City of BelmontSewer Rate Study
June 11, 2024
Sewer Rate Study Overview
2 City historically establishes rates for a two-year period This study has proposed rates for FY 2024-25 and FY 2025-26 Maintain sufficient sewer rate revenues to:
Fund annual collection system O&M expenses
Fund Silicon Valley Clean Water (SVCW) treatment costs (pass-through 47% of O&M budget) 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
Fund renewal and replacement capital greater than annual depreciation expense Meet 2.0 target debt service coverage ratio
Maintain target minimum reserves for operations, emergency/litigation, capital
Setting Cost-Based Rates
4 Revenue Requirement Analysis
4 Rate Revenue Assumptions
Consumption levels based on recent water consumption data from Mid-Peninsula Water District Current 10% winter water flow adjustment is maintained based on winter data FY 2022-23 flow and current rates (FY 2023-24) to project FY 2024-25 rate revenue O&M Expense Assumptions
Starting point was the adopted FY 2023-24 budget
Projected based on historical inflationary factors
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
Starting point is the ongoing sewer master planning process Maintaining past practice of rate funding at a level greater than annual depreciation Balance of capital funding needs provided through existing available reserves Revenue Requirement Key Assumptions
5 Debt service coverage ratio calculates the ability to repay debt City is legally required to meet minimum debt service coverage ratio of 1.25 Proposed adjustments needed to continue meeting DSC target minimum of 2.0 City is prudently funding renewal and replacements
Proposed revenue adjustments of 4.0% annually address key financial planning issues Debt service coverage ratio target of 2.0
Maintain target minimum reserve levels
Capital funding
Recommend adopting the proposed revenue adjustments as developed in the revenue requirement Revenue Requirement Conclusions and Recommendations
6 Cost of Service Analysis
7 Need for Cost of Service
8 Reflects the proportionality requirements of Proposition 218 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]) Avoids subsidies
Developed using generally accepted methodologies based on the City’s specific system and customer characteristics Water Environment Federation Manual of Practice No. 27
Summary of the FY 2024-2025 Cost of Service
9 Cost of service results are within a reasonable range of the total system rate adjustment No interclass adjustments (“cost of service”) are recommended
Rate Design
10 Review of Present Sewer Rates
11 Two rate schedules:
Low Strength
Residential
Low strength commercial
High Strength
High strength commercial
Components of the current ratestructure:
Base charge: flat annual charge
Flow (volume) charge per HCF (based on winter water average) Winter water flow adjustment formula:
Flow adjustment factor maintained at 10% for rate setting period Winter water flow adjustment formula:
Actual Volume Usage x (1 + (Flow Adjustment Factor)) = Adjusted Volume Usage Example: 8 HCF x (1+.10) = 8.8 HCF adjusted volume usage
Overview of the Proposed Sewer Rates
12 Maintained the current classes of service
Customer classes reflect usage and system characteristics Maintained the same base charge and volume charge structure 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 thecustomer’s property tax bill Flow adjustment factor at 10% (1.10) for future rate projections Future consideration for removing flow adjustment factor and setting rates based on actual consumption Reflect current water consumption levels
Proposed Monthly Bill Comparisons
13 Rate Comparisons - Residential Low Strength ($/Month) 14 Concluding Comments
15 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 Provides financial stability
Continues plan to increase funding of repair and replacement through rates Improved debt service coverage ratios
Continues to maintain target reserve balances
Recommend approval of the proposed sewer rates
4.0% on July 1 of FY 2024-2025 and FY 2025-2026
Winter water flow adjustment maintained at 10%
Summary of the Sewer Capital Improvement Plan
Funding of projects from rates and reserves
Minimum of CIP from rates > annual depreciation expense (increasing annually) CIP beyond annual depreciation funded from capital and connection fee reserves Additional rate funded I&I improvements
17 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 18 Proposed Annual Sewer Rates – 5 Years
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