Good morning, and welcome to the regularly scheduled meeting of the Denton Public Utilities
Board.
Today is April 13th, and it is 9 a.m.
Our first item of business this morning is presentations from members of the public.
Do we have any presentations?
We don't.
Okay, and now we'll move on to the consent agenda.
Does anybody have any items they wish to pull for discussion?
Item D, please.
Item D. All right.
And -- Item G.
Item G. Okay.
Thank you.
All right.
With that, I'll consider a motion for the remaining items.
So moved.
We have a motion and a second, Mr. Rybeck.
All in favor, say aye.
Aye.
Any opposed?
The motion carries unanimously.
I guess we'll do item D first, if that one resolves.
Good morning, my name is Cain McDaniel with Dent Municipal Electric.
Excuse me.
Good morning, my name is Cain McDaniel with Dent Municipal Electric.
Good morning.
I'm the person who asked for the item to be pulled.
I was a little confused.
Obviously, you have two well-qualified companies to work with, but I wasn't clear how you're
going to divide up the work with them since they had both been on the entire package.
So I was hoping you could give us just a little clarification on that.
Yes, sir.
So since the RFQ is basically a pre-qualifier for both of those -- both those companies
performed the same work, for every project that we do, we have an outage schedule which
is coordinated and approved by ERCOT, and we need to ensure availability for each of
those projects, depending on those window outages that ERCOT approves.
Okay.
So basically both are qualified to perform the services, so you're going to divide the
work up between them?
We will choose one company based on purchasing and -- excuse me -- based on processing and
scheduling.
Okay.
So this is just approving the selection narrowed down of multiple companies down to two?
Correct.
So basically you think about they're pre-qualified.
As a job becomes available, we'll ask them for pricing, we'll evaluate the pricing for
that job, and it will divvy up the work that way.
So neither vendor is guaranteed any amount of work, but that's the process.
Okay.
My apologies.
I didn't understand that from the information sheet.
So I just saw we've got these companies, they're qualified, here's a scoring process, and there's
this much money that we tend to spend, and I just was like, okay, so I can divvy this
up.
But I didn't understand this was just the pre-qual to make them available for future
purchasing.
So it just speeds up the process instead of having to do individual bids for every single
job.
So we do that kind of internally in conjunction with the procurement office.
All right.
Well, I'm satisfied.
Anybody else?
Thank you.
Yes, sir.
So once the decision's been made, you'll come back and tell us which of these two will be
the primary contractor?
Hi, Lori, Hill Purchasing Manager.
So yeah, we are pre-qualifying these, and then each project will be a bid.
But you're already approving for us to use both vendors with a spend.
So they will not come back per project.
And it's all based on this number, the 4.8 million?
Yes, correct.
Thank you.
Any further questions?
No, sir, I move to approve the item.
We have a motion.
Second.
And a second.
All in favor of approving item D?
Aye.
Any opposed?
Thank you.
None.
D carries unanimously.
And now for item G. Item G includes public power utilities competitive matters.
So the Public Utilities Board will now, at 9.05 a.m., convene into a closed meeting
to deliberate the closed item -- closed meeting item set forth in the agenda, which includes
deliberations regarding certain public power utilities competitive matters under Texas
Government Code 551.086 and consultation with attorneys under Texas Government Code Section
551.071.
We prepare the room.
The Public Utilities Board has now, at 9.26 a.m., reconvened from closed session and no
official action was taken.
At this time, we have one item remaining on our consent agenda, item G. Chair would entertain
a motion?
I move approval.
We have a motion.
And a second.
All in favor say aye.
Aye.
Any opposed?
Signed same.
The motion carries unanimously.
Now we'll move on to items for individual consideration.
The first item is consider approval of the March 23rd minutes.
We have a motion.
And a second.
All in favor say aye.
Aye.
The motion carries unanimously.
Item B, consider recommending adoption of an ordinance to execute a contract with Badger
Meter for AMI implementation for our water metering department for five years with five
additional one-year extensions totaling $26 million.
Good morning.
My name is Tiffany Schrein, I am the water utilities asset management supervisor.
I will be presenting on behalf of Stephen Gay today for the Water Advanced Metering Infrastructure
Implementation Program.
