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7105 RFQ Water-Wastewater Utilities Cost of Service and Rate Design Study Scope of Work7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 1 of 14 REQUEST FOR QUALIFICATIONS 7105 WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY TABLE OF CONTENTS General – Community Profile – includes water/wastewater specifics Project Description Scope of Services Statement of Qualifications Format and Requirements For Technical Proposal Submission Evaluation and Award – includes request for terms and cost for 5-year maintenance contract 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 2 of 14 General 1. COMMUNITY PROFILE - DENTON UTILITIES GENERAL INFORMATION A. Brief Description of Denton’s Regional Environment The City of Denton owns and operates its water and wastewater plants, and transmission/interceptor and distribution/collection systems, which primarily serve the population of approximately 130,990 within the city limits of Denton. Denton’s water rights (reservoir assets) are from Lake Lewisville and Lake Ray Roberts. Denton is located twenty miles north of the Dallas/Fort Worth International Airport, and thirty-five miles north of both Dallas and Fort Worth, at the “Top of the Golden Triangle”. Due to the close proximity of Denton to two dynamic metropolitan areas and an international transportation center, Denton has experienced increased residential and commercial growth in recent years. An average population growth of 2.0 percent annually is expected over the next 5-10 years. This growth will place increased demands upon Denton’s water and wastewater utility systems and Denton’s ability to continue to provide quality service at competitive costs. B. Water & Wastewater Customer and Revenue Mix Denton has approximately 30,830 residential water meters and 5,112 commercial water meters. Denton’s wholesale raw water and treated water customer is the Upper Trinity Regional Water District (UTRWD). Currently Denton provides treated water to two UTRWD customers, Sanger and Krum. Denton’s wholesale wastewater customers include the City of Krum, the City of Argyle, the City of Corinth and Lake Cities Municipal Utilities Authority. C. The Utilities Organization The Utilities Department, including Water, Wastewater and Drainage is under the direction of the General Manager of Utilities. The Utilities Directors are responsible for the day-to-day operation, maintenance, and capital construction requirements of all Water and Wastewater departments. The Water Department is comprised of 105.50 full time equivalent (FTE’s) personnel, with 87.50 fully dedicated to water operations. The additional 18 FTE’s funded in the Water Department are part of the Adminitrative Department. The Wastewater Department operates with 89.50 FTE’s, plus drainage and stormwater /watershed protection operations of 24 FTE’s, totaling 113.50 FTE’s in Wastewater. D. The City of Denton Organization The General Manager of Utilities reports to an Assistant City Manager, who in turn reports to the City Manager. The Utilities departments purchase the services of several general government support groups. The Finance department, under the direction of an Assistant City Manager, provides services through their Finance and Accounting divisions. 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 3 of 14 E. City Council The Denton City Council, composed of a mayor and six council members, is charged with the final authority to set all rates and charges for all utilities. F. Public Utilities Board The Public Utilities Board (PUB) is a seven-member board appointed by the City Council with the City Manager and Director of Utilities (now General Manager) serving as ex officio members. This board serves as a consulting, advisory, and approval bodyThe board is charged by the city charter to act in a consulting and advisory capacity to the City Council, with authority to hold public hearings and to study and recommend policies relating to the operation, promotion, enlargement, future planning and such other Utility matters as may be referred to it by the City Council. All rates and charges for utility services must be reviewed by the board on a periodic basis and recommended to the City Council for final approval of utility rates. 2. CONTRACT TERM It is the intention of the City of Denton to negotiate a final contract term with the selected respondent, based on both City and respondent experience with the requirements and anticipated timeline for completing the cost of service and rate design . It is expected that the timeline will be approximately 6-9 months. The Contract shall commence upon the issuance of a Notice of Award by the City of Denton, and services undertaken pursuant to this RFQ will be required to commence within fourteen (14) days of delivery of a Notice to Proceed. The services shall be accomplished per the Scope of Work and Services as identified in Section IV and the Schedule of Events as outlined in Section VI. A maintenance contract will also be negotiated for a term of 5 years which will commence on completion of the required rate model. 3. ADDING NEW SERVICES TO THE CONTRACT AFTER AWARD Following the Contract award, ADDITIONAL services of the same general category that could have been encompassed in the award of this contract, and that are not already on the contract, may be added. A formal written request may be sent to successful Contractor to provide a proposal on the additional services and shall submit proposals to the City of Denton as instructed. The City of Denton may accept or reject any or all pricing proposals, and may issue a separate RFQ for the products after rejecting some or all of the proposals. The services covered under this provision shall conform to the statement of work, specifications, and requirements as outlined in the request. 