HomeMy WebLinkAbout05/26/2016 - Meeting Materials SALT LAKE CITY
DEPARTMENT OF
PUBLIC UTIL 'TIEc"'
Enhanced Street Lighting Fee Study
Final Report / May 16, 2016
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kLISRAFTE
FINANCIAL CONSULTANTS,INC.
5619 DTC Parkway Phone 303.305.1135 www.rafells.com
Suite 175
Greenwood Village,CO 80111
RAFTELIS 440
FINANCIAL CONSULTANTS,INC.
April 16, 2016
Mr.Tom Ward
Deputy Director of Public Utilities
Salt Lake City Department of Public Utilities
Salt Lake City, UT
Subject: Enhanced Street Lighting Fee Study
Dear Mr.Ward,
Raftelis Financial Consultants, Inc. (RFC) is pleased to provide this report documenting our findings
and recommendations for the Salt Lake City Enhanced Street Lighting Fee Study. The report details
the analysis related to implementing enhanced street light service charges within areas of the City
that have enhanced service levels funded historically through Street Light Utility Special Assessments
in various areas throughout the City. The enhanced street lighting service level user charges are
proposed to be effective July 1, 2016.
We would also like to thank you, Brad Stewart, Kurt Spjute, Laura Briefer and other Department of
Public Utility and City staff for their assistance during this study.
Sincerely,
RAFTELIS FINANCIAL CONSULTANTS,INC.
!1
Richard D. Giardina,CPA Andrew Rheem
Executive Vice President Manager
TABLE OF CONTENTS
1 . EXECUTIVE SUMMARY ......................................................... 1
1.1 BACKGROUND STREET LIGHTING............................................1
1.2 STUDY OBJECTIVES ...................................................................2
1.3 PROPOSED ESLS USER CHARGES...........................................3
1.3.1 Future ESLS and Privately Funded Light Programs ..........................4
1.3.2 PUAC and Public Meeting Presentations............................................5
1.4 FINANCIAL PLAN .........................................................................5
1.5 CUSTOMER BILL IMPACTS.........................................................7
1.6 CONCLUSIONS ............................................................................8
2. INTRODUCTION AND BACKGROUND ............................... 10
2.1 STREET LIGHTING.....................................................................10
2.1.1 Study Objectives................................................................................. 12
2.1.2 Enhanced Street Lighting Services................................................... 12
2.2 PROPOSED ESLS USER CHARGES.........................................14
2.2.1 Future ESLS Areas and Privately Funded Light Programs ............. 15
2.2.2 PUAC and Public Meeting Presentations.......................................... 17
2.2.3 Service Level ....................................................................................... 17
2.2.4 Funding Higher Energy Efficiency Fixture Upgrades ...................... 19
2.2.5 Tiered Groupings ................................................................................ 19
2.2.6 Funding to Accelerate Capital Improvements .................................. 19
2.3 FINANCIAL PLAN .......................................................................20
2.3.1 O&M Expenses.................................................................................... 21
2.3.1.1 Electricity and Bulb Replacement...............................................................21
2.3.1.2 Reactive and Programmed Maintenance..................................................23
2.3.1.3 Miscellaneous and Overhead........................................................................23
2.3.2 Capital Expenses ................................................................................24
2.3.2.1 Bad Wiring Replacement...............................................................................24
Salt Lake City
2.3.2.2 High Efficiency Upgrades BSLS and ESLS..................................................24
2.3.2.3 Capital Replacement.......................................................................................25
2.3.3 Debt......................................................................................................25
2.3.3.1 Debt Issuance Assumptions...........................................................................25
2.4 CUSTOMER BILL IMPACTS.......................................................27
2.5 CONCLUSIONS ..........................................................................28
APPENDIX A: PUAC DIRECTION AND PRESENTATIONS
APPENDIX B: NO DEBT FUNDING SCENARIO FINANCIAL
PLAN AND ASSUMPTIONS FOR FY 2017 THROUGH FY 2027
APPENDIX C: WITH DEBT FUNDING SCENARIO FINANCIAL
PLAN AND ASSUMPTIONS FOR FY 2017 THROUGH FY 2027
APPENDIX D: CUSTOMER BILL IMPACT
Enhanced Street Lighting Fee Study Report
LIST OF TABLES/FIGURES
Figure 1-1: Proposed Monthly ESLS User Charges per ERU Effective 7/1/16..................... 3
Table 1-1: NPV of Costs — No Debt and With Debt Funding Scenarios................................ 6
Table 1-2: Customer Bill Impacts With Debt Funding Scenario............................................ 7
Table 1-3: Customer Bill Impacts No Debt Funding Scenario............................................... 8
Figure 2-1: SAA Extension Map.............................................................................................12
Figure 2-2: ESLS Tiered Groupings.......................................................................................14
Table 2-1: ESLS Tiered Groupings Customer and Facility Summary..................................14
Figure 2-3: Proposed Monthly ESLS User Charges per ERU Effective 7/1/16....................15
Table 2-2: ESLS Cost Components under Reactive, Proactive Service Levels..................18
Figure 2-4: Expense Summary by Scenario..........................................................................21
Figure 2-5: Electricity & Bulb Replacement Cost Forecasts................................................23
Figure 2-6: Annual Debt Service and Cash Funded Capital.................................................26
Table 2-3: NPV of Costs - No Debt and With Debt Funding Scenarios................................26
Table 2-4: Customer Bill Impacts With Debt Funding Scenario...........................................27
Table 2-5: Customer Bill Impacts No Debt Funding Scenario..............................................27
Salt Lake City
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Enhanced Street Lighting Fee Study Report
1 . EXECUTIVE SUMMARY
1 .1 BACKGROUND STREET LIGHTING
The City has a long history of providing street lighting that dates back over 100 years. The City
currently provides street light services through three programs.
1. Base street lighting service level (BSLS) provided throughout the City
a. Traffic safety lighting for local streets: The City provides street lighting at
intersections and mid-block for pedestrian and traffic safety.
b. Continuous street lighting for major streets: The City provides a more uniformly
dispersed and brighter level of lighting for streets with high traffic volumes,high
speed limits and more pedestrian and/or bike traffic.
2. Enhanced street lighting service level (ESLS) provided primarily within Special Assessment
Areas (SAA extensions)
a. Properties owners within the SAA extensions agreed to pay the initial capital costs
and 75 percent of recurring operation and maintenance (0&M) expenses and
replacement capital costs.The City currently has 42 SAA extensions within
commercial and/or residential areas located throughout the City that receive one or
more of the following enhanced service levels:
i. Decorative poles and aesthetic fixtures,increased lighting beyond
intersection and mid-block through higher energy efficient fixtures,lower
capital and C&M requirements.
ii. Decorative poles and aesthetic fixtures,increased lighting beyond
intersection and mid-block through lower energy efficient fixtures, higher
capital and C&M requirements.
iii. Taller decorative poles and aesthetic fixtures,three lamps per pole with
increased lighting beyond intersection and mid-block.
3. Additional or decorative lighting provided through privately funded lighting programs
established in 2000. While this program provides for private street lights,they are not
developed nor implemented as a replacement for BSLS,they are considered ESLS and the
individual owners directly fund on-going and maintenance costs: as such,a fee for ESLS is
not necessary;the City bears no responsibility for these facilities.
During the"Great Recession",the City adopted an austerity program throughout the City. The street
light service impact as the City sought to reduce General Fund budget deficits, was to significantly
reduce street light C&M while continuing to increase deferred maintenance costs for both BSLS and
ESLS and,in many areas,allowing lights to"go dark". In 2011,the City completed a study to evaluate
establishing a Street Light Utility to fund BSLS through a user fee. A Citizen Committee was convened
by the City to assist in that review and make recommendations regarding the Street Light Utility and
BSLS to City Council. As a result, the City implemented a Street Light Utility in 2013 to fund BSLS
throughout the City. Since implementation, a monthly fee of$3.73 per Equivalent Residential Unit
Enhanced Street Lighting Fee Study Report 1
(ERU)l has been assessed to recover BSLS. In BSLS areas, lights are back"on", annual funding has
stabilized through the adopted monthly user charge per ERU, and deferred maintenance
accumulated prior to and through the Great Recession is declining.
During the same evaluation completed in 2012,the City elected to maintain the 42 Street Light SAA
extensions to fund ESLS through special assessments and General Fund sources. Over time,the SAA
program has not provided a sustainable funding source to address recurring capital maintenance and
periodic capital replacement expenditures as it currently exists. ESLS have largely maintained the
austere funding posture implemented during the "Great Recession" and deferred maintenance
accumulated prior to and through the Great Recession continues to increase above annual funding
through Street Light SAA extensions and the City's General Fund.
