City of Belmont
Sewer Rate Study Summary
April 9, 2024
Overview of the Presentation
2 Key Issues
Setting Cost-Based Rates
Revenue Requirement Analysis
Cost of Service Analysis
Rate Design
Concluding Comments
Sewer Rate Study Key Issues
3 City historically establishes rates for a two-year period o This study has proposed rates for FY 2024-25 and FY 2025-26 Maintain sufficient sewer rate revenues to:
o Fund annual collection system O&M expenses
o Fund Silicon Valley Clean Water (SVCW) treatment costs (pass-through 47% of O&M budget) o Fund capital improvements and existing annual debt service payments No long-term debt identified for capital needs in current master plan during this rate setting period
Recommend maintaining the current winter water flow adjustment factor (10%) Meet key financial metrics
o Fund renewal and replacement capital greater than annual depreciation expense o Meet 2.0 target debt service coverage ratio
o Maintain target minimum reserves for operations, emergency/litigation, capital Setting Cost-Based Rates
Rate Design
Design cost-based fixed and volumetric rates for each class of service based on the revenue requirement and cost of service
Cost of Service
Establishes the total costs for each customer class of service by proportionally distributing the total revenue requirement between customer classes
Revenue Requirement
Establishes the overall utility costs at the appropriate level of total operating and capital expenditures 4 Revenue Requirement
Analysis
5 Rate Revenue Assumptions
o Consumption levels based on recent water consumption data from Mid-Peninsula Water District o Current 10% winter water flow adjustment is maintained based on winter data o FY 2022-23 flow and current rates (FY 2023-24) to project FY 2024-25 rate revenue O&M Expense Assumptions
o Starting point was the adopted FY 2023-24 budget
Projected based on historical inflationary factors
o Major O&M expense – Treatment (SVCW) - $3.5M in FY 2024-25 Treatment costs (rates) not controlled by the City
SVCW treatment rate inflation factor at average of 5.4% annually Treatment costs based on projected SVCW projections
Capital Projects and Funding
o Starting point is the ongoing sewer master planning process o Maintaining past practice of rate funding at a level greater than annual depreciation o Balance of capital funding needs provided through existing available reserves Revenue Requirement Key Assumptions
6 Summary of the Sewer Capital Improvement Plan
Funding of projects from rates and reserves
o Minimum of CIP from rates > annual depreciation expense (increasing annually) o CIP beyond annual depreciation funded from capital and connection fee reserves o Additional rate funded I&I improvements
7 Summary of the Sewer Revenue Requirement
Focus of projections is
over the next five
years (cumulative
adjustment needed is
21.7%)
Rate setting for the
next two years (FY
2024-2025 and FY
2025-2026)
Winter water flow
adjustment maintained
at 10% to reflect
recent winter water
average consumption
8 Debt service coverage ratio calculates the ability to repay debt o 𝐷𝐷𝐷𝐷𝐷𝐷 =
𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 −𝐴𝐴 𝑂𝑂&𝑀𝑀 𝐸𝐸𝐸𝐸𝐸𝐸
𝐴𝐴 𝐷𝐷 𝐷𝐷 𝑆𝑆 𝑆𝑆 𝑆𝑆𝑆𝑆 𝑃𝑃 𝑃𝑃𝑃𝑃
City is legally required to meet minimum debt service coverage ratio of 1.25 o Proposed adjustments needed to continue meeting DSC target minimum of 2.0 City is prudently funding renewal and replacements
Proposed revenue adjustments address key financial planning issues o Debt service coverage ratio target of 2.0
o Maintain target minimum reserve levels
Recommend adopting the proposed revenue adjustments as developed in the revenue requirement
Revenue Requirement Conclusions and Recommendations
9 Cost of Service
Analysis
10 Need for Cost of Service
11 Reflects the proportionality requirements of Proposition 218 o Need to develop the cost basis (justification) for the proposed rates
Allocates and proportionally distributes the costs to the customer classes of service (e.g., low strength
[residential and commercial low] and high strength
[commercial high])
o Avoids subsidies
Developed using generally accepted methodologies
based on the City’s specific system and customer characteristics o Water Environment Federation Manual of Practice No. 27 Summary of the FY 2024-2025 Cost of Service
12 Cost of service results are within a reasonable range of the total system rate adjustment No interclass adjustments (“cost of service”) are recommended Class of Service
Present Rate
Revenues
Allocated
Costs $ Difference % Difference
Low Strength
Residential and Commercial $14,233 $14,806 ($574) 4.0%
High Strength
Commercial 248 254 ($6) 3.9%