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 4 of 14 Project Description Denton’s Utilities desire is to accurately match costs with rate classes while maintaining competitiveness with other regional water and wastewater utilities to the extent possible. The project proposed has two sections: (1) Cost of Service (wholesale & retail), and (2) Rate Design (wholesale & retail). The purpose of this study is to estimate the cost of servicing all Utilities customer classes as well as wholesale customers. In addition to estimating cost of service, the project should include recommendations for rate design in order to enhance rate competitiveness and meet revenue requirements for the next five years. Scope of Services 1. PURPOSE The purpose of the Utilities cost of service and rate study is to: 1) Determine the costs of service associated with Denton’s wholesale water customer, Upper Trinity Regional Water District, using the utility basis methodology, 2) Determine the costs of service associated with Denton’s wholesale wastewater customers, City of Krum, City of Argyle, City of Corinth, and Lake Cities Municipal Utility Authority (LCMUA), using the utility basis methodology, and 3) Determine the costs allocated to each retail rate class based upon a cash basis cost allocation methodology. Retail rate competitiveness in Denton’s regional water and wastewater market may be considered in the cost allocation process. Existing rate classes may be eliminated and/or additional rate classes may be created. 4) Provide all documentation and descriptions needed for continued use of working rate model Alternative cost allocation or rate design methodologies may be used to enhance rate competitiveness for individual rate classes. This permits existing competitive rate classes to continue to provide competitive rates, while enhancing the ability of any potentially non-competitive rate classes to provide more competitive rates. Water is projecting that rate increases will be necessary to meet revenue requirements over the next ten years. Water also desires to continue to use water pricing and rate design to further its water conservation program, accomplish its financial strategies, and to establish equity and fairness within each rate class. The respondent should consider five and ten year rate design goals and an incremental plan to phase in the rates to promote water conservation, maintain revenue stability and to more accurately reflect actual cost of service. 2. SCOPE OF SERVICES –UTILITIES COST OF SERVICE A. WHOLESALE WATER & WASTEWATER COSTS OF SERVICE (UPPER TRINITY REGIONAL WATER DISTRICT, CITY OF KRUM, CITY OF ARGYLE, CITY OF CORINTH, & LAKE CITIES MUNICIPAL UTILITIES AUTHORITY) 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 5 of 14 The respondent shall begin the project by assimilating the required information in preparation for completing wholesale water and wastewater costs of service using the utility basis methodology, followed by their respective rate designs. Questions of significance which will impact the results of the wholesale costs of service shall be directed to the Utilities administrative and business management staff. The test year for projecting the rates for wholesale service shall be the projected FY 2020-2021 Test year data shall be obtained from FY 2019-2020 actual data with adjustments made for known or verifiable changes. B. RETAIL WATER AND WASTEWATER COSTS OF SERVICE The retail water and wastewater costs of service shall be completed concurrent to the wholesale rate study. Again, questions of significance, which would ultimately impact the results of the study, should be directed to the appropriate administrative and business management staff. The test years for establishing retail water and wastewater rates for service shall be projected costs over the period 2019 – 2025. Currently, water department rate revenues are recovered through residential, commercial, and wholesale rates. All retail water rates consist of a facility and a volume charge. No minimum water volumes are currently provided through the facility charge. It should be noted that Denton has experienced a large increase in the number of multi-family units, and this particular use should be evaluated by the respondent as a potential separate rate class. Respondent should review the need for minimum volumes included in the facility charge for retail customers as well as review the cost of service components that should be included in the facility charge. Generally, per capita water uses have been declining in recent years, and respondent should evaluate the impacts of declining use on the appropriate balance between facility and volume charges for both water and wastewater. Residential water rates are subdivided between those inside the city limits and those outside the city limits. Both inside the city and outside the city residential rates utilize inverted block rates in the summer billing months (May – October), and without blocking (flat rates) during the winter billing months (November – April). Outside the city rates are set approximately 15% higher than inside the city rates. Commercial water rates are also subdivided for customers inside and outside the city. As in residential water, outside the city rates are approximately 15% higher. The commercial rates have no blocking (i.e. flat rates), however, the commercial irrigation rate has a higher summer volume charge. The wholesale rate is a three-part rate, consisting of a facility charge, volume charge, and demand charge. Wastewater rates are subdivided into residential, commercial, food & equipment services, pretreatment, metered volumes, treated effluent, septage, permits and fees and government wholesale classes. All wastewater rates consist of a facility and a volume charge. Wastewater residential has a cap on the winter average of 18,000 gallons. No minimum wastewater volume is provided through the facility charge. Residential wastewater rates are based on a three-month winter average (billing months of December