Advanced Metering Infrastructure, also referred to in short as AMI, is a two-way communication
system to collect detailed metering information throughout a utilities service industry.
This infrastructure is an integrated system of smart meters, a meter and endpoint, a collection
system, management systems, which will include your meter data management system, a head
end system, and a customer portal.
This water AMI system will allow for the city to have so many benefits.
It will enable the utility to more accurately measure water usage, detect leaks throughout
the system, improve customer service, and ensure that we are meeting our compliance
obligations.
Customers can also take advantage of usage alerts and reports that help them understand
their water use and potential savings opportunities.
The implementation of the citywide water AMI program is estimated to span 24 months and
will consist of acquisition and installation of meters, smart meters, and boxes, connection
to a cellular network, software integrations necessary for operations and management of
the system.
We will be implementing this as a staged approach, beginning with a proof of concept, then system
acceptance testing, and lastly, a mass meter change out or a full AMI deployment.
This timeline and approach will allow for the evaluation of supplied products, procedures
implemented, allotment of time for pre-construction planning and integrations that are needed to
be done.
A project communications plan will be carried out in accordance with the approach and timeline
along the way.
The initial RFP for this program yielded six proposals that our evaluation committee reviewed
and scored, badger meter ranked to be the best of value and the best in breed that would
meet the needs of the city's identified objectives.
This contractful value is $26 million, and as noted, majority of the cost will be incurred
within the first few years.
Proceeding that 24-month deployment, funding will span out over the remaining contract
years and absolve into software and cellular support.
In conclusion, staff would like to ask for the recommendation that badger meter receives
the contract award.
This contract is scheduled for the April 21st city council meeting.
Once we receive approvals, one of our next steps would be to continue working with marketing
and communications to initiate communication to our residents and begin implementing this
program for water AMI meters within the city of Denton.
Thank you.
Any questions?
Do we have any questions?
Mr. Rainer?
Your mic is...
Now I need to be on.
I'm sorry, I don't remember which slide it was, but it was talking about the city-wide
implementation.
Is this...
Are we looking at just commercial?
Are we talking about residential?
Are we talking about everybody?
Sure, absolutely.
Plan is, we're planning out to include both.
We will start with residential, and then at the utilities discretion, replace commercial.
City-wide?
Yes, sir.
All the residential.
New construction, I could understand.
And your plan's on having that done in two years?
Yes, sir.
I would be suspect, but so be the case.
Now if it does take longer than two years, then what is the cost to us?
There shouldn't be any additional costs.
We should be locked in with this amount.
Oh, because it's a 10-year thing, isn't it?
Yes.
Yes, I apologize.
That's okay.
Thank you.
Sure.
Go ahead.
I have a question as well.
Sure.
Well, actually two questions.
I noticed looking at the pricing evaluation, the pricing of the various entities was kind
of all over the board.
Yes.
When you had a high end, it was almost double the mean or median average of these.
And then, you know, one of the providers was quite low compared to the other group.
Just wondering if this proof of concept doesn't work out, does this mean we're going to fall
back to a different vendor, or will this whole process start over?
How will that work?
Yeah.
Great question.
We don't have the expectation that the proof of concept won't work out.
The proof of concept is almost more of like a soft opening for the full department.
Almost more of what?
I'm sorry?
Like a soft opening.
It's going to be a small set of meters that will allow us to work through any hiccups
or bugs before we do.
Okay, so it's a soft start.
It's not really a proof of concept.
It's proof of concept made to either work or it doesn't.
It does.
Right.
And we'll prove the technology.
So my second question is the actual way you're doing this using cellular communications.
So how will those communications be protected?
Sure.
So Badger Meter, they leverage existing secure commercial cellular networks that are out
there on top of their proprietary Badger softwares and systems.
So anything that is transmitted to and from the connection system is transmitted securely
on a private network.
Is it encrypted?
I believe so.
And it is done to the standards of ISO 27001 and SOC 2.
This says cellular communications.
Cellular, yes.
I'm sorry.
If they're broadcasting over cellular, then it's over the air.
So I'm just asking, is that being encrypted?
Is it encoded?
I'm not entirely sure how cellular your system works.
Yep.
So this is very similar to the AMI system that DME has.
And that is encrypted.
