title
AWARD A PROFESSIONAL SERVICES AGREEMENT TO HDR ENGINEERING, INC. FOR THE WATER COST OF SERVICE RATE STUDY
recommended action
RECOMMENDATION
It is recommended that the City Council adopt a resolution to:
1. Approve findings pursuant to Stockton Municipal Code section 3.68.070 in support of an exception to the competitive bidding process.
2. Award a Professional Service Agreement to HDR Engineering, Inc. of Folsom, CA in the Not-to-Exceed amount of $99,965 for the Water Cost of Service Rate Study.
It is also recommended that the City Manager be authorized to take appropriate actions to carry out the purpose and intent of this resolution.
body
Summary
Adoption of the proposed resolution would retain HDR Engineering, Inc. to conduct a new cost of service rate study for the Municipal Utilities Department (MUD) to review and identify appropriate water rates. These rates were last established by the City Council in 2016.
Funds collected provide for the administration, production, operation, maintenance and capital improvement costs of the Water Enterprise and ensure Stockton residents continue to receive high-quality drinking water that meets all State and Federal regulations.
On December 5, 2019, the City advertised a Request for Proposal (RFP) for the Water Cost of Service Rate Study. Two proposals were received and evaluated. Staff recommends that Council adopt a resolution awarding a Professional Service Agreement (PSA) to HDR Engineering, Inc. of Folsom, CA, in the Not-to-Exceed amount of $99,965 to provide a comprehensive review of the water utility cost of service rate study.
DISCUSSION
Background
The water utility provides regional water service to Stockton residents in the City’s water service area through an extensive water production system and distribution infrastructure. The cost to treat and distribute high-quality drinking water that meets all State and Federal regulations to residents in the City’s water service area is paid for by water utility rates adopted by the City Council. Water rates fund costs to operate and maintain all production and distribution infrastructure.
It is recommended that water utilities revisit water rates every five years to confirm appropriate funding levels for ongoing costs to operate and maintain the water utility.
Water rate studies typically review and analyze updated cost information from administration, production, distribution, maintenance and future capital project improvements and requirements. In addition, debt service coverage and purchase water costs are also included. Water rates differ from water service connection fees, which pay for the expansion of the production and distribution system.
Monthly water rates are usually determined according to user classes and tiers consisting of four general categories:
• Single Family Rates
• Multi-Family Rates
• Non-Residential Rates
• Irrigation Rates
The new cost of service rate study will determine if a water rate increase is warranted based on new cost information. Any future water rate increase proposal would comply fully with Proposition 218 (Prop 218). As a property-related service, any rate increase for water service is subject to the procedural notice and majority protest requirements and other limitations of Prop 218. Part of the objectives for the work associated with this cost of service and rate study will be to provide rates designed to meet the legal requirements of and recent legal decisions related to the California Constitution Article XIII D.
Present Situation
On December 5, 2019, the City advertised a Request for Proposals for the Water Cost of Service Rate Study. On January 23, 2020, two proposals were received from the following consulting firms:
• Hazen and Sawyer D.P.C of Sacramento, CA
• HDR Engineering, Inc. of Folsom, CA
A Committee evaluated both proposals based on each firm’s understanding of work, project approach, specific experience with similar studies, qualifications of the proposed team and cost. HDR Engineering, Inc. met or exceeded the requirements and was found to be the best qualified based on the noted criteria. HDR Engineering, Inc. is also familiar with the City’s processes and procedures. HDR Engineering, Inc. has experts in utility operations and management available to assist the financial planning effort.
It is anticipated the rate study will take approximately six months to complete. Recommendations on any potential changes to the current water rate structure will be required to comply with the legal requirements set forth in Prop 218 and be presented to the City Council for consideration under an appropriately noticed public hearing process.
The staff recommendation to approve the award of this contract was discussed by the Water Advisory Group (WAG) on March 4, 2020. The WAG did not take action due to lack of quorum. The staff recommendation to approve the award of this contract was considered and approved by the Council Water Committee on March 12, 2020 to forward to the City Council for consideration and approval.
Staff recommends the City Council adopt a resolution to award a Professional Service Agreement to HDR Engineering, Inc. in the amount of $99,965 for the Water Cost of Service Rate Study (Exhibit 1 to the resolution).
Findings
Pursuant to Stockton Municipal Code section 3.68.070, Council may approve findings which support and justify an exception to the competitive bidding process. The following findings support such an exception:
1. Water Enterprise activities are supported by ratepayers, and rates must reflect the cost of operating the utility.
2. State statute and Prop 218 define requirements for conducting rate studies, including the amount of the fee or charged proposed to be imposed upon each parcel, and how the amount is calculated.
3. The City does not have the technical expertise to prepare the study in a timely and cost-effective manner for completion in 2021.
4. Use of the RFP process is appropriate for this Professional Services Contract because it relies on the evaluation of professional qualifications and performance as the basis for selection of a vendor. Use of these criteria helps ensure selection of a vendor that will provide the highest quality professional service, which is in the public interest.
5. It is also in the public interest to have well established rates to ensure proper funding for the operation of the water utility and that ratepayers are only paying the necessary amount.
6. The City negotiated a contract following the solicitation of competitive proposals in accordance with SMC section 3.68.070.A.3.
The recommended resolution will award a PSA to HDR Engineering, Inc., in the Not-to-Exceed amount of $99,965 to provide a comprehensive water utility cost of service rate study and recommendations on water rate fee structure and its application.
FINANCIAL SUMMARY
The cost of the service agreement is for $99,965. The Fiscal Year 2019-20 Annual Budget includes appropriation to cover the Cost of Service Water Rate Study in the following account:
421-4210-572 Water Administration, Professional and Special Services.
There is no impact to the General Fund, or any other unrestricted funds, from this action.