through February). All other rates are based on a percentage of water volume, 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 6 of 14 except the metered volume rates (SCD, SM) and the wholesale rate (SSC), which are based on actual metered volumes. Both water and wastewater are expected to continue to operate as fully self-supporting departments. All utilities rates are to be designed to provide revenue that meets bond covenants. Bond covenants require that pledged revenues be a minimum of 1.25 times average debt service requirements. Water and Wastewater utilities have adopted specific financial goals and strategies. The Water utility has also established water conservation goals. This information is contained in the Utilities Financial Strategies and Water Conservation and Drought Contingency Plan. The respondent shall review this information to ensure that the proposed rate design is supportive of these goals. 3. SCOPE OF SERVICES –UTILITIES RATE DESIGN The scope of work outlined in this RFQ is preliminary, and a final scope will be negotiated with the selected firm and modified as needed. The scope of work for this project should include, but not be limited to the following: A. Wholesale Rate Design (Upper Trinity Regional Water District, City of Krum, City of Argyle, City of Corinth, & Lake Cities Municipal Utilities Authority) Wholesale water rate design should be expressed as a facility charge, a volume charge, and an annual demand charge per unit of peak day usage. The wholesale wastewater rate design shall consist of a facility charge and a volume charge. Discussion with the respondent will determine how cost recovery of wastewater pretreatment program charges and sampling and analysis charges are recovered. Governmental (City of Krum, Town of Argyle, City of Corinth, and Lake Cities Municipal Authority) wholesale wastewater rate design should be expressed as one rate for governmental and not a separate rate for each municipality. B. Existing and Proposed Retail Rate Design The respondent shall evaluate the existing retail rate design for each customer class. Rates shall be designed to recover the costs associated with each customer class to the greatest extent possible, but competition is to be a consideration in the design of the rates for each rate class. Moderation with regard to significant changes in existing rates will need to be considered. Proposed rate changes of significance should consider the magnitude of the change, and may require a multi-year phase in approach. Customer classes are to be of similar description to the current ratemaking practices of regional water and wastewater departments to the extent that they are applicable to the City of Denton water and wastewater departments. The respondent should make recommendations for fewer or additional rate classes that may be appropriate. Consolidation of rate classes may or may not ultimately benefit more customers. It should be noted that Denton has experienced 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 7 of 14 a large increase in the number of multi-family units, and this particular use should be evaluated by the respondent as a potential separate rate class. The costs for each current and proposed rate class should be initially determined utilizing a full cost methodology for all costs, direct and indirect. The respondent shall consider other cost allocations utilizing indirect costs, and rate structures for the purpose of designing City of Denton water and wastewater rates that are competitive. Adjustments to any rate classes, from a full cost basis, should be clearly identified. The respondent shall provide recommendations on how Denton may increase rate competitiveness within the water and wastewater departments prior to beginning the rate design process. C. Water & Wastewater Customer Class Subsidization The respondent shall identify any potential customer class rate subsidization which may be occurring. The intent is that if rate subsidies exist, they will be identified for potential elimination. Intra customer rate class subsidization should also be evaluated and recommendations made to separate customers into separate rate classes if intra rate class subsidizations exists. D. Water & Wastewater Outside The City Limit Rates The respondent shall provide a recommendation concerning the level at which Denton should maintain “outside the city limit” rates, or whether this rate should be maintained at all. E. Wastewater Mobile Home Park Rate The respondent shall review the mobile home park wastewater rate. Currently, we have mobile home park customers inside and outside the city limits. Some are both water and wastewater customers and some are wastewater customers with a private well for water. The respondent shall provide written recommendations for retention or revision or elimination of this rate. F. Water & Wastewater Customer Class Characteristics The respondent shall review the customer class characteristics and load patterns of all water and wastewater rate classes. The respondent shall determine if sufficient class characteristics and/or usage differentiation continues to justify separate and distinct rate classes for Denton’s existing rate classes. This review may result in the recommendation of fewer or potentially additional rate classes. G. Wastewater Commercial Class Comparison After reviewing the wastewater commercial cost of service and the existing commercial rates, the respondent shall compare Denton’s commercial rates with other municipalities. The 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 8 of 14 respondent shall evaluate whether Denton’s commercial rate appears to be high in comparison with commercial rates in other neighboring municipalities and provide written explanations and recommendations. H. Water & Wastewater Facility Charges Existing water and wastewater facility charges differ by rate class for the same meter size. Water and wastewater