In 2015 the City completed another study or assessment of the street lighting programz in 2015 to
assist the City in evaluating SAA funding options,and assessing root causes of the deficiencies of the
current SAA program. Recommendations were summarized in the'Report of Street Lighting Special
Assessment Areas' by Linda Hamilton Consulting, dated August 5, 2015, and presented to City
Council. As a result of the 2015 study,the City Council directed City Staff to dissolve SAA extensions,
forego new assessments during fiscal year (FY) 20163 and develop a user charge based funding
source that equitably recovers ESLS from users; the user charge approach was to be implemented
July 1,2016 as part of the City's FY 2017 budget. The final assessment was authorized by City Council
in June 2015 covering the period ending April 30, 2015.
1 .2 STUDY OBJECTIVES
In January of 2016 the City retained Raftelis Financial Consultants, Inc. (RFC) to evaluate a user
charge based funding source for ESLS formerly funded through the SAA extensions. RFC was to
develop the funding source for ESLS within the following City Council guidelines:
1. No subsidy from BSLS to ESLS previously funded through the SAA extensions.
2. No changes to the existing BSLS charge will be considered.
3. All recommended fees will provide a self-sustainable program for each of the individual
ESLS groupings.
The major objective of the study is to develop tiered charges that recover the annual cost of enhanced
street lighting services,while not modifying the BSLS charge assessed City-wide. As part of the study,
RFC and City Staff have completed the following consistent with City Council guidelines:
1. Define common and varying ESLS provided in former SAA extensions.
2. Determine the recurring 0&M, capital maintenance, capital replacements and reserve
requirements associated with the ESLS.
1 One ERU is equal to 75 feet of front footage.All single-family residential, duplex and triplex customers are
assessed 1 ERU. All other customer classes are assessed the ERUs consistent with the each property's front
footage with a minimum of 1 ERU.
2 Report of Street Lighting Special Assessment Areas,Linda Hamilton Consulting,August 5,2015.
3 City's fiscal year starts July 1st and is completed on June 30th each year. For example, FY 2017 refers to the
12-month period of July 1,2016 through June 30,2017.
2 1 Salt Lake City
3. Propose ESLS user charge(s) that recover the annual cost of providing ESLS for proposed
service level groupings.
4. Present alternatives and policy issues during public meetings to public at large, individual
stakeholder groups and to the Public Utilities Advisory Committee (PUAC).
S. Document and present study recommendation and findings to City Council.
The current BSLS charge of$3.73 per ERU was not updated as part of this study.
1 .3 PROPOSED ESLS USER CHARGES
Figure 1-1 summarizes the proposed ESLS user charges by tier to be effective July 1,2016 under both
debt funding and a cash or pay-as-you-go (PAYGO) funding plan. The proposed ESLS user charges
are sufficient to meet ESLS needs through at least FY 2018. The City plans to complete a
comprehensive update to the street light utility prior to the end of FY 2018 to evaluate modifications
to BSLS or during the fifth year since the BSLS user charge was implemented. RFC and City staff
recommend that the BSLS and ESLS updates be evaluated during the same study to comprehensively
and efficiently evaluate street light funding needs as part of a single, comprehensive study.
Recommendations resulting for the combined BSLS and ESLS analyses are anticipated to be effective
no later than July 1, 2018 and integrated within the FY 2019 budget process.
The user charges summarized in Figure 1-1 are proposed to be assessed using the same ERU basis of
the BSLS user charges.
Figure 1-1: Proposed Monthly ESLS User Charges per ERU Effective 7/1/16
$70
$� $59.38
$50 $43.82
$30 $27.87
$20 $15.94
$20 $5.67 $5.67
Tier 1 Tier 2 Tier 3
ESLS-With Debt Funding ESLS- No Debt Funding
Enhanced Street Lighting Fee Study Report 3
1 .3.1 Future ESLS and Privately Funded Light Programs
As the City is modifying the mechanism whereby the 0&M expenses and capital replacement
requirements of ESLS areas are recovered, City Council asked that City staff and RFC evaluate
mechanisms whereby neighborhoods may request ESLS or privately funded street lighting for
decorative and/or enhanced street lighting service levels.
At such time in the future when an area and/or neighborhood within the community requests ESLS
be established the group would select the desired ESLS from within a set ESLS options allowed by
the City. The full capital and administrative costs to install ESLS may be funded through any of the
following mechanisms or some combination thereof:
1. Developer and/or property owners donating pre-approved enhanced street lighting
infrastructure related to a new development.
2. City completing a beautification improvements where enhanced street lighting
infrastructure.
3. Neighborhood and/or business areas providing upfront PAYGO or cash funding by the SAA
members.
4. Through a street lighting SAA that recovers only the initial requirements with a defined
length (term) and expiration date that specifically excludes use of the street lighting SAA for
recurring 0&M expenses and capital replacement costs following the initial installation.
Neighborhoods and/or business areas seeking ESLS would work with the Utility to select from the
standardized suite of lights and poles within each tier. Following installation and dedication to the
City Street Light Utility, the City would evaluate service levels and recurring annual costs and the
newly established ESLS would be included in an existing ESLS tier grouping or if the customers are
large enough and/or provide a level of ESLS substantially different from an existing tier grouping,
the City would establish a new ESLS tiered grouping. In the case of a street light SAA for just capital,
Utility staff can manage the SAA process coordinating with other City staff and departments as
appropriate.
Additionally, a future area and/or neighborhood within the community could request additional
and/or decorative lighting provided through a privately funded lighting program. The City would
review and if appropriate,approve the selected lights and fixtures and individual property owner(s)
would be responsible for all costs. The area or neighborhood provides the full cost of the initial
capital installation costs. City assistance is limited to partial funding through a matching grant of up
to $5,000 per block face subject to meeting program eligibility and availability of matching grant
funds4.
While the private light street program provides for private street lights to be installed,the program
is not developed nor implemented as a replacement for BSLS,the programs are considered ESLS and
4 Matching funds for this program have not been available since 2012 and funding is determined as part of the
annual City budget process.
4 1 Salt Lake City
as the owners fund on-going and maintenance costs directly,a fee for ESLS is not necessary;the City
bears no responsibility for these facilities.
1 .3.2 PUAC and Public Meeting Presentations
RFC and City staff evaluated four primary study issues. These issues or policy items were discussed
during the two separate public meetings on March 10, 2016 and a PUAC presentation on March 17,
2016. The study policy items include:
1. Are high efficiency energy fixture upgrades important to you?
2. Would you pay more to accelerate the pace of high efficiency fixture installation?
3. Do you prefer 1 or 2 residential enhanced service tier groupings?
4. Do you prefer debt or cash funding?
A second presentation was made to the PUAC on April 28,2016 that provided the range of customer
bill impacts presented in this report under the three-tiered approach and served to confirm that the
three-tiered recommendation should be presented to City Council. Appendix A summarizes the
results of the March 17, 2016 PUAC presentation, direction provided to the four study issues and a
copy of the ESLS slides presented during this meeting as well as the slides for both presentations.
Direction regarding the first three policy issues were incorporated with the pros and cons highlighted
in the following section. RFC and City staff developed proposed user charges that reflect the fourth
study issue(debt or pay as you go cash funding)discussed in greater detail in Section 2 of this report.
1 .4 FINANCIAL PLAN
A multi-year financial plan was developed for both capital funding alternatives (debt versus PAYGO)
in consultation with City staff. Appendix B summarizes the financial plan under the With Debt
Funding scenario and Appendix C summarizes the financial plan under the No Debt Funding Scenario;
the PAYGO scenario. RFC and the City recommend the"With Debt Funding"alternative.
The proposed alternative financial plans and proposed annual user charges (subject to increase or
decreased and summarized in Appendices B and C) reflect the following financial planning criteria:
Fund annual 0&M expenses,debt service and cash-funded capital expenditures
Exceed financial planning performance measures of
o annual legal debt service coverage (DSC) requirements and
o annual cash operating reserves of at least 60 days of 0&M
DSC is a financial performance measure that evaluate net revenues available for debt service
(revenues less 0&M expenses)divided by annual debt service payments. The legal DSC requirements
is 125 percent of annual debt service with a City set financial planning target of 200 percent of annual
debt service. Over the financial planning period,the ESLS funds exceed the DSC target.
Enhanced Street Lighting Fee Study Report 5
A second measure is the cash operating reserve of 20 percent of 0&M. This cash reserve provides
working capital to fund expenditures throughout the year as ESLS user charges are billed and
recovered monthly.
Projected costs were evaluated over an 11-year financial planning period. The cost types include
0&M expenses,capital related expenditures and operating cash reserves.
0&M expenses
o Electricity
o Bulb Replacement
o Proactive and reactive maintenance
o Overhead
Capital expenditures
o Capital projects (net of debt funding)
■ Bad wiring
■ High efficiency upgrades
■ Capital replacements
o Debt Service
Cash operating reserves and financial planning performance measures
The recommended financial plan reflects debt funding under the following terms:
Term- 15 years
Annual Interest Rate- 5.0 percent
Issuance Costs- 1.0 percent
Debt Service Reserve Requirement-Not Applicable
To provide an economic comparison of the two funding scenarios-debt versus PAYGO cash funding,
a net present value (NPV) of cash funded capital, debt service, and electric power costs for the 11
year period of FY 2017 -FY 2027 was prepared. Under the debt funding scenario,projected annual
debt service payments resulting from debt issued during the eleven year period, but paid after FY
2027 are included in the NPV results and discounted future payments. The results of the NPV analysis
is presented in Table 1-1.
