Agenda — Hillsborough City Council, September 12, 2022 (part 1 of 3)

TOWN OF HILLSBOROUGH
San Mateo County
Alvin L. Royse, Mayor 1600 Floribunda Avenue
Christine Krolik, Vice Mayor Hillsborough, CA 94010
Marie Chuang, Councilmember www.hillsborough.net
Sophie Cole, Councilmember Phone 650-375-7400
Laurence M. May, Councilmember

A G E N D A
MONDAY, SEPTEMBER 12, 2022
4:30 PM CLOSED SESSION
6:00 PM CITY COUNCIL MEETING AND STUDY SESSIONS
Hillsborough Town Hall and Zoom Video Conference
This City Council meeting will be conducted pursuant to the provisions of Assembly Bill 361 and Government Code Section 54953(e) (and without compliance with section 54953(b)(3)) related to conducting public meetings during the COVID-19 pandemic. The City Council, staff and members of the public may participate in the meeting virtually via Zoom Video Conference or in person at Town Hall.

Members of the public may provide public comments on a consent calendar item, any other agenda item, or on nonagenda items during the general public comment portions of the meeting. All members of the public will be limited to one comment per item or non-agenda item.

To attend the meeting in person:
1600 Floribunda Avenue, Hillsborough, CA 94010
To provide Public Comment in person:

Members of the public wishing to speak are requested to complete a yellow speaker card and submit it to the City Clerk.

To participate in the meeting via Zoom Video Conference:
• Log in to the meeting at https://us06web.zoom.us/j/83081572186?pwd=aUFXbXhwd1JMaUpvdUJLSG40ZEtiQT09 • Dial-in via phone:
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Meeting ID: 830 8157 2186
Passcode: 898393
To provide Public Comment via Zoom Video Conference:

Live verbal public comments may be made by requesting to speak using the “raise hand” feature in Zoom or, if calling in by phone, by pressing *9 on the telephone keypad prior to the consent calendar being heard, or prior to the close of the public comment period for agenda items or non-agenda items. In response, the Town will unmute the speaker and allow them to speak up to three minutes.

CLOSED SESSION (4:30 p.m.)

CALL TO ORDER
Agenda – Hillsborough City Council
Monday, September 12, 2022

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ROLL CALL

PUBLIC COMMENT
Members of the public may provide public comments on any item on the Closed Session agenda. Members of the public participating in person are requested to complete a yellow speaker card and submit it to the City Clerk before addressing the City Council. Members of the public participating via the Zoom platform may use the “raise hand” feature or, if calling in by phone, press *9 on the telephone keypad. Speakers are limited to one comment per Closed Session item.

ANNOUNCEMENT OF CONFLICT OF INTEREST
This portion of the agenda is for Councilmembers to disclose any conflict of interest related to any item on the Closed Session agenda.

Any Councilmember who has confirmed a conflict of interest or has reason to believe they have a conflict of interest should disclose the conflict for the record and abide by the disqualification requirements contained in FPPC regulations.

PUBLIC ANNOUNCEMENT OF CLOSED SESSION ITEMS
A. CONFERENCE WITH LABOR NEGOTIATOR
Pursuant to Government Code Section 54957.6
Agency Negotiators: Glenn Berkheimer and Kristin Armbruster Employee Organization: Hillsborough Police Officers Association B. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Pursuant to Government Code Section 54956.9(d)(4)
Town as Plaintiff: One Potential Case
C. CONFERENCE WITH LEGAL COUNSEL – EXISTING LITIGATION
Pursuant to Government Code Section 54956.9(d)(1)
Hillsborough Citizens Alliance v. Town of Hillsborough
San Mateo Superior Court Case No. 20CIV04592
D. CONFERENCE WITH LEGAL COUNSEL – EXISTING LITIGATION
Pursuant to Government Code Section 54956.9(d)(1)
Hillsborough Citizens Alliance v. Town of Hillsborough
San Mateo Superior Court Case No. 21CIV04709

ADJOURN CLOSED SESSION
REGULAR CITY COUNCIL MEETING (6:00 p.m.)
I. CALL TO ORDER
II. ROLL CALL
III. PLEDGE OF ALLEGIANCE
IV. REPORT FROM CLOSED SESSION
V. MINUTES: August 8, 2022 and August 25, 2022
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VI. PROCLAMATION
• SUICIDE PREVENTION MONTH - SEPTEMBER 2022
VII. PUBLIC COMMENT I
This portion of the meeting is reserved for persons wishing to address the City Council on any matter not on the agenda.

Members of the public participating in person are requested to complete a yellow speaker card and submit it to the City Clerk before addressing the City Council. Members of the public participating via the Zoom platform may use the “raise hand” feature or, if calling in by phone, press *9 on the telephone keypad. In response, the Town will call the speaker to the podium or unmute the speaker and allow them to speak on any topic for up to three minutes. If there appears to be a large number of speakers, speaking time may be reduced to no less than 2 minutes, at the discretion of the Mayor. Members of the public are limited to one comment at this time. State law prohibits the Council from discussing or acting on non-agenda items, and generally limits the ability of the Council to respond to any public comments made regarding non-agenda items.

VIII. ANNOUNCEMENT OF CONFLICT OF INTEREST
This portion of the agenda is for Councilmembers to disclose any conflict of interest related to any item on the agenda. Any Councilmember who has confirmed a conflict of interest or has reason to believe they have a conflict of interest should disclose the conflict for the record and abide by the disqualification requirements contained in FPPC regulations.

IX. CONSENT CALENDAR
The Consent Calendar includes routine items, which do not require discussion. A Councilmember may remove an item for discussion, and any member of the audience may request a Councilmember to remove an item for discussion. The items are approved in one motion.

1. MONTHLY CLAIMS: AUGUST 1 THROUGH AUGUST 31, 2022

2. RESOLUTION FUNDING A CONTRIBUTION OF UP TO $45,000 TO HILLSBOROUGH CITY SCHOOL DISTRICT IN FY 2022-23 TO CONTRIBUTE TOWARD THE

PROJECTED COST OF THE SCHOOL CROSSING GUARD PROGRAM

3. ACCEPT WATER RATE COST-OF-SERVICE STUDY AND SOLID WASTE RATE

STUDY, DIRECT STAFF TO MAIL THE NOTICE OF PROPOSED INCREASES IN

WATER AND SOLID WASTE RATES, AND SET THE PUBLIC HEARING FOR NOVEMBER 14, 2022

4. GOVERNMENT FINANCE OFFICERS ASSOCIATION’S DISTINGUISHED BUDGET PRESENTATION AWARD FOR FISCAL YEAR 2021-2022 AND CERTIFICATE OF

ACHIEVEMENT FOR EXCELLENCE IN FINANCIAL REPORTING FOR FISCAL YEAR ENDED JUNE 30, 2021

5. RESOLUTION ADOPTING TOWN POLICY 222 ELECTRONIC COMMUNICATION, INTERNET AND EMAIL USAGE, AND RETIRING TOWN POLICIES 210 INTERNET POLICY, 211 ELECTRONIC MAIL POLICY AND 213 ELECTRONIC COMMUNICATION USAGE

6. RESOLUTION APPOINTING A MEMBER TO THE ADMINISTRATIVE HEARING PANEL FOR A PARTIAL TERM SEPTEMBER 13, 2022 THROUGH DECEMBER 31, 2024

7. RECONFIRM FINDINGS AND DETERMINATIONS UNDER RESOLUTION NO. 21-87 PURSUANT TO ASSEMBLY BILL 361
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8. RESOLUTION ACCEPTING AS COMPLETE THE CONTRACT WITH CASEY CONSTRUCTION, INC. FOR THE 773 EL CERRITO AVENUE STORM DRAIN REPAIR PROJECT IN THE AMOUNT OF $119,645.00

9. RESOLUTION SUPPORTING THE EUCALYPTUS PEDESTRIAN PATHWAY

PROJECT AND SUBMITTING AN APPLICATION TO THE SAN MATEO COUNTY TRANSPORTATION AUTHORITY FOR CYCLE 6 PEDESTRIAN AND BICYCLE

PROGRAM FUNDING

10. RESOLUTION AUTHORIZING THE CITY MANAGER TO EXECUTE AN AMENDMENT

TO THE EXISTING CONTRACT WITH WILSEY HAM ENGINEERING, SURVEYING & PLANNING TO INCLUDE DESIGN SERVICES FOR THE 2023-2024 PARROTT DRIVE SEWER BASIN REHABILITATION & REPLACEMENT PROJECT – PHASE II IN THE AMOUNT OF $512,215.00, FOR A TOTAL PROJECT BUDGET OF $674,204.00 X. STUDY SESSIONS

11. STUDY SESSION: TOWN HALL CAMPUS PROJECT

12. STUDY SESSION: RHNA 6 HOUSING ELEMENT UPDATE - PROJECT BRIEFING ON

PUBLIC COMMENT RECEIVED TO DATE
XI. INFORMATIONAL

13. CITY MANAGER'S UPDATE
XII. PUBLIC COMMENT II
This portion of the meeting is reserved for persons wishing to address the City Council on any matter not on the agenda.

XIII. CITY COUNCIL ITEMS
This section of the agenda provides the City Council an opportunity to ask questions on any project of interest. No action can be taken on any item not on the agenda.

XIV. ADJOURNMENT
SPECIAL ACCOMMODATIONS:

If you need a disability-related modification or accommodation, including auxiliary aids or services, to participate in the City Council meeting, or if you need an agenda in an alternate form, please contact the City Clerk’s Office at 375-7412 at least 24 hours before the scheduled City Council meeting.

ADDRESSING THE CITY COUNCIL:

Members of the public may provide written comments to the City Council regarding any item on the agenda up to two hours before the meeting to [email protected] or by mail/in person at 1600 Floribunda Avenue, Hillsborough, CA 94010. Any writings or documents provided to a majority of the City Council regarding any item on this agenda prior to the deadline, except as exempt from Agenda – Hillsborough City Council
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public disclosure under applicable law, will be available for public inspection on the Town website, and in the City Clerk’s Office at 1600 Floribunda Avenue, Hillsborough, CA 94010, during regular business hours.

AUDIO / VISUAL ADVISORY:

Those persons who wish to use PowerPoint or other mediums when presenting to the City Council will be required to submit media items to the City Clerk by 12:00 p.m. on the day of the meeting. Media items can be emailed to [email protected].

AUDIO OR VIDEO RECORDINGS:

Please be advised that under the Brown Act, any person has the right to record the City Council meeting, including the audience in attendance, using an audio or video recording device subject to certain exceptions. Please be aware that by attending a City Council meeting, you may be audio or video recorded.

UNAPPROVED MINUTES
MONDAY, AUGUST 8, 2022
3:00 PM STUDY SESSION
5:00 PM CLOSED SESSION
6:00 PM CITY COUNCIL MEETING
Hillsborough Town Hall and Zoom Video Conference
This City Council meeting was conducted pursuant to the provisions of Assembly Bill 361 and Government Code Section 54953(e) (and without compliance with section 54953(b)(3)) related to conducting public meetings during the COVID-19 pandemic. The City Council, staff and members of the public participated in the meeting virtually via Zoom Video Conference or in person at Town Hall.

STUDY SESSION

CALL TO ORDER
Mayor Royse called the meeting to order at 3:02 p.m.

ROLL CALL

Present: Chuang, Cole, May (via Zoom Video Conference), Krolik, Royse A. STUDY SESSION: WATER RATE COST-OF-SERVICE STUDY
Finance Director Jan Cooke, Rick Simonson, Vice President, HF&H Consultants, and Gabe Sasser, Senior Associate, HF&H Consultants, provided the staff report. Public Works Director Paul Willis and City Manager Ann Ritzma provided additional information.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

B. STUDY SESSION: SOLID WASTE RATE STUDY
Finance Director Jan Cooke and Rick Simonson, Vice President, HF&H Consultants, provided the staff report. City Manager Ann Ritzma provided additional information.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

ADJOURN STUDY SESSION
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Mayor Royse adjourned the Study Session at 4:38 p.m.

CLOSED SESSION

CALL TO ORDER
Mayor Royse called the meeting to order at 5:00 p.m.

ROLL CALL

Present: Chuang, Cole, May (arrived at 5:08 p.m. during Closed Session), Krolik, Royse

PUBLIC COMMENT
Koleen Hernandez, 743 El Camino Real, Burlingame, stated that while running on the road in front of Town Hall, she fell on her face, bruised her knee and chipped her tooth. Hernandez stated the road is cracked and she has spoken to neighbors who have fallen in Hillsborough and she does not want the same thing to happen to someone else.

ANNOUNCEMENT OF CONFLICT OF INTEREST
City Attorney Christopher Diaz reported during Item IV, Report from Closed Session, that there were no announcements of conflict of interest.

PUBLIC ANNOUNCEMENT OF CLOSED SESSION ITEMS
Mayor Royse announced the item for Closed Session:

A. CONFERENCE WITH LEGAL COUNSEL – ANTICIPATED LITIGATION Significant exposure to litigation pursuant to Section 54956.9(d)(2) of the California Government Code: Three potential cases (claim documents in agenda packet)

ADJOURN CLOSED SESSION
The Closed Session adjourned at 5:43 p.m.

REGULAR CITY COUNCIL MEETING
I. CALL TO ORDER
Mayor Royse called the meeting to order at 6:01 p.m.

II. ROLL CALL

Present: Chuang, Cole, May (via Zoom Video Conference), Krolik, Royse Unapproved Minutes – Hillsborough City Council
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III. PLEDGE OF ALLEGIANCE
Mayor Royse led the Pledge of Allegiance.

IV. REPORT FROM CLOSED SESSION
City Attorney Christopher Diaz reported that the City Council met in Closed Session and voted unanimously to reject a claim by Koleen Hernandez and claim by Judy Wilbur-Otter, and stated there were no City Council announcements of conflict of interest related to the Closed Session item.

V. MINUTES: July 11, 2022
Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

On motion by Vice Mayor Krolik, seconded by Councilmember Chuang, the minutes of the July 11, 2022 City Council meeting were approved as amended at the bottom of page one to change the word “use” to “lose” in the public comment made by Tom Kasten, by a roll call vote of four yes and one abstention by Councilmember May.

VI. RECOGNITION
• RESOLUTION OF APPRECIATION OF CARLOS CASTRO ON HIS RETIREMENT Mayor Royse read a resolution of appreciation of Carlos Castro on his retirement. Public Works Director Paul Willis provided comments. Vice Mayor Krolik provided comments.

Carlos Castro provided brief comments.

VII. PRESENTATION
• PRESENTATION BY JAN PEPPER, CEO, PENINSULA CLEAN ENERGY Jan Pepper, CEO, Peninsula Clean Energy Provided a presentation regarding Peninsula Clean Energy and responded to City Council questions.

VIII. PUBLIC COMMENT I
Hedy Kaveh stated he is in the process of putting solar panels on his house and inquired if there is a comparison available of the different types of solar panels, stated he is unhappy with PG&E, inquired if it has been considered to place solar panels under wind turbines on land already owned and operated by the Town, and inquired if there are rebates for removing wood shingles in order to install solar panels.

IX. ANNOUNCEMENT OF CONFLICT OF INTEREST
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Vice Mayor Krolik announced regarding Item 9 that although her home is more than 500 feet away, out of an abundance of caution, she would recuse herself from participation in discussion of the Strawberry Hill property. Vice Mayor Krolik stated her home is approximately 1,000 feet from the property and the City Attorney is checking regulations with the FPPC for future discussion of the item.

Councilmember May disclosed regarding Item 3 that he was on the Mills-Peninsula Board and Sutter Health Board until 2010, but he has had no dealings with them since that time and has had no dealings with the officers at Sutter Health or Mills-Peninsula.

