of them and whether or not we recommend those rate structures and hopefully the water and sewer committee amongst themselves can go through that excuse me and and it pick out the best rate structures that they feel for Melrose based on our expert opinions and and bring that forward to you I believe by the end of the month or early May for formal recommendation just to give a quick quick background again my name is Dave Fox reptiles financial consultants I my company is the largest company in the country doing solely water sewer and stormwater work it's all we do we have offices and individuals all across the country doing this work Chris Woodcock Woodcock and Associates he has been doing this for over 40 years longer than I've been alive he is a world-renowned expert in water and sewer rate consulting he has primarily over the last 30 years or so been contained to New England and so what you get with it the package of me and my firm and Chris is my firm has that national experience we know what's going on not only in Massachusetts also what's going on in Southern California what's going on in Western North Carolina so we we have a lot of breadth of information of what's out there what's being done what's new what's fresh and possibly something that could be used here in Melrose that's not typically used in Massachusetts Chris brings the expertise of knowing everything there is to know about water and sewer rate consulting in Massachusetts in New England he like I said he's been doing it for over 40 years now I can't wait for you to speak with him and hear him talk as well so we go to the next slide some of these slides are fillers so i will just skip over them quickly uh all this is saying is this is what we do we are not engineers we are not water sewer gas and electric consultants we are water and sewer consultants sort of bread and butter it's what we do day in and day out um and no engineering it's just water and sewer rate finance finance and and rate consultant i like this little slide

▶ 34:54 Speaker 6: we have literally written the book on this uh here's four publications that either uh member of myself or other members of my firm or Chris have written chaired I believe Chris is the longest standing member or longest standing chairman of the m1 manual which is considered to some as the the Bible of water and sewer rates or the water rates are not sewer rates water rates he's the only person to ever chair that for three times so we know this is what we do again it's it's only water and sewer rates map here again we are a national firm but we also have that local and regional presence we've provided assistance over 500 utilities across the country serving more than 25% of the population and within Massachusetts alone we've served over two-thirds of the population you

▶ 36:00 Speaker 6: when we first came in here it was easy enough for us just to look at Melrose's current rate structure and just say okay this is where you are but it's interesting to hear where Melrose has been and how you have gotten to the place that you are now we obviously want to take a fresh look at rates that's what we were brought in to do not just continue on if you wanted to just continue on with the same rate structure to be very easy just to calculate what an across-the-board rate increase would be to get you from fiscal year 16 to 17 and say this is what we need to do we were brought in to look a cost of service study a fresh look at what the rates need to be to suffice a few things and we'll get into that a little bit financial sufficiency being the most important you need to be able to pay your bills to be able to sustain a an operating system that provides safe and clean water to your residents but also we wanted we need to create a structure that uphold some of the the pricing objectives if you if you will of Melrose's of Melrose so there are a few things as we're going through our study that we know we're going to tweak but I wanted to focus today since I'm not providing any recommendations I don't know exactly what those tweaks are yet I wanted to provide some of the recommendations that I know right off the bat are some great things that I think the City Department of Public Works and the water and sewer utilities have done over the last few years first and foremost is establishing a plan to build up operating reserves I know you're still in in year three of a five-year plan I believe you're going into year four right now and as a conservative financial consultant I can't harp enough how important operating reserves are so I I commend Melrose for establishing those reserves and I and I hope that can continue further into the coming years of continuing to build those up we're not exactly what the targets need to be yet but we're going to continue to move forward with them establishing base charges up until fiscal year 14 all your charges were volumetric establishing base or fixed charges are incredibly important for a couple of reasons one it enhances revenue stability it allows the system to be mitigated some or mitigate some of the negative impacts due to revenue volatility if there's a very cold and wet summer consumption is going to decrease and hence so will your your revenues building up that fixed revenue stream that is there whether anybody uses a drop of water or not is incredibly important for that that stability also it's good from a cost of service standpoint the majority of your costs are fixed and whether anybody uses a drop of water or not Melrose the utilities still have to pay their bills and so by establishing some fixed income it's dipping into or it's eating into some of those costs that are there no matter how much water Melrose's residents use you have implemented an increasing block rate structure and there is some debate here I think this is a great thing I think it's the only thing that you can do I am NOT a lawyer I'm a rate consultant but is my understanding that the Massachusetts general law states that utility must have an increasing block rate structure Again, I'm not a lawyer, I'm a rate consultant, but that is my understanding and my interpretation of the law. So for that reason, I think it's a great thing that you have an increasing block rate structure. I also think it's a great thing if the city's, one of the city's objectives is to promote conservation and demand management within its community, an increasing block rate structure will do just that. incentivize conservation and allow for demand management uh the city has been engaging in a