Okay.
Well, thank you.
That was easy.
Thank you.
I was just curious.
You said cellular communications.
You got all this data going out.
And I was just curious how it was being protected.
But if it's encrypted, then it's good.
So those are my questions.
Please proceed.
Thank you.
None of this is new.
So who else has used Badger?
They provided an extensive list of resources with their proposal in the evaluation process.
So we did review and discuss or get conversations with those utilities, and they all came back
very positive.
Okay.
And that their systems did work.
And I believe we do have that information.
Okay.
So I'm assuming that Milwaukee is one of them.
I don't know off the top of my head, but if you would like the list, we do have it.
Okay.
Thank you.
Go ahead.
No, I'll let you go first.
Another thought.
Sure.
So these meters are going to be on the city side between the water meter and the street.
Yes.
So when they are put in, if there's going to be, I can imagine on several neighborhoods,
the meters are rather close to the street.
So there's going to be curb work.
There may be even some street damage that will have to be repaired.
Who's paying for that?
So it's in part of if there is any construction needed within the meter replacement and meter
box replacement, that is part and within the contract funding, and that will be determined
with a pre-survey before the full deployment.
What will be pre-determined?
The locations where that may warrant being done.
Oh, I see.
Yes.
Thank you.
You're welcome.
So before I was on PUB, it was my understanding that when we did AMI electric meters, when
Denton did AMI electric meters, we attempted to do water meter AMI system, to implement
an AMI system for the water meters, and I remember it was kind of announced that it
was rolling out soon, like 2006 or 2005 or somewhere 20 years ago.
But the challenge is water meters are in a hole in the ground and radio waves don't
do well in that environment.
Also water meters are often underwater whenever we get rain or leaks or whatever.
Have we seen tests or example cities where those problems have been overcome?
We have, and we do have currently some of those areas in town where we may have a water
meter underwater.
Currently we do not have the proper lids for an AMI system, which is why we are doing boxes
and smart meters together so that it can transmit through the, it's like a PVC type material.
So basically the old metal pipe with cast iron lid, that's...
It won't transmit through there without an extender.
Okay, and it looks like these are Zigbee, Badger uses Zigbee, and so it's a pretty similar
technology to most of the electric meters.
Is it not compatible with using our existing backhaul network?
Because we have AMI electric meters everywhere, and so we have those endpoints and collectors
and fiber backhaul.
I think based on the number of meters that are deploying, that back end system just isn't
robust enough to support that, right?
And there is some compatibility issues, certainly Badger's kind of best in class for the water
department.
We have a Nitron system that's best in class for the electric meters, and so that's why
you're seeing two different systems being deployed.
And as far as the water issue in filling up those boxes, the reality is that it doesn't
just rain in Denton, right?
It rains in Austin, it rains in Colorado, it rains everywhere else, and they're deploying
these systems just fine, right?
The idea that what we have today in having an individual person going out there and reading
that doesn't have -- listen, these guys get a whole lot of reread requests, right?
And we would anticipate, just like we did with the electric side, that those rereads
will drastically reduce, right?
Because all this is automated.
It's another benefit.
But again, it's not -- we're not going to face anything that other cities haven't faced
and haven't overcome.
We just need to see -- you know, learn from those lessons and duplicate that here.
And will the system enable -- like on the electric side, there's an interval reading
where you can kind of see your power usage kind of per hour.
Do we have like hourly or daily water use available?
There will be, yes.
And we can set the amount of the interval time that the meter will call back and show
usage on the portal, and then as a customer, you can log in and see just about in real
time what you're using and if you -- what your usage is, sorry, and if you have a toilet
running or somewhere that you can -- and find potential savings.
And I guess, unlike an electric meter, these have to have a battery or something.
So there will be some ongoing maintenance on the --
They do have a battery.
Lifespan is expected and communicated to us that it will last the -- just about 20 years
that Badger has stated.
Okay.
So that's a pretty good life on a battery.
Okay.
You'd be replacing the meter again by that point, so.
Yeah.
Likely.
And I assume there will be cost savings once these are rolled out?
Yes.
We are expecting that.
Do you have any idea how much?
Off the top of my head, no, it does just depend on how -- not off the top of my head, I guess.