Total $14,481 $15,060 ($579) 4.0%
Summary of the FY 2024-2025 Cost of Service Analysis ($000s) Rate Design
13 Review of Present Sewer Rates
14 Two rate schedules:
o Low Strength
Residential
Low strength commercial
o High Strength
High strength commercial
Components of the current rate
structure:
o Base charge: flat annual charge
o Flow (volume) charge per HCF (based on winter
water average)
Winter water flow adjustment formula:
o Flow adjustment factor maintained at 10% for rate
setting period
Overview of the Proposed Sewer Rates
15 Maintained the current classes of service
o Customer classes reflect usage and system characteristics Maintained the same base charge and volume charge structure o All components adjusted by the proposed rate transition plan 4.0% annually FY 2024-2025 and FY 2025-2026
Sewer bills will continue to be collected through the customer’s property tax bill
Flow adjustment factor at 10% (1.10) for future rate
projections
o Future consideration for removing flow adjustment factor and setting rates based on actual consumption
Reflect current water consumption levels
Proposed Annual Sewer Rates – 5 Years
16 Present
Rates FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29
COLLECTION
Residential
Base Charge $430.66 $447.89 $465.80 $484.43 $503.81 $523.96 Flow Charge ($/HCF) $6.13 $6.38 $6.63 $6.90 $7.17 $7.46 Commercial
Base Charge $430.66 $447.89 $465.80 $484.43 $503.81 $523.96 Flow Charge Low Strength
($/HCF) $6.13 $6.38 $6.63 $6.90 $7.17 $7.46
Flow Charge High Strength
($/HCF) $11.91 $12.39 $12.88 $13.40 $13.93 $14.49
TREATMENT
Residential
Base Charge $226.34 $235.39 $244.81 $254.60 $264.79 $275.38 Flow Charge ($/HCF) $3.03 $3.15 $3.28 $3.41 $3.54 $3.69 Commercial
Base Charge $226.34 $235.39 $244.81 $254.60 $264.79 $275.38 Flow Charge Low Strength
($/HCF) $3.03 $3.15 $3.28 $3.41 $3.54 $3.69
Flow Charge High Strength
($/HCF) $5.90 $6.14 $6.38 $6.64 $6.90 $7.18
COMBINED
Residential
Base Charge $657.00 $683.28 $710.61 $739.04 $768.60 $799.34 Flow Charge ($/HCF) $9.16 $9.53 $9.91 $10.30 $10.72 $11.14 Commercial
Base Charge $657.00 $683.28 $710.61 $739.04 $768.60 $799.34 Flow Charge Low Strength
($/HCF) $9.16 $9.53 $9.91 $10.30 $10.72 $11.14
Flow Charge High Strength
($/HCF) $17.81 $18.52 $19.26 $20.03 $20.84 $21.67
Present and Proposed Sewer Rates
Proposed Rates Forecasted Rates
Proposed Monthly Bill Comparisons
17 Present Proposed $ %
Rates Rates Change Percent
1.10 1.10
Residential
0 0.00 0.00 $54.75 $56.94 $2.19 4.0%
8 8.80 8.80 135.36 140.77 5.41 4.0%
10 11.00 11.00 155.51 161.73 6.22 4.0%
15 16.50 16.50 205.89 214.13 8.24 4.0%
Commercial (LS)
0 0.00 0.00 $54.75 $56.94 $2.19 4.0%
20 22.00 22.00 256.27 266.52 10.25 4.0%
40 44.00 44.00 457.79 476.10 18.31 4.0%
110 121.00 121.00 1,163.11 1,209.63 46.52 4.0%
Commercial (HS)
0 0.00 0.00 $54.75 $56.94 $2.19 4.0%
30 33.00 33.00 642.48 668.18 25.70 4.0%
60 66.00 66.00 1,230.21 1,279.42 49.21 4.0%
110 121.00 121.00 2,209.76 2,298.15 88.39 4.0%
2023-2024 2024-2025
Base Charge Present Proposed
Residential $54.75 $56.94
Commercial 54.75 56.94
Flow Charge (per HCF)
Low Strength $9.16 $9.53
High Strength 17.81 18.52
Residential & Commercial Monthly Sewer Bill Comparison
Adjustment Factor
Monthly Consumption (per HCF)
2024-2025 Comparison
Rate Comparisons - Residential Low Strength ($/Month)
18 $0.00 $50.00 $100.00 $150.00 $200.00 $250.00 $300.00 $350.00 Hillsborough, Town of - Jul 23
San Mateo, City of - Aug 23
Foster City - Jul 24
Foster City - Jul 23
Millbrae, City of - Jul 23
Belmont - Proposed Jul 25
San Bruno, City of - Jul 23
San Bruno, City of - Jul 24
Belmont - Proposed Jul 24
Belmont - Present
San Carlos, City of - Jul 22
West Bay SD - Jul 23
West Bay SD - Jul 24
Burlingame, City of - Jan 24
Redwood City - Jul 23
Burlingame, City of - Jan 23
San Mateo, City of - Jul 24
$332.08
$159.14
$142.57
$139.77
$142.85
$146.41
$137.80
$144.62
$140.77
$135.36
$116.77
$108.83
$111.00
$97.24
$89.28
$89.22
$163.88
Average Residen�al Monthly Sewer Bill
(Based on flat rate of 8 HCF* of monthly winter water use) SVCW Agency Member
Concluding Comments
19 Proposed rates are cost-based, proportional and based on cost of service principles
Proposed rates have balanced the financial requirements of the sewer utility with the impacts to customers
o Provides financial stability
o Continues plan to increase funding of repair and replacement through rates o Improved debt service coverage ratios
o Continues to maintain target reserve balances
Recommend approval of the proposed sewer
rates
o 4.0% on July 1 of FY 2024-2025 and FY 2025-2026
o Winter water flow adjustment maintained at 10%
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