March 29, 2005

SUBJECT:   Award of Contract to Conduct a Comprehensive Water and Wastewater Utility Cost of Service Rate Study (F0412-25)

REPORT IN BRIEF

Approval is requested for the award of a contract to FCS Group, Inc., of San Francisco to conduct a comprehensive water and wastewater utility cost of service rate study for the Department of Finance.  This project will provide a forward looking review of the City’s current water and wastewater services and identify an appropriate method of allocating the costs of each utility to the various customer classes, based on their proportional use of each system.

BACKGROUND

The Department of Finance’s Utility Billing, Collection, and Revenue Management Program is responsible for the billing and collection of revenue for the City’s three public utilities (solid waste management, water supply and distribution, and wastewater management). 

Each year, as part of the annual process of reviewing the financial condition of the utility operations, staff recommends that the City Council adopt annual changes in utility rates.  The rates are intended to capture the cost of providing each service.  However, because the composition of both costs and customers change over time, staff periodically updates the cost allocation methodology underlying the rates.

Cost of service studies were completed for the Wastewater Utility in 2001, and the Solid Waste Utility in 2002, and the water system was last evaluated over ten years ago.  Staff identified a need to update the methodology for each utility on a more regular basis as a reliable way to ensure each utility continues to generate sufficient and stable revenues to pay for current and future water and wastewater services and related expenses.  During the last project budget process in FY 2002/2003, staff programmed studies every five years in an effort to meet this goal.

DISCUSSION

Finance and Public Works staff developed Request for Proposals No. F3412-25 which was directly distributed to ten firms known to specialize in this type of work.  In addition, notice inviting proposals was distributed through the DemandStar by Onvia public procurement network.

The specified scope of services included performing a detailed and forward looking review of the City’s current water and wastewater services that is primarily designed to:

1. Reflect the City’s policies regarding effective and efficient use of water and wastewater services. 

2. Generate sufficient and stable revenues to pay for current and future water and wastewater services and related expenses. 

3. Develop a rate structure that legally allocates direct, indirect, fixed and variable costs to each customer class, based on its proportional use of the system, including use fees, meter charges, connection fees, and other related utility fees. 

4. Encourage reduction in water consumption through appropriate pricing strategies.

5. Provide an overview of the City’s water and wastewater capital and infrastructure programs and propose funding mechanisms to fund replacement of aging infrastructure.

6.  Develop an emergency rate structure to address loss of water supply through disaster, infrastructure failure, or drought.   

Also included in the detailed scope of work are a number of other requirements that will assist staff in long term planning and decision making;  for example, a review of potential environmental regulation and its corresponding impact on future rates.

Sealed proposals were publicly opened on January 26, 2005.  Nine responsive proposals were received.  An evaluation panel reviewed each proposal, scored, and ranked the proposals, based on the following criteria:

·        Depth of the project team’s experience and its relevance to the project described.

·        The proposer’s understanding of the project requirements.

·        Proposed methodology and management plan for the project.

·         Proposed timeline for completion of services.

·        Proposers ability to communicate technical information in a clear and simple manner.

·        Total cost to the City.

Three proposers were invited to meet with the evaluation panel and discuss their proposals.  Upon completion of the evaluation process, the evaluation panel determined that the proposal from FCS Group, Inc., offered the best value to the City.  FCS Group’s proposal was complete, clear, met all the city’s requirements, and provided the desired product envisioned by staff.  In addition, FCS Group will bring additional expertise to the project through a subcontract with Kennedy/Jenks Consultants who has successfully performed several projects for the City’s Water Pollution Control Plant, Corporation Yard, and Baylands Park.  FCS Group’s total cost was the highest of the proposers.  However, it remains $10,000 under the planned budget and provides the most hours at one of the lowest hourly rates of all nine proposers.  (Two proposers with lower hourly rates were not ranked among the project finalists.) 

Under the terms of the negotiated contract, a draft of which is attached to this report, FCS Group, Inc., will perform a comprehensive water and wastewater utility cost of service rate study.  Deliverables include a written report, including full documentation of project methodology, bases, findings and recommendations of the study.  Additionally, a spreadsheet-based model used to evaluate revenue requirements and calculate rates and charges will be provided to the City in electronic format to be used inhouse for future studies.

FISCAL IMPACT

Total cost to the City will not exceed $110,000.  Funds are available in two Finance Special Projects:

RECOMMENDATION

It is recommended that Council award a contract, in substantially the same form as the attached draft and in an amount not to exceed $110,000, to FCS Group, Inc., to perform a comprehensive water and wastewater utility cost of service rate study.

Prepared by:

Timothy J. Kirby

Revenue Systems Supervisor

Reviewed by:

Mary J. Bradley

Director, Finance

Approved by:

Amy Chan

City Manager

Attachments

1.                  Draft Consultant Services Agreement (PDF)