X. CONSENT CALENDAR
Mayor Royse read the titles of the Consent Calendar items.

Mayor Royse stated he has a request from staff to remove Item 2 from the Consent Calendar.

Councilmember May requested to remove Item 3 from the Consent Calendar.

There were no requests from the public to remove an item from the Consent Calendar.

On motion by Councilmember Chuang, seconded by Councilmember Cole and unanimous on roll call vote, Consent Calendar Items 1, 4, 5, 6 and 7 were approved.

1. MONTHLY CLAIMS: JULY 1 THROUGH JULY 31, 2022
The monthly claims for July 2022 in the amount of $11,147,087.21 were approved as submitted.

2. RESOLUTION AMENDING THE TOWN’S MASTER FEE SCHEDULE TO

INCORPORATE A CHANGE IN THE GENERAL PLAN MAINTENANCE FEE Finance Director Jan Cooke provided the staff report.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

On motion by Vice Mayor Krolik, seconded by Councilmember Chuang and unanimous on roll call vote, the resolution amending the Town of Hillsborough’s Master Fee Schedule to incorporate a change in the General Plan Maintenance Fee was adopted.

3. RESOLUTION IN SUPPORT OF REOPENING THE MACK E. MICKELSON ARTHRITIS

AND REHABILITATION CENTER THERAPY POOL FOR COMMUNITY USE AT THE

MILLS HEALTH CENTER
Councilmember May stated he cannot support the resolution as written because he does not feel there is adequate information and the resolution is overly broad. Councilmember May requested that if the resolution is adopted, that it be noted in the letter sent to MillsPeninsula and Sutter Health that he objected to the resolution because facts and Unapproved Minutes – Hillsborough City Council
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circumstances from both sides were not adequately weighed, and also requested that it be noted that the two letters sent to Mills-Peninsula and Sutter Health by the Mayor should have stated that he was speaking on his own behalf and not on behalf of the full Council.

Mayor Royse stated that it was his intention that the letters sent to Sutter Health and Mills-Peninsula be sent on his behalf and not that of the full City Council.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

On motion by Councilmember Cole, seconded by Vice Mayor Krolik, the resolution in support of reopening the Mack E. Mickelson Arthritis and Rehabilitation Center Therapy Pool for community use was adopted by a roll call vote of four yes and one abstention by Councilmember May.

4. RECONFIRM FINDINGS AND DETERMINATIONS UNDER RESOLUTION NO. 21-87 PURSUANT TO ASSEMBLY BILL 361
A motion to reconfirm the findings and determinations made in Resolution No. 21-87 pursuant to Assembly Bill 361, with acknowledgement that the California Department of Public Health has updated the definition of “close contact” in Regulation 3205 from being within six feet of another person to sharing the same indoor space with another person for 15 minutes or more was approved.

5. RESOLUTION APPROVING THE PURCHASE OF ONE REPLACEMENT PUBLIC

WORKS VEHICLE
The resolution approving the purchase of one Public Works vehicle, a Ford E-Transit Cargo Van T-350, as a replacement for the current Sprinter Van and allocating funds from the Public Works Vehicle Capital Replacement Fund was adopted.

6. RESOLUTION APPROVING THE PURCHASE OF TWO REPLACEMENT PUBLIC

WORKS VEHICLES
The resolution approving the purchase of two replacement Public Works vehicles (one replacement forklift and one replacement Chevy Bolt EUV) and allocating funds from the Public Works Vehicle Capital Replacement Fund was adopted.

7. RESOLUTION ACCEPTING AS COMPLETE THE CONTRACT WITH 3D TECHNOLOGIES, INC. TO INSTALL AND MAINTAIN A SALTO ACCESS AND SECURITY SYSTEM IN THE AMOUNT OF $312,829
The resolution accepting as complete the contract with 3D Technologies, Inc. to install and maintain a Salto access and security system in the final amount of $312,829.00 and Unapproved Minutes – Hillsborough City Council
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authorizing staff to file a Notice of Completion for the project and release withheld retention in accordance with state prompt payment laws was adopted.

XI. NEW BUSINESS

8. DESIGNATION OF A VOTING DELEGATE AND ALTERNATE VOTING DELEGATE(S) TO THE 2022 LEAGUE OF CALIFORNIA CITIES ANNUAL CONFERENCE SEPTEMBER 7-9, 2022
City Clerk Lisa Natusch provided the staff report.

Mayor Royse opened public comment. There were no speakers. Mayor Royse closed public comment.

On motion by Vice Mayor Krolik, seconded by Councilmember Cole and unanimous on roll call vote, Mayor Royse was designated as a voting delegate, Councilmember Chuang was designated as alternate voting delegate one and Vice Mayor Krolik was designated as alternate voting delegate two for the 2022 League of California Cities/Cal Cities Annual Conference Annual Business Meeting on Friday, September 9, 2022.

XII. DISCUSSION

9. DRAFT TOWN OF HILLSBOROUGH RHNA 6 HOUSING ELEMENT UPDATE Mayor Royse provided introductory comments.

Director of Building & Planning Sarah Fleming and Jackie Wells, Project Manager, Houseal Lavigne Associates provided the presentation. Robert Kain, Principal, Houseal Lavigne Associates and City Manager Ann Ritzma provided additional information.

At 7:34 p.m., prior to the portion of the presentation related to the Strawberry Hill property, Vice Mayor Krolik recused herself and left the room.

At 7:36 p.m. following the portion of the presentation related to the Strawberry Hill property, Vice Mayor Krolik returned to the room and took her seat at the dais.

Mayor Royse opened public comment.

Brent Regan, Trustee, Strawberry Hill, inquired as to when the current proposal will become a requirement, how much of the land has to be developed into low income and high-density housing, what other prohibitions would be put on the property, and the impact on the value of the property.

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City Attorney Christopher Diaz stated that if the City Council would like to discuss Strawberry Hill after public comments are heard, Vice Mayor Krolik should be recused from the discussion to preserve the potential risk until clarity is received from the FPPC.

City Clerk Lisa Natusch reported technical difficulties in the Council Chambers and stated the speaker timer for speakers on Zoom is available in the “Town of Hillsborough” video view.

Patrick Shannon stated the 554-unit allotment should have been contested by the Town from the start, the buffer of 20 percent is overkill, and the RD-1 rezoning is ill-advised and not worth it. Shannon stated the Town must preserve the current environment and avoid rezoning any area, the Town should have negotiated with surrounding areas to create a subregion or should have contested the increase to the allocation and stated the issue can be solved by creating housing on Town-owned property, using ADUs to the maximum amount feasible and rezoning should be off the table until those ideas have been exhausted.

Hedy Kaveh stated he is in the process of building an ADU and spoke regarding the expense of management of ground water on lots on hills and the expense of increased property tax.

David Resnekov inquired about the front-end costs to the Town for water and sewer utilities, police and fire services, and the school system.

Larry Friedberg provided comments regarding public participation in the meeting and expressed concern regarding communications on the topic and the timing of the meetings during the summer and inquired about the process for permission to rezone private land.

Dan Capon provided comments regarding lack of transparency in the presentation related to details about the identified properties and requested detailed scoring results of each property and the scientific nature of the analysis that was performed including additional factors related to fire danger and slope. Regarding the De Guigne property, Capon expressed concerns regarding egress and ongoing sewer issues in the area.

Dennis Moore, Churchill Drive, spoke in support of the comments made by Patrick Shannon, David Resnekov, Larry Friedberg and Don Capon, and encouraged members of the public to provide feedback in writing to [email protected]. Moore stated that additional information and alternatives should have been provided by Houseal Lavigne and expressed concerns regarding affordable housing projects developed by nonprofits as it relates to infrastructure costs and the impact on property tax for current homeowners. Moore encouraged submittal of an ADU-only plan and if rejected by HCD, to take alternate steps at that time.

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Jim Arbeed, Hillsborough resident and realtor, spoke in support of the comments by Patrick Shannon and Larry Friedberg and encouraged the Town to push back. Arbeed stated that rezoning should be off the table, citing impacts on property values and the Town’s urban setting.

Raayan Mohtashemi spoke regarding the importance of the no-net-loss buffer in the event that some properties are unable to be developed and provided comments in support of the work of Houseal Lavigne.

Josh Burns spoke regarding the importance of consideration of the qualitative and quantitative impact on schools, police, and fire services. Burns spoke in opposition to the RD-1 strategy and requested consideration of changes that will be needed in future RHNA cycles.

Aaron Zornes stated the current plan changes the character of the Town for the worse, impacts residents’ financial savings, compromises infrastructure such as water supply and wildfire evacuation plans, and increases wildfire risk. Zornes encouraged proactively subsidizing housing for police, fire, teachers and Town staff, and encouraged creativity and practicality when increasing the number of units on large parcels by adding more than one entrance or exit.

Mayor Royse closed public comment.

Staff and Houseal Lavigne Associates responded to City Council questions.

XIII. INFORMATIONAL

10. CITY MANAGER'S UPDATE
City Manager Ann Ritzma provided an informational update.

XIV. PUBLIC COMMENT II
Larry Friedberg suggested a dedicated weekly e-Announcement regarding the draft Housing Element.

Dan Capon spoke regarding the analysis in the water rate study and in support of an expanded carve out for those with fire sprinkler systems that have two-inch service.

Dennis Moore stated he converted his irrigation from spraying to drip as part of the fire hardening of his home for a few hundred dollars and encouraged others to do so. Moore requested that the Zoom chat function be made available so that meeting attendees can chat with one another or to everyone in the meeting.

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Sean Jiam inquired about the Town’s achievement of the RHNA 5 housing goal and inquired whether units produced beyond the RHNA requirements can be used to offset future RHNA requirements.

City Manager Ritzma provided comments.

Patrick Shannon spoke regarding penalties for non-compliance or not meeting RHNA goals and inquired if penalties have been enforced on cities, inquired as to how conservative the Town’s housing numbers are, and provided comments regarding lost opportunities with neighboring cities such as San Mateo that could have shared a housing allotment with the Town.

XV. CITY COUNCIL ITEMS
Mayor Royse reported his attendance at a meeting of the SFO/Community Roundtable in which East Palo Alto was admitted as a new member and an update on airport capacity and future plans regarding airport facilities was received.

XVI. MAYOR'S APPLAUSE
Mayor Royse recognized recent staff and Council participants in the International City/County Management Association (ICMA) or Leadership Council San Mateo County leadership programs: Kristin Armbruster, Mandy Brown, Jan Cooke, Councilmember Cole, Ken Giacotto (CCFD), Natalie Gribben, Ashley Perez and Ann Ritzma.

Mayor Royse and City Manager Ann Ritzma recognized Jan Cooke for her exceptional leadership as Acting City Manager during the month of July.

XVII. ADJOURNMENT
Mayor Royse adjourned the meeting at 9:56 p.m.

UNAPPROVED MINUTES
THURSDAY, AUGUST 25, 2022
9:00 AM SPECIAL CITY COUNCIL MEETING
This meeting was conducted virtually pursuant to the provisions of Assembly Bill 361 and Government Code Section 54953(e) (and without compliance with section 54953(b)(3)) related to conducting public meetings during the COVID-19 pandemic. The Council Chambers was not open to the public for this Town of Hillsborough City Council special meeting.

I. CALL TO ORDER
Mayor Royse called the meeting to order at 9:00 a.m.

II. ROLL CALL

Present: Chuang, Cole, May, Krolik, Royse
III. PLEDGE OF ALLEGIANCE
Mayor Royse led the Pledge of Allegiance.

IV. PUBLIC COMMENT I
Larry Friedberg thanked the City Council for their service and provided comments regarding attendance at the first Draft Housing Element Open House and requested additional efforts and alternative methods to get the word out regarding the Housing Element process.

V. ANNOUNCEMENT OF CONFLICT OF INTEREST
There were no announcements of conflict of interest.

VI. CONSENT CALENDAR
There were no requests to pull the item from the Consent Calendar.

On motion by Councilmember Chuang, seconded by Vice Mayor Krolik and unanimous on roll call vote, the Consent Calendar was approved.

1. RECONFIRM FINDINGS AND DETERMINATIONS UNDER RESOLUTION NO. 21-87 PURSUANT TO ASSEMBLY BILL 361
A motion to reconfirm the findings and determinations made in Resolution No. 21-87 pursuant to Assembly Bill 361, with acknowledgement that the California Department of Unapproved Minutes – Hillsborough City Council
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Public Health has updated the definition of “close contact” in Regulation 3205 from being within six feet of another person to sharing the same indoor space with another person for 15 minutes or more was approved.

VII. NEW BUSINESS

2. RESOLUTION APPOINTING MARIE CHUANG AND LESLIE MARDEN RAGSDALE TO

THE HILLSBOROUGH CITY COUNCIL
Mayor Royse confirmed that there were no Council announcements of conflict of interest.

City Clerk Lisa Natusch provided the staff report. City Attorney Christopher Diaz provided additional information.

Mayor Royse opened public comment.

Larry Friedberg provided comments regarding the need to go above and beyond minimum requirements in the election process, expressed concerns regarding the timing of the process, and urged the City Council to reject the resolution and proceed with the election to ensure democracy is fulfilled.

Aaron Zornes expressed concerns regarding appointment of Councilmembers instead of elections and that written public comment submitted is not read into the record. Zornes urged the Town to better handle written comments submitted, citing an advantage to those who attend meetings and provide verbal comments. Zornes stated the full City Council should not vote to appoint themselves.

Mayor Royse closed public comment.

MOTION: Councilmember Cole moved and Mayor Royse seconded the motion to take no action to appoint nominees and proceed with the General Municipal Election.

SUBSTITUTE MOTION: On substitute motion by Councilmember May, seconded by Vice Mayor Krolik, the resolution appointing Marie Chuang and Leslie Marden Ragsdale to the Town of Hillsborough City Council was adopted by a roll call vote of three yes (Chuang, May, Krolik) and two no (Cole, Royse).

VIII. PUBLIC COMMENT II
Aaron Zornes requested that the written public comments received be summarized at the meeting.

Larry Friedberg expressed disappointment regarding the vote on the resolution in Item 2 and the impact on public trust and democracy.

Mayor Royse, Councilmember May, Councilmember Chuang, Councilmember Cole and Vice Mayor Krolik confirmed that they read the written comments received regarding the agenda.

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IX. ADJOURNMENT
Mayor Royse provided comments of appreciation and congratulations to the two appointed Councilmembers.

Mayor Royse adjourned the meeting at 9:56 a.m.

. Town of
Jli[{shorougli

PROCLAMATION
Suicide Prevention Month - September 2022
WHEREAS, the Town of Hillsborough will join the county, state and country in recognizing Suicide Prevention Month in September, National Suicide Prevention Week September 4-10, and World Suicide Prevention Day September 10, to spread the message that suicide can be prevented; and WHEREAS, in 2021, 54 people died by suicide in San Mateo County (a 34 percent decrease from 82 in 2020); and
WHEREAS, in 2020, 12,297 contacts were received by the San Mateo County's Star Vista Crisis Hotline. In July 2022, the StarVista Crisis Hotline received a JO percent increase compared to July 2021, likely due to the debut of the "988" phone number on July 16, 2022; and
WHEREAS, Town of Hillsborough residents are urged to play a role in supporting each other and preventing suicide by knowing the signs of suicide, finding the words to communicate, and reaching out to local 24/7 resources, including our local San Mateo County StarVista Crisis Hotline (650-579-0350) or National Suicide Prevention Lifeline (988 or 1-800-273-TALK); and
WHEREAS, residents can also play a role in suicide prevention by supporting local Suicide Prevention Month events, advocacy days and communications campaigns. The 2022 September Suicide Prevention Month theme is "Take Action for Suicide Prevention - Thriving at All Ages;" and WHEREAS, beyond September, the Town of Hillsborough has joined the San Mateo County Mayors Mental Health Initiative where mayors across the 20 cities in San Mateo County have come together with the mission of promoting awareness of and access to mental health resources in their communities; and WHEREAS, Town staff participated in Adult Mental Health First Aid (MHFA) training in June 2022 and learned how to identify, understand, and respond to signs of mental health and substance use challenges among adults and how to interact with a person in crisis or connect them with help in an effort to make Hillsborough healthier, happier, and safer for all.