Table 1-1: NPV of Costs — No Debt and With Debt Funding Scenarios
With Debt $9,706,000
No Debt ` 9,331,000
The With Debt scenario has a net present value cost that is $375,000 greater than the No Debt
scenario. However,additional benefits of issuing debt include the ability to accelerate capital project
6 1 Salt Lake City
construction and the ability to smooth out annual revenue requirements with annual debt service
payments as opposed to fluctuating cash funded capital payments. Accordingly, RFC and City staff
recommend that debt be used by the City to fund in an accelerated and proactive manner,the street
light capital needs. Earlier installation of high efficiency light upgrades also provide earlier power
cost and bulb replacement savings reducing annual 0&M costs.
1 .5 CUSTOMER BILL IMPACTS
RFC evaluated customer bill impacts under the proposed three-tiered ESLS user charges compared
to costs today under the current SAA funded ESLS program. As there are 42 separate SAA
assessments that do not fully reflect the annual 0&M expenses and capital expenditure requirements
and are assessed differently than the proposed ESLS per ERU, it was necessary to adjust the"basis"
of the current SAA based assessments. Appendix D includes a detailed, SAA by SAA comparison for
each of the two financial planning scenarios. In order to more fairly compare the two financing
scenarios,the following adjustments were necessary:
Most recent SAA extension requirements were increased by 25% to reflect the portion of
0&M and capital replacements historically funded by the General Fund
ERUs by SAA extension reflect the ERUs as they are assessed under the proposed ESLS tiered
user charges which is often different from how similar values are calculated in individual SAA
extensions.
Table 1-2 and Table 1-3 compares the average and range of annual impacts within each of the three
tiered groupings to the With Debt and No Debt scenarios respectively. As the proposed SAA
extension restructuring combines over 40 individual Street Light SAA extensions into one of three
tiered groups,some will experience increases and others will experience decreases.
As part of the study, the inventory of street lights which provide ESLS includes approximately 300
properties which receive ESLS, but were heretofore not included in an SAA or assessed an SAA fee
for ESLS. All of these properties are incorporated in proposed ESLS Tier 3 grouping. These
properties will be sent information on the proposed fee and will be invited to a planned May 2016
public meeting. It is recommended that additional noticed by provided to those properties prior to
the first bill following City Council direction regarding the proposed ESLS user charges.
Table 1-2: Customer Bill Impacts With Debt Funding Scenario
DifferenceSAA Average SAA Average Range of
M 0 W per ERU per ERU (2)
-
Extensions per ERU
Tier 1 1 2,498 $1.28 $5.67 $4.39 $4.39 to$4.39
Tier 3 23 853 32.72 43.82 11.10 ($32.53)to$27.96
(1) Tier 3 excludes 298 ERUs outside existing SAA extension boundaries.
(2) Range of impacts include those decreasing to maximum increase per ERU.
Enhanced Street Lighting Fee Study Report 7
Table 1-3: Customer Bill Impacts No Debt Funding Scenario
SAA Average SAA Average Range of
Extensions per ERU M 0 0 per ERU per ERU (2)
Difference -
Tier 1 1 2,498 $1.28 $5.67 $4.39 $4.39 to$4.39
-1 M- = ($11.07)to$23.32
Tier 3 23 853 32.72 59.38 22.93 ($16.97)to$43.52
(1) Tier 3 excludes 298 ERUs outside existing SAA extension boundaries.
(2) Range of impacts include those decreasing to maximum increase per ERU.
1 .6 CONCLUSIONS
The proposed ESLS user charge and funded service levels reflect a more sustainable service level
replacing funding provided today through the ESLS program currently funded through Street Light
SAA extensions and the General Fund. As with any transition similar to what is proposed, the
recommended approach is not perfect, will need to be refined overtime based on changing
circumstances, and will result in "winners" and "losers" in the near-term, while representing a
significant incremental improvement that addresses a difficult challenge that has existed for many
years.
RFC recommends that the City:
Adopt and implement the proposed three-tier ESLS user charges as part of the FY 2017
budget effective July 1,2016.
Accelerate deferred capital replacements and upgrade standard electricity fixtures and bulbs
with higher energy efficiency devices through the use of debt funding.
Fund deferred pole and fixture capital replacements prioritizing those in the worst condition.
Modify ESLS programs that allow additional ESLS to be established when the initial capital
and administrative costs are fully funded in a manner that:
o Provides for a more limited set of ESLS options that is periodically reviewed and
updated by City staff and that is more controllable and consistent with City standards;
and
o Provides initial funding mechanism separate from the monthly ESLS or BSLS user
charges and would fund recurring operating and capital costs through an existing or
new ESLS tiered grouping.
Increase funding for deferred street light capital replacements to continue to reduce the
financial.
Budget for and track expenditures of the proposed ESLS and current BSLS through separate
cost centers within the single Street Light Utility Fund managed by the Department Public
Utilities.
Update both BSLS and ESLS through a comprehensive study started in FY 2017 for proposed
adjustments as part of the FY 2019 budget and effective no later than July 1, 2018. During
the future study, RFC and City staff recommend that two portions of BSLS be segmented on
8 Salt Lake City
an ERU basis reflecting changes since the BSLS was implemented and the ESLS developed.
The two portions of BSLS include:
o Traffic safety lighting for local streets at intersection and mid-block for pedestrian
and traffic safety.
o Continuous street lighting on major streets providing more uniformly dispersed and
brighter level of lighting for streets with high traffic volumes, high speed limits and
more pedestrian and/or bike traffic.
A key element of this study will be to consider the definition of BSLS and how all customers
benefit from and contribute to BSLS.
Enhanced Street Lighting Fee Study Report 9
2. INTRODUCTION AND BACKGROUND
2.1 STREET LIGHTING
The City has a long history of providing street lighting that dates back over 100 years. The City
currently provides street light services through three programs.
1. Base street lighting service level (BSLS) provided throughout the City
a. Traffic safety lighting for local streets: The City provides street lighting at
intersections and mid-block for pedestrian and traffic safety.
b. Continuous street lighting for major streets: The City provides a more uniformly
dispersed and brighter level of lighting for streets with high traffic volumes,high
speed limits and more pedestrian and/or bike traffic.
2. Enhanced street lighting service level (ESLS) provided primarily within Special Assessment
Areas (SAAs)
a. Additional and/or decorative lighting funding is provided through property-specific
special assessments within each SAA. Properties owners within the SAA extensions
agree to pay the initial capital costs and 75 percent of recurring 0&M and
replacement capital costs.The City currently has 42 SAA extensions within
commercial and/or residential areas located throughout the City that receive one or
more of the following enhanced service levels:
i. Decorative poles and aesthetic fixtures,increased lighting beyond
intersection and mid-block through higher energy efficient fixtures,lower
capital and 0&M requirements.
ii. Decorative poles and aesthetic fixtures,increased lighting beyond
intersection and mid-block through lower energy efficient fixtures,higher
capital and C&M requirements.
iii. Taller decorative poles and aesthetic fixtures,three lamps per pole with
increased lighting beyond intersection and mid-block.
3. Additional or decorative lighting provided through privately funded lighting programs
established in 2000. While this program provides for private street lights,they are not
developed nor implemented as a replacement for BSLS,they are considered ESLS and the
individual owners directly fund on-going and maintenance costs: as such,a fee for ESLS is
not necessary;the City bears no responsibility for these facilities.
a. Property owners may elect to privately fund the purchase,installation and
operation of additional or decorative street lights.The City reviews and approves
the selected lights and fixtures and property owners are responsible for all costs.
Historically,the City has assisted in funding a portion of the initial costs through a
10 1 Salt Lake City
matching grant program of up to $5,000 per block face as funds are available for
eligible projects.
During the"Great Recession",the City adopted an austerity program throughout the City. The street
light service impact as the City sought to reduce General Fund budget deficits was to significantly
reduce street light 0&M and deferred maintenance costs for both BSLS and ESLS and in many areas
allowing lights to "go dark". In 2011, the City completed a study to evaluate establishing a Street
Light Utility to fund BSLS through a user fee. A Citizen Committee was convened by the City to assist
in that review and make recommendations regarding the Street Light Utility and BSLS to City Council.
Asa result,the City implemented a Street Light Utility in 2013 to fund BSLS throughout the City. Since
implementation,a monthly fee of$3.73 per Equivalent Residential Unit(ERU)6 has been assessed to
recover BSLS. In BSLS areas,lights are back"on",funding has stabilized due to dedicated user charge,
and deferred maintenance accumulated prior to and through the Great Recession is declining.