▶ 40:18 Speaker 6: meter replacement program all meters do as they get old they slow down and all that does is they misread and the city dpw is not getting a good read of the amount of consumption that people are using within the city and more importantly you're not charging fully on that consumption there is revenue loss there so by going through this meter replacement program you are recognizing the full amount of consumption that is in your system and you're able to charge for that the city is pro is is actively addressing infiltration and i i issues within the city the city has made great efforts doing this thus far and also has a plan in the coming years to continue those efforts and i think that's a great way to spend capital dollars And also doing the best that the city can or the utility can to minimize costs. In fiscal year 2017, MWRA's projected system-wide cost increase was 3.9%. Melrose's share of that, Melrose's increase was only 3.5%, lower than the 3.9%. I believe water was 2.6% and sewer was 3.9%. If we go back to the bullet point up, one up, the infiltration inflow issues, I&I issues, if we continue proactively addressing those issues, all that's going to do is help us with our assessment and our increased cost from the MWRA as well.

▶ 41:50 Speaker 6: Some just preliminary observations and really what we are tasked to do and what we're going, we are currently doing and what we're going to continue to do over the next few weeks to be able to provide you with some recommendations um we right off the bat based on my prior slide i think it's smart to continue charging a base charge um again this enhances the revenue stability and it eats in it it recovers some of those costs that are there no matter how much water anybody uses um so what we're doing we're not analyzing whether or not a fixed charge should be recovered it should be recovered you should charge a fixed charge what we are analyzing is how much revenue should that fixed charge recover and how should it recover those those costs should everybody get charged the exact same fixed charge should a six inch customer be charged more than a one inch customer for this fixed charge that's what we're in the process of doing right now and in the next few weeks we're going to provide you with some recommendations on how best to set those rates again we maintain that you need to continue to have an increasing block rate structure this law it's on this slide it's been stated twice here tonight I don't I'm not gonna read it again for time-saving purposes again this is our interpretation that the city must have an increasing block rate structure to abide by this law little background the state has not historically been very strict in its enforcement of this law but nonetheless it is a law and is our recommendation that you abide by it even if no other even if some other utilities do not abide by it is our recommendation that you do um and again in addition to that it provides for conservation of demand management incentives which um i will allow the board of aldermen to discuss if that is a an initiative of the city it has been our understanding that it is at least for some folks um so if if that is an absolute uh driver and an initiative of the city to promote conservation demand management and increasing block rate structure

▶ 43:54 Speaker 3: incentivizes that so what we're doing right now is we're in the middle of

▶ 43:57 Speaker 6: analyzing we know we would like an increasing block rate structure we're analyzing where those blocks should be set right now you have a three tier system so you have three different rates no matter depending on how much water you use or assessing is it appropriate to have three tiers should it be two tiers is you know the first tier cutoff is at 2000 CF is that appropriate that's the process we're going through now looking at years three years of detailed billing data looking at every single bill that was sent out over those three years looking at the distribution of consumption how many customers are using less than two two thousand CF in a year how does that fluctuate based on seasonal demands you know is there a justification for charging very large volume users that highest rate that third tier I'm not here to give you an answer to that yet but those are the things that we're asking ourselves is it justified to be doing that if not what's the proper justification what should those customers be charged we are taking a very leave nothing off the table approach at looking at these rates when we're doing this one of the things that

