Well, welcome everyone to our study session on September 11th.

Uh beautiful morning in Mace, Arizona.

We have Councilmember Duff and Councilmember Adams absent for the meeting, and they're excused.

Other all other council members are there.

Before we start, we'd like to uh like to say a few words about as we pause to remember the events of September 11th.

Thank you for uh last week we had a moment of silence, but 24 years ago, uh those images are still with us today.

Uh the bravery of the first responders, the resilience of our everyday Americans and the lives that were lost is a reminder of both our nations and our enduring strength that we stand together in light of the current events.

Uh yesterday's assassination of Charlie Kirk and the political violence that's out there is so unnecessary.

It is also a reminder that we must remain committed to unity, respect, and finding common ground, even in times of division.

Violence has no place in our democracy, and we honor both the memory of 9-11 and those who have recently lost, especially Charlie Kirk and what his family's gonna go through.

With that, with a somber meeting, we're gonna start uh today's council meeting.

Uh item one is to review.

I I hate even doing that after that statement, but uh item one is to review the agenda for uh next Monday's council meeting.

Council.

I made some notes.

Uh 5D is an irrigation water delivery district and IWDD.

Those are so necessary for these older uh subdivisions that allow them to do improvements in their irrigation districts as they age.

Uh I believe we have 7A uh Park North Fam multifamily.

I'm sure that might come off the consent agenda.

Let's take 7A and 7B off consent.

I know there's gonna be a lot of folks showing up on that meeting.

Anything changed?

No, nothing's changed.

Nothing has changed at all.

No.

So what was the decision to put it back on if nothing has changed?

Just because they want to move forward?

Yeah, it was that.

Yeah, we did a continuance.

I know we did a continuance, but the goal was to maybe have a you know some coordination with the name of the Mary can clarify, but it was this was at the request of the uh of the landowner of the developer.

That's correct, Scott.

So uh Mayor, Council members, it was introduced and it was continued, and they have asked for it to be put back on the agenda for council to make a fun take a final action on it.

We did um have several conversations with them about the different issues that council had brought up, um, but at this plan point the plan has not changed, and the development agreement um has not changed.

There may have been some tweaks, but nothing really substantial has changed in the DA.

And I'll make comments again.

I'm just gonna make them shorter.

Oh, the same comments as last time.

So thank you, Mayor.

You're welcome.

Miss Spillsbury, answer your question.

Yeah.

Okay.

Uh I know there's a question on 8A about multifamily, but uh Mary disclosed it is a platted now for sale project.

Is that correct?

That's correct.

Okay.

And looking forward to uh 9C, the price matter two.

There was discussion on that the last uh introduction, so I'm sure that will come off good soon as well.

So all right.

Mayor, I will um highlight, of course, this is early, like we said, so if if council has any questions of staff, don't hesitate to to let us know during this um interim until we hesitate.

Yeah, exactly.

Uh the other point though, just to just to point out on items um 10A and 11A.

This was um certainly a response to council's uh desire to to try to get input earlier in the process, and you'll see this later as we uh work through our budget process as well, just getting opportunities for uh input from our residents and and others to um provide earlier as we start the process.

So as we kick off our uh couple of month discussion on on utility rates and and uh other fees, then we'll be able to have some input from the public earlier in the process.

Good, very good.

That'd be welcome news for most.

Okay, we went through the agenda for September 22nd.

Uh moving forward, uh 2A is a presentation to discuss in pride for direction on the recommended water and wastewater capacity fees.

So Chris and Jesse.

Deja vu.

So this is kind of going to be a new concept capacity fees, is that correct?

All right.

Uh great to hear about this.

Okay, good morning, Mayor, Vice Mayor, Council.

Uh so we're we're doing things a little bit differently this year than the normal rate season, um, which we come back here every fall.

And after this presentation, we are gonna then uh transition into the rates discussion.

But we first wanted to talk to you about something we've been signaling to council for probably a a year or more, and that is has to do with uh a capacity fee, which is uh putting into place um a system where growth can pay for growth.

Um we don't have anything like that now, and that's part of what's driving us here today to discuss this with you.

Chris or Scott, was there something prior to that?

I I think of the word impact fees.

So is this kind of a different uh right, correct?

There were impact fees, and uh those phased out in 2023, the wastewater impact fee phased out, and in uh late 2024, the water impact fee phased out.

So at present, um we're a city that has no fee.

And when I talk about a fee like this, it's a one-time connection fee for new development, and uh, or also redevelopment where a meter is being upsized to to require additional capacity on the system.

Okay.

So we'll get into defining what it is exactly, how we calculate it, what it's what it's gonna pay for.

Um the first thing I want to talk about, there's there's really two um whys, if you will, in terms of why we need this.

And the one has to do with something I just mentioned, which is we don't have a mechanism in place right now.

So any growth that we do is strictly on the backs of the existing ratepayers.

And and that's a compounding effect.

So the capacity fee is a one-time fee where new growth comes in, they pay for that incremental share of growth that their development was imposing on the system, whereas if it's on the existing ratepayers and there's higher rates initially, uh that compounds year after year after year.

So that's one thing to keep in in mind.

Um the other question we're answering is is timing.

So in the audit and finance committee, we talked about uh a project that's under construction right now.

It's uh the Gilbert McKellops Relief Sewer.

So that sewer, it's a 15 million dollar project, it's a growth project needed to accommodate additional wastewater generated in the north central Mesa area, uh, in particular the Lehigh area.

And that was on our radar, it was in the master plan.

In fact, we had already designed the project, but we were looking at doing that probably three or four, maybe even five years down the road.

Well, the development, which is very unpredictable, and that's another factor in this whole picture.

Development is very lumpy and unpredictable.

Well, development really picked up in that area, uh, wastewater generation increased, and we started to surcharge the sewer, meaning we filled the pipe, not only filled the pipe but backed up flow into the manhole.

That caused odor issues, and that triggered us to put in sensors so in real time we could see just what the flow was doing.

And that's how we we found that through parts of the day the flow is is surcharging into those manholes.

So we couldn't wait any longer.

Um so we got to a point just to give you an idea of the implications.

Uh Maricopa County will not uh grant permits for new developments to actually finish construction and and put their new development into service if there's no water capacity or wastewater capacity.

So in this case, it would be a wastewater capacity issue.

So Mayor Cobra County looks to us to certify that there is capacity.

So if we have a situation we know there's no capacity, we can't say there is, that would be fraud.

Um so we were able to work out something with the county for this particular situation where we're able to verify that yes, this project we are pulling it forward to start construction.

And so we're gonna be running in parallel with developments that are building.

So we were able to work out a um a conditional acceptance, if you will, for projects that are are moving right now.

But when growth projects become necessary a lot sooner than we had planned, we really have to do that.

So that's a long way of saying here's the implications.

We had other critical projects ready to kick off, um, critical pipe inspections, uh equipping well sites that we had drilled.

We had to put some of that on hold, $15 million worth, whatever that equivalent amount was, and defer that out.

With projects we've already deferred, we've already deferred 180 million dollars of a rehab and um life cycle projects.

So that's another reason.

We wanted to create a capacity fee so that new growth as it comes in can pay for their incremental share.

So is as it stands right now, um our existing customer base um has demands, water demands and generates wastewater that would not require any more expansion of our infrastructure.

If we had no more growth today, we would not have any more expansion of our infrastructure.

Um but that's not the case.

So uh we're gonna go through in detail and just show you how we built this and let's start with what it is.

And a lot of this I talked about already, so we'll go through pretty quick.

So it's a one-time charge for new growth.

Um Jesse's gonna get into how it's calculated and what type of projects.

Um we have actually about 400 million dollars worth of projects that we need to fund that are strictly growth over the next 10 year period.

And I should point out that this came out of uh the integrated master plan that we just finished.

It was probably the most comprehensive master plan our department has ever done, and it takes a very hard look at not only not only reconstruction or rehab, but also uh relevant to today's discussion growth.

So let's go to the next one.

So, Chris, just backing up, you say 400 million dollars over 10 years, and that's just water-related growth.

It's merits both uh water and wastewater infrastructure.

Strictly for growth, and I'll and we have a list at the end, but half of that is the expansion of the signal butte plant.

So that is to uh meet the growth demands um in east and southeast Mesa.

Gotcha.

Thanks.

So the capacity fee, it's a one-time charge, it's for new connection, and it's um complies with ARS 9-51101.

So that is so ARS 511-1 gives us, gives a city as a water provider the ability to impose fees, water and wastewater fees.

It's generic in that sense.

Um, but the capac so the capacity fee in itself is more of a national standard, it's a national practice, it's practiced all over the country.

It stems from AWWA manual M1, which is a it's a very thick book that gets into rates fees, um, the methodologies behind it.

But capacity fee is one of it's it's a fee that is really with the intent of um having growth pay for itself.

Uh this map, this comes right out of the integrated master plan that I just mentioned.

It's uh shows our whole service area.

And um one thing I want to point out is that we're the city is about 85% built out already.

So this 400 million dollars is really just to build infrastructure for that vacant 15 percent.

So all of these different colored uh shapes uh are different land uses, that's what the different colors are, but they're either vacant or underdeveloped parcels.

So these are the parcels in in question.

And I should also point out that 90 percent of the remaining development, if you look at all those shapes and those colors is uh commercial and industrial.

So big data centers, uh manufacturing, um really the whole spectrum of commercial, and that only about 10 percent of that growth is residential.

Ms.

Goforth.

Um back on the previous slide, Chris.

It's a that the fee is designed to cover um the portion of cost for construction.

What about for ongoing operation?

Is there a way to calculate in for that as well a little bit?

Or is that just go sure and increase rates?

Mayor council member go forth.

Um so that if we want to really strictly comply with the practice uh of M1 as a capacity fee.

Um we had Black and Beach, our consultant on the master plan.

Um they have a lot of experience and skill at doing these kind of fees.

They worked with us and they wanted to make sure we wanted to make sure that we complied with every step um of the requirement.

So it doesn't bake in operations costs, it's really just a capital, it's a really a capital charge.

Okay.

Oh, and to I guess to finish my answer to your question, uh operate once something is built, then it's considered OM until you get 20 or 30 years down the road, and then we're actually rehabbing that asset.

But the the light initially there's not much OM with a new asset.

So our signal butte plant that we just built has relatively low maintenance compared to the Valvista water treatment plant, which is one of the oldest water treatment plants in the state that is a lot more uh ongoing lifecycle work needed.

I guess so it'd be different if we were building a new plant, but we're just right, that would be a lot of new operating personnel and and different expenses.

But you're saying with to cover the existing growth, it's not gonna change much of you're saying the OM initially for the first couple decades.

Correct.

I think that's fair to say that's what that's been our experience.

When you you build a new pipeline, um, we're not even expecting it, it's gonna do an inspection on it for several years.

When you build a new plant, um, it's just general maintenance, it's the chemicals, it's the electricity.

Um, there's not a lot of uh lifecycle rehab to do for the first several years at least.

What about new personnel?

Do we have to, you know?

We add new when we do an expansion, for instance, signal butte that we're expanding right now, uh, we build into the CIP initially uh the staff that we need to bring on to help facilitate that that new expansion, and then they become absorbed, they become part of the OM budget down the line.

So they do add to the OM budget down the line.

Okay, so I don't think I have anything else to add on the map.

If we go to the next slide.

All right, Jesse.

Sure, thank you, Chris.

Mayor Council.

So I'm here to talk about how the fee is calculated, and you you'll have to bear with me, there's a lot of tables and there's some math involved.

Um, as Chris mentioned, uh, we use the American Waterworks Association manual uh for principles of water rates, fees, and charges.

And that's that was basically the guiding methodology on how we calculated the fee.

And as Chris also mentioned, we use the incremental cost method, and so that method, the way that method works is you take you're only looking forward.

So we assume that our existing customers and our existing capacity can our existing capacity can meet the demands of our existing customers, and that our existing customers have paid for that existing capacity to be constructed.

So we're only gonna look at the new customers we we plan on adding and the cost to build or expand the existing capacity.

So it's only looking forward.

And as Chris mentioned also, uh, we just completed our integrated master plan in April of 2025.

So that master plan identified the 400 million dollars worth of costs and what those projects are in order to be able to accommodate that remaining um vacant parcels.

So here, this is just right out of the M1 manual.

Um I just show this to kind of orient everyone so we can talk about what the city puts in and what the developer puts in.

So on your right bottom, you see a house.

So the developer is responsible for putting in the meter up to the house, which the manual calls customer facilities per city code.

The developer is also responsible for what we'll call the connection facility.

So that's the the water line and the sewer line that are in front of the property.

Um they have to put in the half street and then the water and sewer in front of the property.

The city, the city is responsible for the what we're gonna call the system facilities.

Those are the transmission mains, uh, the large diameter regional pipelines, the treatment plant, the pump stations, the storage tanks, and the connection to the water supply.

So now we're gonna get into a little bit of math.

So we're gonna take the capacity cost, so that's the cost that that it that we need to pay to expand.

Then we're gonna divide it by how many gallons per day that that capacity adds.

So we're gonna come up with a cost per gallon per day, and then we take that unit cost per gallon, and we're gonna multiply it by a service unit, and we'll do we'll define a service unit in the next slide.

But a service unit is kind of your lowest common denominator.

In our case, that's a three-quarter inch meter.

So we're gonna figure out how many gallons per day a three-quarter inch meter customer uses.

So we'll take the unit cost per gallon per day and multiply it by a gallon per day, and then we end up with a cost for three-quarter inch meters.

So here's a list, uh, a summarized list of the projects that we expect or or identified in our integrated master plan over the next 10 years.

And as Chris already mentioned, the 200 million dollars is the expansion of the water treatment plant at Signal Butte.

Uh, there's pipelines, pump stations, groundwater wells, and then there's much less on the wastewater side, it's just lift stations and pipelines.

So adding all those up, that's the 400 million.

Okay, so now we have to derive the service unit.

So the way we derive the service unit, and this is just right out of the manual.

We take the number of customers that we had last year, 128,000 three-quarter inch metered customers.

We look at how many gallons those customers used over the 12 month period.

In this case, it's 12 billion gallons.

And to put that in perspective, the city as a whole last year used about 32 billion gallons.

So the three quarter inch customers use about 40% of the total.

So we take the 12 billion gallons, we divide it by the number of customers, and then we get an average for the year.

So the average three-quarter inch customer uses 93,000 gallons a year.

Um we divide that by 365 days, and that's 257 gallons per day.

Now, water treatment plants and pump stations and pipelines, they have to be sized for the maximum day of the year.

So here in the Valley, um, due to temperature and outdoor uh water demands, we see much higher usage in July, June, and July, and much lower usage in January.

Um average day typically occurs around uh March, April.

So 257 gallons per day is about what your average customer would use in in April.

So we have to then escalate that up with the peaking factor.

So our customers use about 50% more water in July than they do in April.

So, and again, that's out of our master plan.

So we take the 257 gallons per day, multiply it by 1.5, and we get what the demand is for a three-quarter inch meter, which is 385 gallons per day.

Now, Jesse, those are typically residential customers.

Um three quarter inch typically, yes, but there are quite a lot of smaller um commercial cost commercial buildings that have three-quarter inch meters, so it can be commercial.

So this is a general average.

I'm just thinking if I were a customer that has a one inch or inch and a quarter or inch and a half line, how does that apply to this uh scenario?

We'll definitely get to that.

Yes, definitely.

Sorry to get ahead of you.

Yeah, so just think of it like we have to first define the lowest common denominator, and then we'll scale it up for the larger meters.

Okay.

Okay, so for a wastewater, we don't actually have a meter.

So we meter the water into the building, we don't meter it out.

So we have to do a little bit of inference to to try to figure out how much wastewater that customer is generating.

So what we do there is we take our same population of meters, 128,000 meters, and for wastewater, the way that we do the wastewater, and this again is out of the manual.

We take the the winter average.

So that's typically December, January, and February.

And the reason why is outdoor water usage is almost nothing in the winter.

Um, but just to be safe, we multiply it by 90%.

So we take the three lowest winter months, we average them, multiply it by 90%.

So that gives us 720 million gallons a month.

We take that 720 million divided by 128,000 customers, and we get 5,593 gallons per month.

We divide that by 30 days.

So our average wastewater customer is returning 186 gallons per day.

So the average water in is is 285, we're getting 186 back.

And then for wastewater, we uh have to escalate it for the maximum day.

The wastewater system has a much lower peaking factor than the water system because your indoor water usage doesn't vary a whole lot.

Um, just an interesting fact.

The maximum wastewater day that we see in Mesa happens to be in March, and we believe that's due to spring training.

That's when the most people are in the city of Mesa using water inside.

So we take that times 1.1, we get 205 gallons per day.

We're almost done, we promise.

There's a lot of coffee out there.

Yeah.

Not enough.

Yes.

Uh so we take the capacity cost, and then we divide it by the capacity that's being added in the next 10 years.

Um, and then we get a that unit cost.

So 320 million divided by 60 million gallons per day, we get 20 dollars per gallon per day multiplied by the service unit, and that's how we come up with the equivalent fee.

We do a similar thing on the wastewater side, and that's how we come up with the two fees for a three-quarter inch.

So now to answer the mayor's question, how do what do we do for the larger meters?

So now we have we have identified, we've defined what it is for the lowest common denominator.

We're now gonna multiply it up.

So based on the flow that a meter will put out, that's how we use it to scale up.

So a three-quarter inch meter can flow 30 gallons per minute, a one-inch meter can flow 50 gallons per minute.

So a one-inch meter uses 1.67 times a three-quarter inch meter.

So we basically then just take the fee and multiply it by 1.67, and that's how we get the fee for a one-inch meter.

And then we just do that all the way down to 10 inch.

So you could have one 10-inch meter or 183-quarter inch meters, and you would use the same amount of flow.

So that's how we size it for the various size customers.

And then if we want to look at where we stand today, so you can see the bottom line.