NOW, 11IEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby designates September 2022 as Suicide Prevention Month and calls upon everyone in our community to fmd their role in suicide prevention.

Alvin L. Royse, Mayor
September 12, 2022
Date

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
1 CONSENT CALENDAR

CITY COUNCIL MEETING
SEPTEMBER 12, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: MONTHLY CLAIMS: AUGUST 1 THROUGH AUGUST 31, 2022 SUMMARY: The monthly claims for the month of August 2022 in the amount of $4,444,819.90 are submitted for approval.

FISCAL IMPACT: Claims have been expended pursuant to the approved budget.

ATTACHMENTS: Monthly Claims Listing
PREPARED BY: Richard Santiago, Assistant Finance Director RECOMMENDATION: Approve the monthly claims for August 2022 as submitted.

TOWN OF HILLSBOROUGH

REPORT OF GOODS & SERVICES PURCHASED
DURING THE MONTH OF AUGUST 2022
PREPARED BY:

Alan Singh
DocuSign Envelope ID: C21CCBA6-BB69-4660-A8C3-2E465012B228

TOWN OF HILLSBOROUGH

SUMMARY OF PURCHASES
DURING THE MONTH OF AUGUST 2022
GOODS & SERVICES PURCHASED $1,943,189.21
NET SALARIES & TAXES PAID 961,650.41
HEALTH BENEFIT PREMIUMS 157,218.54
BOND PAYMENTS 40,816.45
CCFD FUNDING 654,879.00
SAN FRANCISCO WATER PAYMENTS 687,066.29
TOTAL COST OF GOODS & SERVICES TO BE APPROVED $4,444,819.90

FINANCE DIRECTOR DATE

CITY MANAGER DATE
DocuSign Envelope ID: C21CCBA6-BB69-4660-A8C3-2E465012B228 9/7/2022
9/7/2022

COMPARATIVE SUMMARY
For the Month of August 2022
Aug-22 Aug-21 Aug-20
Goods & Services Purchased:

Operations 1,741,856.16 3,153,399.82 1,427,154.64
Capital 201,333.05 768,703.08 441,488.26
Net Salaries & Taxes Paid 961,650.41 884,099.50 850,381.19 Health Benefit Premiums 157,218.54 155,821.59 147,438.46 Bond Payments 40,816.45 23,716.30 32,353.94
CCFD Funding 654,879.00 602,441.00 660,690.00
San Francisco Water Payments 687,066.29 650,760.41 702,600.20 Total $4,444,819.90 $6,238,941.70 $4,262,106.69
NOTES:

Operations -
Capital -
Net Salaries & FY 22/23 payroll is higher compared to the prior year due to timing of filling open positions Taxes Paid - and salary cost of living adjustment changes.

Bond -
CCFD -
Water -
Admin department.

FY 22/23 spending is consistent with FY 21/22 spending except for timing of various reoccurring payments, as well as an extra AP check run in August 2021.

Capital project spending in August 2022 is primarily for the Smoke Testing project, Public Works Facilities improvements, and vehicle replacements for the Public Works August bond spending is consistent with prior year except for higher variable rate of FY 21/22 contribution is based on budget/contract.

There was an SFPUC wholesale water rate increase on July 1, 2022 to $4.75.

The decrease from the prior year is attributable to lower water usage. interest on the Town's COPs.

DocuSign Envelope ID: C21CCBA6-BB69-4660-A8C3-2E465012B228 -6-

TOWN OF HILLSBOROUGH
PURCHASES MADE DURING AUGUST 2022
CK # VENDOR DESCRIPTION AMOUNT
10161 CALIFORNIA DEPARTMENT OF TAX SALES AND USE TAX APR-JUN '22 FN $1,122.00 10162 DIVISION OF STATE ARCHITECT APR-JUN '22 DISABILITY ACCESS & EDU FEE FN $354.00 10163 ACTION TOWING AND ROAD SERVICE TOW - POLICE CAR #2 PD/ATV PW $304.50 10164 ADP, LLC JUL '22 MASTERTAX SOFTWARE SUPPORT FN $76.08 10165 ALHAMBRA & SIERRA SPRINGS JUN '22 WATER FN $14.34 10166 ALLIANT INSURANCE 2022-23 COMMERCIAL CYBER LIABILITY INSURANCE BBR $38,718.75 10167 ANNA LAURA JONES HISTORICAL DESIGN REVIEW MULTIPLE SITES BP $3,000.00 10168 ARAMARK SERVICES, INC COFFEE & SUPPLIES BP $201.94 10169 AUTO PRIDE CAR WASH, INC JUN '22 CAR WASHES PD $106.93 10170 BAYSIDE BUILDING MATERIALS INC MATERIALS - TOP SOIL PW $389.17 10171 BEST BEST & KRIEGER LLP FEE - JUN '22 LEGAL SERVICE REIMBURSABLES $4,229.50 10172 CASEY CONSTRUCTION, INC. REFUND - HYDRANT METER DEPSOSIT FN $2,000.00 10173 CITY OF BURLINGAME JUL '22 LIBRARY SERVICES FN $57,716.00 10174 CITY OF FOSTER CITY 7/1/22-6/30/23 CALOPPS FEE HR $3,786.00 10175 COLUMBIA TELECOMMUNICATIONS CORP WIRELESS ENGINEER CONSULT BP $1,400.00 10176 COMCAST JUL '22 MULTIPLE ACCOUNTS $1,021.71
10177 CSG CONSULTANTS, INC. BUILDING INSPECT SERVICES JUN '22 BP $1,888.00 10178 CWEA 2022/23 MEMBERSHIP STAFF PW $192.00
10179 DAILY JOURNAL CORPORATION LEGAL NOTICE - 7/15/22 ELECTION NOTICE CL $882.36 10180 DAN OKANO EQUIP - SHOVELS/RAKES/LINE TRIMMERS PW $2,372.43 10181 E AND M ELECTRIC & MACHINERY SCADA -SUPPORT MAINTENANCE CONTRACT PW $10,865.00 10182 ESA ENVIRO SUPPORT SERVICE SEWER REHAB PRJ PW $2,278.75 10183 FASTENAL COMPANY SUPPLIES - PERSONNEL PROTECTIVE EQUIP PW $3,806.91 10184 FERGUSON US HOLDINGS, INC PARTS - VARIOUS ITEMS PW $10,032.77 10185 FOLGER GRAPHICS, INC PRINT - DRAFT HOUSING ELEMENT MAILER AD $1,241.41 10186 FREYER & LAURETA, INC HIGH LINE WATER PRJ DESIGN PW $8,493.65 10187 HOME DEPOT CREDIT SERVICES JUN '22 VARIOUS PARTS & SUPPLIES PW $2,130.27 10188 HYLAND SOFTWARE, INC 2022 SIRE MAINTENANCE CM $6,451.86 10189 INFOSEND, INC. MAY '22/JUN '22 UTILITY BILLING FN $2,539.33 10190 INTERWEST CONSULTING GROUP JUN '22 BUILDING INSPECTOR SERVICES - BP $2,000.00 10191 KELLY MOORE PAINT CO., INC SUPPLIES - VARIOUS ITEMS PW $155.59 10192 LANDTEK LANDSCAPE INC JUL'22 LANDSCAPE MAINT VARIOUS SITES HBF $6,846.00 10193 LUXOR FLOORS INC INSTALL - FLOOR TOWN HALL KITCHEN PW $2,089.06 10194 METROPOLITAN PLANNING GROUP INC CONSULT - MAY '22 PLANNER SERVICES BP $8,098.75 10195 MJ GLASS HAYWARD INC REPAIR - INSTALL WINDOWS TOWN HALL PW $8,544.80 10196 NAPA AUTO PARTS - BURLINGAME SUPPLIES - FOAMING BRUSH PW $60.28 10197 OCCUPATIONAL HEALTH CENTERS OF CA EMPLOYEE MEDICAL SERVICE STAFF HR $155.00 10198 BENJAMIN MARK WERTHER REFUND - GREEN/BUILD DEPOSIT BP $29,337.50 10199 BENJAMIN MARK WERTHER REFUND - GRADE DEPOSIT BP $40,000.00 10200 JOHN PARK REFUND - PERMIT FEE BP $3,459.20
10201 LONESTAR HOLDINGS LLC REFUND - GRADE DEPOSIT BP $7,500.00 10202 SALVATORE GIGLIO REFUND - PERMIT FEE BP $3,082.70 10203 TESLA REFUND - PERMIT FEE BP $185.90
10204 TESLA REFUND - PERMIT FEE BP $295.90
10205 TESLA REFUND - PERMIT FEE BP $669.54
10206 TESLA REFUND - PERMIT FEE BP $0.01
10207 TESLA REFUND - PERMIT FEE BP $185.90
10208 BRANDON GUYTON REIMB - FINGERPRINTING SERVICE FEE HR $74.00 10209 CARLOS CASTRO REIMB - SAFETY TRAINING SUPPLIES PW $362.79 10210 GLORIA LORENZO REIMB - WATER PAYMENT $84.73
10211 GAIL WALKER REFUND - WATER DEPOSIT BALANCE FN $288.08 10212 LYNETTE & ROBERT FERGUSON REFUND - WATER DEPOSIT BALANCE FN $124.02 10213 MASON NG REFUND - WATER DEPOSIT BALANCE FN 370.72 10214 ROBERT FINNEY REFUND - WATER DEPOSIT BALANCE FN 6.06 10215 TODD & KEZIA MOSTAK REFUND - WATER DEPOSIT BALANCE FN $27.78 10216 YING WANG REFUND - WATER DEPOSIT BALANCE FN $327.60 DocuSign Envelope ID: C21CCBA6-BB69-4660-A8C3-2E465012B228

TOWN OF HILLSBOROUGH
PURCHASES MADE DURING AUGUST 2022
10217 PENINSULA TRUCK REPAIR INC MAINT - MULTIPLE VEHICLES PW $11,593.74 10218 PG & E 06/07/22-07/06/22 MULTIPLE ACCOUNTS $59,871.57 10219 PRIME MECHANICAL SERVICE, INC REPAIR - HVAC UNIT TOWN HALL PW $1,472.96 10220 PUMP REPAIR SERVICE CO., INC. REPAIR - SKYFARM 2 PUMP PW 27,037.66 10221 R & A JANITORIAL SERVICE, LLC AUG '22 JANITORIAL SERVICES/DEEP CLEAN FACILITY PW $14,465.64 10222 RECOLOGY SAN MATEO COUNTY SMCO GARBAGE FEES FY21-22 3RD PERIOD 100% FN $20,550.00 10223 REDWOOD GENERAL TIRE CO. MAINT - TIRES TRUCK #538/U33 PW $3,834.65 10224 REDWOOD TRADING POST UNIFORM - RAIN BOOTS STAFF PW $459.76 10225 RICE TRUCKING-SOIL FARM SUPPLIES - DRAIN ROCK PW $1,619.80 10226 ROBERT HALF INTERNATIONAL INC TEMP SERVICE - W/E 7/15/22 & 7/22/22 FN $5,700.00 10227 SAN MATEO COUNTY FORENSIC LAB JUL'22 CRIME LAB SERVICES PD $1,914.00 10228 SAN MATEO COUNTY ENVIRONMENTAL 2022-2023 CROSS CONNECTION PROGRAM PW $21,600.00 10229 SFPUC FINANCIAL SERVICES JUN '22 - WATER QUALITY ANALYSIS PW $850.00 10230 SHOE DEPOT, INC A CALIFORNIA WORK BOOTS - STAFF PW $300.00 10231 SPOTLIGHT IMPRESSIONS, INC PRINT - EMPLOYEE NAME BADGE CL $78.75 10232 STAPLES ADVANTAGE OFFICE SUPPLIES - ALL DEPARTMENTS $443.55 10233 STATE WATER RESOURCES CONTROL FEE - WATER OPERATOR CERT D3 STAFF PW $90.00 10234 SUN RIDGE SYSTEMS, INC SOFTWARE - SUPPORT RIMS/CAD 7/22-6/23 PD $26,862.00 10235 THIRKETTLE CORPORATION SOFTWARE - RNI SAAS FEE 7/22-6/30/23 & METERS PW $35,838.15 10236 THOMSON WEST JUN '22 INVESTIGATIVE WEBSITE PD $1,015.00 10237 TIMBERLINE TREE SERVICE, INC. MAINT - TREE REMOVAL PW FORESTVIEW PRJ $2,250.00 10238 TOWNE FORD SALES PURCHASE - FORD F150 LIGHTNING TRUCK SEWER PW $47,824.59 10239 TYLER TECHNOLOGIES, INC. TRAIN- ERP FINANCIAL SYSTEM 6/28/22-07/07/22 FN $7,020.00 10240 VERIZON WIRELESS 6/7/22- 7/6/22 PD $114.03
10241 WITMER-TYSON IMPORTS, INC. JUN'22 K-9 TRAINING & SUPPLIES PD $2,103.97 10242 AGUILAR & SONS INSTALL - CURB GUTTER DARRELL & DENISE PW $26,496.25 10243 3D DATACOM SECURITY SYSTEM CORP YARD PW $50,790.23 10244 AFLAC JUL '22 INSURANCE PREMIUM HR $1,888.52
10245 AGUILAR & SONS REPAIR - INSTALL ASHPALT MACADAMIA PW $2,072.50 10246 AIXTEK JUL '22 IT MANAGEMENT SERVICE/AUVIK NETWORK IT 39,922.00 10247 AKEL ENGINEERING GROUP, INC. 2022 WASTEWATER MASTER PLAN PW 28,846.88 10248 ALHAMBRA & SIERRA SPRINGS JUN '22 WATER FN $16.73 10249 ALLIED IRON CO, INC PARTS - TOOL BOX BAR TRUCK #234/CONE HOLDER PW $413.13 10250 ANN STAR FORMAN FEE - NOTARY SERVICES JUL '22 BP $150.00 10251 ARAMARK UNIFORM & CAREER UNIFORM CLEANING SERVICE W/E 6/30/22 - 8/4/22 PW 1,910.49 10252 AT&T 6/17/22-7/16/22 PD $66.30
10253 AUTO PRIDE CAR WASH, INC JUL '22 CAR WASHES PD 84.95 10254 AUTOMOBILI COUNTRY CLUB, LLC MAINT - AUTO DETAILING FORD #2 PD $150.00 10255 BEST BEST & KRIEGER LLP FEE - JUN '22 LEGAL SERVICE $21,833.80 10256 BKF ENGINEERS A2 PHASE 2 DESIGN PRJ PW $6,649.48
10257 BOSCO OIL COMPANY GAS PD $1,531.75
10258 CDW GOVERNMENT, INC SOFTWARE - BLUEBEAM REVU 19 IT $1,811.34 10259 CENTRAL COUNTY FIRE DEPARTMENT AUG '22 FISCAL CONTRIBUTION $654,879.00 10260 CITY OF PACIFICA COUNCIL OF CITIES MEETING 08/26/22 CO $60.00 10261 CITY OF SAN MATEO JUL '22 LIBRARY SERVICES FN $21,690.36 10262 COMCAST 7/20/22 - 8/19/22 PD $229.38
10263 COMCAST JUN '22 CALNET NONCGEN LINE IT $4,487.59
10264 CSG CONSULTANTS, INC. 2023 STREET RESURFACE PRJ/VARIOUS PRJ $97,345.00 10265 DAILY JOURNAL CORPORATION LEGAL NOTICE 7/8/22 ELECTION NOTICE CL $635.29 10266 DANIEL RICHARD CHARLES INSTALL - FLOMAG MTRS TARTAN TRAIL/BARROILHET $9,725.74 10267 DENCO SALES COMPANY, INC SUPPLIES - SIGN MACHINE INK PW $229.97 10268 ENVIRONMENTAL SYSTEM RESEARCH INST SOFTWARE - ARC GIS DESKTOP LIC 7/22/22-7/21/23 $27,500.00 10269 FREYER & LAURETA, INC HIGH LINE WATER PRJ DESIGN PW $5,648.28 10270 GLENN BERKHEIMER AUG '22 LABOR RELATIONS HR $1,700.00 10271 HF&H CONSULTANTS, LLC JUN'22 PROF SERVICES WATER/SOLID WASTE RATE FN 9,540.00 10272 INDUSTRIAL CHEM LABS & SERVICE SUPPLIES - CONCRETE CLEANER PW 656.61 10273 INFINITY TECHNOLOGIES MAY '22 - JUL '22 GIS SERVICE PW 6,000.00 10274 INFRASTRUCTURE ENGINEERING CORP DARREL TANK REPLACE PRJ PW 29,682.50 10275 JESSIE AIZENSTAT FOWARD LATERAL PROGRAM Q3 2022 PW 3,000.00 10276 KRONOS SAASHR, INC. JUL '22 PAYROLL PROCESSING FN 1,965.92 10277 CA METRO MOBILE COMMUNICATE EQUIP - HANDHELD RADIOS PW 3,324.57 DocuSign Envelope ID: C21CCBA6-BB69-4660-A8C3-2E465012B228