facility charges may more appropriately be set at specific cost recovery levels independent of their rate class. The respondent shall address this issue during the rate design. The respondent shall also address the issue of including minimum volumes in the facility charge for retail water customers. I. Water Irrigation Rates In irrigation rate design, consideration should be given to the future availability of Denton’s water supply and the existing revenues generated utilizing current rates. Irrigation rates should further consider Denton’s available irrigation demand relative to the system demand, and the irrigation impact on the current water supply. A demand component may become an integral part of an irrigation rate. J. Residential Water Rate Structure The respondent shall analyze the residential water rate (WR) block structure. The structure of the existing rate; four blocks, with the first block consisting of 15,000 gallons, should be analyzed to determine if this is the most beneficial structure for the rate class based upon specific management objectives. A review of alternate block structures, block sizes, number of blocks, and the price differentials between the blocks should be conducted and recommendations for changes should be made if appropriate. K. Commercial Water Rate Block Methodology The respondent shall analyze and provide written recommendations concerning the use of an inverted rate block structure or other rate design for the commercial class. This analysis shall identify any specific customer groups where such an inverted rate block structure may be appropriate. L. Commercial Wastewater Billed Volume The respondent shall analyze the methodology used to determine commercial wastewater volume based on water volume. Currently non-metered wastewater volume is billed at 90 percent of monthly water consumption. Some commercial customers also have water meters dedicated solely to irrigation. The respondent shall provide written recommendations for retention or revision of this methodology. M. Wastewater Biochemical Oxygen Demand (BOD) and Total Suspended Solids (TSS) Surcharges 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 9 of 14 The respondent shall review the existing BOD/TSS cost methodologies, determine if the surcharge rates are appropriate, and provide written recommendations for their revision if necessary. N. Wastewater Categorical & Non-categorical Monitoring Costs The existing wastewater rates contain fixed monthly charges for categorical and non- categorical monitoring costs. The respondent shall determine if these fixed charges are recovering costs, and make a recommendation regarding the best method for cost recovery in these areas. O. Water & Wastewater Rate Schedules After completion of the rate design, and prior to approval of rates by the city council, the respondent may be asked to provide assistance in wording specific water and wastewater rate schedules. Clarity and simplification of rate schedules is important in order to obtain full customer understanding of all rates. P. Rate Review All water and wastewater rate schedules, including wholesale and retail, shall be reviewed for appropriateness and cost recovery. Q. Cost of Service and Rate Design Model The respondent will provide the completed cost of service and rate design model, and will provide training on model use to City of Denton personnel. In addition, the respondent will submit proposed maintenance terms and annual cost for a 5-year maintenance contract. CITY OF DENTON DUTIES AND RESPONSIBLITIES: The City will be responsible to the awarded contractor for the following tasks: (1) Providing utility budget, rate, use, and similar information as needed to complete the proposed project; (2) Assist in the coordination of project activites ; (3) Providing review comments 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 10 of 14 Statement of Qualifications Format and Requirements For Technical Proposal Submission 1. TECHNICAL PROPOSAL REQUIREMENTS The Technical Proposal submission must be submitted in the following format, which complies with Texas Government Codes. The technical proposal shall be in a sealed submission and opened by the City of Denton. A. Project Approach and Proposed Methodology Describe firm’s understanding of the objectives and scope of the requested services. Provide an outline of your firm’s process to implement the requirements of the RFQ Scope of Work into a finished project. B. Proposed Project Staff Identify the key personnel who will be directly assigned to primary areas. State the qualifications and related experience of each member of the proposed project team and designate the employ of each team member e.g. company employee, contract employee, etc. Demonstrate Company’s or Individual’s relevant experience to the type of work solicited in the RFQ. Provide an Organizational Chart with roles and responsibilities of key individuals assigned to support the project. Include State of Texas Professional certification numbers for individuals that will have design, inspection, testing, and certification responsibility for the specific requirements. Respondent must be registered, or have personnel on their direct staffs that are registered in the professional services discipline required to perform the services requested in this RFQ. Professional Services are defined in Texas Government Code (TGC) 2254.002(A) (2). Respondent shall certify that all professionals selected for this project shall be based on demonstrated competence and qualifications, in the matter provided by Section 2254.004 of TGC. C. Change Management The Proposer agrees that the key personnel assigned to the Contract shall remain available for the entirety of the project throughout the term of the Contract as long as that individual is employed by the Respondent or unless the City of Denton agrees to a change in the key personnel. D. Anticipated Problems and Proposed Solutions 