So today, as I talked about, we don't have any mechanism in place to impose upon new growth, um, everything, whether it's reconstruction, life cycle uh growth.

Right now, it those those costs are borne by all the existing rate paying base.

If we were to um initiate these fees, looking at the water and wastewater, we'd be about $9,500 for the three-quarter inch meter, and then going up in size with the larger meters.

But you can see for the three-quarter inch meter, how we stack up against um other cities around us and in the state.

Um we're somewhat in the middle, um, probably a little bit lower.

You can see Phoenix, um, they had just increased theirs, they're close to $30,000.

Um, so we would be quite a bit less than that.

Tempe is the lowest, they're 4,400, but they're essentially built out.

Um, we are not built out, as I mentioned, we have 400 million dollars, at least that we identified today, and that's another good point.

With this capacity fee, if we establish initial values like you're seeing in front of you, um, we intend on about the same interval as we update our master plan about every four or five years.

We would then, as part of that, do another 10-year look ahead and just to make sure that we're on target, and if we need to adjust, we could do that.

Okay.

And then the conclusions are really things we've we've already talked about.

Um this would create a separate revenue source, a one-time revenue source, so that that new growth would pay the incremental cost of of building in those new larger pipes and expanding plants and doing the things that are only required and only driven by that new growth.

It protects the new customers in a number of ways.

One would be the variability and the unpredictability of new growth as it comes in, because like I said, that could be disruptive to the CIP, and that would cause us to defer projects like this uh relief sewer that I talked about earlier in the presentation.

And then we also intend on creating a separate bucket, if you will, a separate fund for um revenue collected through the capacity fee, and then that that uh revenue source or or stream would pay for new projects as we tackle those.

So, with that, I think that was the end of our presentation, and we could take any questions you have.

I should add that so as we transition into the rates presentation after this, we are gonna show you, like we always do, what our proposed rate uh increases are, but then side by side in that presentation, we'll show you the difference between if we did not have a capacity fee and if we did initiate this capacity fee, what those differences and rate increases would be for the different customer classes, Mr.

Butler.

Mr.

Mayor, counsel, I I think uh sometimes you know it can be a bit arduous to show how the sausage gets made, but I think it's important in this case, one because this is a new fee, but but yet again, it just shows the work uh and the background that goes into establishing this under the parameters of state statute and and like um they mentioned we brought in a national consultant who works and understands fee structures like this to uh advise us and help us navigate through this.

So this wasn't an arbitrary number that we came up with, um, but to the point of growth paying for growth, which I think is a philosophy that you know we all share, because if not, that means that every dime spent is going to our existing ratepayers to subsidize that new growth.

And I don't think that's the philosophy that this council adheres to, and so this is a mechanism for us to uh that's allowed under state statute to go out and capture um growth uh and and putting that back into the infrastructure that it is causing for the needs of expansions and upfitting and everything like that that um the gentleman discussed.

So I think um, you know, we just have to keep it too at this philosophy of it's important we believe to get this fee in place because if not, I mean, as you saw from the chart that that they had, that's nearly ten thousand dollars each time uh that's being borne by the ratepayers because until because right now, as of today, we have no water or wastewater fee, those of sunset.

So every time a new meter comes online, it's being borne by the ratepayers until we can get this fee in place to allow growth to play and to pay for growth.

That's the simple philosophy that we wanted to bring forward under state statute um and using the the tools in the toolbox that have um been given to us in order to ensure that philosophy of growth paying for growth.

Go ahead.

Mr.

Reddy.

Uh two questions.

I if do you have a table that uh highlights how many I know the majority of users, though it's around 40 percent of who we have that use water um are uh quarter inch, but do you have a table that shows who how many um customers we have from one to 10 inch meters?

Uh and then my second question is I don't I'm not sure if I'm doing the math right, but it seems like across I did just a uh division on like the total cost to the max flow, and it seems like it's the same for everybody.

Um why wouldn't we tier, or maybe I'm doing it wrong, but why wouldn't it we tier the larger uh meter sizes more on them as far as costs on the capacity fee than the quarter-inch uh uh customers?

Okay, sure, mayor, council member Heredio.

So you asked a lot there, so let me unpack it.

So it was simple for me, right?

But uh I know that's probably it's more complex than that.

I would say so.

Instead of a tier, you already see if we can go to the chart that shows the different meter sizes that one there.

It's it's already exponential because if you look at a three-quarter inch meter here, and you look at uh one and a half or one and a half is double the diameter, but it's not double the the multiplier, it's it's three and a third uh times as much flow.

So it's already by the time you get up to a four and an eight and a ten, it's an exponential curve to how much water.

So we're really looking at what is the capacity of that meter to flow of water, how much water can go through that, and because it's already exponential, um I think it's already uh it's already achieving, I think what you're asking.

So I don't I I'm miss I understanding the multiplier then.

If you know when you look at the max flow and the total cost, everybody has a cost or uh uh it's it comes out through 317 for each one.

Um so I don't know if I'm misunderstanding as far as how much they pay at as far as seems like all throughout from the the the three quarter to 10 the scale is the same as far as the pay for the capacity fee.

I think to see what why wouldn't we scale it more?

I'm assuming like it would cost more to as far as infrastructure for us on a 10-inch and eight inch uh to for them to pay more because it just costs more for us to build that.

And and it seems like the growth that we're gonna have in the next 10 years, 90%, you said, I think, um, is these large users that it probably not the quarter inch or uh or the the third thirty-five, but it will be these you know larger diameter meter sizes, right?

So yeah, so mayor, council member Heredia.

So if you if you look at the other thing here, what what we're trying to do is get everybody to pay the same cost per gallon, right?

So a three-quarter inch meter pays a three-quarter inch meter can use so many gallons, and a 10-inch meter can use so many gallons.

Everybody's paying the same cost per gallon.

Um so you are correct that it it does scale up that way.

Um so a larger building will by necessity have to put a larger meter in, and they all pay the same cost per gallon.

So that's how we make the rate fair that everyone's paying the same cost per gallon.

It's just larger buildings, more commercial properties tend to use more water, so they'll pay more side.

Wouldn't it cost us more to build those than the the quarter the three-fourth inch?

Or is it uh maybe I'm not maybe statutes, like we have to make it fair.

Uh I'm you know, I know Jim popped up here, so maybe I'm I'm playing into the statue of what it has to be spare, but I I'm just I'm just seeing, you know, it will cost a lot more for us to build these larger meter sizes, right?

Why wouldn't they pay more of a share of those costs than the the uh you know the quarter inch, right?

Well, I think for the council member, I think that your transmission or delivery pipelines are a certain size diameter, and you uh attach your meter to those pipelines.

So that pipeline is still the same diameter, and so they're just increasing or decreasing the size of the meter off the same transmission line or delivery line.

Yeah, I think one thing it's really important to understand is so we wanted to comply um to the letter of the law with the M1 practice, the standard, and that standard is the first thing you do is you get the total cost, which is 400 million, you look at how much capacity um that cost is is adding for you in the system water, and then we did the same with with wastewater, and then f following that practice, you distill that down to the least common uh unit, which is the three quarter inch, and then once you get a flow of flow for that unit, then you're just extrapolating all across the other meter sizes to get to the total you're gonna at the end of the day, we're gonna collect the 400 million.

It's just we have to comply with the standard to for that distribution of who pays what.

Um but the 10 so the 10 inch meter is significantly I think it was over it was almost a million and a half dollars for a 10 inch meter.

And then so the the other part of your earlier question was how a chart with how many of these meters.

So a 10-inch meter you can count on one hand in this in the system.

An eight inch meter, maybe you count on two hands, then six and four starts to get there's more of that.

But um, I think what we want to assure you of is that we we complied with the practice in that manual, um, and that's why we enlisted the help of that national national firm Black and V each to make sure um we had a lot of coordination with them, they had some good input.

We and then they wrote a a letter of endorsement or certification that went with their review of our of our study of our report, which is um there for your for your viewing.

Um we do have a table when we get into the race presentation.

We have a backup slide that does have a good breakdown because you had asked a question, Councilmember Heredia at the Audit and Finance Committee session.

Um we have a nice table that uh gets to the heart of your question in terms of how like how many customers are in the tier one and the and the tier two and so forth, and I think that'll shed some more light on the customer classes too.

Ms.

Spielsbury.

Well, it does I think this had to do with your did you want to go?

Well, I I was just gonna say I think you're you and I are thinking the same as far as ongoing, maybe stress on the system.

So a bigger uh a bigger customer, you know, is is paying that unit cost and more more of it because there's more units, right?

Um initially in that in the um the build-out, but ongoing, it's also more stress on the system, right?

And and will require uh main sooner maintenance because it's it's more there's more flow.

So I don't know if that is what you're that's what I was kind of getting at as to the ongoing increased burden on the system from a larger customer.

Or was we don't have a way to do that.

And I I don't know if that Frankie is that kind of what I think that's part of it.

I I think my my piece is like we're we're trying to tier these costs uh in other aspects as well.

Why wouldn't we tier these costs to be more equitable?

It it seems like I I know they're paying over a million 1.7 million right here in this table, but it's the same scale costs.

Um you know, they're gonna make millions, hopefully, you know, building these large warehouses, right?

But it it's the same scale cost to a quarter inch meter.

Well, another way to think about it too is so if you're looking at ongoing, so you pay the one-time connection fee, is that the service, so the base rate, and we we'll get into that, or we can't get into that with the rates, the base fee is uh extremely more expensive for those larger meters as well.

But not the unit, I don't think I have a question on that.

This the next presentation.

I mean, the unit fee is not more from my fuzzy math.

I mean, I'm not you know Mayor and Council, if I can if you and it's always dangerous when an attorney has to talk about math, but if you go to the chart that says the that you have the peaking rate, and so no, the the multiplier that you peak by like 1.5 for for water.

Oh so if you see that last line, the average daily demand and max demand peaking factor 1.5.

See, they're assuming an oversize for that peak day.

And so on the rate side, that's why you have tiered rates as in order to handle the fact that there's a peaking, the rates have sort of a peaking effect.

So it's built in already.

So now to also do it again a second time to tier it, it's already tiered on the capital side.

So you see, that's what that's capturing is the that peaking oversize that you need for that summer month.

And so it's built into every single one already.

And so that's why you can't tier it again.

And so that's I think the answer to yours, Councilmember Heridia.

And then Councilmember Goforth, the the fee both by industry and by standard um is is that this is a capital improvement um fee, and that's what we can capture.

It's not for OM, and so we can't we can't sort of pull that in.

Um that would get us back into probably some sort of legal challenge to try to pull in sort of ongoing future, you know, decades from now on replacement cost.

Um that's part of the rate.

The the rate payer, that large industrial user that's using a lot of water that will have to embed that in our rate, and we need to, and you'll see here in the next presentation, we're going to increase our rates on large industrial users.

For sure.

But and I'll ask this then, but I don't think we're increasing.

I mean, I think to Frankie's point, the the fee per gallon is actually lower in some cases for commercial than it is for residential.

You're you're correct.

I think that's what you're and we're gonna get into that, and then we we're gonna show you um, and that's historically been the case.

Um Mesa used to be predominantly a residential community, and there was the the thought that you know we we want to encourage commercial development.

So those rates were lower historically, and especially over the last few years, we have started a trajectory to where we try to create parity or equity between the residential customer class and the non-residential, and in our prior presentation to audit and finance, we showed a plan to get to parity between those classes in fiscal year, I think it was 27-28, and then there was some good feedback from the committee to see if we could accelerate that.

So we've modeled that, and we are going to present that today to try to get to parity sooner, um, more like a year and a half from now rather than three three years.

And I'll have some comments on the definition of parity in this situation.

So Miss Spielsbury.

I know, I'm trying to wrap my brain around all of this.

I I guess my main question, I have two, but why when the capacity rates sunset it, did we not do anything about it?

Why did we wait three years to do something?

Well that person's gone.

Well, well, no, I mean that that's what I'm wondering.

Is that I mean, I don't I think we uh maybe we were growing.

Mayor Council Member Spillsbury, I think we we saw the the the it was either water or wastewater that didn't sunset until until late 24.

Is that is that correct?

So we're correct.

It was water, it was wastewater the year before.

And so it you're right, there's a gap, but what we're trying to do is make sure that gap doesn't exist for too long.

So, you know, Monday morning quarterback, could we have moved faster on this?

You likely, but now I think that is.

So I guess I'm just confused of how we even let there be a gap.

Yeah, and and I think um, and Chris mentioned this too.

I think what we see through this mechanism too is a way that we can stay on top of this as we move forward, as our master plans adjust and other things like that, we'll be able to be more nimble uh in in the way that we're able to make sure that these costs are captured in the future.

And part of the timing has to do with we wanted it's very data intensive.

We wanted to make sure we had good accurate data that we could hang our hat on, and that data emerged from the integrated master plan, and that was just finished in the spring.

Um, so it was even going back to um last year's budget cycle when we started to first talk about um our intent to explore and move towards a capacity fee.

So it just took time to work through the finish the master plan first of all, and then to get everything together, write the report, get assistance from the consultant, and then get to where we are today.

So it just took a little time to do that.

Okay, and so I'm assuming this is um the same as all the other presentations today that they would be voted on and not till December and going into effect at a is this is this different than all the other rates we're talking about today.

It would be in effective January first.

Right, it would be introduced on the 22nd of this month.

Um the introduction of the capacity fee ordinance itself would be November 17th.

Okay, the vote would happen on December 1st.

So, but then these would go into effect January 1st.

Correct.

Okay.

Uh I my other question, and maybe you said this and I lost it somewhere, but on page 13 with all the different cities, we're quite low.

And I'm wondering why everyone else is so much higher.

I can't speak for the other cities.

I don't I don't know what's driving really you have to look at what are your projects and really just at face value, that's as simple as it is.

And and I would say, I mean, just speculation on this.

I mean, if you look at some of these, and I know the Phoenix Northwest corridor is is identified.

I mean, if you're familiar, I'm assuming that's up around the TSMC area.

I mean, infrastructure is definitely lacking in that area pretty much system.

Exactly.

Yeah, so I'm sure that required a tremendous lift by the city of Phoenix in order to provide the infrastructure in in that in that area.

Like it like flag staff kind of jumped out at me, right?

Because like what is there some massive growth that's happening there that I'm not aware of?

It's just such a smaller city.

So I'm just well, you're spreading out they probably have less infrastructure growth needs than we do, but you're spreading it out over a smaller amount of vacant parcels.

But the all the other cities are going off of the same formulas we are to come up with their costs.

It's somewhat different.

I think this blends we because we want to give a perspective of why uh a potential customer would be paying for this.

I think some of this blends what impact fees that they're paying um in those respective cities if they don't have a capacity fee.

So we just want to try to give you some magnitude of scale.

There are differences in that though, the the the calculations, and like we said, we can't speak to you know their their infrastructure needs, but it was just to give you a little bit of scale uh in in understanding you know where we are relative to if you were going and building a home in one of those other communities, what you would be paying in an impact fee for for that.

And it depends how far you're built out.

So at 85% built out here in Mesa, we're following and where I'd expect us to fall.

Um Phoenix, especially Northwest Phoenix, in that TMC area, there's a tremendous amount of growth that needs to happen, so there's a lot more they have ahead of them.

And and that explains also why Tempe, which is essentially built out, is the lowest.

So because we I mean it feels like there's a lot of things being built and stuff, but our infrastructure is in place, maybe more so than the other cities.

In parts of the city, but from that map we showed, there's parts of the city um where half of the 400 million is just expanding this large plant.

It's already large, 24 MGD to 48.

And then if you get in the pay the PECOS corridor, so you get way southeast Mesa.

We have um, Jesse, do you remember the total cost of that interceptor sewer?

It's I think that's a 40 million dollar project in itself.

So we're building these trunk lines, some transmission means a lot of interceptor sewers, um, and then these are the big ticket items that are driving that cost.

Okay.

And then in the report itself, um, we have a cash, so we have an individual list of projects by name, and then we have a cash flow over the 10-year period, we cash flow those out.

Okay, sorry, one more question.

The I shouldn't say sorry.

Um the is this something that we'll be looking at every year to change, or you said this stays the same way for Mayor Council Member Spillsbury.

We'll we'll approach this at the same interval we do master planning because that's when we're gonna get the best data, and that cycle is about every four or five years.

Four to five years.

Okay, so this is not something we will change every year.

We would not.

Okay.

So we're establishing an ordinance on this to move forward if council passes that.

We have one more question.

Go ahead.

Does this include like drilling groundwater wells drilling, additional wells and sure.

Uh Mayor Councilmember, go forth.

It includes so it includes a lot of weld equipping.

We have about six wells we've drilled already that have not been equipped.

We've drilled them, we've capped them off.

And a lot of it has to do with just rising costs.

So a lot of that's been deferred because the existing rates that we have in place can't afford to cover all that.

So we've had to defer quite a bit of well work.

Um this would allow us um frankly to be able to have less uh or have more predictability because there won't be these growth projects that move forward to absorb those capital funds, it'll be a separate bucket, and then we could have a more predictable path for things like equipping wells.

Thank you.

I have one follow-up question.

Once we, if this is approved and we get the capacity fees, what are we intended to do with those monies?

Uh Mayor Freeman, so the the money goes into a separate fund, and Jim, I don't you can correct me if I'm wrong, but I think the intent was to have this bucket or this um source of funds not uh subject to the general fund transfer.

Is that correct?

So it won't be part of the you know the calculation for utility rates gross revenue for purposes of the transfer.

So none of this it will not increase the transfer, it'll be kept separate and it'll be used for those capital projects.

So basically we're reinvesting in our infrastructure.

Correct.

Okay.

That was one of my questions.

So does does that mean that we would be using cash to pay for the for future projects related to these developments, or would we still be using bonds and repaying those bonds?

That was my next yeah, I got ahead, yeah.