TOWN OF HILLSBOROUGH
PURCHASES MADE DURING AUGUST 2022
10278 MIDSTATE BARRIER, INC. REPAIR - WOOD POSTS CRYSTAL SPRNGS RD PW 10,875.00 10279 MINUTEMAN PRESS-SAN MATEO PRINT - BUSINESS CARDS STAFF PD 479.18 10280 NORGO ENGINEERING REPLACE - PIPE SEWER REPLACE PRJ/MANHOLE PW 50,720.22 10281 D'ELIA CONSTRUCTION REFUND - BUILD DEPOSIT BP 1,500.00 10282 D'ELIA CONSTRUCTION REFUND - BUILD DEPOSIT BP 7,224.00 10283 DANA M GALANTE REFUND - BUILD DEPOSIT BP 11,130.00 10284 LONESTAR HOLDINGS LLC REFUND - BUILD DEPOSIT BP 13,951.00 10285 ED COONEY REIMB - NO DES PARADE SIGNS PW 236.79
10286 ED COONEY EQUIP - WATER TIMER/HOSES/BATTERY PW 235.61 10287 KYLE MEJASICH REIMB - FINGERPRINTING SERVICE FEE HR 94.00 10288 PENINSULA TRUCK REPAIR INC MAINT - MULTIPLE VEHICLES PW 11,775.17 10289 PETERSON POWER SYSTEMS, INC. REPAIR - BACKHOE #BH1 HYDRAULIC LEAK PW 2,459.08 10290 PRIME MECHANICAL SERVICE, INC MAINT - HVAC UNIT TOWN HALL PW 9,287.00 10291 PRIORITY 1 MAINT - MULTIPLE VEHICLES PD 2,950.00
10292 PUMP REPAIR SERVICE CO., INC. MAINT - HAYNE ROAD PUMP STATION PW 12,940.00 10293 QUENCH USA, INC WATER FILTRATION SERVICE 7/12/22-7/27/22 81.14 10294 REDWOOD GENERAL TIRE CO. MAINT - TIRES TRUCK #538 PW 4,675.24 10295 ROBERT HALF INTERNATIONAL INC TEMP SERVICE - W/E 7/29/22 & 8/5/22 FN 5,700.00 10296 SAN MATEO COUNTY SHERIFF'S OFFICE FEE - COYOTE POINT RANGE 7/22 PD 1,200.00 10297 STAPLES ADVANTAGE OFFICE SUPPLIES - ALL DEPARTMENTS 1,280.85 10298 STATE WATER RESOURCE CONTROL BRD SRF LOAN PAYMENT CONTRACT PW 431,801.46 10299 SUN RIDGE SYSTEMS, INC 2022 RIMS USERS CONFERENCE STAFF PD 1,175.00 10300 TELECOMMUNICATIONS ENGINEERING AUG'22 CITATION PROCESSING & SCANNER PD 2,345.50 10301 THOMSON WEST JUL '22 INVESTIGATIVE WEBSITE PD 1,015.00 10302 TIMBERLINE TREE SERVICE, INC. MAINT - SITE CLEAN UP MAJOR HAYES TANK SITE PW 2,000.00 10303 TOWNE FORD SALES PURCHASE - 2022 FORD F150 LIGHTNING TRUCK PW 47,824.59 10304 TRESSERS TOW SERVICE TOW - VEHICLE TO PD INVESTIGATION PD 594.00 10305 TURBO DATA SYSTEMS, INC. JUL'22 CITATION PROCESSING & SCANNER PD 1,588.11 10306 UTILITY TELECOM, INC. JUL '22 ETHERNET & 3 CIRCUITS IT 420.03 10307 VERIZON WIRELESS 6/11/22 - 7/10/22 PD 1,398.78
10308 VIKING SHRED LLC AUG '22 DESTRUCTION SERVICES PD 82.99 10309 SAN MATEO COUNTY SHERIFF'S OFFICE FEE- SAN MATEO CO WORK FURLOUGH LIVE SCAN 128.00 10310 BURNETT LANDSCAPE DEVELOPMENT INC MAINT - HBF/TOWN LANDSCAPE VARIOUS SITES 13,522.60 TOTAL GOODS & SERVICES FOR THE MONTH PAID BY CHECK $ 2,292,482.29 CALPERS RETIREMENT CONTRIBUTIONS 200,828.54
VISA PAYMENTS 26,967.57
RETIREE HEALTH REIMBURSEMENTS 77,789.81
TOTAL GOODS & SERVICES FOR THE MONTH $ 2,598,068.21
DocuSign Envelope ID: C21CCBA6-BB69-4660-A8C3-2E465012B228

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
2 CONSENT CALENDAR

CITY COUNCIL MEETING
SEPTEMBER 12, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: RESOLUTION FUNDING A CONTRIBUTION OF UP TO $45,000 TO HILLSBOROUGH CITY SCHOOL DISTRICT IN FY 2022-23 TO CONTRIBUTE TOWARD THE

PROJECTED COST OF THE SCHOOL CROSSING GUARD PROGRAM
SUMMARY: Crossing guards serve a critical role in the safety of children traveling to and from Hillsborough public school sites. The program has received excellent feedback from parents and school administrators. Hillsborough City School District (HCSD) is requesting funding for the FY 2022-23 crossing guard program of $45,000. The total cost of the program (estimated at $90,000) is proposed to be shared evenly between the HCSD and the Town. This level of funding would provide for one crossing guard at each school.

FISCAL IMPACT: The FY 2022-23 budget has $27,500 approved for crossing guards. The budget will be monitored throughout the year and if needed, a budget amendment will be brought forward by staff for the incremental amount of $17,500.

ENVIRONMENTAL ISSUES: California Environmental Quality Act (CEQA) Guidelines sections 15378(b)(2) and 15378(b)(5) provide that ongoing administrative activities and organizational or administrative activities of governments that will not result in direct or indirect physical changes in the environment do not constitute a “project” as defined by the State CEQA Guidelines (Cal. Code Regs., tit. 14, § 15000 et seq.) and are therefore exempt from CEQA and no further environmental review is required.

ATTACHMENTS:

1. Resolution

2. Letter from Hillsborough City School District
PREPARED BY: Jan Cooke, Finance Director
RECOMMENDATION: Adopt the resolution approving a contribution of up to $45,000 to Hillsborough City School District in FY 2022-23 to contribute toward the projected cost of the school crossing guard program.

RESOLUTION NO. 22-

RESOLUTION OF THE CITY COUNCIL OF THE TOWN OF HILLSBOROUGH APPROVING A CONTRIBUTION OF UP TO $45,000 TO HILLSBOROUGH CITY SCHOOL DISTRICT IN FY 2022-23 TO CONTRIBUTE TOWARD THE PROJECTED

COST OF THE SCHOOL CROSSING GUARD PROGRAM
WHEREAS, the Hillsborough City School District (“HCSD”) is continuing its school crossing guard program to ensure the safety of the community’s students; and
WHEREAS, the City Council shares the commitment to providing a safe community for students, and
WHEREAS, HCSD has requested that the Town share in the cost of the crossing guard program for the FY 2022-23 school year; and
WHEREAS, the City Council supports the continued efforts of HCSD to maintain a community school crossing guard program and finds a public purpose in supporting the contribution of up to $45,000 for the FY 2022-23 school year as it will ensure that the Town’s youth enrolled in HCSD have safe crossings when traveling to school within the Town.

NOW, THEREFORE, BE IT RESOLVED that the City Council of the Town of Hillsborough hereby approves a contribution of up to $45,000 to the Hillsborough City School District in FY 2022-23 to contribute toward the projected cost of the school crossing guard program.

Mayor of the Town of Hillsborough
Attest: City Clerk
This resolution was adopted by the City Council of the Town of Hillsborough at its regular meeting held on the 12th day of September 2022, by the following vote of the members thereof:

AYES: Councilmembers
NOES: Councilmembers
ABSENT: Councilmembers
ABSTAIN: Councilmembers
ATTACHMENT 1
From: Louann Carlomagno <[email protected]>
Date: Fri, Jul 1, 2022 at 8:15 AM
Subject: Crossing Guards
To: Ann Ritzma <[email protected]>
Cc: Antoinette Henson <[email protected]>
Hi Ann,
Thank you, as always, for the ongoing support from the Town for crossing guards at all our school sites.

Parents have given us very positive feedback and we are thankful the program is working so well for our students and their families.

We would greatly appreciate continuing to split the cost of the crossing guards with the Town. The share for each of us will be approximately $45,000 based on the following calculations:
• We use one guard at each of the four school sites. Each guard works 3.5 hours per day for 181 days. Currently the hourly rate is $34.48.
• Based on that calculation, next year's cost will be: 3.5 x 4 x 181 x $34.48 = $87,372.32 • With inflation, we anticipate an hourly rate increase from the company, so we are looking at approximately $90K total (and perhaps a bit more)
Please let me know if you have any questions or need any additional information.

Thanks again!
Louann
Louann Carlomagno, Ed.D.

Superintendent
Hillsborough City School District
she/her/hers
650.548.4209
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Notice: This e-mail together with any attachments may contain information from Hillsborough City School District that is confidential and/or proprietary for the sole use of the intended recipient(s). Any review, disclosure, reliance or distribution by others or forwarding without express permission is strictly prohibited. If you are not the intended recipient, please notify the sender immediately and then delete all copies, including any attachments.

ATTACHMENT 2

TOWN OF HILLSBOROUGH
San Mateo County
1600 Floribunda Avenue
Hillsborough, CA 94010
3 CONSENT CALENDAR

CITY COUNCIL MEETING
SEPTEMBER 12, 2022

AGENDA STAFF REPORT
ITEM SUBJECT: ACCEPT WATER RATE COST-OF-SERVICE STUDY AND SOLID WASTE

RATE STUDY, DIRECT STAFF TO MAIL THE NOTICE OF PROPOSED INCREASES IN WATER AND SOLID WASTE RATES, AND SET THE PUBLIC HEARING FOR NOVEMBER 14, 2022
SUMMARY: The Town of Hillsborough is a mostly residential city located in San Mateo County, California. The Town operates and maintains a potable water distribution system to serve its residents and water users. It is a complex system with varying topography and 19 separate but interconnected pressure zones. The infrastructure network includes 108 miles of water mains, 18 water tanks, 14 water pump stations and over 7,500 various assets, such as water meters, fire hydrants, and valves. The San Francisco Public Utilities Commission (SFPUC) delivers treated wholesale water to the Town from its Hetch Hetchy system. This water is delivered through ten master meter locations from the SFPUC’s 42-inch and 60-inch transmission pipelines. The Town purchases treated water from the San Francisco Water Department’s (SFWD) Hetch-Hetchy system under a long-term supply contract last renewed on July 1, 2009, and Amended December 1, 2018, with a 25-year term through June 30, 2034. From these connections, the Town pumps and delivers water to approximately 4,270 customers, of which nearly all are single-family residential. Several public and private schools and three private clubs represent the balance of the customer base. The Town operates and maintains its own water distribution facilities. Most the Town’s water customers are billed on a bi-monthly basis.

The current water rate schedule was implemented and took effect on May 1, 2017, with annual reviews conducted each year to determine if the proposed rate increase included in the financial plan was necessary for that year. The first year of the series was implemented on May 1, 2017 and included various rate changes but were revenue neutral in total. An 8% increase was implemented on January 1, 2018 and a 3% increase was implemented on January 1, 2022.

Rate Study Projection and Technical Report
The Town sent a Request for Proposal (RFP) for consulting services for a water Cost-of-Service rate study. After a competitive selection process, HF&H Consultants, LLC. (HF&H) were determined to be the most qualified consultant based on their relevant experience in rate studies.

HF&H was awarded the contract and has prepared the Draft Water Cost-of-Service Rate Study Report that calculates projected rates for a five-year planning period (2023-2027).

A five-year financial projection was prepared to analyze and establish a rate plan that supports the projected revenue requirement. The Town’s water rate revenues are used to fund the provision of potable water to the customers of the Town’s water system. Projections and key assumptions are outlined in the HF&H Draft Water Cost-of-Service Rate Study Report.

Agenda Staff Report - Hillsborough City Council
September 12, 2022

Page 2 ends

Proposed Cost-Of-Service Five-Year Water Rate Series
The Town has undertaken a water Cost-of-Service rate study to review and determine the rates necessary to fund the revenue requirement in the water enterprise commencing January 1, 2023, with increases proposed each January 1 thereafter through and including January 1, 2027. The study focuses on the funding necessary for provision of potable water to all Town customers.

Over the projection period, the Town’s revenue requirement is primarily driven by increases in water purchase costs and capital improvement expenditures.

The Town’s water supply source, SFPUC, intends to raise rates from $4.10 per hundred cubic feet (HCF) to $5.32 per HCF over the next five years. On July 1, 2022, wholesale rates increased from $4.10 to $4.75 per HCF.

The Town’s capital improvement plans include an average annual expense of $3.2 million over the projection period, demonstrating the Town’s priority to continue to invest in its water system.

Improvements include water mains, storage and pumping, and higher elevation connection of the water system.

The State of California continues to experience drought conditions. In May 2022, Bay Area Water Supply & Conservation Agency (BAWSCA) issued reduced allocations to each member agency in order to reduce cumulative water purchase volume by 15% relative to FY 2019-20, and the Town is expected to reduce 16.2%. Drought considerations have been factored into the projection and fixed charges have been maintained at 30% of revenue to support revenue stability.

Revenue Stabilization Factors and Reserves
The projection reflects the use of reserves for the first years of the rate series with reserves at target level by the end of the five years. The use of reserves in the early years is in part due to the assumption that consumption will reduce to the target levels for two years and then resume to historical level. In this way, the water enterprise reserves are reduced to temper the full rate impact to customers. Should the drought conditions vary from the assumptions in the rate study, the proposed Revenue Stabilization Factors can be used and applied to the corresponding volume charge rates so that the Town can maintain revenue neutrality during any stage of a water shortfall.