▶ 45:10 Speaker 6: that came up when we had our initial meeting with the city was the idea of unit averaging for apartment complexes rather than just charging an apartment complex for all the consumption that they use and send all their consumption through the blocks can you take the number of units that are in an apartment complex average that the total consumption among those units and then take those averaged and and put them through the tiers accordingly as if they were individual single-family residential homes rather than one large apartment complex it's funny this issue comes up in almost every single meeting recently that I've been to and my answer has been this there is pending litigation within Massachusetts I'm not going to get into specifics but there's pending litigation on this issue exactly it is our recommendation at this time to for the city to hold off making any decisions based on this until that litigation is resolved and we can make it a more educated decision going forward on how best to handle it in Melrose. Also in for the sake of time and data there are also you know even if the litigation comes back and says that a Melrose can do unit averaging there are a lot of complexities that need to be considered when doing when thinking about this what do you do with vacant units how many time you know how often do you check how many units are vacant in an apartment complex how often is that audited things like that that the data that needs to be available to be able to do those things right now you build quarterly it there are more complexities that need to be considered I'm not saying that we cannot consider it but I think the underlying thing at this point is to focus on the fact that there is pending litigation on this exact issue and it is our recommendation that things be held off until we can recognize some resolution to those we were also made aware of an issue with the proration of bills because you do bill quarterly there is oftentimes you know the rolling billing there is a gap between when the rate is implemented in and 20 say fiscal year 2017 in july 1 um billing some consumption that happened uh prior to that and so fiscal year 16. um i recognize uh with just having discussions with the city that prorating bills has become an administrative hassle it's time consuming it costs a lot of you know money and time to be able to do that it is our recommendation that you adopt rates to go into effect you adopt the rates July 1 but you don't actually start billing on those rates until October 1st so any consumption that you do bill on fell within that fiscal year you were legally able to charge that consumption now what's going to happen is you will have a slight revenue loss in the first year that you're doing this by not having that full year of the rate increase you're gonna have those three months we're gonna have the prior years rate we're in the process of coming up with exactly what that that revenue loss would be and how best to to fund it I don't think it's going to be a significant revenue loss that we don't make this one-time adjustment it will be a one-time adjustment and then every year going past that it will all just be another 12 months I'd also like to touch on this further but continue to develop strong reserve funds and again this is the conservative financial consultant coming out in me but I preached to all my clients to you know to build up their savings account I wish I could build up my savings account more I think everybody in this room does it's it's very important for a number of reasons your current target is getting to 10% of operating expenditures like Patrick said we're entering into our fourth year of that we're getting close I don't think we need to if I were making a decision now I'd say let's target something more in the 20% range rather than 10% just to allow ourselves to have a rainy day fund. Infrastructure is getting very old. It's failing. For purposes of the perpetuation of the system, it's nice to have that cash on hand to be able to make capital improvements when necessary. I'm not making the recommendation at this point to go to 20%. All I'm recommending is that we continue the path to get to 10%. It's going to be another two years. Let's see where we are at that point we can reevaluate i don't want to more aggressively target anything higher than that within the two

▶ 49:58 Speaker 6: year span all right i'm gonna i know i've spent a lot of time on that which i think was the most important part so i'm gonna go through this very quickly um and then at the end we can have some q a and then hopefully everybody can get home safely um what i wanted to do is just put together a quick package on a rate setting 101 a very high level not too incredibly detailed on what the process we're going through on what exactly is the process that we're going through and we're going to continue to go through over the next few weeks our goal is to devise and calculate a rate structure that obviously generates sufficient revenues we need to Melrose needs to pay their bills so no rate structure that we will propose to you will not do that it also needs to accomplish utility and stakeholder objectives what are the objectives of DPW what are the objectives of the alderman what are the objectives of the city as a whole and that where you know some of the things like conservation demand management come into play revenue stability and we're continuing to work through that is consistent is consistent with industry best best practices like I said before we wrote the book on this we're not to provide you anything that's not consistent with industry best practices but there is uh this is not a complete science there is an art form to this um you can there's the old saying is there's many ways to skin a cat and i think that's especially true with water and sewer rates we know what our outcome and what our goals are there are a lot of different ways to get there so that's what we're working through right now and we need a rate structure that is defensible of challenge. We're not going to propose and recommend any rate structure to you that would fail in court.