During the same 2012 study, the City elected to maintain the Street Light SAA extensions to fund
enhanced street lighting areas through special assessments and General Fund sources. ESLS have
largely maintained the austere funding posture implemented during the Great Recession and
deferred maintenance accumulated prior to and through the Great Recession continues to increase
above annual funding through Street Light SAA extensions and the City's General Fund. Over time,
the SAA program has not provided a sustainable funding source to address recurring capital
maintenance and periodic capital replacement expenditures as it currently exists. One reason for
this is that individual SAA extensions vary widely in terms of the size, number of customers and
ability to"absorb"annual costs. For example,capital replacements can be infrequent,very expensive
and without advanced funding in year's preceding the expenditure, the result may be significant
fluctuations in annual assessments. This aspect of capital funding is accentuated when the number
of customers is smaller resulting in more pronounced variability. Customers often prefer more
predictability and stability year over year and as a result,funding may be capped resulting in phased
and/or piecemeal capital maintenance.
In 2015, the City completed another study or assessment of the street light program7 to assist the
City in evaluating SAA funding options, and assessing root causes of the deficiencies of the current
SAA program. Recommendations were summarized in the `Report of Street Lighting Special
Assessment Areas' by Linda Hamilton Consulting, dated August 5, 2015, and presented to City
Council. As a result of the 2015 study,the City Council directed City Staff to dissolve SAA extensions,
forego assessments during fiscal year (FY) 20168 and develop a user charge based funding sources
5 Matching funds for this program have not been available since 2012 and funding is determined as part of the
annual City budget process.
6 One ERU is equal to 75 feet of front footage.All single-family residential, duplex and triplex customers are
assessed 1 ERU. All other customer classes are assessed the ERUs consistent with the each property's front
footage with a minimum of 1 ERU.
7 Report of Street Lighting Special Assessment Areas,Linda Hamilton Consulting,August 5,2015.
8 City's fiscal year starts July 15t and is completed on June 30th each year. For example, FY 2017 refers to the
12-month period of July 1,2016 through June 30,2017.
Enhanced Street Lighting Fee Study Report 11
that equitably recovers ESLS from users; the user charge approach was to be implemented July 1,
2016 as part of the FY 2017 budget.
2.1 .1 Study Objectives
In January of 2016, the City retained RFC to evaluate a user charge based funding source for ESLS
formerly funded through the SAA extensions. City Council directed City staff to develop ESLS within
the following City Council guidelines:
1. No subsidy from BSLS to ESLS previously funded through the SAA extensions.
2. No changes to the existing BSLS charge will be considered.
3. All recommended fees will provide a self-sustainable program for each of the individual
ESLS rate groups.
The major objective of the study is to develop tiered charges that recover the annual cost of enhanced
street lighting services,while not modifying the BSLS charge assessed City-wide. As part of the study,
RFC and City Staff have completed the following consistent with City Council guidelines:
1. Define common and varying ESLS provided in former SAA extensions.
2. Determine the recurring C&M expenses, capital maintenance, capital replacements and
reserve requirements associated with the ESLS.
3. Propose ESLS user charge(s) that recover the annual cost of providing ESLS for proposed
service level groupings.
4. Present alternatives and policy issues during public meetings to public at large, individual
stakeholder groups and to the Public Utilities Advisory Committee (PUAC).
S. Document and present study recommendation and findings to City Council.
The current BSLS monthly user charge of$3.73 per ERU was not updated as part of this study.
2.1 .2 Enhanced Street Lighting Services
ESLS are currently provided within 42 individual SAA extensions are grouped into three Street
Lighting SAA"super groups". The 42 SAA extensions are located throughout the City and
assessments are established,provided and collected separately for individual extensions as part of
the three"super groups".
Figure 2-1 summarizes the 42 individual SAA extensions.
Figure 2-1: SAA Extension Map
12 1 Salt Lake City
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RFC and City staff evaluated the ESLS levels provided in each of the 42 SAA extensions. While there
are both commonality and variations in the style and aesthetic features amongst the individual SAA
extensions,the service level analysis focused on the variations in recurring operating costs as well as
capital replacements. RFC and City staff recommend the following three tiered grouping of ESLS:
Tier 1 - Decorative poles and aesthetic fixtures, increased lighting beyond intersection and mid-
block through higher energy efficiency,lower capital and 0&M requirements.
Tier 2 - Decorative poles and aesthetic fixtures, increased lighting beyond intersection and mid-
block through lower energy efficiency,higher capital and 0&M requirements.
Tier 3 - Taller decorative poles and aesthetic fixtures,three lamps per pole with increased
lighting beyond intersection and mid-block.
After the review of the 42 SAA extensions, RFC and City staff recommend that three of the SAA
extensions be reclassified as BSLS as their service is consistent with BSLS. Furthermore, there are
areas in central Salt Lake City currently outside the boundaries of individual SAA extensions (blue
shaded areas in Figure 2-2)with taller decorative poles that have three lamps per pole and increased
lighting beyond intersection and mid-block. RFC and City staff recommend that these areas be
reclassified as ESLS areas to match their service level and costs. Figure 2-2 summarizes the proposed
groupings consolidating 39 SAA extensions into 3 tiered enhanced street light utility groupings. The
green areas correspond to the Tier 1,the purple shaded areas to Tier 2 and the pink and blue shaded
areas to Tier 3.
Enhanced Street Lighting Fee Study Report 13
Figure 2-2: ESLS Tiered Groupings
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Table 2-1 summarizes Accounts, ERUs, Poles and Fixtures for each of the three proposed ESLS
groupings.
Table 2-1: ESLS Tiered Groupings Customer and Facility Summary
==Mom
Tier 1 2,498 2,498 751 754
_--�M. 497
Tier 3 929 1,151 1,098 2,839
To provide context, the City has roughly 72,000 ERU City-wide and the ERUs within the proposed
Tier 1 through 3 groupings represent 6 percent of the ERUs City-wide. Appendices B and C
summarize in more detail the properties, ERUs, poles,fixtures and lamps by existing SAA extension
and proposed ESLS tiered groupings.
2.2 PROPOSED ESLS USER CHARGES
Figure 2-3: summarizes the proposed ESLS user charges by tier to be effective July 1, 2016 under
both debt funding and cash or PAYGO funding plan. The proposed ESLS user charges are sufficient
to meet ESLS needs through at least FY 2018. The City plans to complete a comprehensive update to
the street light utility prior to the end of FY 2018 to evaluate modifications to BSLS or during the fifth
14 1 Salt Lake City
year since the BSLS user charges were implemented in 2013. RFC and City staff recommend that the
BSLS and ESLS updates are evaluated during the same study to efficiently evaluate street light
funding needs as part of a single, comprehensive study. Recommendations resulting for the
combined BSLS and ESLS analyses are anticipated to be effective no later than July 1, 2018 and
integrated within the FY 2019 budget process.
The user charges summarized in Figure 2-3 are proposed to be assessed using the same ERU basis of
the BSLS user charges.
Figure 2-3: Proposed Monthly ESLS User Charges per ERU Effective 7/1/16
$70
$60 $59.38
$50 $43.82
$40
$30 $27.87
$20 $15.94
$10 $5.67 $5.67
$0
Tier 1 Tier 2 Tier 3
ESLS-With Debt Funding o ESLS-No Debt Funding
2.2.1 Future ESLS Areas and Privately Funded Light
Programs
As the City is modifying the mechanism whereby the 0&M expenses and capital replacement
requirements of ESLS areas are recovered, City Council asked that City staff and RFC evaluate
mechanisms whereby neighborhoods may request ESLS or privately funded street lighting for
decorative and/or enhanced street lighting service levels.
The City BSLS requirements for new development and/or in existing areas to fund initial capital
requirements is not changed. The following funding mechanisms for initial capital to install new
infrastructure that is separate from the BSLS user charge for recurring 0&M and capital replacements
are available.
Enhanced Street Lighting Fee Study Report 15
1. Developer installs lighting infrastructure to City specifications and donates infrastructure to
the City along with other local facilities constructed to City specifications as a condition of
development and dedicated to the City.
2. Grant money such as "Class C" or Community Development Block Grants (CDBG) for initial
capital costs.
3. Light infrastructure costs installed as part of a bond issued by the City or others that may
include additional infrastructure costs
4. General fund capital improvement project funded by the General fund
In all cases, once completed,the street lighting infrastructure is dedicated to the Street Light Utility
to operate,maintain and replace.
At such time in the future when an area and/or neighborhood within the community requests ESLS
be established, the group would select the desired ESLS from within a set ESLS options allowed by
the City. The full capital and administrative costs to install ESLS may be funded through any of the
following mechanisms or in some combination thereof:
1. Developer and/or property owners donating pre-approved enhanced street lighting
infrastructure related to a new development.
2. City completing a beautification improvements where enhanced street lighting
infrastructure.