So I guess basically much of the cost savings would be replacing meter reading staff with
meter maintenance staff and doing maintenance once every few years as opposed to once a
month.
We actually did a study a number of years ago with freezing nickels.
We're happy to, you know, look for that and then provide that to the board if you'd like.
Okay.
Thank you.
Any further questions?
Chair, would entertain a motion?
Move to approve the item.
We have a motion.
Second.
And we have a second.
All in favor, say aye.
Aye.
Any opposed, sign same.
Motion carries unanimously.
Thank you.
Yeah, thank you.
And we'll move on to the next item.
Item C. Recommending adoption of an ordinance with xylem view for water utility monitoring
and analytics project for the water utilities department for a total of $6,496,090 over
a five-year period.
Good morning.
My name is David Brown, water utilities project manager, and I'm presenting to you today the
water utility monitoring and data analytics project.
This project represents a major step forward in how we manage our water and wastewater
infrastructure.
And I like to say that in many ways, it's like gauges on a dashboard in a car.
It's going to tell us in real time indicators so we can make smarter, faster decisions that
prevent small issues turn into bigger ones.
With this system, our team gains the visibility and data-driven insights needed to keep services
safe, reliable, and also fiscally responsible.
A core component of this project is a wastewater system monitoring.
First it helps us to identify inflow and infiltration.
We call it I&I, which is groundwater or other sources of water getting into the sewer system.
And when that water gets into our wastewater collection system, it reduces capacity of
our system and also creates overloading at the plants.
Second, this is going to give us early detection of surges in the flow, which can trigger an
automated response to emergency personnel so we can make sure we don't have sanitary
sewer overflows.
Thirdly, it highlights our underperforming and our over and pipelines that have over
capacity issues.
And that way we could use it for planning.
I like to say it's a lot like baseball analytics.
We're going to use this to help our team make data-driven decisions.
It gives us objective performance data to guide rehabilitation, upsizing, or even replacement.
We like to look at it as we get to see the health of our system.
Real-time data, it gives us real-time data during any kind of rainy system, dry season,
or whatever may happen.
We're able to interact with a map real-time to see what's going on in the system, what
our wastewater collection system looks like, what our water distribution system looks like,
and with precise sensor locations.
You can see here's a map that shows a system in use and the data that we can get from it.
It has live visualization of current flow in the wastewater collection through sensor
data, through rain gauges, what the rain's doing.
So we can know if we do have I and I also.
Just like Tiffany presented AMI/AMR, this system integrates with AMI and AMR to review
the data that's coming from the meters.
So we're able to use that, the electronic information to make better decisions real-time
to look at those, make sure we're good.
It supports a rapid response, like I talked about.
We're going to have prioritization of alarms, which will eventually include just being able
to send out automated notification to people in the field services of critical events that
could happen so we could get there on time and early.
It allows us to monitor for leaks and pressure variances within water distribution.
It allows us to give those early warnings for main breaks and possible meter leaks,
which proactively reduces water loss.
Another component is planning data.
Beyond just the daily operations, this project will play an important role in long-term planning.
Real-time flow and pressure data allows us to collaborate and also calibrate a hydraulic
water model, also our wastewater model.
It ensures that our models are accurate.
It really helps us to build that model that reflects the true condition of our systems.
Previous monitoring reveals bottlenecks and peak flow conditions that inform where upgrades
are needed.
Again, it's lots like in sports analytics.
It helps us to really see our system performance and adjust, not just on assumptions.
It's real-time.
It helps us to guide in planning decisions.
Another key item is post-project monitoring.
It confirms that our projects are successful, or if we need to alter them a bit or amend
them in some ways, we can maximize every area of an improvement.
With this, the staff recommends a five-year contract with Zion View using the Cooperative
Purchasing Service Agreement, not to see the amount of $6,496,090.
I will stand for any questions.
Greg?
Yes, I have a question.
I can understand how the water utility can adjust what it's doing, because it's putting
out the water, but I'm a little unsure how it is the wastewater utility can modify its
operations, because that's all coming in.
Do they have operating valves where they can control that, or put up sluice gates?
Yes, sir.