Pass-Through Adjustment
The proposed rate series includes authorization for “pass-through adjustments” which would allow the Town to annually pass-through of adjustments to the SFPUC water purchase cost into its volume charge rates. Volume charge rates can be adjusted to track any difference between the SFPUC rates that were included in the model and actual rates adopted each year by SFPC, up or down. Any increase as a result of a pass-through adjustment would be in addition to the rates published in the Proposition 218 notice, and will be implemented in accordance with Government Code section 53756.

Process for Implementation – Water Rates
Agenda Staff Report - Hillsborough City Council
September 12, 2022

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The draft rate study calculated projected rate adjustments for a five-year planning period. The rates would be effective starting January 1, 2023. The proposed rates cover the revenue requirements outlined in the HF&H Draft Water Cost-of-Service Rate Study Report.

The Financial Advisory Committee reviewed the Water Rate Cost-of-Service study at its August 2, 2022 meeting and recommended the proposed rate study. The City Council conducted a public Study Session and reviewed the proposed Water Rate Cost-of-Service Study in detail on August 8, 2022 and any feedback has been incorporated into the study.

The Proposition 218 process requires the Town to hold a public hearing on the proposed rates for the charges and to mail notice of the public hearing to property owners who are directly liable for the payment of water charges not less than 45 days before the public hearing to adopt the rates for the service fees or charges. They are subject to the protest proceeding wherein the adoption of any new or increase in any existing charge cannot be adopted if the Town receives written protests to the proposed fees and charges from a majority (50% + 1) of the record owners of parcels upon which the charges are proposed for imposition, or from tenants of such parcels who are directly liable for the payment of the proposed water charges, with only one protest counted per parcel.

It is recommended that City Council adopt the recommendation for increases to the five-year Water rate series starting January 1, 2023 as outlined in the HF&H Water Rate Cost-of-Service Study Report. In addition, it is requested that City Council direct staff to mail the Notice of Proposed Increases for Water Rates and set the public hearing tentatively for November 14, 2022, or some other date that is at least 45 days after the mailing of the Proposition 218 Notice for such hearing.

It is recommended that the Notice be combined with the Solid Waste Rate Notice recommended below for one mailing.

Below are the key dates for review, adoption, and implementation of the proposed water rates effective January 1, 2023. The process follows Proposition 218 guidelines.

City Council Meeting – Approve 218 process: September 12, 2022 Notice to Rate Payers Mailed: September 16, 2022
City Council Meeting – Public Hearing and Adoption; Introduce Ordinance: November 14, 2022 City Council Meeting – Adopt Ordinance: November 28, 2022 Solid Waste Rate Study
Solid waste, recyclable material, and organic collection services are provided to residential and business customers through a franchise agreement with Recology of San Mateo County (Recology). The franchise agreement began in 2011, and was amended and restated in 2021, with an expiration date of December 31, 2035.

Residential customers are billed for services in two ways: 1) a flat annual charge on the tax roll and, 2) a monthly charge, billed by Recology, based on the size of solid waste container placed for collection (20-gallon, 32-gallon, etc.).

Analysis
The Town has undertaken a solid waste rate study to review and determine the rates necessary to fund the revenue requirement in its solid waste system for a five-year period starting on January 1, Agenda Staff Report - Hillsborough City Council
September 12, 2022

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2023. The study focuses on the funding necessary for the provision of solid waste, composting, and recycling services to customers.

The key issues that impact the costs are:

1. Covering the projected costs for franchise services and pass-thru tipping fees. The Recology franchise agreement increases based on contractually agreed upon indices. The disposal and processing fees (tip fees) are based on contracts for these services. Franchise fees charged to Recology as a part of the franchise agreement do not exceed the Town’s costs in granting franchise rights to Recology, and compensation for the use of physical, tangible government property.

2. Aligning the rates (based on size of cart) with the projected cost-of-service: The cart charges are reflecting the actual cost of service for each service level (20-gallon cart, 32-gallon cart, etc.).

3. Covering the projected costs for implementing Senate Bill (SB) 1383 Reducing Short-Lived Climate Pollutants in California. SB 1383 passed in 2016 as part of California’s larger strategy to combat climate change. The law was designed to reduce global warming super pollutants like methane, which is up to 84 times more potent than carbon dioxide. Landfills are one of the largest producers of methane in the state. When organic material breaks down in the landfill methane is generated. There will be a move away from landfilling organic waste (like food, paper, and yard waste). The Town is partnering with SBWMA, Recology, and San Mateo County to implement the SB 1383 requirements.

The Town is a member of the South Bayside Waste Management Authority Joint Powers Agreement (SBWMA). Under the SBWMA Joint Powers Agreement, each member agency sets its own solid waste rates for residential and commercial customers. Each of the eleven SBWMA member jurisdictions has a franchise agreement with Recology of San Mateo County for residential and commercial solid waste, residential recycling, and residential green waste collections. The current franchise agreement runs from January 1, 2021 through December 31, 2035. In addition, a contract with South Bay Recycling provides for operations at the Shoreway Environmental Center, which is owned the SBWMA. The Shoreway facility serves as a regional solid waste and recycling facility for the receipt, handling and transfer of refuse, recyclable, and organic materials.

Solid waste rates are determined by three major factors. First and foremost is the annual cost of collection and disposing of garbage and recyclables. Solid waste, recyclable, and organic materials are collected by Recology and taken to the Shoreway facility for processing, staging and shipment.

The franchise agreement with Recology is a “fixed cost” contract where future costs are adjusted based on contractually approved indices. The second largest factor in the costs of solid waste services is in the form of disposal fees (tipping fees at the Shoreway facility and the landfill).

Tipping fees are approved by the SBWMA Board and then passed through to the SBWMA agencies to be added to rates. Finally, the Town charges certain city fees and costs to Recology, including a franchise fee which does not exceed the cost the Town incurs in order to grant the franchise to Recology as well as compensation for physical, tangible government property used by Recology in provision of solid waste service. Recology has determined to meet this obligation through billing Hillsborough customers directly.

Agenda Staff Report - Hillsborough City Council
September 12, 2022

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Approach
The Town sent a Request for Proposal (RFP) for rate consulting services for the solid waste rate study. After a competitive selection process, HF&H Consultants (HF&H) were determined to be the most qualified consultant based on their relevant experience in rate studies. HF&H Consultants were awarded the contract and have prepared the Draft Solid Waste Rate Study Report that calculates projected rates for a five-year planning period (2023-2027).

A five-year financial projection was prepared to analyze and establish a rate plan that supports the projected revenue requirement. The Town’s solid waste rate revenues are used to fund solid waste services provided to the customers of the Town’s solid waste system. Projections and key assumptions are outlined in the HF&H Draft Solid Waste Rate Study Report.

The Financial Advisory Committee reviewed the solid waste rate study at its August 2, 2022 meeting and recommended the proposed rate study. The City Council conducted a public Study Session and reviewed the proposed Solid Waste Rate Study in detail on August 8, 2022 and any feedback has been incorporated into the study.

The Proposition 218 process requires the Town to hold a public hearing on the proposed rates for the charges and to mail notice of the public hearing to property owners who are directly liable for the payment of solid waste charges not less than 45 days before the public hearing to adopt the rates for the service fees or charges. They are subject to the protest proceeding wherein the adoption of any new or increase in any existing charge cannot be adopted if the Town receives written protests to the proposed fees and charges from a majority (50% + 1) of the record owners of parcels upon which the charges are proposed for imposition or tenants who are directly liable for the payment of the proposed solid waste charges.

It is recommended that City Council adopt the recommendation for increases to the five-year Solid Waste rate series starting January 1, 2023 as outlined in the HF&H Solid Waste Rate Study Report. In addition, it is requested that City Council direct staff to mail the Notice of Proposed Increases for Solid Waste Rates and set the public hearing tentatively for November 14, 2022, or some other date that is at least 45 days after the mailing of the Proposition 218 Notice. It is recommended that the Notice be combined with the Water Rate Increase Notice as recommended above for one mailing.

Below are the key dates for review, adoption, and implementation of the proposed solid waste rates effective January 1, 2023. The process follows Proposition 218 guidelines.

Financial Advisory Committee (FAC) Review: August 2, 2022 City Council Meeting – Study Session: August 8, 2022
City Council Meeting – Approve 218 process: September 12, 2022 Notice to Rate Payers: September 16, 2022
Public Hearing and Adopt Resolution: November 14, 2022
City Council Meeting – Adopt Charges for County Roll: July 2023 FISCAL IMPACT: There is no fiscal impact associated with the acceptance of the Water Rate Cost-of-Service Study and the Solid Waste Rate Study.

Agenda Staff Report - Hillsborough City Council
September 12, 2022

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ENVIRONMENTAL ISSUES: The proposed action is exempt from environmental review pursuant to the California Environmental Quality Act (CEQA) Guidelines sections 15378(b)(2) and 15378(b)(5) as ongoing administrative or organizational activities that will not result in direct or indirect physical changes in the environment. It is also exempt on a separate and independent basis pursuant to CEQA Guideline 15273 as it constitutes the establishment of rates by the Town for the purpose of meeting operating expenses, meeting financial needs, etc. and pursuant to Guideline 15273, CEQA does not apply.

ATTACHMENTS:

1. HF&H Water Rate Cost of Service Study

2. HF&H Solid Waste Study

3. Draft Notice of Rate Increases for Water and Solid Waste rates

4. Proposition 218 protest procedures for water rates

5. Proposition 218 protest procedures for solid waste rates PREPARED BY: Jan Cooke, Finance Director
RECOMMENDATION:

1. Accept the recommendations for the Water five-year rate series increases as outlined in the HF&H Water Rate Cost-of-Service Study Report;

2. Accept the recommendations of the Solid Waste five-year rate series increases as outlined in the HF&H Solid Waste Rate Study Report;

3. Direct staff to mail the Notice of Proposed Increases in Water and Solid Waste Rates; and

4. Set the public hearing for November 14, 2022.

August 3, 2022 – Draft Report

TOWN OF HILLSBOROUGH
Water Rate Cost-of-Service Study
ATTACHMENT 1

TOWN OF HILLSBOROUGH
1600 Floribunda Avenue
Hillsborough, CA 94010

WATER RATE COST-OF-SERVICE STUDY
August 3, 2022

HF&H CONSULTANTS, LLC
590 Ygnacio Valley Rd, Suite 105
Walnut Creek, CA 94596
© HF&H CONSULTANTS, LLC All rights reserved.

HF&H CONSULTANTS, LLC
Managing Tomorrow’s Resources Today
201 North Civic Drive, Suite 230 Robert D. Hilton, CMC
Walnut Creek, California 94596 John W. Farnkopf, PE
Tel: (925) 977-6950 Laith B. Ezzet, CMC
Fax: (925) 977-6955 Richard J. Simonson, CMC
hfh-consultants.com Marva M. Sheehan, CPA
Robert C. Hilton, CMC
August 3, 2022
Ms. Jan Cooke
Finance Director
Town of Hillsborough
1600 Floribunda Avenue
Hillsborough, CA 94010
Subject: Water Rate Cost-of-Service Study – Draft Report Dear Ms. Cooke:

HF&H is pleased to submit this cost-of-service report to the Town of Hillsborough (Town). The previous rate study was completed in 2017 during the Statewide water shortage emergency. The current study makes the following major recommendations.
• Revenue increases. Rate increases are recommended due to increases in the cost of purchased water from the San Francisco Public Utilities Commission (SFPUC) and the need to fund capital improvements, including ongoing repairs and replacements of aging infrastructure. In addition, rate increases are needed to allow the Town’s Water Fund to continue compliance with debt service requirements and to avoid operational deficits and depletion of reserves. Over the next five years, the revenue increases average approximately 4.6% per year. • Service Charge rate structure modifications. The proposed rates are adjusted to reflect a greater percentage of fixed than variable costs attributed to service charges. Higher overhead costs, distributed to every account regardless of meter size, account for the greater proportion of fixed costs.
• Volume Charge rate structure modifications. The proposed tiered rates are restructured based on projected single-family residential demand patterns, which results in adjustments to the current tier breakpoints. All non-single family residential customers are charged a uniform volume charge rate.
• Revenue Stabilization Factors. The revenue stabilization factors adopted during the last study are adjusted to reflect updated patterns of usage specific to Residential and Non-residential customer classes. Customer class revenue stabilization factors are applied to the corresponding volume charge rate(s) so that the Town can maintain revenue neutrality during any stage of water shortfall. • Pass-through Adjustment. We recommend that the Town incorporate annual pass-through adjustments of the SFPUC water purchase cost into its volume charge rates. Volume charge rates can be adjusted to track any difference between the SFPUC rates that were included in the model and the actual rates adopted each year by SFPUC.

The rates proposed in this report reflect the current and projected cost of providing service for the next five years. We greatly appreciate your assistance in developing the cost-of-service analysis.

Ms. Jan Cooke
August 3, 2022

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Sincerely,

HF&H CONSULTANTS, LLC
Rick Simonson, Senior Vice President

Town of Hillsborough Water Rate Cost-of-Service Study
Draft Report Table of Contents
HF&H Consultants, LLC Page i August 3, 2022

TABLE OF CONTENTS
I. EXECUTIVE SUMMARY.............................................................................................1 Background.................................................................................................................. 1 Revenue Requirements ................................................................................................. 2 Rate Structure.............................................................................................................. 5 Current Rate Structure............................................................................................. 5 Service Charges...................................................................................................... 5 Volume Charges...................................................................................................... 5 Revenue Stabilization Factors ................................................................................. 5 Proposed Volume Charge Rates ................................................................................ 5 Tiered Volume Charge Rates .................................................................................. 6 Uniform Volume Charge Rate.................................................................................. 7 Summary of Volume Charge Rates ......................................................................... 7 Proposed Service Charge Rates ................................................................................ 8 Summary of Service Charge Rates.......................................................................... 8 II. INTRODUCTION .....................................................................................................9 Study Purpose.............................................................................................................. 9 Study Process............................................................................................................... 9 Report Organization.....................................................................................................10 III. REVENUE REQUIREMENTS .................................................................................12 Demand Projections.....................................................................................................12 Revenue Requirement Assumptions and Projections .......................................................14 SFPUC Purchased Water Costs.................................................................................14 Operating Expenses................................................................................................15 Contributions to Capital Reserves.............................................................................15 Debt Service ..........................................................................................................17 Reserves.....................................................................................................................19 Operating Reserve Component ................................................................................19 Capital Improvement Reserve Component................................................................19 Revenue Increases ......................................................................................................19 Debt Coverage ............................................................................................................21 Reserve Fund Balance..................................................................................................21 IV. COST-OF-SERVICE ANALYSIS..............................................................................23 General Approach ........................................................................................................23 Base/Extra Capacity Method....................................................................................23 Customer Classes ...................................................................................................23 Rate Structure........................................................................................................24 Cost-of-Service Allocations ...........................................................................................25 Analytical Procedure ...............................................................................................26 Service Function Cost Classification.......................................................................26 Demand Service Function ......................................................................................27 Customer Service Function ....................................................................................28 Demand Service Function Allocation Factors .............................................................30 Town of Hillsborough Water Rate Cost-of-Service Study
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Base Day Demand .................................................................................................31 Average Day demand.............................................................................................31 Maximum Day demand...........................................................................................31 Maximum Hour demand .........................................................................................31 Load Factors ..........................................................................................................32 Service Function Allocations ....................................................................................33 Customer Class Allocations......................................................................................35 Summary Of Cost-Of-Service Allocations........................................................................36 V. RATE DESIGN........................................................................................................38 Volume Charge Design.................................................................................................38 Residential Volume Charge Rates.............................................................................38 Breakpoints Between Tiers.....................................................................................38 Rates Per Tier ........................................................................................................39 Non-Residential Volume Charge Rates......................................................................42 Volume Charge Rate Summary ................................................................................43 Revenue Stabilization Charge ..................................................................................43 Analysis..................................................................................................................44 Implementation.......................................................................................................47 Pass-Through Adjustment .......................................................................................48 Service Charge Design .................................................................................................49 Fixed And Variable Costs and Charges ...........................................................................51 VI. CUSTOMER BILL IMPACTS...................................................................................54 Bill Comparison............................................................................................................54 Bills Under Proposed and Approved Rates.................................................................54