3. Neighborhood and/or business areas providing upfront PAYGO or cash funding provided by
the SAA members
4. Through a street lighting SAA that recovers only the initial requirements with defined
length (term) and expiration date that specifically excludes use of the street lighting SAA for
recurring 0&M expenses and capital replacement costs following the initial installation.
Neighborhoods and/or business areas seeking ESLS would work with the Utility to select from the
standardized suite of lights and poles within each tier. Following installation and dedication to the
City Street Light Utility,the City would evaluate service levels and recurring annual costs and if the
customers are large enough and/or provide a level of ESLS substantially different from an existing
tier grouping,the newly established ESLS would be included in an existing ESLS tier grouping. In the
case of a street light SAA for just capital,Utility staff can manage the SAA process coordinating with
other City staff and departments as appropriate.
Additionally, a future area and/or neighborhood within the community could request additional
and/or decorative lighting provided through a privately funded lighting programs. The City would
review and if appropriate approve the selected lights and fixtures and property owner(s) are
responsible for all costs. The area or neighborhood provides the full cost of the initial capital
installation costs. City assistance is limited to partial funding through a matching grant of up to
$5,000 per block face subject to meeting program eligibility and availability of matching grant funds9.
9 Matching funds for this program have not been available since 2012 and funding is determined as part of the
annual City budget process.
16 1 Salt Lake City
While the private light street program provides for private street lights to be installed,the program
is not developed nor implemented as a replacement for BSLS,the programs are considered ESLS and
as the owners fund on-going and maintenance costs directly,a fee for ESLS is not necessary;the City
bears no responsibility for these facilities.
2.2.2 PUAC and Public Meeting Presentations
RFC and City staff evaluated four primary study issues. These policy items were discussed during the
Public Meetings, Open City Hall,and PUAC presentation. The study policy items include:
1. Are high efficiency energy fixture upgrades important to you?
2. Would you pay more to accelerate the pace of high efficiency fixture installation?
3. Do you prefer 1 or 2 residential enhanced service tier groupings?
4. Do you prefer debt or cash funding?
The PUAC provided the following direction regarding the four issues:
1. Yes,high efficiency energy fixture upgrades are important
2. Yes, we would be willing to pay more to accelerate the pace of high efficiency fixture
installation
3. 2 residential enhanced service tier groupings
4. Debt funding improvements to accelerate high efficiency fixture installation
A second presentation was made to the PUAC on April 28,2016 that provided the range of customer
bill impacts presented in this report under the three-tiered approach and served to confirm that the
three-tiered recommendation should be presented to City Council. Appendix A summarizes the
results of the March 17,2016 PUAC presentation as direction provided to the four study issues and a
copy of the ESLS slides presented during this meeting. Direction regarding the first three policy
issues were incorporated with the pros and cons highlighted in the following section. RFC and City
staff developed proposed user charges that reflect the fourth study issue (debt or cash funding) as
previously discussed. 11-year financial plans for both the With Debt Funding and No Debt Funding
scenarios are summarized separately in Appendices B and C with the comparative benefits and
disadvantages discussed in Section 2.3 and with the present value of the two scenarios presented in
Section 2.3.3.
2.2.3 Service Level
As part of the study,RFC worked with City staff to evaluate three service levels summarized in Table
2-2. The three service levels differ in the manner that programmed maintenance, deferred capital
replacements and high energy efficiency fixture capital replacements are funded.
Enhanced Street Lighting Fee Study Report 17
Table 2-2: ESLS Cost Components under Reactive, Proactive Service Levels
ESLS Cost Components
Electricity O&M Yes Yes Yes
Bulb Replacement �-Wm
Reduced electricity and bulb replacement costs O&M No No Yes
programmed Maintenance ----
Reactive Maintenance O&M Yes Yes Yes
Reactive capital replacements Capital Yes Yes Yes
Deferred capital replacements
Higher Energy Efficiency Fixture Installation Capital No No Yes
Reactive service is generally provided today within the 42 SAA extensions and is limited to 0&M
expenses and capital maintenance expenditures as infrastructure fails or following infrastructure
failures in previous year(s). If the City were only interested in replacing the current SAA funded ESLS
program with user charges assessed to three tiers per ERU,the cost differences would be limited to
how overhead, administrative and assessment costs are incorporated under an SAA program
compared to a user charge program. If continued at a reactive service level, the condition of ESLS
infrastructure will continue to worsen as deferred capital maintenance requirements increase
resulting in more frequent infrastructure failures may be expected.
Proactive service level increases incorporate additional recurring costs associated with proactive
and planned maintenance as well as funding deferred capital replacements annually as part of the
annual funding requirements. Providing funding for planned maintenance and deferred capital
replacements enables improved maintenance and phased capital replacements through prioritized
capital expenditures resulting in sustained incremental improvements. Even under proactive service
levels, infrastructure may still fail, but such failures should be less frequent as deferred capital
replacements are completed over time.
Sustainable service levels incorporate proactive service levels plus higher energy efficiency lighting
capital investments that reduce operating costs while replacing fixtures and lamps providing a
payback over time. These one-time capital investments will free up funding for capital maintenance
and replacements that would otherwise fund annual 0&M expenses of electricity and bulb
replacement.
RFC and City staff recommended and have developed user charges under the sustainable service level
option.
18 1 Salt Lake City
2.2.4 Funding Higher Energy Efficiency Fixture Upgrades
RFC and City staff evaluated the benefits of funding one-time capital costs within ESLS areas to
upgrade light fixtures to a higher energy efficient fixtures and bulbs. The City is upgrading BSLS with
higher energy efficiency fixtures and bulbs as an outcome of the study completed in 2012 and
implementing user charges for BSLS. Higher energy efficient fixtures and bulbs result in lower
recurring electricity and bulb maintenance costs as discussed in greater detail in Section 2.3.1.
Recurring 0&M savings may be used to provide a source for capital replacement funding and/or
mitigate the pace and size of future increases to proposed ESLS user charges.
RFC and City staff recommended and have developed user charges that anticipate upgrades of all
standard energy efficient lighting fixtures and bulbs with higher energy efficient fixtures and bulbs
over the 11-year planning period.
2.2.5 Tiered Groupings
RFC and City staff evaluated two and three tier groupings,i.e.,multiple customer groupings based on
ESLS. Three tiers are recommended to separate residential areas that have installed enhanced street
lighting areas that already include higher energy efficient fixtures from residential areas that require
major wiring and capital upgrades and currently do not have higher energy efficient fixtures. The
two tier option combined Tiers 1 and 2 residential areas into a single ESLS tier reflecting decorative
lights with one bulb per pole and was presented during public meetings on March 10, 2016 and to
the PUAC on March 17, 2016. A second presentation was made to the PUAC on April 28, 2016 that
also included a range of customer bill impacts detailed in this report and confirming that the three-
tiered option as the recommended approach for consideration by City Council. The result under the
two-tier option would be a weighted average charge per ERU assessed to areas that had previously
installed higher energy efficient fixtures with areas that have not installed higher energy fixtures with
costs to do so included in the user charge.
RFC and City staff recommended and have developed user charges under a three-tiered ESLS option.
2.2.6 Funding to Accelerate Capital Improvements
The final study issue centers on the funding source for capital improvements. One alternative is to
continue to PAYGO cash funded improvements. The advantage of PAYGO cash funding is that the City
avoids paying interest and related issuance costs associated with debt funding improvements. The
downside of PAYGO cash funded improvements is that the proposed user charges increase more
quickly or absent an accelerated increase in user charges,the capital project improvements can only
be phased over a longer period of time and annual variability may be more pronounced. The
advantage of debt funding some improvements allows the City to build things more quickly saving in
cost inflation, project management costs and realizing the reduced 0&M expenses through
accelerated energy efficient fixture installation. For example, to the extent that the City is
accelerating energy efficiency improvements through a PAYGO cash funding scenario, the reduced
Enhanced Street Lighting Fee Study Report 19
operating costs are realized over a longer period of time as cash funded capital improvements are
phased over a seven-year time period.
Two user charges alternatives were developed with the No Debt Funding scenario funding capital
improvements only with cash (PAYGO) while the With Debt Funding scenario funding capital
improvements with a combination of debt and cash. Both scenarios are discussed in the following
section.
2.3 FINANCIAL PLAN
A multi-year financial plan was developed for both capital funding alternatives (debt versus PAYGO
cash funding) in consultation with City staff. Appendix B summarizes the financial plan under the
With Debt Funding scenario and Appendix C summarizes the financial plan under the No Debt
Funding Scenario. RFC and the City recommend the"With Debt Funding"alternative. This section of
the report summarizes baseline assumptions and projection information.