We do have, actually, on Hickory Creek Basin, we have storage there, so we do have some
storage in rain events to where the system is overloaded with ionized, that we can move
that water that needs to be traded over there to the basin over there on Hickory Creek,
and we're able to identify with Pecan Creek, with any wastewater plant, there's diurnals
to where there's times we can treat more, or we can wait and kind of push it back to
treat it at a different time.
Okay, so the utility does have some capacity and capability to move, shunt, and redirect
flows to some extent, where this would be helpful.
Yes, sir.
I'm like, "Well, it's great to get the data, but if you can't control..."
Yes, and I would just say, on the wastewater side, like you asked about, one of the main
things is to be able to canvass our system and see where ionized present, the inflow
and infiltration.
This also creates a digital twin with our lift station to see the pump run times to
see where that ionized is coming in, and then we can proactively begin projects to reduce
that ionized, which we gain capacity at the plants by reducing them, and often those projects
are minimal in cost, it's just the cost involved is actually tracking those areas
down.
Thank you.
Yes, sir.
Like you said, I think this is the data-driven decision-making that this can feed will be
really useful, knowing whether or not the infrastructure is actually overloaded, knowing
where ionized is occurring, where kind of the leaks into the system will make it much
easier to track them down and manage them, so it seems like it makes a lot of sense.
Absolutely.
I don't see any further questions, so would anybody care to make a motion?
So moved.
We have a motion.
Second.
And a second.
All in favor, say aye.
Aye.
Any opposed?
No.
Motion carries unanimously.
Now, our next item of business is management reports.
So, Mr. Chair, members of the POB, we have a few items for you.
The first one is a memo from DME we've received now for the fourth consecutive year.
The Tree Line USA recognition from Arbor Day Foundation really just recognizes the vegetation
management that DME does throughout the community.
There are certain standards that have to be met, certain outreach issues as well that
we have to engage in, so again, it's good news, it's something that we're very proud
of.
We have stickers on our truck saying that we recognize that Tree Line USA utility kind
of matches up with kind of the efforts that the rest of the city does in parks and throughout
the community, recognizing the importance of trees, so happy to answer any questions
if you have any questions on that particular memo.
Okay.
Thank you.
Just want to say good work.
Thank you.
Appreciate that.
Lanny Amix in our maintenance operation oversees that area, and they do a really good job.
And then the next item, you had requested just a comparison update on electric rates.
We've provided that to you.
John Lockwood, our analyst, helped put that together, gave you a memo with some comparative
information.
Happy to answer any questions for you.
Certainly as we go through the budget, we'll be looking at rates again, and as you know,
we're also looking at our ECAT tariff on a quarterly basis with you.
One thing that I'll kind of put out there is that since those large increases that we
had back in 2024, we've actually decreased rates by a little bit over 1.2 percent on
the ECAT tariff side, and I think that's been well received, but I think as we continue
to go through the budget and we're hearing other utilities are also increasing rates,
I think we'll continue to show far more competitiveness there.
Certainly when you look at the IOU world with the retail electric providers, we're very
competitive in that particular sphere, but happy to answer any questions or happy to
pull John up here if needed.
I did have one comment.
I know this might be a challenge to compare our muni rate to IOUs on the commercial side,
but the commercial evaluation didn't really have any kind of IOU comparison.
Those aren't generally public, right, and so unless a particular company shares information
with us, we generally don't know.
I was wondering if it's possible to compare only the T&D side, like Encore tariffs of
course are public, but that only covers the transmission distribution aspect.
I don't know if it would be possible to compare commercial, just transmission distribution
related charges, demand charges basically.
We can certainly look at that.
We'll have to go through all the tariffs in the PUCT, but we can take a look at that.
Thank you.
The next item is just future agenda items.
Again, every meeting I keep saying budget, budget, budget, and so please be aware of
those dates in June that will be coming to you.
And then for new business section items, obviously we provided you the rate information.
We'll add this other issue on the T&D side for hopefully for the next meeting.
And then for the water department, Stephen did want me to let you know that they had
an oversight and so they'll plan to bring that quarterly update on the water waste water
side at the next meeting.
And we'll hold his feet to the fire on that one.
But happy to answer any questions, if there's anything else you'd like to add.
I think we're good, thank you.
And so now we can conclude our regular meeting and move on to our work session.