APPENDIX

WATER RATE MODEL
Tab 1a. Summary
Tab 1b. Assumptions and Policies
Tab 2. Revenue Requirements
Tab 3a. Revenue Increase Summary
Tab 3b. Service Charge Revenue
Tab 3c. Volume Charge Revenue
Tab 4. Reserves Summary and Fund Balance
Tab 5. Capital Improvement Projects
Tab 6a. Debt Service
Tab 6b. SRF Cash Flow
Tab 7. Loading Factors
Tab 8. FY 2022-23 Allocations
Tab 9a. Service Charge Allocations
Tab 9b. Quantity Charge Calculations
Tab 10. Pass-Through Costs
Tab 11a. Revenue Stabilization Historic Use
Tab 11b. Revenue Stabilization Tables
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TABLE OF FIGURES
Figure I-1. Total Revenue Requirement Projections............................................................... 3 Figure I-2. Projected Revenue Increases .............................................................................. 4 Figure I-3. Projected Fund Balance...................................................................................... 4 Figure I-4. Revenue Stabilization Factors.............................................................................. 7 Figure I-5. Current and Proposed Monthly Volume Charge Rates............................................ 8 Figure I-6. Current and Proposed Monthly Service Charge Rates ............................................ 8 Figure II-1. Summary of Rate Analysis ................................................................................11 Figure III-1. Per Capita Residential Water Use Comparison (FY 2020-21)...............................13 Figure III-2. Projection Assumptions...................................................................................14 Figure III-3. Historical and Projected SFPUC Wholesale Rate.................................................15 Figure III-4. Projected Capital Improvement Program ..........................................................17 Figure III-5. Current Debt-Funded Capital Projects...............................................................17 Figure III-6. Projected Debt Service Requirements...............................................................18 Figure III-7. Total Revenue Requirement Projections ...........................................................18 Figure III-8. Rate Increase Calculations ..............................................................................20 Figure III-9. Projected Revenue Increases...........................................................................20 Figure III-10. Debt Service Coverage..................................................................................21 Figure III-11. Projected Year-End Fund Balance ..................................................................22 Figure IV-1. Revenue Requirements by Function (FY 2022-23)..............................................29 Figure IV-2. Revenue Requirement by Service Function........................................................30 Figure IV-3. Service Level Demands and Load Factors..........................................................32 Figure IV-4. Pipeline Capacity Needed For Demand Service Levels.........................................32 Figure IV-5. Demand Related Allocation Percentages ...........................................................33 Figure IV-6. Service Function Allocations.............................................................................34 Figure IV-7. Allocations Factors ..........................................................................................35 Figure IV-8. Cost-of-Service Revenue Summary...................................................................35 Figure IV-9. Customer Class Allocations for Demand Service Levels .......................................36 Figure IV-10. Customer Class Projected FY 2022-23 Demands ..............................................36 Figure IV-11. Allocation Summary.......................................................................................37 Figure V-1. Breakpoint Locations – Residential.....................................................................39 Figure V-2. Incremental Unit Cost – Residential ...................................................................40 Figure V-3. Calculation of Proposed Volume Charge Rates – Residential.................................40 Figure V-4. Cost-of-Service Increments Per Tier – Residential ...............................................41 Figure V-5. Volume Charge Structure Comparison................................................................42 Figure V-6. Calculation of Non-Residential Uniform Volume Charge .......................................42 Figure V-7. Proposed Volume Charge Rates.........................................................................43 Figure V-8. WSCP Required Water Use Reductions by Class ..................................................44 Figure V-9. Calculation of Shortage Reductions by Stage and Customer Class.........................45 Figure V-10. Revenue Stabilization Factors by WSCP-Defined Shortage Stage.........................47 Figure V-11. Sample Rates With Revenue Stabilization Factors – 2023...................................48 Figure V-12. Service Charge Units of Service .......................................................................50 Figure V-13. Service Charge Unit Costs ...............................................................................50 Figure V-14. Proposed Bi-Monthly Service Charge Rates – FY 2022-23...................................51 Figure V-15. Proposed Bi-Monthly Service Charge Rates .......................................................51 Figure V-16. Balance of Fixed and Variable Costs and Charges..............................................52 Figure VI-1. Sample Customer Bills - Residential (with 1” Meter)...........................................54 Figure VI-2. Residential Bill Comparison ..............................................................................55 Town of Hillsborough Water Rate Cost-of-Service Study
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Figure VI-3. Non-Residential Bill Comparison .......................................................................56

GLOSSARY
AMI - automated metering infrastructure.

ARPA – American Rescue Plan Act
AWWA – American Water Works Association.

BAWSCA – Bay Area Water Supply and Conservation Agency.

Breakpoint – The volume of water per billing period separating tiers in tiered rate structures.

CWS – California Water Service Company.

CCF – Hundred cubic feet (see HCF below).

CIP - Capital Improvement Program.

COS - Cost of Service.

CY - Calenda Year
EMU – Equivalent Meter Unit.

FY - Fiscal Year.

FAC - Financial Advisory Committee.

Flat rates - Fixed charges per account that do not vary based on metered water use. Flat rates are found in unmetered water systems and in wastewater rates. Flat rates are not uniform rates (see below).

GCD – Gallons per Capita per Day, in reference to the amount of water used per person.

GPD - Gallons Per Day.

HCF - Hundred cubic feet of metered water; 748 gallons; a cube of water 4.6 feet on edge. One HCF per month is about 25 gallons per day.

Meter charges - One-time charges for the purchase of a meter. Meter charges are not Service Charges (see below).

O&M - Operating and Maintenance, in reference to the costs of running facilities.

PAYGo - Pay-As-You-Go, in reference to funding capital improvements from cash rather than from borrowed sources such as bonds or loans.

Revenue Stabilization Factors – Factors applied to Volume Charges to stabilize revenue to meet the Town’s water revenue requirement during periods of conservation when there are significant reductions in water usage, and hence in water revenues.

Service Charges – Fixed charges paid per account regardless of the amount of water used. The charge is proportionate to the capacity of the customer’s service, which is the capacity of the pipe connecting from the main to the meter, or the meter, whichever is smaller. Service Charges are not meter charges (see above). The Town’s Service Charges are called “Fixed Service Charges.” SFPUC - San Francisco Public Utilities Commission.

Uniform rates - Constant charges per unit of consumption that do not change depending on the amount used. Uniform rates are not flat rates (see above).

Volume Charges – The product of rates per unit of metered water consumption multiplied by a customers metered water use during the bi-monthly billing period.

WSCP – Water Shortage Contingency Plan.

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WSIP – Water Supply Improvement Plan, which is prepared by the SFPUC.

REFERENCES

1. New and Existing Source Capacity. 22 CCR § 64554.

2. Principles of Water Rates, Fees, and Charges. American Water Works Association Manual M1. 2017.

3. Annual Survey. Bay Area Water Supply and Conservation Agency. April 2022.

4. Urban Water Management Plan. Town of Hillsborough. July 2020.

5. Water Shortage Contingency Plan. Town of Hillsborough. July 2020.

6. California Water Code. Div. 1, Sec. 1, Ch. 3.3 Excessive Residential Water Use During Drought. Added August 2016.

ACKNOWLEDGEMENTS
City Council
Alvin Royse, Mayor
Christine Krolik, Vice Mayor
Marie Chuang, Councilmember
Sophie Cole, Councilmember
Laurence May, Councilmember
Financial Advisory Committee
Charles “Chick” Adams, Chair
Richard Kuersteiner, Member
Jeffrey Baxter, Member
Joel Friedman, Member
Michele Gutierrez, Member
Catherine Lee, Member
Tom Maloney, Member
D. Paul Regan, Member Emeritus
Town Staff
Ann Ritzma, City Manager
Jan Cooke, Finance Director
Paul Willis, Public Works Director
Rich Santiago, Assistant Finance Director
Legal Counsel
Lutfi Kharuf, Esq.

HF&H Consultants, LLC
Rick Simonson, C.M.C., Senior Vice President
Gabe Sasser, P.E., Senior Associate
Town of Hillsborough Water Rate Cost-of-Service Study
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LIMITATIONS
This document was prepared solely for the Town of Hillsborough in accordance with the contract between the Town and HF&H and is not intended for use by any other party for any other purpose.

In preparing this study, we relied on information from the Town, which we consider accurate and reliable.

Our analysis is based on the best available information at the time of the study.

Rounding differences caused by stored values in electronic models may exist.

This document represents our understanding of relevant laws, regulations, and court decisions but should not be relied upon as legal advice. Questions concerning the interpretation of legal authorities referenced in this document should be referred to a qualified attorney.

WATER RATE COST-OF-SERVICE STUDY

Town of Hillsborough Water Rate Cost-of-Service Study
Draft Report I. Executive Summary
HF&H Consultants, LLC Page 1 August 3, 2022
I. EXECUTIVE SUMMARY

BACKGROUND
The Town operates and maintains a potable water distribution system to serve its residents and water users. It is a complex system with varying topography and 19 separate but interconnected pressure zones.

The infrastructure network includes 108 miles of water mains, 18 water tanks, 14 water pump stations and over 7,500 various assets, such as water meters, fire hydrants, and valves. The San Francisco Public Utilities Commission (SFPUC) delivers treated wholesale water to the Town from its Hetch Hetchy system.

This water is delivered through ten master meter locations from the SFPUC’s 42-inch and 60-inch transmission pipelines. From these connections, the Town pumps and delivers water to approximately 4,270 customers, of which nearly all are single-family residential.

The Town is currently facing the challenge of reduced water allocations in FY 2022-23. Following curtailment orders of water diversions, affecting SFPUC’s water supply, BAWSCA issued reduced allocations to each of the member agencies. Most recently in May, BAWSCA issued reduced allocations to each member agency in order to reduce BAWSCA-wide cumulative water purchase volumes by 15% relative to FY 2019- 20 volumes. For its share, Hillsborough is expected to reduce its purchased water by 16.2%. Drought considerations are factored into expense and revenue projections, and the recommended rates .

The water rates in this study were developed using rate-making principles set forth by the American Water Works Association in Principles of Water Rates, Fees and Charges (M1 Manual). This Manual’s cost-ofservice principles endeavor to distribute costs to customer classes (also referred to as classes) and to individual customers in proportion to the way customers use the water system. Pursuant to the M1 Manual, rate studies generally contain three elements: (1) a revenue requirements analysis, which determines how much revenue is needed from rates to recover a utility’s projected costs; (2) a cost-of-service analysis, which allocates the revenue requirements to the rate components;1 and (3) a rate design analysis, which determines any modifications that are required to align the rate structure with the cost of service.

Rate studies always include a revenue requirements analysis. A cost-of-service analysis is typically only conducted periodically. It is recommended that a cost-of-service analysis be conducted at least every five years to account for any material differences in the costs of providing service and in the water usage among customer classes, which will affect their respective shares of the cost of service. In the interval between cost-of-service studies, revenue requirements may be updated to determine how much to increase rates annually without modifying the rate structure. The Town has updated the revenue requirement and reviewed its water rates annually since the previous adoption of the cost-of-service study in 2017.

Since the previous cost-of-service analysis, changes in demand patterns among customer classes has occurred, which affects the factors that are used to allocate costs. The costs to which the allocation factors are applied also change. Hence, there will be differences between the previous and current cost-of-service analyses. Adjustments are made to reflect the differences and rates are set accordingly. 1 The cost-of-service analysis in the current study tailors the base/extra capacity method to account for unique conditions, circumstances, and factors related to the Town’s cost of providing water service, which the M1 Manual does not specifically address.

Town of Hillsborough Water Rate Cost-of-Service Study
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HF&H Consultants, LLC Page 2 August 3, 2022
The cost-of-service analysis proportionately allocates the revenue that is required from rates to the components of the rate structure and to the customer classes. Costs are classified corresponding to the function they serve. Each function’s costs are further allocated to each component of the rates in proportion to the level of service required by customers. The levels of service are related to volumes of peak and nonpeak demand, infrastructure capacity, and customer service. Ultimately, a cost-of-service analysis ensures that the rates yield charges that are proportional to the cost of providing service to each customer.

The following discussion summarizes HF&H’s findings and recommendations.

REVENUE REQUIREMENTS
The revenue requirements were updated to reflect projected customer demands and the costs associated with meeting those demands. The seven-year projections are shown in Figure I-1.

Over the projected seven-year study period, the Town’s revenue requirement is driven by increases to water purchase costs and capital improvement expenditures. The Town’s water supply source, SFPUC, intends to raise rates from $4.10 per hundred cubic feet (HCF) 2 to $5.32 per HCF over the next five years.

On July 1 2022, wholesale rates increased from $4.10 to $4.75 per HCF. Increases to the purchase price and a projected rebound in water demand to pre-drought levels beginning FY 2024-25 compound the water purchase increases over the study period. The Town’s capital improvement plans include an average annual expense of $3.2 million over the projection period, demonstrating the Town’s priority to continue to invest in its water system. The bulk of project expenditures are planned to support water main replacement, as well as storage and pumping infrastructure. 2 HCF (Hundred Cubic Feet) = 748.052 gallons
Town of Hillsborough Water Rate Cost-of-Service Study
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Figure I-1. Total Revenue Requirement Projections
Source: Figure III-8.

The rate and revenue increases are shown in Figure I-2. The rate increases would become effective every January 1, starting January 1, 2023.

In FY 2022-23, the percentage rate increase varies by charge because of the rate structure modifications.

The total revenue increases 3.0% because the rate adjustments are only in effect for six months. In subsequent years, the rate increases yield different revenue increases in some years because of mid-year adjustments and increase in projected water sales starting in FY 2024-25. The rate increases, beginning January 1, 2024, are applied as equal percentages across the board to all rates.

City Council has approved $1.2 million of American Rescue Plan Act (ARPA) funding to support the ”Highline” Water Pipeline development in FY 2022-23. These funds have been considered in the Town’s reserve fund balance and serve to reduce the rate adjustments proposed and shown in Figure I-2.

FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Water Purchases $5,690,991 $6,259,563 $6,914,499 $6,965,726 $6,969,460 Admin & O&M Costs $6,866,590 $6,607,136 $6,800,396 $6,991,616 $7,214,208 Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 Capital Projects $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 Total 16,921,145 17,278,784 18,106,949 18,332,197 18,588,744

2.1% 4.8% 1.2% 1.4%
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Figure I-2. Projected Revenue Increases
Source: Figure III-9.

As shown in Figure I-3, the projected increases in the revenue requirements include the replenishment and maintenance of adequate reserves. The Town’s reserve policy states that the minimum Operating Reserve balance (red line) will equal 20% of annual O&M expenses. The bond reserve required under debt covenants of $375,000 is added to the 20% Operating Reserve. An additional allowance for capital projects is shown. This Capital Reserve component is recommended to provide working capital for pay-as-you-go construction projects. The sum of the Operating and Capital Reserve components equals the Target Balance (blue line). The projected fund balance shows the use of reserves over the first three years of the rate series, attributable to the assumption of a two-year drought that then lifts in year three. The use of reserves balances the need for charging larger rate increases to customers. The projected fund balance (green solid line) is replenished above the Target Balance by the end of the proposed five-year rate series, which indicates additional reserves that provide rate stabilization. With these proposed rate increases, debt service coverage remains strong and improves during the five-year period.