The alternative financial plans and proposed annual user charges (subject to increase or decreased
and summarized in Appendices B and C) reflect the following financial planning criteria:
Fund annual 0&M expenses,debt service and cash-funded capital expenditures
Exceed financial performance measures of
o annual legal debt service coverage (DSC) requirements and
o annual cash operating reserves of at least 60 days of 0&M
DSC is a financial performance measure that evaluate net revenues available for debt service
(revenues less 0&M expenses)divided by annual debt service payments. The legal DSC requirements
is 125 percent of annual debt service with a City set financial planning target of 200 percent of annual
debt service. Over the financial planning period,the ESLS funds exceed the DSC target.
A second measure is the cash operating reserve of 20 percent of 0&M. This cash reserve provides
working capital to fund expenditures throughout the year as ESLS user charges are billed and
recovered monthly.
Projected costs were evaluated over an 11-year financial planning period. The cost types include
0&M expenses, capital related expenditures and cash operating reserves and financial planning
criteria.
0&M expenses
o Electricity
o Bulb Replacement
o Proactive and reactive maintenance
o Overhead
Capital expenditures
o Capital projects (net of debt funding)
■ Faulty/defective wiring
20 Salt Lake City
■ Higher electric efficiency fixture upgrades
■ Capital replacements
o Debt Service
Cash operating reserves and financial planning performance measures
Figure 2-4 summarizes the projected annual 0&M,capital and debt service costs under each scenario.
Figure 2-4: Expense Summary by Scenario
N $1.6
$1.4
$1.2
$1.0
$0.8 '
$0.6
$0.4
$0.2
$0.0
oO.r6 0O.r6 00'16 0O.r6 oO.ra 0O.r6 0O.06 0O.r6 oO.ra o0?a 0O.r6
Pa O Pa O Pa O Pa O Pa O Pa O Pa O Pa O Pa O Pa O P6 O
r P6r r Par r P6r r Par r Par r Par r Par r Par r Par r '16r r Par
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
■O&M a Cash Funded Capital Debt Service
The No Debt scenario will require higher initial user charges and due to capital project requirement
variability,some tiered user charges are projected to be reduced in the final five years of the 11-year
planning period. The With Debt scenario provides accelerated funding of capital improvements,
including installing higher energy efficient fixtures more quickly and realizing reduced 0&M
expenses, while providing for lower initial user charges, more stable funding requirements and
projected user charge increases for all three tiered groups over the 11-year planning period.
2.3.1 O&M Expenses
0&M expenses include recurring operating, proactive and reactive maintenance and administrative
expenses. The sub-sections discuss projected results and variables.
2.3.1.1 Electricity and Bulb Replacement
Rocky Mountain Power(RMP)bills the City for all power costs related to BSLS and ESLS. These costs
have historically been allocated among BSLS and SAA extensions since 2013. The budgeted FY 2016
costs provide a base cost for ESLS electricity costs. As higher energy efficiency fixtures replace
standard energy fixtures,electricity use is projected to decrease approximately 60 percent per bulb.
Enhanced Street Lighting Fee Study Report 21
The estimate is based on the City's experience implementing similar higher energy efficiency
upgrades.
Under the No Debt Funding alternative,the high efficiency upgrades are phased-in over a seven-year
period from FY 2017 to FY 2023. Under the With Debt Funding alternative, the high efficiency
upgrades are grouped into two phases with the first phase implemented over a two-year period from
FY 2017 to FY 2018. The second phase is projected to start in FY 2021 completed in FY 2022.
Bulb replacement costs are another recurring 0&M expense that may be reduced through high
energy efficient fixtures. Higher energy efficient bulbs,while more expensive than standard energy
efficiency bulbs,last longer and do not need to be replaced as often. The City's current maintenance
contract provides for a $3.30 charge per lamp for standard energy efficient bulbs that includes the
cost of the bulb as well as labor and material to "replace" it. Higher energy efficient bulbs are
projected to incur a $1.50 charge annually per lamp to replace once they burn out as they are
expected to be replaced less frequently.
Figure 2-5 summarizes the projected electricity and bulb replacement costs among the two scenarios
in FY 2019 and FY 2024. In FY 2019,electricity and bulb replacement costs total$375,000 under the
No Debt Funding scenario and$249,000 under the With Debt Funding scenario or a recurring annual
savings of$126,000 per year. By FY 2024 when both the No Debt and With Debt alternatives have
upgraded all ESLS fixtures with higher energy efficient fixtures using LED technologies,the electricity
and bulb replacement savings are reduced to$10,000 annually. By issuing debt to accelerate funding
of higher efficiency energy fixtures and bulbs,the City is able to realize reduced 0&M more quickly
applying savings to the other ESLS requirements.
22 1 Salt Lake City
Figure 2-5: Electricity & Bulb Replacement Cost Forecasts
$400
M
C $350
►L- $104
$300
$250 $93 $93
$61
$200
sm $
$100
$SO
$0
No Debt With Debt No Debt With Debt
FY 2019 FY 2024
Electricity Bulb Replacement
Both electricity and bulb replacement costs are allocated to the ESLS tier groupings based on the
number of bulbs. Tier 3 areas include triple headed cactus poles with three bulbs per pole and are
therefore allocated additional costs. Both bulb replacement and electric costs, net of savings from
installation of higher energy efficiency fixtures, are projected to increase over time by an inflation
factor of 2 percent per year.
2.3.1.2 Reactive and Programmed Maintenance
Two additional recurring operating costs incorporate reactive and programmed maintenance. As
part of the City's street lighting contract, reactive maintenance incurs costs as street lights stop
working and/or require unplanned maintenance. The City also plans for proactive maintenance like
replacing fixture covers, painting poles and similar types of recurring maintenance. Not all areas
require the same level of proactive maintenance, so there may be a prioritization process in an
individual year that reflects these types of costs. These costs were based on historical annual
averages amongst the enhanced service level areas and are projected to increase by an annual
inflation factor of 2 percent. These costs increase from $40,900 in FY 2017 to $49,857 in FY 2027
under both scenarios. Appendices B and C summarize these additional costs for each scenario.
2.3.1.3 Miscellaneous and Overhead
The final 0&M expense area includes miscellaneous expenses and overhead. Overhead reflects 10
percent of the 0&M expense and includes Department of Public Utilities shared expenses like the
Enhanced Street Lighting Fee Study Report 23
utility billing system,a portion of management personnel costs and similar shared costs that benefit
all Utility services.
2.3.2 Capital Expenses
Capital expenses include recurring and periodic cash funded capital requirements, debt service
related to proposed debt and items like sufficient cash reserves and/or contributions to capital
replacement reserves.
The City has funded a minimum level of capital costs as infrastructure deteriorates or fails and
requires replacement. Ideally, the City would have assessed annually the cost of the capital facility
accumulating cash so that funds are available in the year that the infrastructure fails. In practice,
such disciplined funding is very difficult to assess, restrict and administer and thus have not
consistently been in place in ESLS funded through SAA extensions. Compounding the problem are
annual variations in capital requirements with multiple"pools"of customers throughout the 42 SAA
extensions. These factors have compounded so that annual capital maintenance in addition to
accumulated capital replacements will be required. The City may choose to phase-in and/or increase
funding for this capital maintenance and will refine estimates annually with user charges updated in
future Street Light Utility fee studies.
The anticipated capital costs include the following expenditure types:
One-time expenditures to replace wiring that was initially installed in concrete. The City has
been phasing in these requirements in multiple Tier 2 ESLS areas.
Energy efficiency improvements to replace standard energy efficient fixtures with higher
energy efficient fixtures and light bulbs using LED technologies.
Annual pole and fixture replacement based on the anticipated life of each infrastructure
component. Unspent annual amounts will be accumulated in a repair and replacement capital
reserve available to fund future capital replacements within ESLS areas.
The sub-sections discuss projected results and variables.
2.3.2.1 Bad Wiring Replacement
Multiple SAA extensions on the east side of Salt Lake City have street light wiring that is in need of
replacement. The wire replacement is more expensive in this area because it was installed within
concrete sidewalks requiring much more extensive capital expense. The costs necessary to replace
this faulty/defective wire were estimated by City staff to be$765,000 before inflation. Appendices B
and C contains a detailed forecast of these expenses, which are inflated by an annual factor of 2
percent.
2.3.2.2 High Efficiency Upgrades BSLS and ESLS
The City's goal is to eventually convert standard energy efficient fixtures and bulbs to higher energy
efficiency LED fixtures and bulbs. Based on historical costs,the City estimates that the cost to convert
a single bulb lamp and fixture to a high efficient LED bulb in both BSLS and ESLS areas is $500,
whereas the cost to convert a three bulb and fixture pole is$750. The City anticipates full conversion
24 1 Salt Lake City
of higher energy efficiency fixtures to be completed by FY 2023 or within an 11-year timeline from
implementation of the BSLS user charges. As discussed in the 0&M Electricity and Bulb Replacement
section, under the No Debt Funding alternative,the high efficiency upgrades are phased-in over the
seven-year period from FY 2017 to FY 2023. Under the With Debt Funding alternative, the high
efficiency upgrades are grouped into two phases with the first phase implemented over a two-year
period from FY 2017 to FY 2018. The second phase is projected to start in FY 2021 and completed
in FY 2022. Appendices B and C contain a detailed forecast of these expenses,which are inflated by
an annual factor of 2 percent.