Leave a report, hold a discussion and give staff direction on the city's financial policies.
Okay, good morning, chair, members of the board, Matt Hamilton, chief financial officer.
Here this morning to discuss financial policies and in particular the development of a comprehensive
financial policy.
So currently the city has a number of standalone or independent financial policies within the
finance department.
And what we're looking to do is to establish a comprehensive financial policy that would
outline strategies in some specific areas.
So first it would establish a long-term financial plan and provide the guidelines around that.
It would document any reserve fund targets, capital and reinvestment targets, cost of
service based rates, linking specific revenues to expenditures.
It would describe in detail how we would implement incremental rate adjustments to avoid any
spikes and also language around competitive rate benchmarking.
So the goal of this would just be to enhance compliance with federal and state laws, accounting
and financial standards, ensure alignment with the Government Finance Officers Association,
GFOA, American Water Works Association, AWWA, and the American Public Power Association,
APPA, best practices.
It would also enhance the financial position of the city and support our high credit ratings
and also, and critically, provide a centralized framework for financial policies within the
city.
So touching on the long-term financial plan, we'd like to establish a longer-term financial
forecast up to 10 years.
Currently five-year financial forecasts are developed with really just a focus on that
next fiscal year.
GFOA recommends a financial plan greater than five years for all governments that utilize
either debt financing and/or utility rate setting, both of which the City of Denton
does.
So within this, it would define specific forecast assumptions supported by available data including
population and customer growth, volume and demand growth, inflation, service levels,
staffing levels, rate changes, capital projects, reserve balances, and although we do many
of these things in the budgeting process and we look at these things on an annual basis,
what we don't have is we don't have it documented in a comprehensive financial policy.
So the goal of this would just be to identify structural imbalances early and develop strategies
to address them proactively.
Looking at the reserve fund policy, the city does have a reserve fund policy.
It's 402.05.
GFOA recommends that governments establish a formal policy on the level of unrestricted
fund balance that should be maintained in the general fund for gap and budgetary purposes.
The reserve should provide financial stability and protect against revenue volatility to
ensure continuity of services during economic downturns or emergencies.
And we do have, again, this policy in place, but what we'd like to do is to review the
reserve fund levels for all the major funds, the general fund, electric, water, wastewater,
and solid waste, to ensure that the operating reserves and the policy is sufficient to meet
operating needs and industry standards.
Within the policy, we'd also like to better delineate the role and use of working capital
reserves and operating reserves, so working capital being that it provides short-term
support for fluctuations in day-to-day operations, and the operating reserve to provide long-term
support for rate stabilization and emergencies.
Additionally, we would establish fund targets for the internal service funds, as well as
the airport, which currently do not have a set target fund balance.
Renewal and reinvestment policies, GFOA recommends a written policy addressing capital asset
reserves for renewal and replacement.
The city does not currently have an adopted policy, however, we do do these things on
an annual basis, and certainly when we look to issue debt, we're looking at whether or
not we should debt fund or cash fund projects to the extent that we can.
But what this would do is it would establish a strategy around that based on the type of
asset and life cycle, so cash funding preferred for existing recurring replacements and short-lived
assets and debt funding reserved really just for new capacity or long-lived assets.
Something else we would do is establish depreciation-based funding, so this would be cash funding for
asset replacement that's aligned with the annual depreciation of the asset, and this
would ensure a reserve is available to replace assets at the end of their useful life.
Proceeds from the sale of assets would be earmarked for the replacement of similar assets,
and we would adjust this by an inflationary measure to assume a true cost of replacement
will exceed the original cost of the asset.
Third, we would establish an integration with the long-term financial planning strategy
to track our annual capital spending and our depreciation expense to see if we're keeping
up with replacing assets, and then periodically evaluating our deferred maintenance costs
versus proactive reinvestment just to look at the cost benefit associated with that.
So taking a look at our revenue and expense policies, GFOA recommends adopting strong
policies to maintain a structurally balanced budget.
Again, the city does have policies in place around this, but what we'd like to do is just
to add some more detailed language.
It would outline and document specific links between revenues and expenses and financial
forecasting in particular, so really tying the revenue with the specific expense in our
forecast so that it's more transparent how the revenue and expenses are working together.