Mayor and Vice Mayor, it would it would definitely be a combination of both.

I mean, this this would be part of our um revenue source that we would be able to use to pay back um those bonds, but it would be a mixture, and Brian.

We brought the financial gun.

Exactly.

Good morning, Mayor and Council Brian Richel, Office of Management and Budget Director.

Yes, Mayor, we would it would be a combination.

At first, we wouldn't have the cash because we're doing the projects now.

So once those meters get set and we collect that fee, we would start putting it into that separate fund.

And as it grew, we would pay either cash for future for those projects, or when we issue debt, that specific revenue would pay for those specific debt services for that project.

Well, that helps in offsetting some of the burden of our residential and commercial industrial customers, especially on our bond repayments as well.

And I like using the cash concept to help offset you know future bonds and and cost to our uh residents.

And just in in doing business in general.

Absolutely.

Um have you analyzed how much money would be generated, I think, through this, uh Ryan.

I mean, if it in the first year or are we using the first year, or we use it?

I know it's based on growth potential, I'm sure.

I I can answer that, Mayor Freeman.

So we look so using the master plan again, we have a pretty good curve on just the pace at which development would come in through the customer classes, and that analysis yielded about one and I think one and a half million dollars per month.

About 18 million dollars a year, based on the trend of development.

Okay, and that's just the trend.

18 million per year.

That's pretty significant.

It is Ms.

Billsbury, I don't know if you have a thought.

Oh, you can see that on my face.

I'm just we need 400 million though.

Is that what you said?

Correct.

Because 18 million a year would take a long time.

What am I missing?

Over 10 years.

Yeah, it'll take it'll take quite a while.

Oh, over 10 years is when we need the 400 million, right?

That uh no, 10 well, 10 years is just in that window.

That's when we would develop those projects.

Yeah.

If it took if we hit a recession or we hit something that slowed down development, we would collect that slower.

It could stretch out over any number of years.

It could be 12, it could be 16.

Could be all the way to build out.

Well, it would be it would be all the way to build out, I think is the best way to answer that.

And that's why we'll continue to look at this on and 400 to build out.

Right.

Right.

Well, it's 400 based on our best view now in the master plan for the next 10 years, but we don't anticipate much beyond that those 10 years.

Okay.

Because we're not going to expand the signal plant again, and that was half of it.

We're going to be done with those wells.

There'll be new wells.

So when we update this again in five years, those wells will now come into play.

So this the fee will adjust.

It could go down, it could stay the same.

But 18 million would get us through as we're as we're headed that way.

And and I get what you're saying.

So then the master plan, you'd look again to see where we're at and how much we need or whatever.

But it it would take a long time to get to the 400 million.

Correct.

So that's it going to get to the 400 million?

Well, it would have to based on because the vacant parcels, um, when you do the math, uh the bacon parcels as they develop, if they develop, it would cover that the cost.

Because we're starting with that cost and then 22 doing the math backwards.

And I think that goes to your question, Mayor, about you know, if you think of it like a home mortgage.

I mean, if we have to build and upsize this plan, a lot of times we have to do it on the front end because that's not something that can be done overnight.

But then as we uh as growth develops this this fee that we'll be putting back into the capital side, that's what we're going to use to make those payments.

And and so, yeah, we're we're building the infrastructure, but then this helps our payback.

And and as you said, mayor, that will um lessen the burden on the ratepayers then on that.

Vice Mayor.

So this is for water and wastewater.

And wastewater.

What about gas?

Is there something in statute that allows us to do gas?

Because again, pipes, transfer of uh of a commodity is Mayor and Council.

Uh so this the capacity fee statute, or really it's the water wastewater uh fee statute, but I'll just call it the capacity fee statute, is unique to water and wastewater.

So if we want to do something for one of the other utilities, we then have to shift back over to the impact fee statute and and utilize that that statute.

Okay.

And that's the impact fee statute is can we still use it?

So we can still use it.

It's uh it's the difference between the statute is the impact fee statute.

I guess the best way to shortly say it is very cumbersome statute.

It is um it is the most regulated fee um by an exponential amount of any municipal fee.

Um the process uh to create the fee, and then even after the fee is um very significant, including um things like having a separate committee um to create uh the impact fee uh analysis um and the projects, and and that committee is made up of uh citizens, citizens and also industry experts, and it's a very long process and tedious, and it's it's uh to such an extent a number of cities have actually smaller municipalities have sort of gotten out of the business of having impact fees.

And so um this is more uh the capacity fee uh statute um affords us a um another process.

Um the the methodology behind this to the actual fee um is the same sort of methodology though that goes into an impact fee.

So the actual numbers behind it and sort of I'll call it the science behind it is is the same.

Vice Mayor, I think we asked that during audit, and I'm sure they'll talk about it during the gas, but the infrastructure for gas is a lot less significant and essentially is being paid as it's built already.

I think hopefully they'll they'll they can discuss it during the gas presentation.

But I think I think it's not the same sort of large capacity infrastructure burden.

Yeah, it it doesn't have quite the impact that water and wastewater does, but I think the council who wasn't weren't part of that committee, and the public needed to hear that that answer because it still has the potential to fall on ratepayers to pay for growth in that in that particular service.

So and I think to your point, obviously we we can go back and and look at um impact fees.

That's that's no problem to to see.

Uh water and wastewater would be exempted out then from that if if we were to implement this fee.

So we of course would not need to look at that, but the other fees that were associated with impact fees and see the cost benefit to the to the process that um Mr.

Smith just spoke to very good.

I think Mr.

Butler, you mentioned to me that there was some pending uh lawsuit litigation to a municipality that was finalized to allow us to move forward with uh this uh type of capacity fee that was just resolved recently, so that's why we were kind of behind the curve, but yet now we're in the groove.

So mayor and council, and it was about two years ago.

The city of Flagstaff has the capacity fee, and they got sued, and uh ultimately they prevailed in that litigation, and uh we're implementing the same sort of process um under the same statute that Fly Staff did.

Okay.

It's just interesting to note that two of our neighboring municipalities, the south of us just you know, they have higher fees than we do.

Um, you know, not that I'm just curious, is our fees a fair to our community uh compared to other neighbors?

Uh do we need higher I don't I don't like the elephant in the room.

Do we need higher fees?

I think Miss Billsbury was alluding to that.

Uh I don't know.

I'm just asking the question that do you think this is a reasonable expectation for our community?

Which again, I don't want higher fees.

I'm just saying, you know, you look at I'll use the word chandler.

I mean, they're pretty much billed out, but they have a 40% higher fee than we do.

You look at Gilbert, I don't know what the GWRP is at the riparian area or um almost 100% more than we do.

So I think one way to look at it also is some of these fees were established uh a little while back, and they use the same or similar approach where they looked at what is the growth ahead of them, what if what is that infrastructure look like?

Um it's important when you go into this process, you have to be very agnostic about what the outcome is going to be.

You really just want the numbers to speak for themselves if you want to stick, you know, to the to the true purpose of the of the manual of that practice, which is what we did.

We just wanted to be as accurate as possible.

Um we didn't feel like we were being overconservative or under conservative to arrive at the project list, the 400 million.

Um we feel that's very accurate.

And if we do this again in five years, or when we do it again in five years, we don't think that would even change much.

We think we have a good because a lot of this has already been designed and it's started construction, it's not in service yet, but we think we have a good feel for it, and then just following the steps within the practice.

Um, the results were what we're showing for you today.

So it's hard to speak to whether ours is uh too low or too high versus another city because they have their own special circumstances, Mayor.

And I I think that's part of the beauty of this is that we didn't, again, we didn't back into a number.

We didn't go out and say, well, we want to be here relative to the other communities.

The the numbers speak for themselves when they did their analysis, and so that's the insurances that we can add to have with industry and and others who'll be interested in this, and uh is that you know, we we looked at our infrastructure needs, we did that assessment, and the rate and the fee is the fee based off of that.

And you know, we can't speak to obviously the unique circumstances in all of those communities about whether they stayed ahead of growth or or or where they are in their infrastructure development.

But we we feel we feel like our our fee was was done using all of the science behind it that um Chris spoke to and and the national standards and and and we feel good about how we came to our number.

Okay, good, very good.

All right.

I think you're about wearing us down, but we have more to do too.

I'm gonna stay up here.

Brian's gonna come up and we're gonna get into rates.

Well, why don't we do that?

Tube is presentation on utility fund forecasts, staff recommended rates and fees, adjustments for consideration in the notice of intent.

Chris and Brian.

Should have been at the audit finance committee.

Fun time.

You three were there, right?

We needed behavioral health there.

Oh, my mic's on.

Look at that.

Use the restroom.

Uh, water would be great.

All right, good morning, Mayor, council, uh Brian Richel, uh Management and Budget Director.

Uh beside me is also Chris Hassart.

So this morning we will be talking about the presenting the overview of the um fiscal year 25-26 utility fund forecast and staff recommended um rate adjustments.

And so just to give you an overview of the presentation, I will um be kicking it off and going through the uh kind of the forecast, and then each individual department will come up and speak specifically about the rate adjustments that they are are recommending, and then I will come back and then kind of recap in uh uh in the conclusion and show another forecast.

Um, and as kind of mentioned before, we'll we'll kick it off with a forecast of if council does not move forward with the rate capacity, and then the departments will, especially water and wastewater, we'll talk about if there is a capacity fee adopted, and then I'll come back and show a forecast comparing the two if there is no rate capacity and if there is a uh capacity fee.

So, just a reminder of the utility operations.

Uh, each utility is operated uh as a separate business center, and but treated as one fund.

We take a look at the whole fund as itself.

So when we're looking at the net sources and uses, the uh reserve fund balance, the percentages, and also with the debt service itself.

We take a look at it as one fund.

The reserve balance of that fund provides a safe net for any unforeseen conditions that we uh have seen in the past of either with uh the electric or gas or any of the water.

Um the reserve balance also used to smooth rate adjustments year to year, and I'll get into that a little bit more, and that's one of our uh five principles.

Another thing that's not up here, but I wanted to mention is that the reserve balance also is good for the credit rating agency um and also for interest.

With a good reserve fund balance, they take a look at that with our net sources and uses, and they determine what our credit rating is, and that helps with either lowering our interest rates or increasing our interest rates.

So having a a healthy fund balance reserve um helps with our interest rates.

So, as I mentioned, the five principles that we follow.

I know you've seen this before, but this really is a cornerstone of what we look at when we're looking at the forecast, but then also when we do the rate adjustments and keep this in mind.

So the first one is balanced net sources and uses, and we we try to make sure we're balancing those to uh close to zero as possible.

And then 20% or higher in the reserve fund balance.

And then 20% or higher in the reserve fund balance, that is key, as I mentioned before, when we go to the credit rating agencies, things like that, they like to see a higher percentage and a higher reserve balance.

Then also rate adjustments that are predictable, smooth throughout the forecast.

And the city has had this philosophy for a long time of doing incremental rate increases year after year.

And uh ever since I've been here, we've been doing it.

And what that does is you've seen you may have seen in the paper a couple of other municipalities starting to take a look at that philosophy.

Because previously what they've done is they would do a rate increase, not increase it for a few years, but then they would have to do another significant rate increase to catch up to any inflation operations and maintenance, stuff like that, and then not do a rate increase for a couple more years and then have to do a significant.

But what they're finding out is what Mesa has been doing for a long time is if you do incremental rate increases year over year, that compounding effects helps with the fund, fund inflation, fund operations and maintenance.

But also what they're looking at too is it lessens the impact of the customers on an over um multiple years instead of having those rate increases significant every few years, their bills are much higher if you do that than if you have incremental rate increases year over year.

So that's the philosophy we have had for a long time as a city, and we'll continue to do that.

And so um the next one is Ryan questions.

On the um the percentage the for the reserve fund balance, do the rating agencies, you said they like to see a higher rate.

Is there a number that they like to see?

When you say higher, what does that mean?

They and I can have um R CFO Mike Kennington come up here, as far as I'm aware, the higher the better.

They don't give us a number, unfortunately, mayor and council members.

You said higher, and I'm wondering what they think is higher.

Oh, they would they would go up 300%.

I mean, if you ask that no, but uh I that's why we 20% are our target, I is where we believe but we're dropping quite a bit lower than that in the forecast.

So I'm just wondering like, do they still think that's higher or that I mean?

So Mayor I want Mike to come up.

I was trying to save Mike from that, yeah.

Council members are he doesn't get enough opportunities to come up here.

Uh as Brian said, uh, this the credit rated agencies look at a variety of metrics, right?

And and fund balance is one of the important ones that they'd look at.

So they have a uh typical profile for whatever credit rating for triple A, a double A, and so on so forth, right?

And so uh the the 20% is you know probably where we're at today, because they say this is where you guys with your metrics, this is where you line up, but then they look at all other qualitative factors as well to either push it up or push it below.

So they start with these metrics, these objective quantifiable metrics, and they they rate us and then they go to their committee, look at quantitative factors to go up or down.

So, you know, 20% could be, I believe, is where we're at today, and then uh they they discuss on pushing us up or down.

So they don't compare us to like other municipalities, like, oh, they have a higher one than this city, like it's it's purely based off of their own.

It's a profile.

They put put for these credit ratings, and then they they say, okay, Mesa does this well, does this poorly, right?

And it could push up or down.

They don't have a number that you're targeting.

I mean, they do, but they have it's one of many metrics that they look at.

So we could have a five percent, but then we could, you know, be our liquidity could be great, our uh debt profile could be great.

So it's just one of many.

Um so it's like a a person's individual credit rating, right?

I mean, they would look at the totality of your your history, your income, you know, all of that to come up with well, you may have debt, but if you if you can pay for that, then your rating's still gonna be high, or you know, your credit score is still gonna be high.

I mean, that's essentially what they do for it.

They look at the totality of our history of payments, what we've done as a city, how we've been able to manage debt and and obligations over the years, and and that's all part of that formula that's because I know that these financial principles, there's five of them that we're trying to do, but I maybe I don't know.

Do we focus too much on that percentage sometimes, or is it still something we really need to do?

No, it's still I would say it's still very important.

And so that's one of the factors of that credit score.

It's one of the factors that we look at as far as the uh the forecast that Brian looks at.

Yeah, and I and I think it's important to know, um, Mayor and Councilmember Spielsbury, that that what Brian alluded to the fact that right now those smooth and and more incremental rate adjustments are even a bigger priority.

Because like you said, if we if we were trying to get right back up to 20 percent right now, that would have a huge impact on on rates, and and that's obviously not something that we want to do.

But um, that's a factor.

We know we need to to build that reserve uh back up, and and and we have a plan over years just you know to get that number higher, but we it's more important to our ratepayers that they have that predictability from the okay.

Just I mean, I obviously I was going through this presentation yesterday and noticed how much lower than 20 percent were dropping.

So I just didn't know if that was yeah, what the what the actual credit rate is rating agencies are are saying.

So okay, thank you.

Mr.

Radio has a question.

I think just uh to point out the on the percentas.

I it's a good obs.

I think we always talk about these percentages over the years that I've been on the council and and uh even in our general fund balance, right?

It's it it it we always end up really higher than what we projected, right?

Uh as least as it's been on my experience as uh as I've been on the council, right?

So I think it's just understanding the the complexity of these things, right?

And how I think it's a good target, but also you know what the what Mike was saying, what other uh factors play into this part, and how we um want to make sure we leverage our opportunities to uh bring about more businesses and you know offer that friendly uh business uh uh uh atmosphere, right?

And and seeing that um, you know, comparing you know what the household rate uh is and how you know those kinds of things, because people will like to compare us to our neighbors, but you know, in the prior convers in prior conversation, you know, we see you know it's the capacity fee that we're proposing actually actually lower than some of our neighbors close by here in the East Valley, right?

And so it's just uh something to think about uh as we move forward with this is these discussions is that you know it's not the end of beyond's an important indicator as far as these percentages, but you know, it's it it's much more complex than that.

Uh that we are you know we we need to make sure we monitor these pieces, right?

So thank you, Mike.

Brian.

So the other uh one that we like to look at also is which we'll get into in this uh presentation is the equity between residential and non-residential.

Um for many years, uh it was um not as equal to where as it was alluded previously in the previous presentation where we were heavily residential uh city, and now we're starting to get more commercial, so we're looking to have that equity between the residential uh revenue and consumption compared equally to the uh commercial revenue and uh consumption, and then the other one is the affordability of the utility service itself.

So, what I wanted to do is give council a um an overview of what the audit and finance committee recommended.

So we gave this presentation to the audit and finance committee, and they had some um good questions for us and also a recommendation.

So, what we showed the audit and finance committee was this is the um cash flow, the forecast that we presented to council uh for the 2526 adopted budget.

And what I wanted to point out here, where it's highlighted in red, uh, is one is the total net sources and uses.

As you see, the net sources and uses, even for the actuals for fiscal year 2324 and projected for 2425 are negative, and they're negative all the way throughout through most of the forecasts until we get to 2930.

And then also as what we were just talking about with our percentage of ending reserve balance in the outer years, we dropped uh below even the eight to ten percent, which is our financial policy, we're down to 4.9, 4.6, and then coming back up to about seven.

So that's what I wanted to show.

And with this forecast, this forecast includes the rate adjustments that were presented to council uh last November and December.

So we didn't touch any of that.

It's just the budget was uh the uh the utility budgets, any increases in operations and maintenance and capital costs, and we did not adjust those uh rate adjustments.

So what we showed to the audit and finance committee was here's the uh recommended rates uh that we presented, and there's two two things going on here in this in this forecast.

So what we did is as you see down below the water and waste and the uh the water, the two, we in uh we were able to decrease those a little bit.

So in the previous slide, it was six percent for the water residence tier one.

So in the previous slide it was six percent for the water residential tier one, we're able to reduce it down to um five and a half, but we were also looking um we increased the water commercial usage uh up to 12 percent, and that's where that equity comes into to where we wanted to get equity between residential and non-residential uh somewhere within the forecast.