As discussed previously, accelerating the pace of higher energy efficiency fixtures results in higher
overall 0&M savings realized more quickly resulting lower user charge requirements and more
funding available for deferred capital replacement requirements.
2.3.2.3 Capital Replacement
Capital replacement expenses are related to pole replacement costs. The replacement cost of a single
light decorative poles is estimated at $6,500, whereas a single taller three-light decorative poles is
estimated at $17,500 with both values stated in 2016 costs before inflation. City staff estimates a
useful life of 50 years. The financial plan assumes that by FY 2024,all three ESLS tiers are recovering
the annual 50-year life replacement cost of their respective poles. The phased-in cost recovery allows
for other more time-sensitive upgrades, such as bad wiring and energy efficiency upgrades, to be
completed first with a smaller impact on rates. Appendices B and C contain a detailed forecast of the
capital replacement expenses,which are inflated by an annual factor of 2 percent.
2.3.3 Debt
The ESLS SAA extensions funds do not currently have any outstanding debt. RFC and the City
analyzed the potential benefits to ESLS of issuing debt to accelerate and"smooth out"the cash funded
requirements of the ESLS tiered groupings.
2.3.3.1 Debt Issuance Assumptions
The legal debt service coverage requirement on the debt is 1.25 times; however,the Department of
Public Utilities targets debt service target of at least 2.00 times annual debt service. Under the With
Debt Scenario,$2.5 million of debt will be issued in FY 2017 to fund the bad wiring replacements and
a portion of the high efficiency upgrades. An additional$720,000 is projected to be issued in FY 2021
for the remainder of the higher efficient light fixture upgrade capital projects. Both debt issuances
assume a 15-year term, 5.0 percent annual interest rate, 1.0 percent issuance costs, and a January 1
issuance date.
Figure 2-6: compares annual debt service payments and cash funded capital under each scenario.
Enhanced Street Lighting Fee Study Report 25
Figure 2-6: Annual Debt Service and Cash Funded Capital
$1.0
$0.9
$0.8
$0.7
$0.6
$0.5
$0.4
$0.3
$0.2
$0.1
$0.0
Z0�� +0�� +0�� ~0�y� +0�� ~0iy� ZDLfi� ��$! y0�L,r ~0�y,
OP64OP6�OP6�SOPQ�OP6fOP6rOP63OP6rOP6f0P6�OP6�SOP6�OP6�f6P6�OP64OP6�OP63OP6'OP61OP6�OP6;'00
60.
FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Annual Debt Service 4,Cash Funded Capital
To provide an economic comparison of the two scenarios,a net present value (NPV) of cash funded
capital, debt service, and electric power costs for the eleven year period of FY 2017 - FY 2027
between the No Debt and With Debt scenarios was prepared. The results of the NPV analysis is
presented in Table 2-3.
Table 2-3: NPV of Costs - No Debt and With Debt Funding Scenarios
With Debt $9,706,000
No Debt 9,331,000
M iii
The With Debt scenario has a net present value cost of$375,000 more than the No Debt scenario.
However, additional benefits of issuing debt include the ability to accelerate capital project
construction and the ability to smooth out annual revenue requirements with annual debt service
payments as opposed to fluctuating cash funded capital payments.
26 1 Salt Lake City
2.4 CUSTOMER BILL IMPACTS
RFC evaluated customer bill impacts under the proposed three-tiered ESLS user charges compared
to costs today under the current SAA funded ESLS program. As there are 42 separate SAA
assessments that do not fully reflect the annual 0&M expenses and capital expenditure requirements
and are assessed differently than the proposed ESLS per ERU, it was necessary to adjust the "basis"
of the current SAA based assessments. Appendix D includes a detailed, SAA by SAA comparison for
each of the two financial planning scenarios. In order to more fairly compare the two financing
scenarios,the following adjustments were necessary:
Most recent SAA extension requirements were increased by 25% to reflect the portion of
0&M and capital replacements historically funded by the General Fund.
ERUs by SAA extension reflect the ERUs as they are assessed under the proposed ESLS tiered
user charges and this is often different from how similar values are calculated in individual
SAA extensions.
Table 2-4 and Table 2-5 compare the average and range of annual impacts within each of the three
tiered groupings for the With Debt and No Debt Funding Scenarios. As the proposed SAA extension
restructuring combines over 39 individual Street Light SAA extensions into one of three tiered
groups,some will experience increases and others will experience decreases.
Table 2-4: Customer Bill Impacts With Debt Funding Scenario
SAA Average SAA Average Range of
Extensions per ERU M 0 0 per ERU per ERU (2)
Difference -
Tier 1 1 2,498 $1.28 $5.67 $4.39 $4.39 to$4.39
15 927 13.24 15.94 2.70 ($23.00)to$11.39
Tier 3 23 853 32.72 43.82 11.10 ($32.53)to$27.96
(1) Tier 3 excludes 298 ERUs outside existing SAA extension boundaries.
(2) Range of impacts include those decreasing to maximum increase per ERU.
Table 2-5: Customer Bill Impacts No Debt Funding Scenario
SAA Average SAA Average Range of
Extensions per ERU M 0 0 per ERU per ERU (2)
Difference Differences
Tier 1 1 2,498 $1.28 $5.67 $4.39 $4.39 to$4.39
15 927 _-1 ($11.07)to$23.32
Tier 3 23 853 32.72 59.38 26.66 ($16.97)to$43.52
(1) Tier 3 excludes 298 ERUs outside existing SAA extension boundaries.
(2) Range of impacts include those decreasing to maximum increase per ERU.
Enhanced Street Lighting Fee Study Report 27
2.5 CONCLUSIONS
The proposed ESLS user charge and funded service levels reflect a more sustainable service level and
replacing funding provided today through the ESLS program currently funded through Street Light
SAA extensions and the General Fund. As with any transition, the recommended approach is not
perfect, will need to be refined overtime based on changing circumstances, and will result in
"winners" and "losers" in the near-term,while representing a significant incremental improvement
that addresses a difficult challenge that has existed for many years.
RFC recommends that the City:
Adopt and implement the proposed three-tier ESLS user charges as part of the FY 2017
budget effective July 1,2016.
Accelerate deferred capital replacements and upgrade standard electricity fixtures and bulbs
with higher energy efficiency devices through the use of debt funding.
Fund deferred pole and fixture capital replacements prioritizing those in the worst condition.
Modify ESLS programs that allow additional ESLS to be established when the initial capital
and administrative costs are fully funded in a manner that:
o Provides for a more limited set of ESLS options that is periodically reviewed and
updated by City staff and that is more controllable and consistent with City standards;
and
o Provides initial funding mechanism separate from the monthly ESLS or BSLS user
charges and would fund recurring costs through an existing or new ESLS tiered
grouping.
Increase funding for deferred street light capital replacements to continue to reduce the
financial.
Budget for and track expenditures of the proposed ESLS and current BSLS through separate
cost centers within the Street Light Utility Fund managed by the Department Public Utilities.
Update both BSLS and ESLS through a comprehensive study started in FY 2017 for proposed
adjustments as part of the FY 2019 budget and effective no later than July 1, 2018. During
that study,RFC and City staff recommend that two portions of BSLS be segmented on an ERU
basis reflecting changes since the BSLS was implemented and the ESLS developed. The two
portions of BSLS include:
o Traffic safety lighting for local streets at intersection and mid-block for pedestrian
and traffic safety.
o Continuous street lighting on major streets providing more uniformly dispersed and
brighter level of lighting for streets with high traffic volumes, high speed limits and
more pedestrian and/or bike traffic.
A key element of this study will be to consider the definition of BSLS and how all customers
benefit from and contribute to BSLS.
