DATE: March 25, 2024
TO: President and Members of the Estero Municipal Improvement District (EMID) Board of Directors
VIA: Stefan Chatwin, District Manager
Marlene Subhashini, Assistant District Manager
FROM: Andrew Brozyna, Public Work Director/City Engineer Edmund Suen, Finance Director
Zaheed Danish, Public Works Maintenance Manager
DEPARTMENT: Public Works
Finance
SUBJECT: REVIEW OF PROJECTED WASTEWATER RATES FOR FY
2024-2025
RECOMMENDATION
It is recommended that the Estero Municipal Improvement District (EMID) Board of Directors accept this report regarding Wastewater Rates based upon the attached Draft Wastewater Rate Study Update Results Memo dated March 1, 2024, prepared by Bartle Wells Associates (BWA) and provide direction by Minute Order regarding Wastewater Rates for FY 2024-2025.
EXECUTIVE SUMMARY
EMID is responsible for its share of operating and maintenance costs that San Mateo (as the lead agency and the contracting party) incurs treating the District’s wastewater, as well as 24.12% of the capital improvement costs incurred as part of the Clean Water Program (CWP), a 10-year comprehensive capital improvement project initiated in 2014 to replace aging infrastructure and meet regulatory requirements at the Wastewater Treatment Plant (WWTP). The District’s total share of the project is approximately $164.4 million.
In March 2018, the EMID Board of Directors adopted a rolling five-year annual wastewater rate increase of 14.25% on all wastewater rates for the period of FY 2018- 2019 to FY 2022-2023 in order to ensure that the wastewater enterprise generates enough revenue to pay for its share of the future capital improvement costs of the WWTP and to strengthen the District’s position to obtain low-cost long-term financing for that purpose. In June 2019, the District Board approved a 10% wastewater rate increase for FY 2023-2024, and in June 2020, a 2% increase for FY 2024-2025. Based upon an updated review of the District’s financial projections, the EMID Board was able to adjust FY 2023-2024 rates by only 3% in FY 2023-2024. The previously adopted 2% rate has been determined to be sufficient in FY 2024-2025.
Since the EMID Board of Directors already held a public hearing and approved the 2% maximum wastewater rates for FY 2024-2025, the District is not required to hold a public hearing to implement the recommended increase. However, Staff recommends that information about the new Wastewater rates be included in the Proposition 218 notice that will be mailed for the Water Rate public hearing.
BACKGROUND/ANALYSIS
There are approximately 13,937 wastewater accounts serviced by the District. The majority are residential with the remainder consisting of commercial and institutional accounts.
EMID has historically set rates on a “Pay As You Go” basis, meaning that rates are increased only based upon budgeted current operating expenditures in order to meet minimum operations reserve requirements equal to 25% of annual operating expenditures and $2 million for unanticipated capital expenditures, consistent with the EMID Board of Directors’ reserve policy.
The rates that residential wastewater customers pay are based on a fixed charge for the category or type of residential unit (single family, townhouse/duplex, or apartment/condominium). Commercial customers are charged a variable rate based upon the amount of water consumed by their business and the business wastewater strength category.
The operational costs for wastewater treatment services are borne jointly by the District and the City of San Mateo via the San Mateo Wastewater Treatment Plant Joint Exercise of Powers Agreement executed in June 1974. Those costs include recurring operations and maintenance, as well as capital improvement costs.
The City of San Mateo and EMID are expanding the jointly owned WWTP at an estimated cost of about $670 million, of which the District is responsible for approximately $164.4 million. This is in addition to local capital projects for the District’s own wastewater collection system. The wastewater enterprise revenue model is designed to fund collection system capital expenditures through annual transfers from the operating fund to the capital improvement fund of $7,600,000 in FY 2024-2025 and FY 2025-2026 and $3,100,000 annually through the remainder of the 15-year term.
As of June 2020, to fund the anticipated costs of the WWTP CWP improvements, the District Board had approved 5 years of wastewater rate increases to ensure adequate funds to cover debt service: three 14.25% per year increases in FY 2020-2021 through FY 2022-2023, a 10% wastewater rate increase in FY 2023-2024, and a 2% increase in FY 2024-2025. Based upon an updated review of the District’s financial projections, the EMID Board was able to increase rates by only 3% in FY 2023-2024. The previously adopted 2% rate has been determined to be sufficient in FY 2024-2025.
The consultant and staff recommend that the District re-evaluate rates and adopt a new five year rate plan beginning in FY 2025-2026.
Wastewater Rate Impact
Single Family Residential and Multi-Family Residential class customers are billed using a flat rate. Commercial customers are billed at a variable volumetric rate based on water usage and strength classification. The new wastewater rate projections propose an overall rate increase of 2% in FY 2024-2025 over rates in FY 2023-2024. Projections for the need for 2% increases for the following four years are also included in Table 2 from the Appendix E of the BWA Rate Study Results Memo (Attachment 1).
