Rochester Hills Legistar System

Julie Jenuwine, Finance Director, gave a brief history on last year's water and sewer

rate setting process. She noted that when Council set the rates last year water was

increased 12.5% for three years. This included the assumption that the water reservoir

would be constructed and that the City would be achieving a peek factor benefit

beginning in 2007. Sewer increased by 7.8% last year assuming that the increase

would be for three year rather than a large increase for one year and 3.4% after that.

Ms. Jenuwine reviewed this year's scenario,noting that it has all the exact same

assumptions which have been modified to reflect changes in forecasted projects and the

forecasted DWSD rate, which all affect the rate outcome.

It was noted that in 2005 Committee members decided to establish a Replacement Fund

to initiate accumulation of depreciation funds which would be used for future

replacement costs. The Committee also decided that Capital and Lateral Revenues

would also be moved into a Capital Replacement Fund, which would be used for

construction purposes.

Discussion commenced regarding the various scenarios including the following:

* The effect on the rates if the water reservoir is not constructed

* The sale of the Letica property

* Bonding for projects versus paying cash

* The effect on the rates if the DPS Facility and reservoirs were not included

The Committee further noted the following:

* Possible oversight committee to give the surburan communitites some oversight on

the operations of DWSD

* The DWSD system may be threatened in the future if the capital needs are not met.

* There are incentives from reservoirs and potential savings

* DWSD has established a Technical Advisory Committee challenged with looking at

rearranging the entire formula of rate determination, which could potentially make the

Water Reservoirs not as financially effective.

*Water Reservoirs were not only about savings; they were to address low water

pressure issues and safety issues.

* Water Storage benefits are further "down the road" as the City continues to build out.

* It would be beneficial for to the community to improve the deficiencies in the system.

This would show the community that the City has a good system and are improving it

meet ue to demand rate with new residential and commercial customers adding to the

system.

* Concern was expressed regarding the Detroit's system needing repair work and those

costs being passed on to outlying areas.

Discussion commenced regarding fire hydrant maintenance including the following

points:

* The Fire Deparment pays the Water and Sewer Fund for the maintenance of the

hydrants

* An ordinance adopted in 2000 indicates that the charge would be phased out over

four years; which was in 2004.

Committee members discussed how must is would cost to replace the sewer system in

today's dollars.

Mr. Rousse explained that Advance Asset Management uses predicative values, such

as, when the system is going to fail and allows replacement before that happens.

Advance Asset Management predicts what is needed, when its needed, where it will be

needed and also why it is needed. He further stated that this is an exhaustive exercise

but benefits the City. The life cycle analysis software program is very expensive and

requires a lot of input annually to make it accurate.

Committee members agreed to review the Water and Sewer Fund Policy and bring

forward any questions.

Roger Rousse, DPS Director, discussed SWOT Analysis for the Water and Sewer Fund

noting the following:

* City of Rochester Hills is in a good position, City is young, has engineered systems,

had full time inspections during the construction of the system and is mostly made up of

cast iron pipe.

* Major failures that occur are:

* Capacity (fire flow and domestic)

* Level of Service (new regulations)

* Mortality (age factor)

* Efficiency (time/maintenance)

* Operating Trends:

* Maintenance costs proportionally remain the same.

* Due to the unpredictable cost of energy, operating costs tend to increase.

* Question is whether the City wants to put in a gravity system or a pumping system.

* Pumping System requires energy long into the future, has a higher Operating cost

over the life cycle but has a lower installation cost.

* Gravity System is more economical over a life cycle of 100 plus years due to the

absence of electrical costs but has a higher installation cost.

* City of Rochester Hills has nine (9) pressure districts, forty two (42) pressure routes.

* The City currently has an RFP issues for an Asset Management program. The

program would

* Monitor the City's Water and Sewer System and determine what is necessary