So just as some examples, impact fee revenue being used to offset the debt service for
impact fee eligible projects, vehicle replacement fund used to replace fleet vehicles, the ECA
to recover net power costs, the TCRF to recover transmission costs, and we do do that now,
but making it visible in our financial forecast and our budget presentations and things moving
forward.
Identifying which revenues are restricted, committed, or designated for specific expenses,
how surplus and deficits will be managed, how compliance will be monitored and reported,
including language on excess funds, so how we use the surplus, just as an example, the
ECA collections and how they'll be applied, so in that example for rate stabilization,
and again to establish an integration with the long-term financial planning strategy
to track alignment with state law, bond covenants, utility standards, and GASB accounting standards.
So incremental rate adjustments.
Rate adjustments should be based on multi-year financial forecasts, and this is really kind
of going back to that longer-term financial forecast that would incorporate both operating
and capital needs, reserve targets, debt service obligations, and inflation and growth assumptions.
This topic in particular is very important as it relates to the rating agencies and ensuring
that we maintain high credit ratings.
So as an outcome of this, what we would look at are gradual adjustments to the rates tied
to long-term planning to provide predictable annual increases rather than infrequent large
spikes, to review the fee adjustments annually to ensure alignment with actual cost of service,
which we do do now, and then target adjustments that maintain compliance with cost of service
principles, debt coverage ratios, and reserve policies.
Taking a look at benchmarking, what we'd like to do is to document and identify comparable
utilities based on service type.
So whether it's electric, water, wastewater, or solid waste, the size, which would include
the customer base, how much infrastructure they have, and also the size of their staffing,
whether it's a regional or a state provider, and then also the ownership type, whether
it's a municipal or investor-owned utility.
And really, the intent of this is just to provide consistency each year as we forecast
and have a consistent pool of entities that we benchmark ourselves with.
We would identify and document comparable metrics based on average residential, commercial,
and industrial rates, total bill comparisons for typical usage levels, and then rate structure
differences, whether they're fixed or variable, and provide affordability indicators such
as median household income.
So we would utilize a number of different data sources, the industry associations that
I had previously mentioned, including AWWA and APPA, state regulatory filings, consultant
studies, and other publicly available rate schedules.
So just taking a look at how this would be implemented, we've broken it down into four
phases.
So the initial phase, which we anticipate would take three months, would develop the
framework and we would receive direction from PUB and the council to establish a comprehensive
financial policy.
In this, we would finalize the definitions for reserves, capital replacement, revenue
and expense policies and benchmarking, and begin the development of the long-term 10-year
forecast.
Then in phase two, we would build and validate those forecasts through the budget process,
develop the reserve targets for all the major funds, develop depreciation-based reinvestment
strategies, document the revenue and expense linkages and restrictions, and also compile
the benchmarking data sets.
We would then compile the various policy -- new policies and policy changes into the comprehensive
financial policy and present the drafts to PUB and council, incorporating any feedback
that you or council would have.
We would integrate the adopted policies into the 27-28 budget development and establish
compliance and monitoring dashboards moving forward.
Then finally, ongoing monitoring would include the implementation of incremental rate adjustment
strategy, performing our annual reserve adequacy review, evaluating reinvestment ratios and
deferred maintenance, and conducting annual benchmarking as part of the budget process.
So updates on the progress of this financial policy initiative will be provided to PUB
and council at key development milestones for feedback.
So next steps, what we're asking for today is a recommendation on the establishment of
a comprehensive financial policy for the city of Denton.
And then on April 21st, we also intend to ask city council for their direction on the
establishment of the comprehensive financial policy.
And with that, I'll stand for any questions.
>> Just curious, wonderful presentation.
What would you say percentage-wise we're already doing, if you were just doing some tweaking,
I'm thinking that you're going to be looking at the asset reserve, the renewal replacement,
which we don't have adopted yet, but what would you say with your presentation we're
already doing?
>> Yeah, I think, you know, I think we're probably doing 80% of all these items.
I would say that what we don't have documented specifically are some of the just the best
practices.
I mean, we're doing the best practices in our work, but we don't have anything that,
you know, details it, I guess, in the policy.
I mean, the policies are very black and white.
They just explain, you know, here's the limit of what you can do.