28 Salt Lake City
PUBLIC UTILITIES
MONTHLY FINANCIAL SUMMARY
FOR THE PERIOD
JULY 1,2015 TO APRIL 30,2016
MONTHLY YEAR-TO-DATE
APR APR JUL-APR JUL-APR INC(DEC)
2015 2016 2014-2015 2015-2016 2015-2016
ACTIVE P U ACCOUNTS
RESIDENTIAL 8 2 75,212 75,214 2
INDUSTRIAL 0 (1) 222 236 14
COMMERCIAL 0 (7) 8,827 8,859 32
MISCELLANEOUS 8 4 2,323 2,329 6
TOTAL SERVICE ACCOUNTS 16 (2) 86,584 86,638 54
WATER DELIVERED IN MG. 1,697 1,454 22,298 22,203 (95)
WATER CONSUMED IN MG. 1,242 981 19,954 19,948 (7)
CHARGES
WATER $2,833,555 $2,474,711 $48,073,596 $51,580,551 $3,506,955
SEWER 1,795,772 1,775,520 17,120,690 18,025,557 904,867
STORM 699,935 622,389 6,754,166 6,707,464 (46,702)
STREET LIGHTING 273,259 261,566 2,642,326 2,637,971 (4,355)
GARBAGE 983,237 1,049,532 9,432,240 9,555,006 122,766
FRANCHISE 256,457 238,813 3,169,136 3,349,037 179,901
TOTAL CHARGES $6,842,215 $6,422,531 $87,192,154 $91,855,586 $4,663,432
COLLECTIONS
WATER $1,867,006 $2,183,261 $51,814,463 $52,511,749 $697,286
SEWER 1,468,923 1,806,825 16,958,694 17,970,712 1,012,018
STORM 561,397 722,754 6,719,882 6,819,281 99,399
STREET LIGHTING 219,706 247,399 2,635,066 2,650,553 15,487
GARBAGE 792,816 765,599 9,231,907 9,443,157 211,250
FRANCHISE 214,475 295,341 2,912,680 3,110,224 197,544
TOTAL COLLECTIONS $5,124,323 $6,021,179 $90,272,692 $92,505,677 $2,232,985
ABATEMENTS
SERVICE BREAKS $6,830 $6,029 $77,411 $89,598 $12,187
UNCOLLECTABLE 11,072 (2,805) $76,930 $23,727 (53,203)
TOTALABATEMENTS $17,902 $3,224 $154,341 $113,325 ($41,016)
ACCOUNTS RECEIVABLE AGING
01-30 DAYS OUTSTANDING $3,628,328 $3,719,421 $91,093
31-60 DAYS OUTSTANDING 302,971 401,202 98,231
61-90 DAYS OUTSTANDING 81,468 801,022 719,554
91-120 DAYS OUTSTANDING 19,083 16,498 (2,585)
> 120 DAYS OUTSTANDING 114,620 39,681 (74,939)
TOTAL RECEIVABLE $4,146,470 $4,977,823 $831,353
I-DRIVE EOMWATER
FINSUM
Apr16 As
5/9/2016
SALT LAKE CITY CORPORATION
WATER UTILITY FUND
BALANCE SHEET
APRIL 30,2016
APR APR.
ASSETS 2015 2016
Cash&Investments $ 42,747.928 $ 35,926,306
Restricted cash&temp.investments 6,575.538 7,626,988
Accounts receivable 3,844.614 4,154,382
Accrued interest and other investments 59,628 67,999
Inventory of supplies 2,820.597 3,446,742
Land and rights of way 48,598.124 49,268,474
Buildings 49,246.165 51,894,038
Improvements other than buildings 304,860,502 308,797,492
Machinery and equipment 28,142,337 28,817,787
Construction work in progress 13,048,639 24,331,552
Less accumulated depreciation (127,871.650) (133,973,344)
Other assets(pension) - 4,540
Investment in water company stock at cost 1,579.962 1,579,962
Total assets 373,652.384 381.942,918
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows pension - 1,390.124
Deferred outflows on refunding of debt 307.873
Deferred outflows of resources 1,697,997
Total assets and deferred outflows of resources $373.652,384 $ 383,640,915
LIABILITIES
Liabilities:
Accounts payable $ 4,177,601 $ 4.403,970
Current liabilities 284,127 242,813
Deposits 540.108 534,826
Defered revenues
Bonds payable 11,807.309 9.858,240
Tanner Ditch Deferred Revenue 16,330.921 15,308,326
Obligation for compensation liability 6.668,261 8,765,080
Total liabilities 39,808,327 39,113,255
DEFERRED INFLOWS OF RESOURCES
Deferred inflows pension - 884,672
Deferred inflows of resources 884,672
Total liabilities and deferred inflows of resources 39.808,327 39,997.927
NET POSITION
Net Position:
Net investment in capital assets 304,216,808 320.980,297
Restricted 6,575,538 7.626,988
Unrestricted 23,051,711 15,035,703
Total net position 333,844.057 343,642,988
Total liabilities,deferred inflows and net position $373,652,384 $ 383,640.915
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SEWER UTILITY FUND
BALANCE SHEET
APRIL 30, 2016
APR APIs
ASSETS 2015 2016
Cast;&Investments $ 25,262,040 $ 23,231,609
Restricted cash&temp.investments 4,148,285 3.550,791
Accounts receivable 1,872,775 2,100,024
Bond Receivable
Prepaid
Inventory of supplies 587,773 650,611
Land and rights of way 4.428,219 4,428,219
Buildings 88.338,185 90,065,241
Improvements other than buildings 131,034,485 138,423,132
Machinery and equipment 33,134,973 33,645,554
Construction work in progress 35.649,380 34,941,913
Less accumulated depreciation (91.114.459) (94.433,100)
Other sssets(pension) 3,216
Total assets 233,341,656 236,607,210
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows pension - 517,601
Deferred outflows of resources 517,601
Total assets and deferred outflows of resources $233.341,656 $237,124,811
LIABILITIES
Liabilities:
Accounts payable $ 1,320,736 $ 1,347.839
Current liabilities 353,834 417.393
Defered Revenues
Bonds payable 33,047,350 30,495,200
Obligation for compensation liability 1,224.815 2.777,351
Total liabilities 35,946,735 35,037,783
DEFERRED INFLOWS OF RESOURCES
Deferred inflows pension 312,850
Deferred inflows of resources 312,850
Total liabilities and deferred inflows of resources 35,946,735 35.350,633
NET POSITION
Net Position:
Net Investment in capital assets 168,612,203 176.768,152
Restricted 4,148,285 3,550,791
Unrestricted 24,634.433 21,455.235
Total net position 197,394,921 201,774,178
Total liabilities,deferred inflows and net position $233.341,656 $237,124,811
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SALT LAKE CITY CORPORATION
STORMWATER UTILITY FUND
BALANCE SHEET
APRIL 30, 2016
APR APR
ASSETS 2015 2016
Cash&Investments $ 7,070,551 $ 6,009,383
Restricted cash&temp.investments 760,064 1,126,010
Accounts receivable 724,404 605,125
Inventories and prepaid expenses - -
Land and rights of way 2,026,021 2,026,021
Buildings 8,957,148 8,979,944
Improvements other than buildings 134,014,511 137,413,899
Machinery and equipment 3,941,140 3,987,306
Construction work in progress 7,849,576 6,436,132
Less accumulated depreciation (48,209,909) (49,318,422)
Other assets(pension) - 1,044
Total assets 117,133,506 117,266,442
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows pension - 152,489
Deferred outflows of resources 152,489
Total assets and deferred outflows of resources $117,133,506 $ 117,418,931
LIABILITIES
Liabilities:
Accounts payable $ 646,986 $ 823,538
Current liabilities 8,108 6,817
Defered Revenues
Bonds payable 9,912,650 9,104,800
Obligation for compensation liability 346,692 778,545
Total liabilities 10,914,436 10,713,700
DEFERRED INFLOWS OF RESOURCES
Deferred inflows pension 89,437
Deferred inflows of resources 89,437
Total liabilities and deferred inflows of resources 10,914,436 10,803,137
NET POSITION
Net Position:
Net investment in capital assets 98,665,836 100,421,124
Restricted 760,064 1,126,010
Unrestricted 6,793,170 5,068,660
Total net position 106,219,070 106,615,794
Total liabilities,deferred inflows and net position $117,133,506 $ 117,418,931
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SALT LAKE CITY CORPORATION
STREET LIGHTING UTILITY FUND
BALANCE SHEET
APRIL 30, 2016
APR APR
ASSETS 2015 2016
Cash&Investments $ 1,498,575 $ 2,340,682
Restricted cash&temp.investments -
Accounts receivable 150,970 171,668
Inventories and prepaid expenses - -
Improvements other than buildings 3,576,758 4,420,207
Machinery and equipment - -
Construction work in progress 600,816 550,069
Less accumulated depreciation (625,327) (958,054)
Other assets(pension) - 643
Total assets 5,201,792 6,525,215
DEFERRED OUTFLOWS OF RESOURCES
Deferred outflows pension - 5,556
Deferred outflows of resources - 5,556
Total assets and deferred outflows of resources $ 5,201,792 $ 6,530,771
LIABILITIES
Liabilities:
Accounts payable $ 109,301 $ 146,857
Current liabilities - -
Defered Revenues
Bonds payable - -
Obligation for compensation liability 10,618 3,772
Total liabilities 119,919 150,629
DEFERRED INFLOWS OF RESOURCES
Deferred inflows pension 1,153
Deferred inflows of resources - 1,153
Total liabilities and deferred inflows of resources 119,919 151,782
NET POSITION
Net Position:
Net investment in capital assets 3,552,247 4,012,865
Restricted - -
Unrestricted 1,529,626 2,366,124
Total net position 5,081,873 6,378,989
Total liabilities,deferred inflows and net position $ 5,201,792 $ 6,530,771
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