And for right now, we had 2829.

So this was the rate adjustments to be able to get that equity between residential, non-residential and fiscal year 2829.

What we also did is, as we discussed just previously about the credit rating agencies and our net sources and uses, what we're able to do is slightly restructure um our debt uh payments.

So what we previously do is we would calculate what it would be to um pay off 35% of the principal within the first 10 years.

So with utility debt we um issue in 24-year maturity, so it's 24-year debt, similar to your mortgage where you can either have a 20 or 30.

So we do 24 years, and what we have done in the past was want to pay that principal 35% of that principle off within the first 10 years.

Well, what we looked at was what if we were able to um slide that back a little and do 30 percent, and we were still comfortable with how that debt service payment looked in the outer years uh with drawing it back to about 30 percent.

And that's where I highlighted the net sources and uses is where now with the doing the parity or the equity between residential and non-residential and and sliding the and restructuring our debt a little bit, we were able to get our net sources and uses to from a negative in that fiscal year 28-29 to a positive 10 million dollars.

And also, if you look at the ending reserve balance, we were at where it says eight, we're at 4.9.

Now we're at eight.

The other one was about a of another four, we're at 9.2, and then the last one was at seven, we're at 13.4.

So we were taking a look at um how our cash flow was, and we do feel comfortable with with what um we presented to audit and finance and to but what they audit and finance was recommending was kind of mentioned before was what if we were able to make that equity a little bit sooner than fiscal year 28-29.

And so the staff went back, as you see here, the top one was what was presented to audit and finance.

So the top two rows are residential rate revenue and non-residential rate revenue.

As you see, the residential rate revenue in say fiscal year, the first column, fiscal year 24-25, we're at 55% revenue was coming from residential and 45% was coming from non-residential.

However, if you go down to the next two lines, residential consumption was 49% and curr and non-residential was 51%.

So non-residential was consuming more of the water, but contributing less revenue to the fund.

So that's the equity that we were looking at is what would it be if we were able to do 50 to get to around 5050?

And so what we were what we did was say, okay, what if we did it in 28-29?

What would the rate adjustments look like?

And that was what was in the previous slide.

The audit and finance came back and recommended what if we could do it sooner.

So we looked at 2728.

And so with the 27-28, and just to remind council that we are in the fiscal year 25-26.

So really that fiscal year there is really only a half of a fiscal year.

Because if we if we adopt if uh the council moves forward and adopts these rate adjustments, they don't go into effect until January or February, usually the following year.

So that's really our of the falling calendar year.

So it's really only a half of a fiscal year.

So really it's two fiscal years to where we would be catching up.

So about two and a half years, we would have equity within that.

Brian, uh, Ms.

Spielsberry.

I mean, you started to answer, but I guess why wouldn't we just do it in the 26-27 then?

If the if we're trying to get there, what's the reason why we don't do that?

So we'll get to that and we'll we'll talk about that because what we need to do then is see what would the rate adjustments be, because we would have to increase the non-commercial rate adjustments at a certain percentage to be able to get that revenue uh within the next year and a half rather than two and a half years.

And we were looking at the the rate adjustments, and we have a slide uh in our support that we can show you, but they would be significant rate adjustments to the case.

So we're we just worried about commercial users having too big of a change all at once.

Yes.

Mayor It would have been it would have been some dramatic sticker shock to do it sooner than this, but we we feel this accomplishes um the desire of audit and finance to see us get there sooner without would still um producing reasonable increases on the commercial side that wouldn't be as much uh sticker shock for them.

Okay, and do we I mean do we hear from commercial users about water rates like we do from residential?

You would if we uh moved it faster than we would be hearing from them too.

Okay, I'm just wondering if like our you know, we've been saying for a while that there was some inequity there on what people were paying, and so why wouldn't we try to move that along faster?

But I think Mayor and Councilmember One and Brian alluded to this.

This part of it was the intentionality, um, right or wrong of previous councils to want to have the difference in the rate, and so that's why we didn't want to be punitive to our commercial users, because it this wasn't this was a intentional desire of the city of Mesa in the past to want to keep those rates low as a form of economic development tool uh for lack of a better term.

But um, you know, we're we're certainly in a different time in a different era of that, and and so we that's why we wanted to balance so we purposefully had commercial lower to try to attract that or something because I don't know.

I guess maybe I don't remember when all of the I don't I know I don't know the history on it or when decisions were made or whatever, but Brian could probably I mean this is this is before him and and before you were in in your role uh as no no one on this dais was was there, I think really when that philosophy was was set out.

Yeah, no, I I actually think Candace maybe could correct me, but I think this even predates uh council member summer's first uh time.

Oh thank goodness.

If I'm not mistaken, uh I think this goes back to Mayor Hawker's.

So, like at one point we were saying it was okay for our residents to pay more so that we can get economic growth to our city essentially.

I mean, I'm probably simplifying that way too much, but you're saying that was kind of the philosophy.

I I think I I think probably if I you know speak for that council and and that mayor back at the time, it was more of we want to keep our commercial rates low, no matter what the consequence was.

Well, the consequence was higher rate on on red state.

Residential because I just kind of assumed the inequity happened just because of like the massive growth and things kind of just got out of hand with like not out of hand, because it's a good thing, but you know, we just we ended up getting so much smart commercial that they just sort of happened.

I didn't really grasp that there was like a philosophy behind that.

So, of a philosophy in that direction.

Because I I maybe there was a little bit with because Kino always talked about bedroom to boardroom, but this has been historically a residential neighborhood or or city.

Yeah, so I think it's probably maybe a little bit of philosophy, but a lot of what you discussed where the commercial industrial growth uh has been a focus and just exploded beyond our capacity keep up with these.

Yeah, mayor and councilman Spielsbury also the consumption of the water um was heavily residential up to about a year or two ago.

And so once that flipped over to where the consumption is now more commercial, but we're seeing the revenue coming into the fund more dominant on residential, that we wanted to kind we wanted to start doing that parity because as we were doing the forecast, we saw the percentages start growing and growing in more different directions, and we wanted to kind of get that equity back in line to where we had the revenues of uh the um non-residential being equal to what their consumption was uh of their percentage of the consumption.

So that's kind of where it flipped just a few years ago to where commercial has now said that.

Yep, now commercial is uh consuming more than residential, where previously it was residential consuming more than commercial.

Right Ms.

Haredi has a question.

It just must go for it.

My point on uh we I asked this in the uh Autumn Finance is making on the tier side on the commercial because majority of businesses are small businesses, right?

Like I lease out some space uh here in West Mesa, uh a couple thousand square feet, and and you just making sure that we are not burdening because the when when these increases happen, right?

Like the the landlord just passes through to the tenant, right?

And so it's just making keeping an eye on those those tier rays as we do with residential, right?

And as we're building on the commercial side, looking at how these these tier rates, you know, are not detrimental impacting, especially small businesses, right?

Like I think that's that's an important take for me as my experience uh on um being uh a lease whole lisi in in in Mesa.

Go forward so I I'm a little confused on this we we're and and Brian you actually said it where we want those who the commercial who are consuming more to pay commensurate with their consumption but we're getting it to pay why are we doing parity why aren't we following the consumption rates so if they consume 51% then the the the revenue that they pay is 51% of the the total why are we getting to 5050 mayor and council member uh go forth we're looking to get 5050 but then as you look out in the outer years then they are so if you look at so the bottom chart if you look at 2829 residential revenue is 49% in there consuming 48% of the water so non-residential is 51% of the revenue coming in and 52% of the water so in the outer years and then in 2930 they're actually 47 for residential of revenue and 47 for consumption.

So that's where we're looking to get that parity that equ equity but then in the outer years they're equal to what we're doing.

So it's just taking more time to flip it yes to to equal their consumption.

Yes.

Right as Mr.

Butler said if we did it in a in more immediate fashion there would be and we have some sites to shift because we did analyze that so we'll show you what those rates would look like.

Okay.

All right continue on so with that recommendation from the audit and finance committee this is the recommended rate adjustments without I wanted to note on the left hand side without a water and wastewater capacity fee.

So this is if if uh council uh um decides not to move forward with the capacity fee this is what the rate adjustments that staff would recommend and as you see with the net sources and uses um it is uh negative for the first few years but in the outer years we're starting to that um the revenue coming in um from the commercial and the residential and the rate adjustments we're at positive net sources and uses and then also we're at eight percent nine percent thirteen and nineteen we're close to that 20 percent in the final year that we would like to be at and the big thing that I wanted to indicate was the I wanted to highlight the top two so the water residential tier one that would be at four percent and previously it was at five and a half percent so and then with the water commercial that was at 12 percent now it's at 14 percent so that's where the flip goes is for that equity is we were able to take some of that burden off of the residential and lower that adjustment and then put a little bit more of that burden on the uh non-residential to get that um equity sooner so you said this chart that you just showed us doesn't have the capacity fee so what what it changes with the capacity fee so mayor council member spillsbury thank you for the question we once we get through the uh department's individual um presentation um they will show kind of what the difference is and then I will show at the end yeah at the very end what the difference is between if council move forward with the capacity fee and not move forward with the capacity fee and with that I will have uh Chris and Eric come up and talk about the well go going back to the slide slide you just left is it's gonna take us about a year to generate 18 million dollars of capacity fee if we move with that correct correct that's our estimate so I mean we're doing 2526 now but we're not gonna generate those monies till 26 that is that is true so mayor thank you for the the comment so what we'll do in at the end of the presentation so what the capacity fee is gonna do is right now in this forecast are those projects that um Chris and Jesse mentioned in the previous one so the signal butte debt service is uh in this forecast all those wells are in this forecast what also happened was what um uh Chris Hassart indicated in the previous presentation too is trying to balance that do we do repairs and maintenance or we do a growth project and trying to balance that out so what we had to do is what you mentioned was 180 million dollars was pushed out of this forecast well with that capacity fee if we take those growth projects out we're able to start put some of those repairs and maintenance back into this forecast and I'll I'll show you that forecast at the end.

Well, Eric comes up and get set up.

I'm gonna turn it to Eric.

He's gonna go through, I'm gonna stay up here uh to answer questions.

A couple themes though, I'll just want to lay out um one we've talked about pretty extensively already, which is to try to achieve that equity between the customer classes in terms of where the money is coming from, where the revenues coming from.

The other is to continually try to keep our residential rates as low as we can.

Um, and then one other point I wanted to make is this it was two years ago, actually, where things flipped, where the non-residential sector started to actually use more water than the residential sector.

It was about two years ago.

And one thing that we all need to keep in mind that that's permanent.

That's never gonna change.

We're never gonna flip back because as I stated earlier today, most of the development we have ahead of us by and large, it's commercial.

It's it's 90% commercial.

So we're never gonna flip back.

So that's why we're on this path.

Uh the only question is timing how how soon we get there, and uh the capacity fee plays into it.

You'll see that in the slides we're gonna talk about.

So I'll turn it over to Eric.

Great.

Thank you, Chris.

Mayor, vice mayor, council.

Um, I think it's already been uh said uh we're gonna start with uh within the water resources department, the water program um and our uh recommended rate adjustments there, then we'll move to the wastewater program and our recommendations there, and then we'll follow that up with um a brief uh description of what our recommendations would be uh with the capacity fee.

So the capacity that uh Jess and Chrissy uh Chris and Jesse just got done speaking about.

So with that, um we typically like to start uh with talking about our two biggest revenue requirements, um operating costs um and debt service.

Uh so this for our water program, our operating costs, our operating costs, uh uh the the raw water we purchase, the chemicals we buy, the electricity we buy, um uh the people that run the department, our operating costs.

So projected for this fiscal year 2526, um about uh 85 million dollars uh projected operating cost.

That's up from about uh 57 and a half million back in fiscal year 2021.

Um and then in those out years, um, you can see it drawn down a little bit from our previous forecast.

So our previous forecast is that gray line that you can kind of see behind it.

So a little bit of cost savings there, uh about two million dollars uh in fiscal years uh 28 uh 29 and 2030.

And again, it's it's already been alluded here too, but um we use this type of data so we can plan for um smooth uh rate increases, uh, so we know uh these costs are coming, and we can slowly ramp up um our rate adjustments uh if appropriate.

So I mentioned this previously, debt service, uh water's other major revenue requirement.

Um here estimated for fiscal year uh 25-26 at about 69 million.

Um that's up from uh 39 million, uh almost 40 million fiscal year uh 2021.

Um and you can see that increase from fiscal year 24-25 to 2526 as as payments become due on those big three projects.

So uh the Central Mesa reuse pipeline, AMI, um the uh our treatment uh plan expansion over at Signal Butte.

Um, but also I think Brian talked to it a uh uh a little bit in his discussion.

Uh you can see the effects of that refinancing of the debt.

Um, you know, drawing down uh our forecast, uh almost five million dollars uh in uh fiscal year uh 28, 29, and uh uh 29 uh 30, about uh two million dollars.

And we we'd be remiss if we didn't touch on this.

Um, a big part of this these increasing costs that we're experiencing um is inflation.

Um so if you look back to fiscal year uh 1718 um uh to just last year, fiscal year 24-25, uh, we've experienced about uh a 33% increase uh uh in inflation.

Well, at the same time, uh your typical commercial customer has seen about a 24% increase um in their water bill.

Our typical residential commercial has seen about a 17% increase in the water bill.

And and that again gets to uh the city's philosophy with regards to um doing things slow and incrementally.

Um we'll get there.

Um we'll get there while also applying those rate increases to share equity uh as our customer profile changes question.

Yeah, Eric, I so I had asked if you could put in the chart your your increase, and I know it's the previous, but your operating costs, how how does that compare?

What's the percentage increase over the same amount of time?

Let me I'll chime in on that.

So mayor, council member go forth.

So our operating costs cumulative over the same time period has been 66% change.

So quite a bit more than the 17% for the cumulative residential effective rate increase and the 24 commercial, and then if you want to look at a subset of that, so 60 overall 66 percent total ONM budget.

If you look at the during the same time period, um look at just all of our labor, our staff labor, it's pretty much in line with that 33 percent CPI.

It's a little higher, it's in total 41, but that count um that takes into consideration additional head count too.

So if you just look at the increase in in salary, it's gonna be really close to CPI.

But what makes our overall OM so much higher is just the the fact that a lot of chemicals have doubled in price, electricity has gone up, and most notably our raw water, the Colorado River water we buy has more than doubled over this time horizon.

So when you look at the doubling of very significant pieces of the OM, um that paints a pretty stark picture.

Yeah, that this was my question is how the difference, why the operating costs have gone up so much more than the CPI.

But you're saying um that the personnel that that cost is fairly consistent with what we're seeing, what we saw 41 compared to 33 percent.

Right, because the fe the Phoenix area CPI cumulative over that period is just over 30 percent.

If you take out additional staff we've hired, because that that counts into it, we're gonna be really close to the CPI for staff.

It's just these other input costs that are beyond our control, like buying the raw water, the chemicals, electricity, those have those of um gone up 2x some of those.

And so that's what that that is what is um really influencing the difference in that okay.

So that explains why you we eat into our reserve fund balance.

So there's a you have two choices.

You eat into the reserve fund balance and you start pulling that down, or you defer projects.

And so maybe this is dumb question, but are those some of our most significant costs?

I mean, obviously the water is, but the chemicals and I mean of our overall cost.

Correct.

So the water, um, there was a time where water was a quite a small piece compared to our staff labor.

Now water is the cost of raw water is getting closer and closer to just what it costs to employ the whole water resources staff.

Interesting.

Okay, thank you.

Thanks, Vice Mayor.

On the on the cost, we we run some of the plants, and I know we're in a joint agreement on 91st Avenue plant.

So, what are our costs doing compared to the joint plant over at 91st?

As far as cost increases.

Eric, do you have thoughts on that?

We also have the Valvista.

Bell Vista.

Oh, yeah, Velvet's just shared also.

On the water side, it's the Valvista plant, and on the wastewater side, it's the 91st Avenue plant.

We call Shrog, it's the sub-regional operating group.

So if you have some thoughts.

Yeah, well, actually, as we move to wastewater, because that's going to be 91st Avenue, you'll actually see it on the chart that I provide you uh with regards to our our previous forecast and our current forecast, the black line.

Um we've actually um been uh past uh uh about a two million dollar increase with regards to uh cost of of energy and chemicals there at that plant, increasing our uh uh operating costs um uh on the wastewater side.

Um so that didn't come from our you want to address that when we get to the slides so we can yes, sir.

Why don't we do that?

That way we have the visual up there and that that'll help all of us.

Thank you.

Yep.

So uh I again um I think uh Brian uh stole my thunder on this one, but um again, this shows uh where uh our residential and non-residential uh rate uh revenue uh uh reach 50-50 parity uh in fiscal year 27-28.

Um, and then again fiscal year 2930 uh reaching uh equity with regards to uh consumption and rate revenue.

So to accomplish this to maintain financial uh stability in the department and to further encourage uh equity between our customer classes, uh our recommendation is gonna be a 4.5% increase to the service charge.

Now that's the charge that everyone pays, it's that base charge that you pay based uh on the size of your meter.

Um then for the usage charge, our residential customers, tier one, tier two, tier three, tier four, uh apply a four percent, five point five percent, six and a half percent, uh seven and a half percent uh increase uh respectively to those four tiers.

And then to create equity between our residential and multi-unit customers, apply a 14.5% uh increase to uh the usage component of our multi-unit customers.

Moving on to our non-residential customers here, our commercial customers, uh so commercial general, not commercial landscape, um, applying a 14% increase uh to the uh uh usage component and that excess water surcharge for our commercial customers.

Um and then for our landscape customers, our non-residential landscape customers applying a 15% uh increase to uh both the usage component and the excess water surcharge for those customers.

And then for those large customers, those customers that use over 7500 uh K-gals a month, um, who we have a few of a uh 20% uh increase to the usage component of their rate.