▶ 51:45 Speaker 6: Rate setting process, we're going to go through this quickly, we'll go step by step. So can we move on to the next slide, please? Thank you. Step one is usually sitting down with the utility and saying, what are the objectives here? What are the objectives of the rate structure? Obviously at the top there, and these are in no particular order, but financial sufficiency just happens to be at the top. the most important we need to pay our bills rate stability revenue stability um customer understanding we don't want to devise a rate structure that's going to have customer service on the phone all day long trying to explain what the heck a rate structure means we want to you know somebody to look at their bill and understand what it is and it'd be meaningful to them conservation demand management we spoke about a little bit affordability is it a priority of the city and the utility to provide an economic um some economic help to economically disadvantaged customers is that a is that a priority or an objective um minimizing customer impacts things like that so you know this all these things will allow us to formulate a rate structure that will best meet the needs of melrose for example increasing the fixed charge even further flies directly in the face of conservation and affordability i think it's very important to increase your fixed charges but if conservation affordability were important to you there's some things we can do to balance that out um again just nope you're fine

▶ 53:20 Speaker 6: thank you uh real quick so step two is building up our revenue requirements what do these rates need to how much do these rates need to recover to pay all the bills what goes into that is Operating maintenance expenses, electricity, salaries, MWRA costs. We need to make sure we keep the development and perpetuation of the utility system. Keeping up with the infrastructure of the utility. We don't want just, you know, as a rate consultant I see it all the time, utilities putting off rate increases because it's not politically acceptable, even though the infrastructure is failing and they need to replace the infrastructure they just don't feel like they can get a rate increase through and infrastructure starts failing and that flies right in the face of getting or providing your customers and your residents with clean and safe water so we want to rate structures to be able to pay for these these capital these necessary capital improvements to continue to do that we need something to we need a rate structure that's going to generate enough revenue to meet debt service recovery coverage requirements and to

▶ 54:33 Speaker 6: continue to build up our reserves again what goes into this operating expenditures pay go capital cost any cost any capital costs that are not funded through debt service so any cash funded capital any additional reserve requirements to build us up to that 10% and possibly further after year two and then the current debt service any proposed debt service that is going to go on into effect by by funding the capital plan just a few things to

▶ 54:57 Speaker 6: consider when we're going through this financial planning process and building these revenue requirements again maintaining adequate reserve levels debt service coverage things like that low income discounts by increasing our fixed charges is it negatively affecting low-income users if so is there anything we want to do to be able to mitigate that or minimize that for low-income customers and there are programs that we can enact or enable to be able to do that but if that's the case how much are those programs going to cost and who's going to pay for it policy to deal with mwra costs like i said the city's and making you know great taking great efforts to fix her i i things like that that's you know one portion of something we can do to control our mw mwra costs and the capital program financing again there's no uh there's no denying that there are a lot of capital funds coming down the pike that need to be paid for to perpetuate a safe and clean water system for your residents which means rate increases but what we can do through financial planning and capital financial planning is spread those costs out through a mixture of of debt and capital and pay go to minimize the impacts on the rate payers and make those increases as palatable as possible the next thing that we do is after we have all those those costs build up as we go through a cost allocation or cost of service study um now this can mean a a wide array of of things um really in in general all this is saying is that each customer grouping or each customer type should pay for the cost that they incur on the system now on one end of the spectrum you could say cost of service is taking your entire budget or revenue requirements in one year dividing it by the number of customers you have that's your charge and you charge it to everybody the other end of the spectrum is saying let's look at every single account that you have individually and give them their own individualized rate it's something that happens in southern california they're called individualized or budget rates it requires a ton of data on a monthly basis looking at how much they used on the month beforehand i don't remake i don't recommend any of those spectrums we're going to fall somewhere in

▶ 57:24 Speaker 6: between but that's the the process and what we're looking at um this is these are two of the more detailed slides uh up top again we just start with our the cost of providing the service um then we're going to allocate those costs to the function that they serve so as a pumping cost is it a meter cost a fire protection cost down from that we allocate those cost to cost components is it a meter component does it does it is a cost that relates to providing just base water consumption and demand or does it attribute to peak hour demand your 7 a.m is when everybody's taking showers that attribute to that and then taking that a step further and allocating those costs to fixed cost components like a billing a meter cost and then possibly even customer classes or customer types that doesn't need to be your traditional residential versus commercial it can be small customers versus large customers and we can differentiate there between custom by meter size so again this is the entire process that we're working through now don't have any results as of now we're working through this process um the next time you you see us we'll have some some firm results for you uh same thing this is another sewer um it's basically the exact same process just for the the sewer components for time saving purposes let's skip over this once we have those costs allocated the next step in the process is designing a rate structure we talked a little bit about fixed versus volumetric rates you have both right now conservation versus pre conservation rate designs we'll talk about those in a minute what are those means and then just evaluating alternative rate structures again not leaving any stone unturned we want to evaluate a bunch of different rate structures and if it doesn't work here this is why it doesn't work we don't we don't recommend this rate structure for these reasons and allow you to make a decision based on those again fixed