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 11 of 14 Respondent shall offer written observations, based upon previous experiences in public projects of this magnitude, addressing any anticipated problems and offer proposed solutions to those problems. E. Minimum Experience and Qualifications The responding firm shall provide pertinent information about the firm and related experience with primary areas. In addition, the firm should identify its total number of technical and professional personnel by discipline and training and further describe the workload during the period. Indicate what resources (including professional and technical time) the firm will have available to allocate to the project within the primary areas. The respondent must currently be licensed to perform work in the State of Texas. A copy of current licensing must be included in your proposal. The Respondent shall have the following minimum experience:  A defined level of industry knowledge and understanding related to the American Water Works Association (AWWA) “M1” Rates and Charge Manual.  Sucessful completion of at least five Water/Wastewater Rate Studies.  Completed (or currently working on) at least five Municipal Cost of Service studies.  Providing consulting services for two or more projects involving Water/Wastewater Impact Fee studies.  Completion of at least two Wholesale Cost of Service Water Rate studies. The Respondent shall demonstrate, through previous minimum experiences, the ability to maintain Budget and Schedule compliance for large scale public projects. Respondent shall complete Attachment C – Budget and Compliance Questionnaire Form. The Respondent shall demonstrate exceptional Quality Assurance, through previous minimum experiences. Respondent shall provide the name and job title of the person in your organization who oversees your quality assurance program. Provide a description of your firm’s quality assurance program. The City of Denton reserves the right to require a copy of your Quality Control Manual and Quality Assurance Processes, which, if contracted, will become a contract document. F. Relevant Business Information and Disclosures Respondent shall detail any and all relevant history of litigation involving public works projects. Respondent shall detail any and all exceptions within the proposal response. 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 12 of 14 Respondent shall complete Attachment B – Business Overview Questionnaire Form. G. References Respondent shall provide references including contact names, e-mail addresses and current, correct phone numbers of firms for which you have performed similar professional services. Respondent shall complete Attachment F – References. H. Additional General Requirements Prior to commencement of the services, the City and selected individual or business will conduct an initial meeting to review the overall scope, schedule, deliverables and planning process to implement a successful program. The awarded Contractor shall provide detailed reports to the City on a scheduled basis in agreement to both parties. 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 13 of 14 SECTION VII Evaluation and Award 1. EVALUATION CRITERIA a) Proposed project scope, content and sample software model (FACTOR: 25%). The respondent's understanding of the objectives and scope of the requested services of the primary areas, in a clear and concise, written expression. The respondent will provide a sample or example cost of service and rate design model as part of the evaluation criteria.The software model in particular is considered to be a critical component of the evaluation. In addition, the maintenance terms and annual cost should be included for a 5-year maintenance contract. b) Past performance and experience on projects, including municipal experience, rate design, and model development (FACTOR: 30%). The respondent's successful experience in projects within the primary areas similar to the scope of work requested in this RFQ will be a major consideration. Based on the past performance of both the individual project personnel and the respondent, The City of Denton will determine if the respondent has the track record to provide the required services in successfully administering similar projects. The meeting of project budgets and project schedules will be items of consideration in evaluating past performance. c) Experience and qualifications of the Respondent and key personnel available for this project (FACTOR: 25%). The qualifications of the respondent in terms of experience, service capability and resources will be reviewed in order to assess the ability of the respondent to successfully complete the project assignment. The firm’s ability to provide the necessary professional and technical expertise and supervision will be a major consideration. The qualifications and experience of the individuals who will be directly assigned to the primary areas is a major evaluation factor to be considered. The personnel cited shall be designated as to whether they are an employee, respondent or contract employee of the RFQ respondent. Their educational and professional credentials as well as direct experience on similar projects will be considered in evaluating the respondent. 7105 RFQ WATER/WASTEWATER UTILITIES COST OF SERVICE AND RATE DESIGN STUDY Page 14 of 14 Experience with other municipally funded projects and familiarity with municipal requirements and procedures will also be considered in the evaluation process. d) Schedule and employee-hours presented for this service as defined in the scope of work (FACTOR: 20%). Proposed schedule for completion of scope of work. Hours each individual assigned to the project are forecasted to work on the project should be provided, and the various portions of the project they will be involved in. Total forecasted hours per employee for each section of the project should be determinable.