And for our interdepartmental customers, this is the water that we sell ourselves, uh, apply a nine about a nine point eight percent uh increase to the usage component there.

Question.

I was just realizing what when you say multi-unit development, which was on the previous slide, what is that uh what falls under that category?

So these are these are developments who are served by like one master meter.

So you could have you know uh a triplex, uh three units uh served by one meter, um, and we only charge one service charge to that meter.

So if it was a one and a half inch uh meter, uh currently we charge them about fifty-one dollars.

Um that uh service charge would then be uh spread out, uh so divided by three is for the three units.

So they'd really be paying about $17 for the service charge.

Or divided by two.

I mean, it just is it divided by however many units it is?

Yes, ma'am.

I I guess I what I'm trying to figure out is is there a potential that people living in their house that happen to live in a multi-unit development are gonna be paying that really high rate.

Yeah, and so that's that's why we looked at probably the most conservative example.

If they're a duplex, they're probably gonna be on our residential rate because you probably don't want to be splitting your um uh your bill with your neighbor.

Uh but a triplex, we have we have those um served by a one and a half inch meter, um, which might be a little bit oversized uh for that type of development, but we have it.

So then splitting it by three would be closer to what?

Absolutely residence.

Absolutely.

And then if you were to split it by six, um, you know, then you'd be looking at like an $8.50 service charge split six ways.

So as far as like I'm thinking of you know, multifamily housing apartments and condos and all the like how those are typically metered separately or so if they if they have a master, so condos, um townhomes, um apartments, um they typically are served by one master meter.

Um, and we give we send that bill to the property owner um and uh they either sub-meter each of those um units and uh divvy up that bill according to their consumption, or they just divvy up the bill uh equally among the tenants because there's there's not as much discretionary use um in multi-unit uh dwellings, uh, whereas in um they're not paying for all the others stuff or whatever.

Okay, because so we've really looked at that to make sure that people living in an apartment that are already maybe having a hard time getting by aren't going to be paying a higher rate.

Yes, ma'am.

And we're gonna show you on the next slide that the effective rate when it's all sudden done with these increases, the multi-unit customer is still paying less than the tier one residential customer.

Oh, okay.

I don't even like that explained at some point, please.

Okay.

He's like, okay, I will.

Before we go to that slide, uh Mayor Council, I think this will help answer council member Heredity's earlier question with commercial.

So, and we have a I think we have a chart or a table.

You want me to go to the backup slide?

Yeah, while you're doing that, if you could, while you're doing that.

So one thing you have to keep in mind is we're keeping the service charge increase across all customer classes low at 4.5% increase.

So for the commercial, a small commercial property that doesn't have a lot of landscaping and it's not a very water intensive business, a small commercial business that uses uh three K Gals or less, you're not even getting hit by any of these usage increases.

You're you're only experiencing that four and a half percent, because three and a half uh, I'm sorry, three K gal is already baked into your rate.

It's already baked into that base rate.

So you would just see the four and a half percent increase as an uh as an effective change to your bill.

Um any usage beyond that, then you're gonna that'll be subject to those increases in the table.

And Eric is looking for uh a backup slide that gets.

So let me just push on through here.

I can pay all right, almost there.

Here we go.

That's the best presentation ever.

Yeah, done.

So uh the the slide before you um because we have so much seasonality uh between our our residential customers going from the winter uh to the summer, uh we kind of broke it down between uh average winter consumption and average summer consumption.

Um, during the winter, about 30% of our residential accounts don't use more than 3,000 kgals or 3k gals.

So reality of it is they're they're paying their service charge.

They're not paying any usage charge.

Um if they have a if so if they have a three quarter inch meter, they're paying $32.

Um we're gonna we're about to go into what your typical customer pays.

Um our typical customer, um, you know, they use about six K Gals.

Um, you know, again, during the winter, about 60% of our customers use six K gals or less.

During the summer, about 48, 49 percent of our customers use six K Gals or less again, falling in that first tier.

Even in the summer, you have uh just over 46% of your your customers falling in uh you know, tier I call it tier zero, but you know, within just paying the service fee.

Um and if you even look a little bit broader, um, you know, during the during the winter, 90% of your customers fall in tier one or two.

Um, you know, during the summer, uh it's more like eight uh eighty percent of your customers fall within uh tier one and two.

And so that's you know gets to our um you know philosophy of trying to keep that service charge um as low as possible because um it helps protect the lower the the people who who use the least who may not have the meets uh the most means.

Um and this also applies to our commercial customers.

Um we have about uh 5500 commercial customers, and about a third of those don't use more than three K Gals.

So, you know, again, they're only paying that service charge um as well.

So currently, if you were a um a small business um using two or three K gals uh on a three-quarter inch line, um you're paying $32 and change a month uh in your water bill.

Uh what we'll show you in here in a second is our typical customer um who uses that's that person right there at 50 percent.

50 percent use more, 50 percent 50 percent use less.

Um they're they're at about 9k gals, and that's who we use to show our typical customers.

So they they will include some uh of that usage component as well in their bill.

So you could see um it their bill will will change a little bit, but again, you know, that's one way that we protect our our smaller consumers is by trying to keep that that service charge as low as possible.

And before we leave this slide, in audit and finance, council member Heredia, you wanted to see raw numbers, like how many actual customers.

So in that tier zero, which is really you're paying no usage charge because you're getting the first three thousand gallons a month, um, all the way up to six thousand.

You can see there's about almost eighty-one thousand customers in in the winter.

If you remember in our capacity fee presentation for a three-quarter inch meter, uh there's about 128,000 total residential customers.

So you can see 80,000 is pretty significant portion of the 128 that is in that tier zero or tier one.

And now we're gonna Eric's gonna get into what the impact is to the customer, the effective impact when you blend, if you want to think of a blended rate between the um increase with service charge and usage.

See if I can get this done right this time.

All right.

I think you can use that.

Actually, that's that's with the that's what the impact is.

You gotta go back.

There you go.

So you know, currently, as we were just talking about, our typical residential customer uses about six K Gals.

Um the uh column just to the right of where it says residential, that shows their current bill, uh what they would be paying uh uh under their under our current rate book uh for those six K gals.

Um then uh really focus in on that um that circle that uh that blue uh 43 percent.

Uh that is gonna be what their effective rate increase is given that service and usage charge and their consumption of six K gals a month.

Um, you know, the typical residential custom uh residential customer is gonna see a dollar eighty-nine uh increase in their monthly bill.

The typical multi-unit customer, again, in that current bill, you can see that discrepancy for six K galls for a multi-unit customer versus a residential customer, you know, a discrepancy right now currently of about three dollars.

Um, you know, going over uh you can see uh our proposed uh rate adjustments, it would be a just over 10% increase uh to these customers um uh raising their bill monthly bill about four dollars and ten cents.

So, and we just talked about this as well.

Our uh commercial general customers, so not the landscape customers.

They typically use uh nine uh K Gals a month.

Uh their typical bill currently, uh seven uh seventy-eight dollars and fifty-nine cents.

Um that will go up six dollars and seven cents, which is an effective increase of uh 7.7 percent.

And finally, our landscape customers, some of our most discretionary use that we sell.

Um the the typical landscape customer using almost 30 uh K Gals a month, uh 29 K gals a month.

Uh you can see their current bill at 177.1 cent.

Uh that would go up about 11.8% or about 20.87 cents a month.

Where does the city fall in that?

What usage are we?

Well, it it depends on where we're looking.

Um I mean, for parks and everything that we have, um are we considered commercial or are we considered uh we have our own interdepartmental uh rate.

Um and if I can get into a little bit of that, if you like.

No, no, no, no, stay on charge.

Okay, all right.

You're doing a very good job.

All right.

Well, I need to kick him.

So that the multi-unit development then, that's the that's the number that's going to the meter that's then divided.

So the the number that's going to the meter is gonna be the total consumption for all of the units um that that meter serves.

So for instance, um if that if a one and a half inch meter serves um six units, and each of those units uh uh uses six K gals at the meter, we're gonna read that as you know, six K Gals used, uh, charge them for those six K gals, uh, and then also apply uh the $51 uh service charge for that meter.

Um the property owner is either if it's um submetered, they're gonna apply that um proportionally based off of uh what their meters have to say, but we only read the meter that's in the front of the unit um and we only charge them one service charge.

Um that's four dollars and ten cents a month that would be an impact for you know the average user.

Is that per unit?

Uh that would be per unit, absolutely.

So they are paying well I just don't want people and people who live in condos or townhomes doesn't necessarily mean that they are low income.

That's not what I'm saying, but a lot of them are, and so I just I don't want them to be impacted with a higher rate.

Right, absolutely.

Uh again, uh look we I get that like probably every single property is different.

So I don't know.

And that's what makes it difficult, but we looked at probably the most conservative example, which would be a triplex.

Um, and so served by a one and a half inch line divided three ways, and then applied uh typical consumption to that uh development.

If it was a sixplex, like we were just talked about, that service charge would be divided six ways.

Um and so it would be even lower than uh that impact would be even even less because they see less of that service charge.

Yeah, no, go ahead.

No, I I just I just don't know how to get around this uh concern that I have.

Well, another way to look at it is the multifamily customer benefits because there's only one meter that serves you get a meter, and then they have the lines that split off into the apartment house.

Or a condo complex.

And there they all get the benefit because they get to split X amount of ways the service charge.

If it's your house, you're paying the whole base fee.

But if there's 20 units, they're splitting most likely the apartment manager or the HOA management company is gonna split it by however many units equally.

So you're gonna see less of an impact to your unit, um, just because there's in numbers.

So you can go forth.

Oh, good.

Thank you.

Um so uh so explain this to me the way I'm looking at it as well per gallon.

Is this is that a way to look at it?

Per K gal?

Per K, sorry, per KCal.

As we have it, residential currently a residential customer pays more than a multi-unit customer.

Uh well, uh tier two.

In tier two.

Yeah.

And that's kind of why we looked at uh it falling at uh uh that sixth uh K gal, because uh the idea being as we create, you know, as we focus on equity this year, next year, uh that per K gal hopefully falls right there at that uh uh tier two residential.

So whereas if a multi-unit development customer were to use seven K Gals, that's in line with that seventh K gal of what a residential customer would use.

And so um, you know, we we are aware of it and we uh we are bringing we are bringing them to parity and uh we're uh and through this hopefully um creating equity between residential and multi-unit.

Yeah, because it doesn't make sense to me that that uh the I mean I think that's making an assumption about an income.

You know, so um but yet we know a multi-unit has more of an impact not only on our water but on all the other services in the city, right?

So and then if you go down to landscape, which we know is the most um discretionary discretionary, they're paying even less per cakeal.

Why why would we do that?

Well, we don't understand that philosophy.

We and and that maybe that gets to the history of um that landscape rate in that we only broke that rate off about five years ago, and um we kept it the same uh as the other non-residential increases for a couple years, and you know, we finally have started to um increase that rate.

And so um we we will continue to increase increase that rate.

It's a great way to make up that inequity between the residential and non-residential customers because it is such a discretionary use.

Um so we we are aware of it.

Right.

So we're we're charging a resident to use water in their home more per cal than we're charging a business to water their lawn.

I mean, and which is kind of counter to our conservation philosophy here at the city.

I guess, and I know we're trying to get it back to where, but how what's the time frame on that and how long have we been working on it?

It it's it's really confusing me why why we would do that.

So do you have some thoughts you were on?

Yeah, I do I do have some thoughts.

Um the way that we have our residential usage tiers set up is um, you know, 50% of our customers um use six K gals or less um, and they pay three dollars and eighty-seven cents or three dollars and seventy-two cents currently for each K-Gal.

Okay.

The current landscape rate, uh non-residential landscape rate uh per K-Gal is four dollars and seventy-six cents.

Um as customers uh use more discretionary water and fall into tier two.

I is that where you're see is that what you're seeing?

Does that make sense?

Like and but I understand they've just gone over one up one tier.

Why should they now be paying less or why should res uh landscape be less than yeah, and and I understand that, and that is why we are raising commercial landscape rates at the pace that we are, you know, fifteen percent is the most we've ever done.

Um, and uh you know, this is you know who the future we it's we'll see.

But it's well, the future is conservation of water, they're not making any more water.

Ms.

Spielsbury, I would maybe cut you off.

Did you get your questions or answered?

Well, I don't I'm just confused on it all, to be honest.

So I'll probably just follow up because I still just am not very guaranteed that people aren't paying more than someone else.

I I get that some would be and some wouldn't be.

So and I don't know how to get around that issue because it's really complicated depending on the way property owners handle their properties.

And and you have an incredibly wide range of income on those types of properties, and so some people are probably totally fine paying more, and others aren't.

So I I don't know what the answer is.

So you know, I'm happy to get on a while.

Yeah, we can follow it up later.

So I really enjoy this stuff, so yeah, I'm happy to.

Yeah, you really enjoy this stuff.

And mayor council member, I mean, and this truly uh I'm you know, giving the notice of intent gives that time, both the dialogue that we're having internally and the dialogue with the community on on this.

So, yeah, we've got some time to to to dive as deep into this as you you know.

Yeah, I we we all know we hear it every day how bad people are hurting and paying their bills, and I'm on the Mesa Can board, and they're they're just not able to help even a fraction of the of the people who are really struggling paying their utility bills right now.

And um anyway, so I just I want to be very, very aware of like the impact that we're having on our customers, especially resident, especially residential, and that's one of the ones that stuck out to me as possibly concerning, and so we can we can have a meeting.

That would be great.

That'd be great.

Yeah, mayor council cut so a couple things.

We're here to get your direction.

So uh this is our proposal for the land, well, in particular the landscape commercial meter.

If there's a feeling from council that we should be more aggressive in terms of uh bringing that rate up, that's we'll take that.

We've done that before.

We we have changed that rate for specific customers.

Yeah, because this is just a study session.

Yeah, we we aren't at the introduction phase yet, that's coming up, so we could take that if it's council's direction to model that being a little bit more significant of a rate increase.

We we can look at that.

Well, why don't you why don't you look at a rate increase and and then is the notice of intent the deadline or the introduction is the deadline of when we have to have this figured out because I know those are two different dates.

December 1st, I thought we were voting on it.

Well, that's the vote, but there's two different dates.

Mayor, uh council member spillsbury.

So the notice of intent sets the maximum limit of adjustments.

So if we always decrease for we could always decrease from there.

If council wanted to increase something, we would have to re-uh do the notice of intent, which starts the 60 days.

So once we do a notice of intent, we then have 60 days for introduction and adoption.

So council can come back and say, you know what, we want to lower this rate, we can do that within the 60 days.

If council says, you know what, we want to raise this rate within those 60 days, we would have to then go and redo a notice of intent, and that starts the 60 days over again.

And if if we are potentially looking at raising the landscaping rate, that then that would need to be done before we do that notice of intent.

That's correct.

Yeah.

I just a comment.

I with the landscaping rate.

I think getting some degree of uh to council member go for his favorite word parody with the residential rate on the commercial landscaping makes a lot of sense, but I would caution if if that amount goes up too much, think about uh when we bring a project forward, we require landscaping trees, especially over parking lots where there's a heat item in effect.

How often now do we see particularly in some of these big box developments when they get a little tight in the money, they just start turning the water off and the trees start dying and the shade starts going down and the place starts looking like crap, right?

So if you raise these rates too much, as soon as the development's done, they're just gonna shut the water off and let it die, and then we're into a code enforcement issue.

So I think there's a balance here of trying to be fair and equitable to our residence rates, but also understanding that we want to encourage these commercial developers to maintain a very nice landscape because that's that's part of our community and give us some community pride.

So I I I would hope we'd have a a little bit deeper discussion about that if we're gonna raise those rates.

And we'll look into that and we can have some additional conversations before the news of the intent um on the 22nd.

And you're right, it somewhat goes back to the philosophy that we discussed earlier of trend to just avoid sticker shock immediately, but ease into over the course of a few years more parody in that regard.

So but we can look at that, and we've got some time to make to have some conversations before that final posting a week from today.

And Mayor, Councilmember Spillsbury, um Eric was not kidding, we can come visit you and walk you through it in a little bit more detail outside of the noise of the study session, um, because we want you to be clear on what we're proposing.

Yeah.

I can't find the slide.

Is it the 22nd?

The 22nd of this month is the notice of intent.

And so you said we could have more conversations about when would we do that?

Yeah, certainly.

I mean, I think through those one-on-one conversations, uh, we can we can go back and look at too based on the conversation this morning and and could we can always make adjustments to the final posting and recommendation before that happens next Thursday evening.

So based on some of those conversations, because again, if we're just setting the max of that, if if we fill and have some additional conversations and feel that that need to be adjusted, that doesn't mean that's what council's going to adopt.

But if if you'd like us to do that, and then we can continue to have the discussion over that 60-day period before we actually adopt the rates on December.

So would would we talk about that at the study session the night of the 22nd, then since we're doing strategic planning on the 18th, or could we talk about the case?

We could definitely do that.

But in order to think we would all need to look at it to make that decision, obviously.

Yeah, absolutely.

I um staff uh staff can can have some one-on-one conversations after we look at the numbers to try to try to understand that we can discuss that on the study session um on the 22nd, but because we have to post the notice of intent um final language the Thursday prior to that to meet our 24 hour posting notice.

We would probably uh if it was through the conversations we had and staff looking at this, if we wanted to adjust that rate upward, we might do that.

Just to make sure.

Just to make sure, and then council can always direct us later.

No, even though we move from this percent to this percent, we do want to keep it at this this percent after council has that has to be done by the 18th, then that would that would be done by the 18th before our final posting.

Okay.

So I think it'd behoove us to have a maximum rate, and then we can always decrease from there and avoid the additional 60 days of the NY.

It's just if the public looking at this realizes what we're doing instead of the sticker shock of that's the ma, you know, I don't know.