▶ 59:13 Speaker 6: charges variable charges we talked about this you know a lot fixed charges does not matter how much if any you know a customer uses they're getting charged that same fixed charge a variable charge is you know completely dependent upon how much water somebody uses for customer uses typical fixed charges

▶ 59:32 Speaker 6: there can be a customer charge where every single customer no matter the meter size the size of the customer they're charged the same so five dollars bill say no matter if you're a one inch customer a six inch customer a minimum charge can be a component of the fixed charge but you get some sort of allocation of usage so if you pay five dollars a quarter you get say a thousand cubic feet of usage within that and then anything above that you'd start paying a volumetric rate for the service charge and the capacity charge by meter size similar to what you have now we're looking into how to best allocate those costs and charge them based on meter size but they they escalate by meter size so a six inch customer is going to pay more than a five-eighths inch customer so

▶ 1:00:21 Speaker 6: variable charge overview oftentimes the way that it happens is you know I talked about the two ends of the spectrums and the one was just dividing all the costs by the number of customers that would lead to a very high fixed charge for all customers and disproportionately affect low volume customers versus you know high volume customers so we typically can't set our fixed charge at that full amount so we set it to something lower to recover a target of how much we think we need to recover in terms of fixed charges and then everything else gets recovered from the volume metric of the variable charge typically not typically sometimes wastewater consumption is based off of a percentage of water consumption to reflect water that comes into the home but is not sent back through the sewer system good water put on dirt for irrigation purposes or

▶ 1:01:20 Speaker 6: washing cars things like that okay conservation verse pre conservation rate designs if you would have you know take a poll of all the rate structures across the country say maybe 25 30 years ago even 15 20 years ago you'd see a lot of flat rates where no matter how much water you use you use the you get charge the exact same amount per unit and even declining so the more water use the less the less you're charged over the last 10 years or so 10-15 years there's been a trend towards conservation rate structures the increasing block which you have currently seasonal rates so a chart you'll charge customers more for using water during the summer months and say that the winter months and individualized which is the budget rates I was speaking of where each individual customer has their own bill not recommending that certainly can't do it on quarterly billing you're gonna need monthly billing a lot of data and given that you are not running out of water like Southern California it's not something I would recommend anyway but again just to reiterate on the bottom here is what I'm interpreting as the law saying that Melrose has to have an increasing block rate structure so we

▶ 1:02:29 Speaker 6: design a rate structure we design many rate structures maybe six seven options what do we do with them then how do we assess them how do we assess the effectiveness the number one assessment that I go through is what are the customer impacts how do you take what a customer is currently paying whenever you make rate structure changes they're going to be customer impacts different costs are going to be affected differently so how do you look at what the current rate somebody's paying the current bill somebody's paying and how does that compare to what we're proposing in terms of the new rates also competing objectives like I said before high fixed rates fly in the face of affordability for low-volume customers and conservation as well price elasticity of demand if we decide to possibly go up higher on the volumetric rate than we do on the fixed charges is that going to negatively if negatively affect demand do we need to factor in some sort of price elasticity to factor in additional demand reductions due to that comparison with other utilities I will caveat this with to be very careful when comparing yourself to other their communities in terms of rates it's not as easy as saying well our rates are higher than this community's rates or it's a very apples to oranges comparison for a lot of different reasons the age and the size of the system whether they are an MWRA community how their rates are set on the sewer side for example are they based 100% on water consumption they 80% of water consumption there's a lot that plays into this side I'd caution it's not that you cannot do it just I'd caution you to to make sure that as best as you can to look as apples to apples comparison which is oftentimes very difficult to do and then again the affordability of service we proposing anything that is going to be unaffordable to our to our residents specifically economically disadvantaged customers is that something that we want to to tackle one of the things that we've done recently in a community was recommend an affordability program where there are if you bring in say an electricity bill that says you're already getting some low income discount you automatically get a discount here in Melrose there are costs to that the other customers are going to pay for it but it's it's something and you know what we can say is your fixed charge goes away and then you're gonna pay for every drop of water that you use but your fixed charge is going to go away or possibly discounted not sure if that's something we would like to look into but it's an it's an option so it's there if