Figure I-3. Projected Fund Balance
Source: Figure III-11.

Effective Date Revenue Fiscal Year
Rate of Rate After Rate Increase in
Fiscal Year Adjustments Adjustments Adjustments Revenue Revenue at 2022 Rates $14,881,123
FY 2022-23 varies 1/1/2023 $15,327,561 3.0%
FY 2023-24 6.0% 1/1/2024 $16,247,211 6.0%
FY 2024-25 5.0% 1/1/2025 $17,848,986 9.9%
FY 2025-26 4.0% 1/1/2026 $19,357,093 8.4%
FY 2026-27 2.0% 1/1/2027 $19,934,010 3.0%
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RATE STRUCTURE
Current Rate Structure
The Town’s current rate structure is composed of three components: Service Charges, Volume Charges, and Revenue Stabilization Factors.

Service Charges
The Service Charges are fixed monthly ratesthat are graduated in proportion to the capacity of the service provided. Some of the Service Charge rates vary by customer class. The Town’s Service Charges are called “Fixed Service Charges.” For ease of discussion, we refer to them as simply “Service Charges.” 3 Volume Charges
The Volume Charges are the product of rates per unit of metered water consumption multiplied times the metered water consumption during the bi-monthly billing period. Water is metered in “units” of hundred cubic feet (HCF or CCF) whereby one unit or HCF equals 748 gallons. Volume Charge rates are charged to two separate customer classes, single-family residential customers (Residential), and non-single family customers consisting of municipal and school customers (Non-Residential). For Residential customers, the Volume Charge rates consist of four tiers that charge higher rates as the level of consumption increases.

For the Non-Residential customer class (a small number of customers), the Volume Charge rate is a uniform rate4 per unit of metered water consumption.

Revenue Stabilization Factors
The Revenue Stabilization Factors are combined with the Volume Charges and are designed to ensure there is sufficient revenue to meet the Town’s water revenue requirement during periods of conservation when there are significant reductions in water usage, and hence in water revenues. These factors are not utilized to meet the projected revenue requirement in the rate study. If drought conditions vary from the assumptions used in the study and revenue is impacted, the factors can be implemented during the period needed to stabilize revenue.

All components of the rate structure were reviewed, including the composition of the customer classes, the structures of the Service Charges and Volume Charges, and the need for the Revenue Stabilization Charges.

Proposed Volume Charge Rates
About 68% of the current water rate revenue is generated by the Volume Charges. 3 The service is the connection between the public water system and the property served. The service includes the pipes, valves, and meter set (i.e., box, lid, yoke, meter, valve); in some cases, there are multiple meters. The service is installed at the property owner’s expense. After the meter is purchased and installed, customers pay Service Charge rates. It is the Town’s practice to charge a Service Charge for each meter. The terminology in this report refers to the capacity of the service and the capacity of the meter interchangeably. 4 This report distinguishes between uniform rates and flat rates. Uniform rates are constant charges per unit of consumption that do not change depending on the amount used. Flat rates are fixed amounts that do not vary based on metered water use. Flat rates are most commonly used in unmetered water systems and for residential wastewater rates.

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Tiered Volume Charge Rates
Approximately 96% of the customer water use is currently billed based on tiered Volume Charge rates (the remaining 4% is billed based on the uniform Volume Charge rate). All of this demand is from Residential customers. Based on changes in customer demands since the last cost-of-service analysis was completed for the Town, we recommend changes in the breakpoints between the tiers in the Volume Charge structure. The recommended bi-monthly breakpoints of 20, 44, and 70 HCF would shift to 22, 44, and 78 HCF.

The cost-of-service analysis represents the cost of providing service to increasing levels of demand ranging from the lowest demand that places the least peak demand on the system to the highest peak demand, the cost of which is nearly three times the Tier 1 rate.

We recommend revising the Revenue Stabilization Factors that could be applied to the Volume Charge rates during water shortages to compensate for changes in water use and varying levels of discretionary water use among the Residential and Non-Residential customer classes. There should be a Revenue Stabilization Factor corresponding to each reduction stage in the Town’s Water Shortage Contingency Plan, which contains conservation requirements for each stage of water shortage. The Revenue Stabilization Factors are designed only to offset the amount of revenue shortfall caused by conservation in effect in the Town during the specific water shortage stage, state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand. As such, they are revenue neutral and not a means to increase rate revenue beyond the amount that would have been generated under non-water shortage conditions.

Figure I-4 summarizes the Revenue Stabilization Factors that correspond to the water shortage stages in the Town’s Water Shortage Contingency Plan. The Volume Charge rates derived in this study accounted for changes to consumption driven by the current water shortage. However, if the Town experiences a water shortage beyond the level of consumption projected, the normal-year Volume Charge rates would be multiplied times the corresponding Revenue Stabilization Factor to determine the Volume Charge rates.

For example, if customers are required to cut back 20% (a Stage 2 water shortage) , a Revenue Stabilization Factor of 1.113 would be multiplied times the normal-year Volume Charge rates that are in effect for Residential customers(summarized in Figure I-4). If the water shortage stage increased to 40%, a Revenue Stabilization Factor of 1.302 would be multiplied times the normal-year Volume Charge rates. If the water shortage stage then decreased to 30%, the Revenue Stabilization Factor would be reduced from 1.302 to

1.194.

The formula5for calculating Revenue Stabilization Factors corresponding to other levels of cutback is provided in Chapter V of this study. The Revenue Stabilization Factors only apply to the tiered and uniform Volume Charge rates and not to Service Charge rates, which are independent of water demand. 5 Following Figure V-9 of this study.

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Figure I-4. Revenue Stabilization Factors
Source: Figure V-12
Uniform Volume Charge Rate
Approximately 4% of customer water use is currently billed a Volume Charge at a uniform rate (i.e., the same dollar amount per hundred cubic feet regardless of how much water is used during the billing period). This class currently includes all non-single family residential customers and is denoted as Non-Residential in this study and in the Town’s water rates.

This small, heterogeneous customer class comprises a variety of demand patterns. In cases like this, we recommend continuing to charge a uniform rate, which is simple to derive and fairly stable. With such a small class of disparate water use patterns, tiered rates are not advised. The continued use of a uniform rate, therefore, is appropriate because customer usage patterns are not homogenous. We also recommend applying Revenue Stabilization Factors specific to the Non-Residential customer class during the declared water shortage stages, state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand.

Summary of Volume Charge Rates
Figure I-5 summarizes the current and proposed Volume Charge rates. The proposed rate analysis was derived using calendar year (CY) 2021 water demand patterns. Assumptions of total water use were reduced to coincide with the Town’s reduced purchase water allocation for CY 2022. More detail is discussed in the Demand Projections section of Section III of this report.

For the proposed, tiered Volume Charge rates for the Residential class, the number of tiers remains the same, however the breakpoints have been adjusted. The Tier 1 and Tier 3 breakpoints are increasing, thus, compressing the width of Tier 2. The expansion of Tier 3 results in larger incremental rate increases to Tier 3 and Tier 4 level customers than those customers with average or below-average use. Overall, the more water a Residential customer uses, the greater the increase to the Volume Charge portion of their bill.

The uniform Volume Charge rate for the Non-Residential customer class increases 8.9% in the first year to re-align with the cost-of-service. After the first year, the Non-Residential rate increases uniformly according to the recommended revenue increases of 6%, 5%, 4%, and 2%.

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Figure I-5. Current and Proposed Monthly Volume Charge Rates Source: Figure V-7.

Proposed Service Charge Rates
Currently, about 32% of the rate revenue is generated by the current Service Charges. For a bill of average monthly water use, the Service Charge represents slightly more than one-third of the total bill.

The current rates for the Service Charges have been set according to the capacity of the service, regardless of what class of customer is connected. The capacity provided by services (i.e., water meters) of the same size is the same regardless of how much water is used and for what purpose. We recommend the Town continue with this same structure. Adjustments in CY 2023 are recommended to re-align the Service Charge rates with the cost-of-service, which would shift rate revenues so that the proposed Service Charges generate 30% of the overall rate revenue, which provides adequate revenue stability when combined with the relatively fixed revenue from non-seasonal water demand.

Note that the recommended Revenue Stabilization Factors only apply to the Volume Charge rates. Revenue from Service Charges is not influenced by water demand and is therefore unaffected by conservation or fluctuations in customer demand.

Summary of Service Charge Rates
Figure I-6 summarizes the current and proposed rates to re-align with the cost of service. The “Proposed” rates are calculated for adoption January 1 of each year.

Figure I-6. Current and Proposed Monthly Service Charge Rates Source: Figure V-15.

Current Current Proposed
Breakpoints Rate Breakpoints CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 Residential (hcf) (hcf)
Tier 1 0-20 $6.16 0-22 $6.39 $6.77 $7.11 $7.39 $7.54
Tier 2 21-44 $7.82 23-44 $8.47 $8.98 $9.43 $9.80 $10.00 Tier 3 45-70 $10.74 45-78 $13.61 $14.43 $15.15 $15.76 $16.07 Tier 4 71+ $16.40 79+ $18.40 $19.50 $20.48 $21.30 $21.72 Non-Residential uniform $8.26 uniform $8.99 $9.53 $10.01 $10.41 $10.62 Current
Proposed
Service Size Charge CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 3/4" $141.48 $144.82 $153.50 $161.18 $167.63 $170.98
1" $172.32 $171.34 $181.62 $190.70 $198.33 $202.29
1-1/2" $241.66 $231.01 $244.87 $257.12 $267.40 $272.75
2" $334.13 $310.58 $329.22 $345.68 $359.50 $366.69
3" $580.73 $522.76 $554.12 $581.83 $605.10 $617.21
6" $1,628.74 $1,424.52 $1,509.99 $1,585.49 $1,648.91 $1,681.88 8" $2,553.45 $2,220.18 $2,353.40 $2,471.07 $2,569.91 $2,621.31 Town of Hillsborough Water Rate Cost-of-Service Study
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II. INTRODUCTION

STUDY PURPOSE
The purpose of this study is to conduct a cost-of-service analysis that will determine rates that proportionally recover the cost of providing the Town’s water service. Toward that end, the cost-of-service analysis determines how much revenue should be generated by each component of the rate structure so that rate payers within each customer class are charged for their proportionate share of the cost of providing service on a parcel basis. The cost-of-service analysis is tailored specifically to the Town’s customer classes and the rate structures that are appropriate for each class.

STUDY PROCESS
HF&H Consultants (HF&H) completed a water rate study for the Town in December 2016. At a public hearing on March 13, 2017, the City Council adopted the recommended rates from the study. The study projected the Water Enterprise’s operating and capital expense projections, for a five-year planning period, and recommended restructuring the Town’s fixed service charges and tiered volume charges for water service. The restructuring included reducing the size and number of tiers for Residential customers from five tiers to four tiers.

The Town conducted annual reviews of the adopted rate increases. The first two (of five) increases were implemented, taking effect on May 1, 2017 (revenue neutral adjustment) and then again on January 1, 2018. Annual rate reviews in 2019-2021 recommended forgoing the original rate increase. To summarize, the rate increases were planned as follows (and implemented where noted):
• May 1, 2017 – various rate changes; revenue neutral in total (implemented) • January 1, 2018 – 8% (implemented)
• January 1, 2019 – 8% planned increase; no increase was implemented • January 1, 2020 – 5% planned increase; no increase was implemented • January 1, 2021 – 5% planned increase; no increase was implemented Previously adopted rate increases that were not implemented were due to savings from anticipated SFPUC wholesale rate increases that were ultimately not adopted by the SFPUC.

HF&H conducted an annual rate update last year to assess the need for a rate increase in 2022. A 3% increase was recommended and adopted, effective January 1, 2022.

The Town requested HF&H to update the cost-of-service study for 2023 to ensure that rates continue to reflect the current cost of providing water service. A comprehensive rate study comprises three steps: 1) revenue requirement projections; 2) cost-of-service analysis; and 3) rate design. Revenue requirement projections identify how much revenue is needed from rates. The cost-of-service analysis determines how much of the revenue should come from the fixed and variable charges. This step also confirms the proportionate amount to be paid by each customer class. The final step, rate design, establishes the structure of the fixed service charges and the variable volum charges for each customer class.

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The cost-of-service analysis was conducted following industry practices promulgated by the American Water Works Association.6 At the outset of the analysis, the types of customer classes were reviewed, as were the types of rate structures that are appropriate to the Town’s customer class.

REPORT ORGANIZATION
Figure II-1 diagrams the rate-making analysis beginning with the revenue projections, followed by the cost-of-service analysis, rate design, and analysis of bill impacts. The diagram identifies the key figures in the report to guide the reader to specific parts of the analysis.

An appendix contains a copy of the rate model. A Glossary of technical terms and acronyms is provided following the Table of Contents. The major documents cited in this report are listed in the References or are on file with the Town.
6 Principles of Water Rates, Fees, and Charges. American Water Works Association Manual M1. 2017.

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Figure II-1. Summary of Rate Analysis

MULTI-YEAR REVENUE REQUIREMENT PROJECTIONS

COST-OF-SERVICE ALLOCATIONS
FY 2022-23 Revenue Requirement

RATE DESIGN
Monthly Billing Period
Five-year projections
FY 2022-23 to FY 2026-27
Fig. III-7
Classify costs by function
Demand Water supply
Transmission
Pumping
Storage
Distribution
Service
Fig. IV-1
Allocate demand functions to
service levels
Demand
Base Day
Average Day
Maximum Day
Maximum Hour
Service
Account
Capacity
Fig. IV-6
Develop allocation percentages
for demand service levels
Base Day
Average Day
Maximum Day
Maximum Hour
Fig. IV-5
Allocate demand service levels
to customer categories
Non-Residential
Residential
Fig. IV-9
Develop allocation percentages
for customer categories
Fig. IV-8
Volume Charges - Residential
Four tiers
0 - 22 hcf $ 6.39/hcf
23 - 44 hcf $ 8.47/hcf
45 - 78 hcf $ 13.61/hcf
Over 78 hcf $18.40/hcf
Fig. V-3
Volume Charges - Non-Residential
Uniform untiered
$8.99/hcf
Fig. V-6
Service Charges - Per Account
3/4" $ 144.82
1" $ 171.34
1 1/2" $ 231.01
2" $ 310.58
3" $ 522.76
6" $ 1,424.52
8" $ 2,220.18
Fig. V-14
Bill Impacts - Residential
Low
Average
High
Very high
Fig. VI-1
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III. REVENUE REQUIREMENTS
The revenue requirements analysis starts by determining the FY 2022-23 revenue requirements based on the budgeted O&M and capital expenditures. Revenue requirements for each fiscal year are then projected over a five-year planning period.7 Revenue increases needed to cover the projected revenue requirements are then determined. Over a five-year period, it is possible to derive a relatively smooth series of rate increases that minimize annual fluctuations.

DEMAND PROJECTIONS
The revenue requirements projected during the study period are based on the Town’s unique circumstances. Projected customer demand is particularly significant because it affects certain variable expenses such as the cost of purchased water as well as the revenue from water sales. Customer demand depends on the types of customers, the nature of their demands, the trendsin their water use, growth, and climate, among others.