Without doubt, and I but I think of this particular rate class of commercial landscaping, that you know that might give you a little we're we're not we're not giving a residential consumer you know, the idea of that the rate could be higher on this.

And again, that's just to give council the flexibility to look at this more exactly.

Because you're you're setting the cap, and if if council still wants to explore this idea on the on the landscaping side, that would just buy you more time to to have that discussion before locking in a rate.

And you could we could ultimately be back to where we are today, but that would give you the flexibility if you'd if you'd like that.

And you and you're right, depending on the rate class, I wouldn't necessarily you know say that if we were talking about our regular residential rate, that that might be you know, that might lead to to more confusion than this particular rate class.

All right, gentlemen, where do we leave off?

We have a few slides uh for wastewater.

Um we'll cover that.

You probably don't need to spend a lot of time on the operating and the debt service side.

And then we're gonna get to what we build in up to, which is the side-by-side comparison of the rates you've seen already, and then side by side with that will be the rates if we had a capacity fee, so there'll be a difference there.

All right.

So moving right along to uh operating costs again, operating costs and uh death service, the two biggest re uh revenue requirements in uh the uh wastewater program.

Uh we had mentioned uh earlier in this uh presentation um a little bit of uh uh a little bit of uh of additional costs incurred forecast for fiscal year uh 26, 27, 27, 28, and those are chemical and uh uh energy related uh costs associated with uh 91st Avenue.

Um move right along then to debt service.

Uh the thing to highlight here in debt service um is again that uh refinancing uh of that debt in the out years, um uh drawing down uh the uh uh forecast, our current forecast from our previous forecast, uh, about two million dollars uh fiscal year 27, 28, 28, 29, and 2930.

So our rate adjustment recommendations for wastewater fairly similar to what was recommended last year for both the service and usage component of our customers bill, our residential customers bill, a 8% adjustment to 8% increase.

And for our non-residential customers for both the service and usage charge, a 9% increase.

So how that would impact our typical customer, our typical residential customer, their current bill, 28.07 cents, it would go up uh 8% or uh $2.25 a month.

Uh and the uh typical commercial customer, you know, their bill currently $56.86 a month, uh, it would go up $5.12 a month.

So now that we've gotten through uh the water program and the wastewater program uh rate adjustments without a capacity fee, let's look at what they would look like uh with the capacity fee now.

So starting with water, no change to the service charge.

However, for tiers one and two, those would drop to the recommendation would drop uh down to uh three and a half percent.

And for tiers three and four, uh though that recommendation would drop down to four and a half percent.

For those multi-unit customers, um they would see uh uh a recommended rate adjustment of or for their usage component of 12 percent.

For our commercial customers, in addition to uh their general um and their excess water surcharge general uh instead of 14 percent with the capacity fee uh 13 percent, no change to our landscape recommendation, uh a 1% change from 20% to 19% for our large commercial customers, and a slight change to our interdepartmental customers, that water that we sell ourselves down from uh a nine point eight two percent increase to a nine point two nine percent increase.

On the wastewater side, so uh for both uh residential service and usage, uh our recommendation would go from eight percent to seven and a half percent.

Uh and on the non-residential side, uh both service and usage uh components of their bill going from a nine percent recommendation to an eight and a half percent recommendation.

Again, even with these adjustments, uh there is no change with regards to uh the anticipated uh equity uh or no change to our existing chart that we've already showed you uh with regards to equity between our residential and non-residential uh rate revenue and our residential and non-residential consumption.

So this chart uh very closely matches uh the previous charge that we showed you, and this is with the capacity fee, so no change there.

So these are the last couple slides here.

Uh and so uh taking a look at the difference between the uh water uh typical customer, uh how they would be impacted versus um uh how they would be impacted uh with the capacity fee.

You can see here uh with the capacity fee, our recommendation would uh reduce about five cents uh or uh a point uh a tenth of a percent.

So your typical residential customer uh would see a uh that would see a 4.3% increase to their bill without the capacity fee would see a uh 4.2 percent uh increase with the capacity fee.

The similar story across the board, um especially it's prevalent here with the multi-unit customers uh going from a 10.1% increase to a 8.7% increase.

Um our commercial customers uh going from a 7.7% increase to a 7.4% increase, and our landscape customers staying the same because we are not recommending any changes to uh the usage component of their bills with or without the capacity fee.

Questionnaire.

I'm a little confused because so this is for a customer that is in tier one, up to six K cows.

Yes, ma'am.

But I thought you said the typical customer was nine K.

The typical commercial customer is nine K.

Okay, okay.

I misunderstood, thank you.

No problem.

So moving right along to wastewater.

Um here uh uh across the board, you're gonna see a half a percent decrease uh in our recommendation from a rate recommendation without the capacity fee and a recommendation with the capacity fee.

So your typical residential customer uh would see a decrease uh in our recommendation of about 14 cents a month, and then uh your typical uh commercial customer uh they would see a uh uh see a a reduction of about looks like about 29 cents a month.

So uh another uh significant um uh discount there as well.

So that is again with the capacity or without the capacity fee as compared to with the capacity fee.

And that's it.

Questions council and vice mayor?

On the use under the usage charge for residential, uh, when you look at the recommended rate before the adoption, it's four or five and a half, six, seven and a half, but with the capacity fee added uh tiers one and two are three and a half, three and four, four and a half, so it's it's not going up by tier the same way it was if we don't do the capacity fee.

What was the philosophy on that?

Why did you group them together with a capacity fee added in?

Um well the uh it's more based off of um the the amount of revenue that we would want to or we would expect uh uh from those tiers based off of uh the rate increase applied, and you got to factor also factor in there's gonna be a little bit of um uh uh uh price elasticity.

Um so we we we based them this way to try to uh get a uh a certain amount of revenue out of each tier um that was somewhat similar to how they are set up in the uh uh recommended rate adjustment without the capacity fee.

So I I fumbled around that one a little bit.

Um but it's it's it sounds like the math was easier a little bit.

It well, it was it was easier to get the same amount of or the amount of revenue uh from each tier while at the same time applying them in a way that still was equitable between tiers one and tier two and tiers three and four.

It does seem like if it goes four, five, six, seven that to the right should also go three, four, five, six.

We you know what we can we can run those numbers like that, and then I can I can show you how um the difference between our expected revenue um in that manner and uh the way it's set up now, if that makes sense.

Sure, we could run the model.

This was just one iteration of how we chose to run the model to get the results we wanted at the end of the day.

We could try another iteration that would conform more with the comments we've heard.

Seems like um it makes just more sense for consistency.

Otherwise, I don't know what our reason is for not doing it that way.

We'll run the model that way.

Okay, yeah, that'd be good.

So I would do when our our notice of intent, then do we put out the rates with the capacity fee and without the capacity fee since we haven't voted on whether we're going to do the capacity fee?

So, like our residents are going to see that.

What are what are what are people gonna look at?

I think the intent right now is to do the notice of temptation and Brian is with the assumption that the capacity fee is going to be adopted.

I didn't know which way you're gonna go about.

I'm fine with that if you don't know.

We're kind of agreeing that we want to do the capacity fee because otherwise I think it's just going to confuse an already really confusing situation.

I'm trying to make this simpler and clearer for our residents, and I feel like if we put out two charts that it would just really complicate everything.

So mayor and council, or yeah, mayor and council.

The intent was to, with the notice of intent include without the capacity fee.

Because since the council is still um gonna vote on it that night, we would be able to lower the rates if we needed to, but we would do it as uh a because that's why we would have the capacity fee first with the capacity P capacity fee passed, then we can introduce the lower rates, but we would do uh the notice of intent on the 22nd at a little over a week, we would do it with the higher rates because we could always drop it down.

So we would do it without the capacity fee because if if council did not want to move forward with the capacity fee, then we would have those rate adjustments that were already presented.

So we're gonna put out a notice of intent with a little bit I mean I know that it's not a huge but but with a higher rate but then we in December are planning on essentially voting on these and it will be slightly lower rate.

Mayor and council it can be if the capacity if the capacity fee is adopted by council yes.

So my my question on that is during the year 26 when we're collecting capacity fees we're gonna take those fees and apply them to reduce our rate so the they won't apply to the rate we will set those aside what we would do is take out those projects that were identified for the capacity fee out of the forecast which then would ultimately reduce the rate adjustments in the future years.

Do we have to are do we have notice of intent for the capacity fee as well?

Do you that's required?

Oh okay so mayor and council yes uh mayor and uh council member go forth the notice of intent for the capacity fee is on the same night on the 22nd this month would be the notice of intent it is a fee so it it follows kind of the same as the fees and charges to where you have a notice of intent and then you have the 60 days before you can introduce and adopt you you're right it's I mean this is with this year being the first year of implementation um presumably of of um that fee it it will lead to that in the future if council were to adopt that fee we we wouldn't run into this with with future cycles but um yeah this is an unfortunate byproduct of having to you know do this at the same time but that had been with the philosophy of that we were going to put the worst case scenario on on the rate and then it can obviously be back down by council so um but we can we can look especially going into the 22nd um how we can try to simplify some of this you know for the public um and but there would still be this notion to your point that there would be a higher rate that that we're assuming would be a lower rate if council were to ultimately adopt um the uh capacity fee I think like the few people who are like Eric that love this kind of stuff um that are gonna like dig in on this then they'll understand it but we're essentially saying to the public we're going to add a fee we're adding the capacity fee but that will actually make the rates lower right i it's it's just confusing and so like and like here's the rates that we're gonna do and also they might be a little bit less in December like I I just I don't know I'm just trying to figure out how we could simplify that.

Yeah yeah that what'd you say Scott?

So this is why we have meetings like this for clarity.

And I again I mean I'm always I'm always asking us to make things um clearer for the public so that they could go on our website and click on something and they'd go oh this is what we're doing and and this is hard you have all the different categories all the different tiers like it it just is never very simple but this does add another uh layer of complexity to an already complex situation it it does and it does I think to your point though the simple answer is you know at part of this is we're trying you know I we've all we've all seen the notion that the public does love the concept of growth paying for growth so I think understanding implementing a fee that allows for that that would then lower the burden on them and lower the rate on them as a as a consideration they also um don't want any increase in their utility rates though so that's the challenge well I I think uh I think people have to inspect as costs go up that you know we we have to keep pace with that and like we say we're not even keeping pace uh with the CPI on on those cost increases it's just a it's just a reality of the business that we're in that the chemicals and the other things go up and I I mean that but that is again back to the philosophy of of small and steady as small as possible and steady increases on that so that we avoid the sticker shock.

For example, I'll just pick up large commercial.

Um, if we give the notice at the 20 percent, council may decide to actually you know close that gap a little bit faster, leave that at the 20 percent at the higher notice rate, um, and then you'll have some flexibility on the residential side to maybe tweak that a little bit and look at opportunities there to close the gap a little bit um on that side by reducing it a little bit there by leaving it at the higher rates that are in that left column there good advice one thing uh you know listening to the conversation.

I know two or three years ago when I was on audit finance, we identified that a flip in residential and commercial water usage, and so we push back and lowering the rates or keeping them low for the residential customer, and that was beneficial.

I what we've heard today is some of our neighboring neighboring communities are raising their water rates up to 25 percent uh to the south of us, and and you know, we we've had uh increments, small increments uh in our water rates.

And one thing I I had a question going back to capacity fee.

If I'm a home developer with single family lots, and if I as I develop my uh development residential, is the capacity fee gonna be like 9500 per lot as capacity the right the combined capacity fee with the water fee and the wastewater fee would be uh just over 9500 for residential lot.

Okay, all right.

Um council uh direction we good for you know I like Mr.

Smith's recommendation on his uh on chart 26.

Jim, you want to review that again?

So if you on page 126, you'll see by beginning the notice on the higher amount.

Um in the future, you might decide not to, even though we assuming we adopt the council adopts the capacity fee not to reduce the make those reductions in the um that are in the right column, and then that'll give maybe give you a little flexibility on the residential side, and you're basically closing that inequity, that gap a little bit just fractionally faster.

So I have a question on that.

Then um, we had talked about them get it coming back to the council um for the next week in with some higher numbers on that landscaping commercial rate.

And your point is that maybe we wouldn't have to go higher, we just wouldn't go lower if we were to have the capacity fee added.

So I think are you yeah, I think on the landscaping fee, they were they weren't reducing it on see that so I think the idea is is that staff's gonna basically is going to have another number for landscaping, and you're gonna see a slightly higher number on the landscaping when we do the notice of intent to give us some flexibility.

Okay, so we would so both.

So we would have the a higher number from staff, but that we have that gap in the case.

And it'll be built in.

And so staff's just gonna do that, and they'll come up with a slightly higher number, and and when you come back in the 22nd, you're gonna see a number for landscaping.

I suspect that's a little bit higher than that, just for flexibility purposes in the future.

Mr.

Ridio.

Mr.

Smith, uh, is there I don't remember, is there language on the notice of intend that says these are maximum fee, these are maximum rates.

They're not the end rates that are approved or something like to that effect.

I don't know.

I can have I'm gonna I don't remember.

I've looked at it, but not for a long time.

I don't know if Brian knows the exact language of it.

Um but we can include language we can include language like that.

Maybe including some language that you know it's it says you know, these are maximum notice of rates, but could change or or something to that words myth that those kinds of pieces.

So that it's there's some clarity that these are not potentially the rates that final numbers that will go into a fact, right?

Because that's uh some some you know some info there.

We can add language like that.

Okay, perfectly.

Yeah.

Okay, very good.

You know, no, I I I'm gonna take a shot here, but I think uh I anticipate the capacity fee moving forward for our community.

I think that's great for all users within our our city, and and as Mr.

Butler said growth needs to pay for growth.

Um with that council, if there's nothing else, we could move forward and take maybe a five minute, yeah, maybe need a five minute before we okay.

Jan is uh patiently set back there, or we still have our lectures canceling have any other things.

Yeah, am I uh I have electric here?

There's like 30 slides.

Too late, you promised a break.

All right.

We'll reset here in five minutes.

So many slides left.

Wait, how did I miss that?

Just let they combine them.

Um, we have Mr.

Summers in the room, but uh, you know, why don't we start?

He's here.

Mr.

Bosch and your team, Tony, John.

Good morning, Mayor Freeman, Council members.

Okay, sorry.

Is it on?

Just start okay.

Um Energy Resources Director.

I'm joined today by Tony Kenorrin, who's our energy resources program manager, and John Petroff, who's our senior fiscal analyst.

Uh, first we're gonna talk, we're gonna talk about two utilities today the electric utility and the natural gas utility.

Uh we'll start with the electric utility, and I will turn it over to Mr.

Petrov.

Good morning, Vayor Mayor, Vice Mayor, and Council.

Um, yeah, we're we're gonna discuss some of the increasing cost pressures on the electric utility.

Uh similar to water on the operating budget, we have some inflated costs on the outside vendor services, uh, such as tree trimming, and then uh personal service increases uh due to merit raises and our salary parity with SRP, that program, we see uh personal service increases due to that.

On the debt service side, uh, we're meeting growing demands in the downtown for new services, and we have some reliability projects along with AMI costs uh increases there.

Uh and then graphically, uh what I just mentioned on the operating side, you see those increases over time.

Uh and as far as priority projects on the debt adding to that those debt service costs, uh reliability projects for Kelwood substation and the 69 KV looping, and then we have some coordinated projects at Staple and University with transportation and water.

Uh moving on, uh, we discussed the debt service increases.

Uh, you see those here uh numerically and um slight dip in 2425, but that was just due to some fund balance, extra fund balance there, but the costs are continuing to go up.

This is a graph of our uh electric supply cost for an average customer comparing if they were in SRP's territory versus our territory.

Um prior to 2122, our customers had a significant advantage in electric supply cost.

Um, but with the markets disruptions, excuse me, in 2021, we saw a drastic increase.

We were able to control those increases through ARPA funding, and that's the hatch line you'll see.

So the actual cost that our customers experience is at the bottom of that hashed line.

SRP has increased their rates over the past few years, and we've sought to hold our hold our rates steady.

And as a result, last year in 2425, for the first time we saw our costs actually less than SRP.

And um at the beginning of this year in 2526, uh that's holding as well.

So we're we're pleased to present that to you.

Uh so we compare ourselves to neighboring uh utilities throughout the year, our two neighboring utilities, SRP and APS.

Uh in November of this year, SRP is coming with another increase overall to 2.4% price increase, and their average user will experience a five dollar and sixty-one cent increase.

They're also shifting to a tiered service charge, so they're gonna have a multifamily uh charge of 20, which is their current uh service charge for all their residential customers, and then single family will go up to $30 a month, and then their really high users at the 3% will be at $40 a month, and then APS, their rate case will be effective June of 2026, and their average bill impact will be $20 a month.

As far as uh residential electric bill comparison, so um we have what our three levels of usage a small customer usage, an average usage customer, and then our large usage residential customers.

Um you can see in the blue, that's what our current rates would be if we didn't have any rate increases.

Um, and then the checkerboard blue is what our proposed rates would increase to.

But you can see um through the three different levels of usage, we compare pretty well with SRP, and we did um take the SRP bills in the orange, that's for a multifamily, and then the their checkerboard adds that extra ten dollars for the single family, so you can get those comparisons.

Um so last time we came to you uh last year to rate to talk about rates.

So this top line here was what we said we anticipate our customers would pay for last fiscal year.

And I'm basically these are based on the last fiscal year usage.

So for the average customer who came to you and said they would expect a bill of 153.55 cents a month.

Now, what Tony talked about with the consumption costs or sorry, the commodity costs going down, what our customers actually paid, even with those increases we had on average was 146 dollars and eighteen cents a month.

And then what we're proposing with further reductions in our commodity costs, which are a pass through to the customer, we're forecasting customer good bills to go down to 1378 on average.

So we're seeing reductions on those commodity sides to the benefit of our customers.

Well, I think that's good news, right, Tony?

Yes, so uh so what we're proposing uh again, we looked at the the forecast.