▶ 1:05:02 Speaker 1: want to got through it um questions please thank you for coming in um if the if the committee would indulge me for just a minute um i i actually filed the order that that passed this board that required that we have a consultant to assist us in setting our rates and i also made the proposal that required that we have a board of alderman Representatives on the rate setting committee I know you're just in here for the first time tonight but a couple of points one alderman's perspective conservation is not the only driver of these rates nor should it be that's that that's not my intention here financial stability some stability in terms of rates from year to year and non fluctuation of rates obviously sufficiency of rates is important and this board has passed rates to fund this system affordability for our customers is important all of these factors from my perspective are things that need to be taken into consideration in setting the rates so and I'm sure members of the water and sewer committee have indicated to you that conservation although an important factor should not be the preeminent and predominant factor in terms of uh setting these rates one of the things that's a problem here as you can see and you'll see more as you come to more of our meetings is um going to your presentation is are the rates defensible if challenged

▶ 1:06:42 Speaker 1: we have some issues that you've heard discussed tonight we as a or i and i presume the rest of of the board of aldermen want to make sure that whatever we vote on from here on in uh would be defensible and we're looking to your company uh to make sure that um you know another one of your bullets was customer understanding we want to know how these rates that are being proposed to us are defended and we want to make sure that our rate payers uh understand them so um and and we want some of these problems addressed and we could differ with you relative to recommendations but we want issues like unit averaging for multi dwelling unit dwellings to be addressed and discussed so those are some of the perspectives that we're looking for that we felt we haven't gotten in the past and we're hoping to get more information and a dialogue on these issues going forward this year. Are there questions from members of the board, please? Alderman Tramontozzi. Your report and analysis is a fresh

▶ 1:07:50 John N. Tramontozzi: look, as you say, so I assume you're not coming here with any preconceived ideas as any suggestion might be, so I do appreciate the fresh look you're going to give us, and I do agree with President Kahn regarding that conservation issue. It's not the most critical, but I do have three areas that I hope that your analysis and report will address. And that is the first one, is I do want an analysis on the block rate structure and a flat rate structure as it applies to the cost of the consumers. I know even though, in your words, you think the block rate structure is a good thing, you are not an attorney, as you suggested in that I don't need a legal analysis of Massachusetts general laws from you but I think this board is well served and can deal with that issue but if we can get an analysis of the the block rate structure along with the flat rate structure I think that would be a go a long way in providing us areas of analysis that we best can approve the second area that I think your report should address to give this this board the best practices as you say in making our decision is the just shifting of the cost from the city departments to the ratepayers I'd like to see the analysis as to why the city departments I should not be billed on their budget as to the the use of water and sewer rather than sending it off to the enterprise funds the third area that I want to see some significant analysis is the city's use in the practice of billing the indirect cost to the enterprise fund for example the cost for various the different

▶ 1:10:12 John N. Tramontozzi: departments for wages salaries utility costs whatever I want to see those indirect costs and I'd like to see how that might we maybe have have some savings to the enterprise fund if some of those indirect costs if they're legitimate indirect costs relating to water and sewer I can understand that but I want an analysis of all those indirect costs to be including the report is that something that you guys can do I think we hired you well we're hiring you for a fresh look and what the industry best practices are and I think

▶ 1:10:52 Speaker 6: that will be included with that typically looking at an internal evaluation of indirect costs and how much of those indirect costs should be associated to enterprise funds is outside of the scope of work of a typical rate study we can look at what the impacts would be if some of those costs were to shift say they were increase or decrease what that would mean on rates that's an analysis that we can run all right that sounds good okay

▶ 1:11:24 John N. Tramontozzi: so I appreciate that and thank you look forward to your analysis in that report