Here's how much, you know, debt you can issue, or here's eligible projects to, you know,
that could be revenue funded.
What it doesn't do is it doesn't give you kind of the why.
You know, why should we revenue projects, or why should we, you know, use debt versus
something else, or why should we, you know, reinvest in, you know, in our capital assets
based on a depreciation schedule.
So that's kind of the piece that's missing that we just feel would be very important
in, you know, enhancing the city's financial policies.
Additionally, at the beginning, I kind of mentioned we have a number of standalone policies.
We have a debt policy.
We have an investment policy.
We have various utility policies, but we don't have an overarching policy that really kind
of ties all of them together in a way that we would be able to use that in our financial
forecasting.
So it's all of this is really for the benefit of enhancing our financial planning.
We'll come and go, and I'm glad to see that we have a benchmark that a new person can
come in and pick up the ball and keep running.
Thank you.
Nice framework that they have to work from.
So you're going to implement it not this budget cycle, next budget cycle, but you'll probably
start doing the 10-year planning this year?
That's correct, yes.
So some of the things that we're already doing that we could integrate into the current budget
process, we certainly will.
Some of this in the documentation of any new policies and certainly the comprehensive policy,
we anticipate that it will take longer than the budget process in the current year.
So we would target fiscal year '27-'28 for really that full implementation.
So are you going to -- will this replace the debt -- the individual policies?
No, it's just going to be something over the top.
That's correct, and it will tie them together, yes.
That's our intention.
I have a question.
One of the items in your phase 2 or 1 line item was generating reserve targets for reinvestment
in capital funding.
Yes.
Developed appreciation-based reinvestment in capital funding.
How are you going to pull numbers to help generate that, because my concern about it
is once that becomes part of this framework, then those numbers, if you will, are kind
of locked in for the coming year, two years, five years, depending on how far out you're
going.
So how do you intend to go about actually developing those particular investment and
reinvestment in capital funding items?
Yeah, so currently we have the depreciation schedules of the assets in the -- you know,
within the city.
And so what we will be doing is we'll be pulling those schedules, and it may be initially -- and
I would anticipate it to be so -- that it's going to be a very large dollar amount that
is being depreciated each year, and we will not be able to, in year one, fully, you know,
cash-fund based on that depreciation schedule of every asset within the city.
That this --
Well, we're adding very large new assets to our water and wastewater.
And that's very true as well.
You show these as a -- for instance.
Yes.
The goal of this is really to provide a starting place that we can begin to implement these
funding strategies where it doesn't leave us in a place where an asset needs to be replaced.
We had not either planned for it and/or haven't saved the funding for it.
And then all of a sudden the replacement of that results in a spike in utility rates because
now all of a sudden we have to build this new, you know, infrastructure to replace it.
So that really ties back into some of the rate stabilization goals.
But to answer your question, this would begin with the existing data that we have within
our accounting system, and we'll do an evaluation of what that looks like and how to then fund
it.
But you'll be continuing to revisit this each year in your budgeting or planning process?
Yes.
Okay.
Yep.
Because my fear was you'd get locked into this number and then five years from now these
big new assets come online and then that wouldn't be part of that depreciation-based strategy.
So just a concern.
Thank you.
Yeah.
Well, I'm excited to see it.
Yeah, I think this is a really good direction to move with an overarching, you know, set
of policies that kind of puts everything under the same umbrella.
And like you said, 80% of this or more is already being done.
And I do feel like the depreciation-based reinvestment and some of that when we revenue
fund versus capital fund, I feel like I have the least understanding of that.
So I don't know if this will at least clarify that, if not maybe give the, maybe slowly
over time shift the, you know, the spending to more align with that.
And I think, yeah, having benchmarks and five to 10-year plans instead of kind of one to
five-year plans, all this sounds like a really, really great direction.
So we like it?
Yeah.
So with that, what we would ask is, is it just a recommendation?
If you -- Not in work sessions.
Yeah, I think he's just looking for just direction from the board.
Yes, I -- I think it looks good and we proceed with what you've got here.
Yeah, yeah, I think everybody is supportive of the direction you've got, so.
Good luck.
Thank you.
All right.
With that, we have no further business and we are adjourned.
- Thank you for coming.