Uh we are seeing those rising debt increase debt costs, but compared to last year's forecast, they have gone down a little bit, but they're still increasing.

So we looked at that, and what you we proposed last year was a three dollar service charge increase.

We've changed that now to the $1 a month increase, and then we've left the tier usage is the same uh summer tier one at two percent, tier two at four percent, winter tier one at five percent, and that winter tier two at thirty-six percent.

Now that looks like a large number.

This is the final year we're doing that to where we can get to an inclining rate in tier two.

So the more you use, the more you strain you put on the system.

Um, we're gonna have that inclining rate now in the winter tier two.

And so overall on an average bill, these proposed changes would uh increase the customer's bill two dollars and twenty-seven cents or one point seven percent.

Uh on the commercial side, um we compare ourselves here with SRP across the three levels of usage, pretty comparable with those lower commodity costs we I discussed.

Um, but all three levels of usage we compare pretty favorably with SRP.

And so as far as proposed commercial electric rates, we're proposing a five dollar system service charge on all commercial customers, and then tier two uh summer, a five percent increase in tier to winter at three percent.

Now tier two is customers that use between 15,000 to 75,000 kilowatt hours.

So this those tier charges won't affect the majority of our commercial customers.

Um so the average customer would just see that five dollar increase a month or less than one percent.

There's no questions we can move on to the natural gas utility.

Okay.

On the um slide 41.

You said this is the last year that we can.

I don't know how you said it.

Yeah.

So then uh what happens next year?

So it'll I think you you can we'll see it on the forecast, but it'll drop down to a lower percentage.

It'll still we're still probably recommend an increase on that tier two, but we've now achieved where our tier two will be rate will be higher than the tier one winter, and we've done that over a three-year period, and so this is the final year of that.

I've lost I've lost track of all my charts that are in here and that aren't in here, but so there is a chart that shows future.

Yeah, it should be on the forecast chart that we see on okay.

Thanks.

Tony, can you give us a snapshot of how we buy our power, whether it's you know, renewables, PPAs, um how that's done, hydro with the other commodities.

And yeah, just quickly give us an overview.

Um, so uh we've had a long-standing relationship with the Western Area Power Administration, which delivers about 20% of our resources through hydropower projects that's broken up about 15% is the Parker Davis project, so the dams on Lake Havasu and Lake Mojave.

Then the remaining five percent are through the Colorado River Storage Project, which is mostly Glen Canyon Dam.

So 20% is hydropower split up between those those projects.

Um beginning in January 1st of this year, we started our first um power purchase from SRP for probably a decade or two.

So that is uh a resource which will cover about 15 or 16 percent of our portfolio.

Um, and that's accompanied with uh renewable energy credits.

So if you stack those two on top of each other, we're looking at around 35 or 36 percent of our portfolio being renewable.

Then uh in addition to that, we're closing in, I think.

Well, with these new solar projects that are coming online, that'll be 3.6 megawatts of solar in the downtown that's providing power directly to the grid.

Um, and that's a few percentage uh points as well, and we have I think close to two and a half megawatts of customer-owned solar now.

So if you roll that all together, we're looking in the upper 30s in terms of renewable uh resources this uh this calendar year, let's say.

Um, and then the remainder is split between four or five, I can't recall how many exactly um contracts with energy marketers, and that's just purchases through the wholesale energy market um between Constellation Energy Commodities Group, aka Exilon, uh Brookfield Renewables, BP, and other vendors like that.

And so we set up those five, four or five contracts so that they're never ending on the same.

We're trying not to end a lot of them on the same time so that we don't have a lot of market exposure.

We're trying to contract for longer terms to keep uh prices stable.

Um, and then so that's today, and then right now we're still in negotiations for uh the Penal Solar Project with the Arizona Electric Power Cooperative, um, which will be 25 megawatts of solar and 20 megawatts of battery storage, and that should cover um a significant portion of our energy to where I think within one or two years may still be above 50 percent in terms of renewable energy resources.

Okay, good.

How many megawatts does the utility use per year?

Yeah, our our peak is very close to 90 megawatts.

Um I don't have the average across the year, but it it does run as low as in the 20s during the the shoulder uh hours, uh shoulder months.

Good.

Thanks for that overview.

Sure.

All right, let's move over to natural gas.

Yeah.

I'll turn it back over to Ms.

Petrov.

So uh similar to electric, we're seeing those increasing costs on the operating budget, um, inflation on services and contracts, uh personal service increases with merit raises.

We have added new staff uh due to some of the the growth in magma and also uh adding staff to for the fiber to the premise project.

Uh increase so here's graphically the uh increasing costs on the gas utility on the operating side, and then some of our big projects, so for the debt service increases, um Arizona Farms, that's a um uh what is it?

Uh compliance project, sorry, um Gansell Road uh gas, gas main, uh the closing gate, and then a couple of um coordinated projects with other city departments.

And then here you see those increasing debt service costs over time.

There's a few dips.

Uh the first dip in 2425's uh timing issue on bond bond sales, and then the dip in 2829 is when our taxable we have some taxable bonds that are being paid off, and then those drop off, and then you still see those increases.

So go back to the slide prior.

Uh again, so road 23 million dollar remind us what that is.

Is that the uh battery?

Um no, so that's uh a project that we've had in our master plan for a very long time.

Um of the sort of operating principles that we use with our gas system is we want to be able to lose a gate station and still be able to operate the gas system because taking out 20,000 or 30,000 gas customers is is just unfeasible.

So um we recently added a new gate station in the north side of the magma system.

We have one in the in the center of it, and then we've had Closing Gate, which is the oldest gate in the far southeast.

And the so with the addition of the third gate station, that does give us that redundancy between gates, but the ability to move gas between the gate stations wasn't there.

So this product uh the Gansell Road project will allow um full redundancy for gate stations once it's done in that we could lose our Gansell gate, we could lose our new Sherwood gate, and the other two gate stations would be able to supply the system.

So it really is a risk mitigation strategy, but it's also to your point to be able to move gas to the northern side of the system and serve those industrial customers.

But this was conceived far be way before we even began talking to those customers.

Okay.

Oh yeah, yeah, definitely.

All right, thanks for that.

Okay, so uh again, we we compare ourselves to our uh neighboring utilities that serve City of Mesa residents.

So Southwest gas proposed a rate increase in March of 2025, uh approximately 8.9%, and that would have raised customers' bills about three dollars and seventy-five cents a month.

This is a similar graph to our electric graph where we're showing the cost to purchase the natural gas commodity and get it to our gate stations.

Um we've always enjoyed a pretty significant advantage over Southwest Gas until um winter storm URI in 2021, February 2021.

Um because of that uh event, we spent the next two years recovering costs there kind of slowly um rather than hitting our customers with it all at once.

Um, and so you can see beginning in 2324, we're we're back below Southwest Gas.

During that period, we also began our asset management agreement where our supplier pays us for the pipeline capacity that we don't use, and that's helped save some money for customers as well.

So uh our comparison to Southwest gas with our current uh rates or bills and our proposed rates bills.

Um you can see on the average customer or the small customer, sorry, we're a little bit above them due to how we structure our rates with the service charge versus their service charge, and then moving on to the average customer, we're about a dollar five on the proposed rates above Southwest gas.

And then for the large customers, we are seeing a little bit more favorability for the city of Mesa at um about five dollars and twenty-seven cents less for the proposed rates.

Uh so with that when we looked at the comparability with the larger customer being a little bit more favorable, we changed what we're recommending from the prior forecast and taking the service charge from one dollar to zero, and then we're increasing the leaving the summer uh percents the same on the tiers at 7 and 15, and then the winter tier one at 7%, but we're increasing that tier two winter usage charge 24 percent uh to bring those larger users more comparable to Southwest gas.

So overall, for our average customer, we've reduced from a $2 and 7 cent increase per month to a dollar and 43 cent increase per month.

Uh on the commercial side, we're seeing uh comparability in the small and average customer.

Um those large customers, Southwest Gas has a different rate structure for their large customer compared to what they charge their small and average commercial customers.

So you see that um quite a bit below uh what City of Mesa is currently in proposing.

Um last year at this time, they're what Tony mentioned, gas you can see on that graph, gas costs are coming down for S and Southwest Gas.

So they're their larger users are seeing more of a benefit, which is affecting that uh large customer.

So our proposed commercial rates uh we're keeping them the same as you saw last year, a three dollar increase to the system service charge, and three percent on the summer and winter tier one, five percent on the summer and winter tier two.

So an average commercial customer uh would see an $11.72 increase per month or 2.3 percent.

And that is the end of our presentation, I believe.

Yeah, it goes to solid waste after this.

So how many large customers do we have on in our system?

Roughly uh on the gas, mayor on the gas system on the gas side, yeah.

Um, so I guess what do you consider a large customer because you have your residential usage, and then we flip over to large or commercial?

So we you can say tell me while John looks a little bit.

Go ahead, sorry.

We have so we have about 2300 commercial customers, general commercial customers.

So I guess on a large customer that uh we these are like quartiles, so it'd be about 570 customers we would consider large that would fall into that um last graph column graph you saw.

But we do have another rate on top of this rate, um, which is specifically for very large users.

So a few of our larger industrial customers, they they have substantial enough usage that they kind of fall out of what you're looking at here, and they go on to uh a specific large customer rate.

And I think we have two customers on that.

Okay.

Right now.

Is the gas pipeline at capacity now with what we're delivering today?

And we're looking at utilizing the Trans American, is that right?

In the future.

So the the current line that we have capacity on is at capacity.

Um and there is a planned project that we're hoping to participate in, what transwesterns.

And that was something that council approved on Monday, right?

That we had going forward that we're negotiating and we're working with Arizona Electric Power Cooperative again on that project.

Okay.

Thank you.

Well, let's talk about solid waste.

Thank you.

All right.

Good morning, Mayor and Council.

Joe Jadis, Deputy Sol Waste Director here on behalf of uh Director Collins and our amazing salt waste department.

Uh out of respect for your time, I'm gonna go through this quickly.

But certainly if you have questions or if you need me to slow down on anything, I'm happy to do so.

So, real quick, this uh chart shows our operating expenses for the solid waste utility, and um the the main cost drivers for us are our amazing people that are out there doing the work every day.

It is our trucks, our fleet of trucks who are very logistics driven, our bins and barrels, so those are our commodities.

Um then our landfill disposal costs and our recycling uh processing fees are the mean cost drivers for us.

And um we had some savings last year, which I'll quickly show you.

Um on this slide.

The recycling markets were stronger last year, and the way our contracts are structured, we receive a good portion of the revenue from commodity sales.

So, although we budget for expenses equivalent to what it costs to dispose of the material, uh, because the recycling markets were strong last year, we actually um had like $500,000 in lower expenses thanks to those recycling markets.

But just quickly pointing out you can see that um in June and July of this year, those net we're now back to paying uh some processing fees, so the markets are are shifting.

Now moving into our rate increase proposals for our residential.

This aligns with what was in the forecast, which was a five and a half percent proposed increase.

Our typical customer has a 90 gallon trash barrel and recycle barrel, so that's a dollar eighty-two increase per month for that customer bringing their new rate to $34.99 based on this proposal.

We also have an amazing bulk item program here uh at the city of Mesa.

It's unique and different from how many of the other cities operate theirs, but I think ours is really the best and the model that others wish they could copy.

Um in our program, residents uh will contact us to schedule a pickup in their community, and we charge a fee of 29 currently.

We're proposing a $2 increase to that fee just to cover the cost increases that we've experienced on personnel and landfill costs, bring in that new fee to $31.

A quick reminder we have supplementals so people can bring things to the landfill directly if they have bulk item.

They can also use our community cleanup program, which is a new program we implemented last year, and we have our neighborhood cleanup program as well.

So there's multiple ways which our residents can remove of their bulk items.

Now I'm gonna shift over to talk about our commercial services.

So for solid waste commercial is very different than for water and for the gas utilities.

We are in a competitive open market in how we're doing our services.

So any customer that's a commercial customer in Mesa, they can choose to use our services or they could choose to use a competitor's services.

We are also recommending a five and a half percent rate increase for our commercial customers.

Um we have two programs.

We have our front load bin program, which you see the blue bin here, and we also have a roll off program.

So for our commercial, uh, the five and a half percent increase is spread over a couple quick ways.

There's a base rate, so for a six-yard trash bin, that's a little over a five dollar increase for that that customer.

We also have an out-of-zone fee.

The reason we have that is we want to be very efficient in our services, and so we set the city up into zones, but sometimes we have customers who need us to service them on days that we're not in their zone.

And we will do that, but we will charge the additional fee for the cost of getting out to that customer.

And then we are um proceeding with a three-year process of disc uh discontinuing a discount that we were offering for multi-day service.

There just really isn't any true savings for multi-day service, so we're removing that discount.

For our roll-off customers, so these are the larger boxes that might be maybe a resident might select this if they're doing a renovation at their home, or we certainly have commercial customers as well that have these larger boxes that we service.

We're also recommending a five and a half percent overall rate increase.

Um, and it's broken up into two pieces.

It is um we charge a rate per ton of material collected, so we're increasing that to reflect those increasing landfill costs, bringing the new rate to 5150 for trash and 5982 for a green waste only customer.

And then we have a haul fee that's also associated with that, and just a nominal increase for our smaller roll-off boxes of 15, 20, and 30 yards of five dollars, bringing that to 140 and 150 respectively.

And then for our larger 40-yard roll-off, that would be a six dollar increase, bringing that to 166.

Um, and then below just shows what that impact would be to a typical one-time customer.

And this is um my final slide, and it just summarizes everything together for you to see.

But I I did want to answer a question more typically asked uh before I take questions, which is are our commercial rates competitive and what do we do to ensure they're competitive?

So we do a couple of different things.

First, we'll go out to the market and we'll we'll find customers that have moved over to our services and we'll inquire with them about why.

Oftentimes it's fees and costs.

And we also will do a survey of what other customers are paying based on so we we know we're competitive in that regard.

And then the other check for us is after we do a rate increase, like last year, uh mayor and council approved a 10% rate increase on commercial customers.

We monitor how do our customers behave or respond to those changes.

And we have this essentially the same slight growth in customers from last year, um, which it was the pattern we expected.

So those are kind of how we check our commercial rates and make sure we're market competitive.

And with that, I will see if there's any questions.

No, but I have a cough.

You do have a cough.

They should go away after a moment.

Yeah.

Um, yeah, thank you, Joe.

So I heard you mention employee costs and landfill costs.

Like what are the driving factors of any of these price increases?

Are those the main two main ones or are there other ones?

Yeah, it's um so landfill costs is one of our big driving costs.

And so for us, that's we have three or four different contracted uh vendors.

Um, their costs we re we had new contracts we had to put in place uh this last year, and we had cost increases with one as low as five percent, and with the others as high as sixty percent.

So those are reflected in here.

And that's just really in our market, it's um as landfills come to close.

Um, we're gonna see reduced capacity, and so we have to be planning for that as a as a utility to make sure we're prepared for the future.

Okay, so that's if people ask, that's gonna be the main one right there.

Okay, thanks.

Any other questions, Vice Mayor?

Um one of the major cost factors that I've seen is the cost of maintenance of our vehicles and replacement of our vehicles, and uh it was probably about a month or so ago, I think we saw a significant increase requested for maintenance and parts because of where they come from.

So what are we doing uh to try to get ourselves ahead of that and reduce those costs because our legacy vehicles are clearly uh starting to fall apart and we need some new ones.

So are we coming up with a plan to try to reduce those costs?

It seems like a uh low-hanging fruit, possibly.

Yeah, mayor, vice mayor, uh thanks for the question.

Um on the great news front.

Um since last year when we had this conversation with you, we have been able to put about 28 to 30 new vehicles into service.

So a quick reminder that um through I know COVID was five years ago, but it caused such disruptions in the uh vehicle manufacturing sector, it really impacted us.

Um we were we were three years away from when we ordered a truck to when we actually received it and had major cost increases associated with those.

So we've taken delivery of those.

Um that's gonna help our reliability.

Uh it's gonna help with keeping our maintenance costs under control because we were seeing significant increase maintenance costs.

The reality is though, also the cost of labor, the cost of parts, those have gone up quite a bit in that industry, and um they remain pretty high at this point.

And I think you mentioned in the meeting uh protecting those vehicles uh from lithium-ion battery fires that can destroy them.

We've seen that in our city and several others.

What are we doing to add some technologies to protect the vehicles from earning up?

Yes.

Uh Mayor, uh Vice Mayor, the the couple of different things.

The fleet department, first off,'s done an amazing job of helping us uh review our trucks and see what we can do to help um design them in such a way to help reduce the likelihood of that.

But with respect to lithium ion battery fires in particular, that's a definite challenge.

We're working cooperatively across all the cities to and the cities and fire departments.

So solid waste and fire departments are working together across the valley to really promote to our residents about proper disposal.

We really want people to bring those or deliver those eight those to our household hazardous materials facility for proper handling.

Excellent.

What is a fire uh sorry, what is a um garbage truck cost?

Well, uh the most recent cost, vice mayor, are about six hundred thousand dollars.

Okay.

So every time we dispose of something improperly and it causes a fire at six hundred thousand dollars to our ratepayers.

So that's just something I want to bring up repeatedly as part of this message that the we have to dispose of these things.

There's things that everyday people can do to protect our assets and positively impact our rates over time.

So thank you for looking at that.

Mayor, vice mayor, thank you.

I think we're gonna need to uh use you for some of our advertising.

I am uh available for a small fee.

And so what's the bill time for uh truck now?

Actually, we're back down to 12 to 16 months.

So that's kind of back to the schedule that used to exist.

Okay.

Unfortunately, though, Mayor, the cost did not come down to pre-COVID costs.

So uh the speed may be back, but the cost is not.

So and and this is uh industry-wide issue.

I was with some uh fellow city managers just a few days ago, and they were lamenting the fact that this is one of their biggest issues as well on the solid waste size is just trying to keep their vehicles in operation.