▶ 1:11:32 Monica C. Medeiros: thank you thank you thank you yes I'm very pleased to have you here I'm glad that you're bringing so much experience to the table from not just within Massachusetts but you know I mean that we really want I think at least I really want a consultant who's going to actually you know consult and really bring not just say well this is what this other town does so that's what you should do too but to look at a kind of an individualized approach for Melrose you know we are you know I don't know I'm pretty proud of the city I think we're a great city where we've been a leader in a lot of areas and done things that are different than many other communities and um so you know i would very much welcome a look at something that might be a hybrid of what many communities do um some of the areas i think have definitely been discussed tonight in terms of objectives and i just want to stress you know some of my concerns too certainly the proration issue which i i'm making sure that we're not retroactively charging people i think that's that's very important i'm glad to see that here in terms of figuring out i i asked the consultant that we'd had previously in the beginning of this like did we know who was using the water and and it wasn't exactly so and i think maybe at the time we as a city didn't have necessarily the tools to really kind of determine who our users are and I say this because we we know we have so many households that are maybe single-family and so many that are two units and so many that are condominiums only their apartments so many that are commercial what we don't know is the impact of how many household members there are in that that house and how does that affect them so It's not necessarily that a home with five people in it, maybe two parents and three children, are exactly wasting water. But at the same time, under the system right now, they're getting charged as high billing. So I do have some orders that I've submitted last year that have actually gone and have been sort of waiting in the Water and Sewer Committee. So I do hope that they, for your opinion, as a matter of fact, I don't think that they're necessarily the perfect be-all, end-all, but they were meant to be a starting point and to look at some things. looking at averaging by person per meter for instance and I actually have a little formula in there what to do with the vacant unit based off the census which I thought at one point was maybe not possible but we just had a presentation last week from our city assessor we have a new program called I guess Melrose maps where he said very clearly we could anything if we have an address we can tie it into that system and you know certainly we have that with our water and sewer billing we have that with our census I think you know we have that with with obviously the assessor's office it might open up some more opportunities that maybe even some other communities don't have in terms of your assessment so I'd like to see you know how are we affecting our senior citizens how are they affected by this how are large families affected and versus you know because I think that's important we're looking at how we stretch to the rates you know it's it's really important overall that our residents feel like they are getting paid they're paying fairly for their use of the water and you know obviously that means that we should have a fair system but it also means that it should be something that they understand and that what doesn't

▶ 1:15:40 Monica C. Medeiros: like have one group I'm gonna say unfairly paying you know higher share of the water which it seems like we had a system where I think especially when Alderman Tramontozzi referred to a flat rate we're not necessarily talking about a flat rate in you know there's 8,000 units and we're just going to charge you per 8,000 units we're saying this is how much each unit of water is going to be not usually so you know can we do some kind of hybrid I know this law has been on the books I don't advise anybody do anything illegal of course but there's many different interpretations to this increasing block rate and I've spoken to some of the people at MWRA and said if we have this base rate charge which we do per meter meter size if that's increasing doesn't that satisfy our requirement in the law and they said yes but you know obviously we want something that's defendable and I think you know we want something that's clear and that people can understand because I get I don't know how many times I interpret water bills but you know that's that it should be more clear to the people okay I think that that also involves how we present our budget and especially all the chairman Tosi mentioned you know some of those indirect costs making sure that those are clear in our in our budget and how we're proposing them and you know that that people understand what this this charge is made up and how maybe it's increased year-over-year certain line items and things like that

▶ 1:17:23 Speaker 1: that's really clear thank you anyone else with any comments or questions from

▶ 1:17:30 Speaker 6: mr. Fox Alderman's work oh thank you mr. president and thank you mr. Fox for