Table 10
City of Foster City / Estero Municipal Improvement District Projected Wastewater Rate Impacts
Current
FY2024 FY2025 FY2026 FY2027 FY2028 FY2029
% Rate Increase 2.00% 2.00% 2.00% 2.00% 2.00%
Residential (flat monthly rate)
Single Family $130.87 $133.49 $136.16 $138.88 $141.66 $144.49 Increase (Decrease) 2.62 2.67 2.72 2.78 2.83
Townhouse/Duplex $109.93 $112.13 $114.37 $116.66 $118.99 $121.37 Increase (Decrease) 2.20 2.24 2.29 2.33 2.38
Apartment/Condominium (Pools w/ Restrooms) $109.93 $112.13 $114.37 $116.66 $118.99 $121.37 Increase (Decrease) 2.20 2.24 2.29 2.33 2.38
Commercial (rate per ccf of water use)
High Strength $23.78 $24.26 $24.75 $25.25 $25.76 $26.28 Increase (Decrease) per ccf 0.48 0.49 0.50 0.51 0.52
Medium/Domestic Strength $8.36 $8.53 $8.70 $8.87 $9.05 $9.23 Increase (Decrease) per ccf 0.17 0.17 0.17 0.18 0.18
Low Strength $5.50 $5.61 $5.72 $5.83 $5.95 $6.07
Increase (Decrease) per ccf 0.11 0.11 0.11 0.12 0.12
Projected - Fiscal Year Ending June 30Projected Rates
Water/Wastewater Rate Assistance Program (W/WRAP)
In Rate Year 2020-2021, the District Board approved an assistance program for customers whose income also qualified them for Pacific Gas and Electric Company’s California Alternate Rates for Energy (CARE) discount program. While it is not possible to know exactly how many households qualify, based upon the number of customers enrolled in the PG&E CARE program, BWA estimates that approximately 227 customers may potentially be eligible for the up to $15 per month discount. As of March 1, 2024, there were twenty-five (25) customers enrolled in the program. Participation in the W/WRAP is supported by non-rate sources of revenue such as fines and penalties, to maintain compliance with California Proposition 218, so rates are unaffected by participation in the program.
The cost of the W/WRAP, based on current enrollment, is $4,500 per year for the Wastewater Enterprise. The maximum potential cost of a $15/month discount for all estimated 227 eligible customers is $41,000 per year. Through the first eight months of FY 2024, revenue from delinquent wastewater payments totaled $31,000, which is sufficient to fund the program. Staff will continue to monitor the funding sources available for the program.
The W/WRAP is authorized by the EMID Board on an annual basis, and authorization to continue the program will be an action item on the agenda with the consideration of rates in June.
Rate Survey
A survey of communities along the San Francisco Peninsula was conducted to compare the District’s typical residential wastewater bill with neighboring communities. The results of the survey are summarized in the Wastewater Rate Survey Comparison Chart that appears as Appendix A in Attachment 1. The average monthly bill among comparator agencies based upon a flat rate or 6 hundred cubic feet (hcf) of monthly winter water use is $117.71. The District’s average rate is $130.87 per month, or about 11% higher than the average.
Proposition 218 Notification
Since the EMID Board of Directors already held a public hearing and approved maximum wastewater rates for FY 2024-2025, the District is not required to hold a public hearing to approve the recommended 2% increase. While EMID Board will receive the complete Wastewater Fund budget at a later meeting, it is the opinion of District staff that conservative assumptions have been employed in the creation of the rate model. As such, staff recommends that the Board direct staff to implement the previously adopted 2% increase for FY 2024-2025. In the interest of transparency, Staff further recommends that information about the new Wastewater rates be included in the Proposition 218 notice that will be mailed for the Water Rate public hearing.
Recent case law and EMID experience have demonstrated that there are a number of advantages to adopting rate plans that set rates for multiple years, so it is anticipated that staff will bring a multi-year recommendation aligned with the water rate setting process for rate year 2025-2026 and beyond. Under state law, the District may adopt a rate plan that covers a maximum of five years.
CEQA
Not Applicable
FISCAL IMPACT
There is no impact to receiving this report. Further, wastewater collection service costs in Foster City are covered by the rates paid by the users as described in this staff report and its attachment. The costs of these services do not impact the City budget or the General Fund.
CITY COUNCIL VISION, MISSION, AND VALUE/PRIORITY AREA
Innovation and Sustainability
ATTACHMENTS:
Attachment 1 –Bartle Wells Associates Wastewater Rate Study Update Results Memo dated March 1, 2024