And as Joe alluded to, uh, those new vehicles will help tremendously, but there are the cost pressures, unfortunately, with the the cost of what those vehicles are running for now.

Good.

And these are still natural gas-driven suppressed gas.

Okay.

Yes.

Well, one of the things we've challenged you in the past is make sure we're competitive on the commercial side.

Uh we don't want to lose uh our rates on the commercial.

I know we've challenged you to do that and stay competitive to make sure our cost recovery reflects our delivery of services, especially as labor and uh trucks are expensive, and hopefully we don't have too many fires.

Fires are yes, but we've seen uh our garbage trucks within our metro area catch fire because of lithium batteries.

All right, Brian, you're gonna finish up with the last three slides.

Yes, mayor, council, just a couple more slides.

This is uh mentioned I just wanted to wrap up.

So the first slide is the 25-26 recommended adjustment rates.

If we moved forward without the capacity fee, and just wanted to uh kind of recap that the the top two that I highlighted was the water residential tier one and then water commercial down below, and how those are fours and four and fourteen percent respectively, and we still have a good net sources and uses.

And then on the next slide is the with the recommended rate adjustments with a capacity fee.

I want to kind of then show the full forecast with that.

And as you notice, those top two lines again, instead of four, now it's three and a half percent for the tier one as we lowered, we were able to lower that, and then also the water is instead of fourteen, it's at thirteen percent.

So this is where I was mentioning to where this forecast shows where we would uh move the construction of those growth uh projects out off of this forecast, and so we're able to reduce the rates uh adjustments, so those rate adjustments would not have to pay for those growth because if the capacity fee does get adopted by council, that fee revenue would then pay for those projects.

So it's growth paying for growth, and then also it it helps alleviate the impact of our current customers on having to pay for that growth.

So that's where this forecast is.

And then on the next slide, we have is just a comparison of the next fiscal of this current fiscal year of the budget, and then 2526 projected with no capacity fee and 2526 uh with capacity fee, and kind of showing that comparison.

And with that, that is the end of our well, I think it's prudent to know going back to the uh 65 slide 65.

If we do it with the capacity fee, um we're drawing down our reserves almost 29 million dollars.

So we are reinvesting into all of our departments.

So we understand we have a strong reserve.

We're able, we're capable of using those monies to help offset the percentage of our increases that we have to do.

So and then also meet our debt debt responsibilities, you know, for our utility debt.

So I think this is uh a good program here and what we're doing.

So mayor and council, I will come back.

We will um take your recommendations and your comments and update this with some of the discussion that we've had about the landscaping and also uh adjusting the the tiers themselves on the rates.

So then we'll come back in a little over a week and show that.

Yeah, so we'll we'll send that out to you next Thursday so that you know that will help frame the discussion then for the 22nd, so that we can have that at study session at the council meeting that that evening as well.

But we'll summarize those changes, and there'll be some some offline conversations, obviously, over the next week as we work to refine that.

Probably couldn't come fast enough.

September, November, December, and then January for effective date.

Okay.

Council, sir, nothing else will excuse these gentlemen.

And thank you.

And thank you.

All right.

Uh, next is item to see the presentation on 2026 employee benefits.

And we appreciate Jan's patience on this.

Um, and the reason why we can't push this is we have open enrollment coming up shortly.

So we we had to share this with you today, and uh I know they'll they'll go as quickly as they can, but still share the information that's important for you and the rest of our employees.

I know I missed my flex spending date, so I gotta get back in that.

I miss my wife is shooting me.

All right, Terry and Jan.

Mayor, council members.

Uh Terry Overby, HR director.

I have Jan Ashley here with me, who is our employee benefits administrator.

She is gonna briefly go over some updates to our 2026 employee benefits and our wellness programs.

Good morning, Mayor and Council members.

Uh, appreciate us the opportunity to be here and discuss our benefit programs for 2026.

Um, as you can see from the first slide, we're continuing with our very um well reputed and uh contracted vendor partners for the various programs under our medical, dental vision, employee assistance programs, health independent care spending, business travel accident, commuter travel accident, and some new um vendor relationships with regard to the standard coming in on life and accidental death and dismemberment insurance for our employees and their family members.

Uh, and then short-term disability insurance is also included in that new vendor relationship, along with the long-term disability insurance for sworn officers and elected officials.

Our health and wellness center is proceeding wonderfully under pace with our relatively new vendor there, Premise Health.

So we're really looking forward to that all continuing in 2026.

There are a number of drivers that stand behind what the employee benefit programs are projected to be and what we offer to employees and retirees uh in 2026 and beyond.

We strive to find a balance between the financial considerations that you see up here on the screen right now, and employee engagement opportunities to support recruitment retention and satisfaction goals.

The financial considerations are all about sustainability in the face of some very external national and local pressures like health care cost inflation is a number one.

This is particularly evident in healthcare system cost inflation increases and specialist services in the marketplace.

It's also particularly evident in the high cost of prescription drugs in both the specialty and the non-specialty drug channels, all heavily impacted by consumer demand generated from multi-source advertising and knowledge sources, and a pipeline of new market entries that compound every year.

In the employee engagement side of the equation, or the driver, the drivers from that perspective, it's the heart of the city's culture that drives our services to residents and businesses and visitors to Mesa.

It's important to employees to deliver benefit programs that focus on free accessible primary and preventive care services for employees, retirees, and their respective family members.

That is most important with regard to our wonderful state of the art health and wellness center that has just recently moved here to the downtown Mesa area.

Employees are also heavily involved in and appreciative of incentivized wellness programs, lowest possible rate increases in the premium deductions that come out of paychecks, high coverage plan designs, quality networks and access, manageable out-of-pocket expenses, and then life insurance coverage elements that provide family and asset protection, and sustainable lifetime retiree health care coverage.

So those are all the drivers that are underlying what we're projecting and planning for the future.

Jen, can I stop you there?

Yes.

For Mr.

Butler, go back this slide before.

Lifetime retiree health plan access and funding.

What's going, I mean, for sworn officers like that.

Are we going to have future conversation on that?

We already had the conversation a year ago.

So we introduced that in 2023 going into 2024, that we've now allowed access to our retiree programs for those employees who were hired after 2009, who previously only had access and no funding opportunity.

So that is all in place with a 20-year minimum service requirement going forward.

Yeah, Mayor, so to clarify, no no change.

We did we did reopen the lifetime medical opportunity a couple of years ago, as Jen alluded to, and so we're we're not changing that.

Okay.

I want to be crystal clear with any of our employees listening.

Nothing's nothing's changing, yes, in that regard.

Thank you.

So this slide is the what's not changing in our medical plans in 2026.

Uh we will still retain comprehensive high value coverage with three plan options.

We will have the same administrators and networks, the same comprehensive coverage as I just mentioned.

What was already 100% covered in the plans will remain 100% covered in the plans, and all of the coinsurance amounts at 50% or 80% will also be retained in each of the plans as they stand today.

Wellness programs will have $1,000 per household reward opportunities as it is today.

That will continue in 2026, and the employee health and wellness center will retain its current standing of providing primary and preventive care services free of charge for the employees and their covered family members in our medical plans.

So what is changing in 2026 is premium rates, number one.

So there'll be more impact on an employee's out-of-pocket expense than there is necessarily today.

The goal is to reduce some of these plan expenses when members are utilizing the benefits by shifting the costs a little bit towards them in the forms of deductible increases, out-of-pocket maximum increases, meaning the point at which the plan would take over at 100% is now a little bit further removed than it is today.

And co-pay increases for those plans that have co-pays installed as the main method of out-of-pocket expense, copay increases for each of those types of items.

Interestingly, or importantly, to rec to recognize is even though those out-of-pocket expenses are increasing for our utilizing members, members will still have the opportunity to defer or put away monies for reimbursement in their flexible spending account plan that would help them pay for those out-of-pocket expenses on a before tax basis, which is a uh which is a very valuable benefit for employees to continue to have.

Prescription drug plan design changes are also recommended because that is the one area that is perhaps the biggest driver of cost increases that are happening year over year.

We're recommending that we go to a one plan design for all so that a member doesn't have to make a choice between which plan they're in based upon what their prescription drug coverage needs might be.

They know that they get that same prescription brand prescription drug coverage in each of the three plans that we have available, and they don't have to make the choice between those three plans.

But the recommendations are that we increase.

So that stays standard.

But we will be increasing minimums, maximums, and coinsurance amounts by the channel and tier of coverage.

So the channels are retail 30-day supply, retail 90-day supply, and mail order, which is also up to the 90-day supply.

And then the other big channel is specialty drugs.

So we're recommending that there be increases in those minimums, maximums, and potentially the co-insurance levels by channel and by tier.

And the tiers are based upon generic preferred brand and non-preferred brand within the respective classifications of drug.

Overall, there will also be an increase in the out-of-pocket maximums on the prescription drug side.

That was at the end of the preceding slide, would now go to 4,000 per person or 8,000 per family, meaning that's the point at which, beyond which the plan is bearing the full cost of the prescription drug, but the member is still incurring their co-payment amounts, etc., up until those 4,000, 8,000 level.

Health care premium increases on a national level, they'll be significant for millions of people in the United States next year.

So between those two features, we hope to be able to bring the underlying cost factors into a more sustainable projected forward for the future scenario.

These are monthly numbers, which you see on the next slide, we've itemized it out for each of the plans so that you can see at a glance that that 9 to 73, and that's how it's uh broken down plan by plan.

Other benefit plan changes, we'll just skim through this as quickly as possible, but lots of good news on this horizon relative to employee satisfaction and also cost amounts, et cetera.

So the flexible spending accounts will have increases in their maximums that are in accordance with compliance federal IRS rules and regulations.

A biggie to note there is the dependent care for child care and elder care expenses.

That has been increased significantly, that allows employees to put that amount away at $7,500 level or a 3750 level per year.

So that is really a long time in the making, and as a result of recent legislative changes, that that's allowable.

So that brings it a little bit more into balance.

Voluntary life insurance and short-term disability insurance, as I mentioned earlier, is our new vendor is going to be the standard life insurance company headquartered in Portland, Oregon.

Standard is a company that we used to have in place many, many years ago, and they came back into the mix relative to these particular benefit products with a recent very competitive RFP process.

We're able to offer employees and the city a couple of really good things.

Number one is increases in coverage levels.

So increases in the maximum amount that people are able to choose for their voluntary life insurance coverage that's more in line with what their needs are.

And then we've had some decreases in the actual cost of that coverage or a maintenance of the cost of that coverage.

So that that's a really good place to be going forward.

Same situation on the short-term disability insurance, same three plan designs, but with reduced unit prices.

And since that's coming out of employees' paychecks, that's a particularly important factor for us to uh come to annual wellness program, as we've mentioned before, is uh very much a big part of employee satisfaction and the incentivizing of people to participate in that program is uh very well received by a large number of our employees, uh and we will continue that up to 1,000 uh per household in incentives and and rewards, and that's a combination of cash rewards and also uh uh uh a credit towards um one's future premium costs in the following year on the medical plan.

The Health and Wellness Center continues to be um a crown in our um presentation to employees.

We provide all services free of charge, skilled, high quality, very well reputed and dedicated medical providers and staff.

Um other services are available at that facility as well, and it's available to all of our health plan members, whether they be employees, retirees, or the respective family members that are covered in our medical programs.

And then last but not least is open enrollment.

It starts in a very few days, it's almost less than half a month.

Starts on October 1st, a little bit sooner than we've done in recent years based upon um scheduling needs that we had.

So it's October 15th to October 1st to October 15th.

Um we will have the enrollment capability in our eben Mesa um very uh proprietary and exclusive in eligibility and enrollment system.

All of the information, all the uh uh open enrollment guides, um plan document, all of that information will actually go live first part of next week and be available for employees to take a look at in the in the system.

It is a passive enrollment as it has been in years past, except for the flexible spending accounts, which it does require uh an enrollment or a reenrollment.

That's uh an IRS requirement, so we we honor that respectively.

Um and then anything that anyone wants to change, any changes in dependent status or classification, change in their uh particular program or plan option that they're in today, and of course, all of the new voluntary life options that will be out there uh for people to increase their coverage amounts or get coverage amounts for the first time if indeed they haven't had that protection in place before.

The wellness and benefits fair is at the Mesa Convention Center on October 2nd from 8 to 1.

We strongly advise everybody to come.

It will be absolutely a to die for occasion, so to speak.

I should I probably should have said that, but no.

Okay.

Um we'll have our enrollment uh computer lab available there with volunteers to assist to actually doing your enrollment right there and then free flu shots, um, body composition testing, all of the benefit plan vendors, including the new ones, city departments, the whole works will be there.

It will be it was a great event last year.

Each year it gets better and better, and so we we fully intend for it to be that way this year as well.

So with that being said, and I know I've spoken fast and furious.

Any questions?

It's all at the convention center.

Yes, it is, yes, yeah, on October 2nd, yep.

Mayor short window, I mean October 1st through the 15th.

I mean October 1st through the 15th.

Yep.

So all every employee, if you if you choose not to change anything, Jen, what are our options?

You just you don't have to do anything except be informed.

And we'll automatically roll over your current elections to next year, and it'll come through with the new rates.

If there's any new rates that might be applicable.

And go from there.

Absolutely.

Mr.

Butler.

Yeah, I just really appreciate Jan and her work on this.

Obviously, we all know that if anything's been increasing nationally, it's it's medical cost.

And so she's been able to balance that with trying to minimize the impact on our um on our employees and and our retirees, but but still being you know responsible to our trust and to making sure that we are being good fiscal stewards of this.

But um, you know, truly, this is an uh one of the things that sets us apart as an employer and makes us an employer of choice in the in the region is what we do from the health and wellness side for our employees and their families.

So I appreciate their work.

And I think we have another great plan, another great plan year where um we have some great benefits for our employees.

Well, I have to agree.

I'm probably one of the most tenured uh uh employees in Mesa with 45 years of using our health benefits.

So gosh, did I say that word?

But I can see the progression that we've had in our health benefits for recruitment and retention in our city, and I think this is so is so great.

I mean, to have our own wellness center.

I mean, in via most cities.

Uh and you can call up and get things done very timely as well as uh uh have your family and others.

Council, you want to weigh in, Julie, or anything?

I was just commenting that I don't even think Frankie's 45.

I'm sorry.

Come on, tell you 30 steps.

I'm only 47, so well, with that, I mean we have uh again good uh uh and well uh wellness and and benefits in our in our city, so I appreciate that.

Uh with that, uh that's our last uh item, council.

Let's unless there's something else, uh Terry and Jan, thank you.

Thank you.

Thank you.

Thank you.

Uh next we'll have uh uh knowledge of receipt of minutes that which are the historic preservation board and the economic development advisory board meetings.

Is there a motion to accept those?

Miss Spillsbury, Mr.

Eddie, all in favor say aye.

Aye.

Aye.

Passes unanimously.

Next is current events and conferences attended.

Council, do you have anything you wish to share?

Ms.

Spielsberg.

I'm wearing purple today in solidarity with our Mesa Public Schools.

The high schools all wore purple today for um solidarity with the suicide awareness prevention month.

We've had some suicides in our district, and um bringing more attention to that is always a good thing and being aware of what's going on around us.

And then I just wanted to do one more plug for our 9-11 day of service on Saturday.

Please find an hour of your day to look up a uh um service project either at the city website or just serve.org.

And you can find something that you'll be able to serve.

And I think especially right now, that would make all of us feel a lot better to go do something good in our community.

Thank you, and thank you for bringing up the I know not a lot of people are listening, but three suicides, at least two successful.

One was not, but uh that young ladies in ICU.

I have been in contact with our super school superintendent to see what the city can do and offer resources for uh suicide prevention.

Uh with that, anything else, council?

I'll just share with you.

I spoke at Wyland.

Uh they are a conservation group about water at the Kerr Center for Ag Science this past week with the Toro Corporation and uh the City Mesa uh received some uh great gifts as well as uh from Wyland and uh the kids really there love the presentation of these specialized glasses that have you can look at screens and not get the glare from them.

Uh spoke at the Arizona Small Business Association Roadshow at the convention center as well.

Uh small business owners were here in Mesa, Arizona at our convention center number A.

Then had a great lunch yesterday with the rotary and spoke with the rotary here at the uh small business uh builder program.

With that, Mr.

Butler, can you share future meetings after this?

Mayor council, thanks for hanging with us this morning.

I know this was long, but it's such an important discussion.

So thank you for that.

Uh, next week, uh I wish I could promise you shorter, but uh we are going to have our uh strategic planning session uh next Thursday morning in place of our regular study session, and that's going to be held at our new Northeast public uh safety training.

Uh excuse me, I shouldn't say uh training facility, our new Northeast Public Safety Facility.

Excuse me, I'm all tongue twisted right now on this, but uh we'll be utilizing the community room uh at that facility for our strategic planning session.

We'll be back here uh on Monday the 22nd for study session and council meeting that evening.

But because I lost a bet to Councilmember Summers about how long we would go this morning, we're gonna cancel the Thursday, September 25th study session.

No, just kidding.

We were that's my birthday.

So I was expecting honorable.

And uh in Mayor, I would just end on um Councilmember Spielsbury raised a very good um point of the things that we're recognizing in during the month of September.

And if you see these till ribbons around City Hall, I just want to recognize our great employee group, women leading Mesa and they're uh bringing exposure to its National Ovarian Cancer Month, and so we're just making sure that we uh help our employees raise awareness um so that they can uh take preventive measures on ovarian cancer.

So just wanted to recognize our great employee groups that bring attention to to health issues like that.

Great.

Thank you, sir.

Uh if there's nothing else, council will retain a motion to adjourn.

Thank you, Mr.

Reddy.

Miss Spillsbury, all in favor say aye.

Aye.

Aye.

We're adjourned.

Thank you.

Have a great rest of the