▶ 1:17:34 Michael P. Zwirko: showing up today appreciate your preliminary report here and looking forward to some of the work that will come from this so I do have just a couple of things come some of them are comments others are suggestions you know I've this is my first time going through the water and sewer rate issue as a member of this board you know the one thing in studying the issue over the past couple of years I found out that there's no silver bullet and that there's a pro and a con generally with every proposal that could be brought forth you just have to kind of weigh well are the pros better than the cons and etc so what I would like to see is a wholesome menu of options and services that we can provide because I do think that some may work some may not or others will cast off immediately but still I like having that spectrum of options available to us you know it seems to me and this has been brought up a little bit tonight with respect to the idea of a flat rate for example whether or not we're going to agree on the interpretation of the Massachusetts general laws I still would like to see that as a menu of services you know that's kind of our risk-based analysis should we choose to take that so you know leave that to us we'll take that risk I know speedings against the law I frequently do it so you know you take that chance at times but I would like to see the benefit if any to a flat rate structure I do think that in with our current tier I'm looking at the 2016 water and sewer rates right now we do have a three tier structure for consumption I believe that the first tier is much too small in terms of its cubic rate cubic foot rate it's from 1 to 2,000 the second tier then jumps and it's 8,000 it goes from 2 to 10 that I feel is a little bit misleading to users I think that they would find themselves jumping into that second tier quite quickly and I think that a way to kind of ease the burden is to increase that first tier again when you're doing a menu of proposals I'd like to see some tier rate structures that maybe are a little bit closer in the increments of the cubic footage that we are allowing per tier another thing I would just like to mention and I don't know if this would come into your study so apologies in advance but we're determining whether or not it would be worthy to bill more frequently part of that is from a customer use standpoint that's easier for budgeting obviously if you get a bill per month versus per quarter or annually my concern with that is is the costs associated with mailing those can be quite high so if those costs are going to in some way increase the amount of the water rate I would actually prefer maybe semi-annually billing or stretching it out I understand that could be a burden again pro and con you have to weigh them so that's just something that I hope you could consider and then the last thing I wanted to mention I have seen this in some other communities and these are MWRA communities those are the only the ones that I have concerned myself with at least in my studying of this issue and I know that some towns and cities I don't think we have a lien problem when it comes to our water and sewer bills I think people generally pay on time so we don't have many a large figure that's in arrears so I know that some communities do offer incentives for paying within a certain amount of time of their bill being sent to them I don't know exactly and I don't want to speak out of turn but there are incentives for paying early paying on time paying in full I'd like some of those incentives to be looked at those incentives can go across the spectrum whether you're high income or low income granted generally higher income will be able to pay in full ahead of lower income people but those are incentives that are helpful so with respect to incentives again a whole suite of services whether it's benefit for lower income people whether it's incentive for paying earlier and on time any of those those programs would be appreciated Thank You mr. president

▶ 1:21:31 Speaker 1: Thank you. Anyone else on this order this evening?

▶ 1:21:35 Scott M. Forbes: Alderman Forbes. Thank you, Mr. President, and thank you, Mr. Fox, for being here. I know I was at the commission hearing today. This afternoon has been quite a first day for you. I know in attending that meeting today, I know that you're not done with your analysis as of yet. I know we were presented with a spreadsheet that had many different data tabs that went from billing to percentages of volume, frequency revenue cash flows reserve funds and then moving over into calculating rates and design models so I was impressed with your your presentation today there's a lot of data that's involved I think here's a board we're concerned because we have to make the right decision for our residents and so we do rely heavily on the consultant in in your professional opinion in order to get us to the right place I think I can echo some of my colleagues here when I say that affordability and being able to defend the rate is is really what we're what we really need to prioritize here I know that you said that you'd be presenting up to five or six different models for us to take a look at I applaud that because it gives us a variety of choices in which to in which to kind of think whether we're in the box or outside the box we can make the right decision for the residents of Melrose I think we all have that in the forefront of our minds it's never easy to set these rates we all have to pay our water and sewer bills we're all residents of Melrose so I hope that moving forward and I know that you're going to be presenting that to us in a couple of weeks I look forward to seeing those thank you very much mr. thank you

▶ 1:23:18 Speaker 1: all them anyone else okay the orders before you what's your

▶ 1:23:27 Speaker 1: pleasure okay why don't we go one at a time motion a table okay there's a

▶ 1:23:32 Speaker 1: motion to return the order to the table is there a second second that motion is seconded by alderman Forbes motion to table is non-debatable therefore I'll call for the vote all those in favor of placing the order on the table indicate by saying aye aye anyone opposed motion passes the order will be laid on the table thank you gentlemen for coming in this evening thank you thank you very