The Town consists almost entirely of single-family residences built on large parcels. There are no significant residential developments in process at the time of this writing. The Town has public schools, private schools, a golf course,small public parks, and a Caltransrest stop. The Town has no commercial, industrial, or institutional parcels planned for new development. The service area is largely developed, and population growth is expected to be very low. For purposes of this rate study, it is assumed that there will be no growth in accounts or in water demand.

Water service varies from customer class to customer class. For the Residential class, most indoor water use is essential and fairly constant during the year. There is very little seasonal variation in indoor water use compared to outdoor water use, which in the Town’s case is the majority of the Residential water use.
8 Most of the outdoor water use is for landscape irrigation. Irrigation is largely a discretionary use of water compared with indoor water use.9 People have more choice in deciding how much vegetation to irrigate, the type of vegetation, the manner of irrigation, the duration of irrigation, and when to irrigate. Irrigation varies by season, which in the Town’s case is accentuated by its dry summer climate.

Figure III-1 shows that the Town’s water use per capita of 219 GCD in FY 2020-21 was 3.3 times the 65.8 GCD average for the collective SFPUC wholesale customers. For reference, the Town’s previous water use per capita as of FY 2014-15 was 231 GCD. Thus, some level of conservation has occurred since the previous cost-of-service study.
7 Demand projections are a key driver in determining both expenditures and revenues from water sales. 8 CY 2021 billing data indicate that seasonal water use was 53% of total annual demand (i.e., more than half). However, that data may have been influenced by conservation. 9 Arguably, people also exercise discretion with their indoor water usage, as reflected by the number of residents in each single-family home.

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Figure III-1. Per Capita Residential Water Use Comparison (FY 2020-21) Source: BAWSCA Annual Survey FY 2020-21.

The Town is currently facing the challenge of reduced water allocations in FY 2022-23. Following curtailment orders of water diversions, affecting SFPUC’s water supply, BAWSCA issued reduced allocations to each of the member agencies. Most recently in May 2022, BAWSCA issued reduced allocations to each member agency in order to reduce cumulative water purchase volumes by 15% relative to FY 2019-20 volumes. For its share, Hillsborough is expected to reduce its purchased water by 16.2%.

Water demand projections are an important consideration in the study, as the cost to purchase water is 36% of the annual costs to operate the Town’s water system. Assumptions of projected water use directly affect the level of revenue increase needed. Over the study period, the Town has assumed water demand will rebound after back-to-back years of conservation ending in FY 2024-25.

Water demand projections used in this study are shown in Figure III-2. If demand over the next five years is higher than projected, the Town may find that it does not need to implement the proposed maximum rates in any given year or years. The Town does not have to increase the proposed rates if they are not needed and can adopt lower rates without undergoing a full Proposition 218 notification and protest hearing process. If, on the other hand, demand continues below projected level of demand, the Town would run a deficit, the consequences of which are problematic. The Town’s reserves could be depleted unless and until it increased rates that are higher than the proposed maximum rates.10 10 If a reduction in demand is the result of mandatory water use restrictions during a declared water shortage stage, the Town may offset revenue losses by implementing the Revenue Stabilization Factors.

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REVENUE REQUIREMENT ASSUMPTIONS AND PROJECTIONS
Expense projections combined with contributions to reserves become the revenue requirements. The Town’s operating and capital budgets were relied on for the majority of FY 2022-23 expenses in the firstyear revenue requirement. The assumptions shown in Figure III-2 were used to project revenue requirements through FY 2026-27.

Figure III-2. Projection Assumptions
Source: Model tab 1b. Assumptions & Policies
SFPUC Purchased Water Costs
The Town is entirely reliant on the SFPUC for its water supply. As a member of the Bay Area Water Supply and Conservation Agency (BAWSCA), the vast majority of the Town’s water supply expenses are driven by two usage-based rates: 1) SFPUC’s annual rate and 2) BAWSCA’s bond surcharge rate11. Figure III-3 plots the SFPUC wholesale rates and BAWSCA surcharges, since FYE 2008. SFPUC’s annual rate (shown in dark blue) has not changed since FYE 2017. This is a primary reason that the Town did not implement previously adopted rate increases under the previous rate study. However, SFPUC provided notice to increase the current rate of $4.10 per HCF to $4.75 per HCF beginning July 1, 2022. Further, the SFPUC’s notice forecasted rates would increase to $5.32 per HCF by FYE 2027, an additional 12% increase to the July 1, 2022 rate increase.

Beginning FYE 2014, the BAWSCA bond surcharge rate (shown in light blue) was added so that each agency could pay its proportionate share of debt issuance based on purchased water have increased as bonds have been sold to fund the WSIP projects. The bond surcharge rate has been assumed to remain flat until FYE 2028 in the revenue requirement projections.

Since 1984, the SFPUC’s wholesale rates have been set in compliance with rate-making agreements. The agreements contain provisions that annually reconcile projected expenses and demands with actual expenses and demands. The difference is rolled forward into the ensuing year’s rates. In this way, both the SFPUC and the 26 wholesale customers are protected. However, it also means that the annual adjustment 11 The SFPUC charges a fixed service charge, currently 2% of total purchased water costs, which is not impacted by the amount of water the Town purchases
FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Assumptions
(1) General Inflation Budget 2.5% 2.5% 2.5% 2.5%
(2) Salaries & Benefits Budget 4.5% 4.5% 4.5% 4.5%
(3) Interest on Earnings Budget 0.5% 0.5% 0.5% 0.5%
(4) Non-rate Revenues Budget 0.0% 0.0% 0.0% 0.0%
(5) SFPUC Water Rates ($/HCF) $4.75 $5.28 $5.28 $5.32 $5.32 (6) SFPUC Service Charge 2.5% 2.5% 2.5% 2.5% 2.5%
(7) SFPUC Water Purchases (HCF) 1,110,662 1,110,662 1,239,171 1,239,171 1,239,171 (8) % Change in Demand (cumulative) -10.4% 0.0% 11.6% 0.0% 0.0% (9) SFPUC Water Purchase Losses 4.0% 4.0% 4.0% 4.0% 4.0% (10) SFPUC BAWSCA Bond Surcharge ($/HCF) $0.40 0.0% 0.0% 0.0% 0.0% (11) Construction Cost Inflation Budget 2.5% 2.5% 2.5% 2.5% Town of Hillsborough Water Rate Cost-of-Service Study
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can either increase or decrease rates, which leads to some short-term volatility in the wholesale rates that can accentuate annual rate fluctuations.

Figure III-3. Historical and Projected SFPUC Wholesale Rate Source: BAWSCA data.

The rising SFPUC rates and current BAWSCA bond surcharge rate were built into the revenue requirement projections. The cost of SFPUC water is 36% of the annual revenue requirement – the largest single item.

The impact of these significant increases in wholesale rates on the revenue requirements over the study period cannot be overstated.

Operating Expenses
This cost category includes direct salaries and benefits, materials and services, contract services, and overhead. These expenses are projected to increase gradually at about 3% during the projection period, according to Town estimates.

Contributions to Capital Reserves
Rates need to generate enough revenue to cover unfunded annual operating and capital expenses. However, rates are not set to exactly match cash expenditures because the timing of cash expenditures can fluctuate. If rates were set to exactly match expenditures, rates would also fluctuate. To avoid increasing and decreasing rates from year to year, reserves are used to cover the difference so that rate increases are smooth and gradual. In order to maintain adequate reserves to help modulate rates, the revenue requirements include contributions to reserves. The contributions to reserves represent additional revenue from rates that is needed to maintain adequate operating and capital reserves.

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The Town’s current level of reserves has enabled it to maintain a strong credit rating, which reduces its financing costs.12 The Town uses its reserves to stabilize rates against annual fluctuations in capital expenditures, variances between projected and actual water demands, and unanticipated expenditures and other expenditure variances. In some years, there is surplus revenue that is available to replenish reserves.

In other years, reserves are drawn down to cover the cost of service.

Rates are set to generate a constant level of revenue to maintain reserves at adequate levels. At the same time that revenue from rates is added to reserves, reserves are drawn down to fund capital projects whose costs vary from year to year. In effect, reserves are used to buffer rates from varying levels of capital expenditures and unforeseen variances in operating expenditures. For the most part, however, the variances are due to capital projects (see Figure III-4).

Even though the Town has constructed facilities to provide water service, these facilities will depreciate and eventually need to be replaced. It is unrealistic to think that the system has already been built and paid for and that there will be no future capital costs. The Town has in place a Water Master Plan and in 2014 prepared an updated thirty-year Capital Improvement Project Plan to prioritize and address longterm capital projects. Based on this Plan, the revenue requirement projections show an increase in the contribution to reserves in FYE 2023 needed to fund the capital improvement program, which contains approximately $16.5 million in cash-funded capital projects over the next five years as shown in Figure III4. An average annual expenditure of $3.2 million is the amount that is contributed to reserves from revenue requirements beginning in FYE 202313 .

City Council has approved $1.2 million of American Rescue Plan Act (ARPA) funding to support the ”Highline” Water Pipeline development in FY 2022-23. This develop includes the Darrell Tank Improvement projects specified in Figure III-4. These funds have been considered in the Town’s reserve fund balance and serve to reduce the overall amount of capital improvement expenditures to be funded via rate revenues. 12 See Figure III-11 and adjoining text for additional discussion of the policies and assumptions related to minimum and target balances for the reserves.
13 Refer to the note in Figure III-4 for an explanation of why the reserve contribution varies from the five-year average.

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Figure III-4. Projected Capital Improvement Program
Source: Model tab 5 CIP. Note: For purposes of analysis a 7-year average of $3.1 million was assumed as the escalated, annual PAYGo CIP in the cost-of-service analysis. The Town assumed $2.5 million per year would be spent toward PAYGo CIP in FY 2027-28 and FY 2028-29.

Debt Service
The Town has four outstanding bond obligations totaling $21.9 million that the Water Fund contributes to. The annual debt service is approximately $2.1 million of which the Water Fund’s share is $1.1 million.

The bonds funded the projects summarized in Figure III-5. The majority of these capital projects are storage and distribution facilities that are needed to meet peak demands. Although these projects were constructed and are in service, the debt service on these bonds will not be repaid for many years. Thus, it is not the case that the system has been built and already paid for.

Figure III-5. Current Debt-Funded Capital Projects
For ratemaking purposes, the Town has assumed future issuance of debt to fund the “Highline” Water pipeline project. The “Highline” Water Pipeline is a noteworthy project that will provide an alternative connection to the SFPUC at a higher elevation. When completed, the project is expected to reduce pumping costs and provide a more reliable source of water for emergencies (e.g., earthquake, fire). While the cost will be shared among multiple agencies, the term of the cost sharing agreement remains undetermined. The analysis assumes the Town will fund $6.5 million of the overall project. The financial analysis assumes the Town receives a low-interest State Revolving Fund (SRF) loan, payable over a 30-year term, Capital Improvement Projects FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 5-Year Total PAYGo-Funded Projects $0
Demolish Forrestview Tanks #1 and #2 $449,500 $449,500 $899,000 Demolish Major Hayes Tank and Piping $253,500 $253,500
Water Main Replacement Program $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $5,000,000 Darrell Pump Line Rehab and Replacement $1,000,000 $1,600,000 $2,600,000 Darrell Tank Improvements $3,650,000 $3,650,000
Clark Concar Pump Station Generator $900,000 $900,000 $900,000 $2,700,000 SCADA Improvements $75,000 $75,000 $75,000 $75,000 $75,000 $375,000 Future Projects $0
Total $4,725,000 $2,424,500 $3,678,000 $3,575,000 $1,075,000 $15,477,500 ENR Constrution Cost Index adjustment 1.025 1.051 1.077 1.104 1.131 $5 Escalated PAYGo Funded CIP $4,843,125 $2,547,240 $3,960,804 $3,946,131 $1,216,264 $16,513,564 Average Annual CIP $3,302,713
Debt-Funded Projects $0
"Highline" Water Pipeline $100,000 $500,000 $1,700,000 $3,000,000 $700,000 $6,000,000

1.025 1.051 1.077 1.104 1.131
Escalated Debt-Funded CIP $102,500 $525,313 $1,830,714 $3,311,439 $791,986 $6,561,951 0 Total Escalated CIP $4,945,625 $3,072,553 $5,791,518 $7,257,570 $2,008,250 $23,075,515 Category ECE 2012 Series 2006A Series 2003A Series 2000 A&B Total Water Distribution System $2,700,000 $2,680,000 $398,000 $5,778,000 Water Storage System $3,000,000 $2,350,000 $5,350,000
Tank Replacement/Upgrades $908,700 $2,770,000 $3,678,700 Misc Improvements $500,000 $690,000 $1,190,000
$908,700 $6,200,000 $5,720,000 $3,168,000 $15,996,700
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which results in annual debt service payments of approximately $285,000 per year. Because payments on the SRF loan will not begin until the project is completed in FY 2026-27, the first payment would begin in FY 2027-28. The current debt service is summarized in Figure III-6.

Figure III-6. Projected Debt Service Requirements
Note: Assumed future debt service to fund the Town’s portion of the “Highline” Water Pipeline project assumed to begin FY 2027-28.

The major expenses described above that comprise the revenue requirements are shown in Figure III-7.

It can be seen that cost of wholesale water is the largest individual cost among these four cost categories.

In the Town’s case 36% of its revenue requirement is for the cost of water, which will vary in direct proportion to demand.

Figure III-7. Total Revenue Requirement Projections
Source: Model tab 2. Revenue Requirement; data from Town’s FY 2022-23 Budget.

FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Total Existing Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Water Purchases $5,690,991 $6,259,563 $6,914,499 $6,965,726 $6,969,460 Admin & O&M Costs $6,866,590 $6,607,136 $6,800,396 $6,991,616 $7,214,208 Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 Capital Projects $3,197,787 $3,197,787 $3,197,787 $3,197,787 $3,197,787 Total 16,921,145 17,278,784 18,106,949 18,332,197 18,588,744

2.1% 4.8% 1.2% 1.4%
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RESERVES
Reserves are required to stabilize rates and to provide for contingencies. Reserves can be drawn on in years when the Town’s Water Fund experiences above average costs and augmented during years when costs are below average. The Town’s reserves are used for operating and capital purposes. Each of these purposes has its own requirements that lead to minimum and optimum target balance. Rates must be set so that the fund balance achieves the target balance.

Operating Reserve Component
The operating component of the reserves provides working capital for month-to-month O&M expenses.

With sufficient working capital, the Town can operate without cash flow constraints. The Town’s reserve policy states that the minimum operating reserve balance will equal 20% of annual O&M expenses. As in past years, a bond reserve of $375,000 was added to this amount. This reserve policy tracks with HF&H’s recommendation of a minimum operating reserve that is equal to at least 1.5 times the billing frequency (or three months in the Town’s case). The Town’s reserves should never drop below this minimum balance.

Capital Improvement Reserve Component
The capital improvement component of the reserves provides cash funding for the Town’s capital improvement program. The fund balance needs to be sufficient to pay contractors and purchase materials without delays caused by cash flow limitations. HF&H has assumed a seven-year average annual amount for this reserve component. The cash-funded capital amount, $3,197,787, was derived in Figure III-7 and accounts for planned capital expenditures between FY 2022-23 and FY 2028-29.

REVENUE INCREASES
Rates are set to generate sufficient revenue to cover annual expenses. In addition, rates are set to maintain adequate reserves. The revenue from rates does not need to match each year’s revenue requirement.

For example, the annual increases in the revenue requirements shown at the bottom of Figure III-7 are different from the revenue increases in Figure III-8. Annual fluctuations in revenue requirements are typically uneven because they are harder to control, whereas it is desirable to have smooth annual increases in rates. The annual differences cause the fund balance to fluctuate from year to year.

Revenue increases were derived to cover the Town’s Water Fund costs and to maintain adequate reserves. Figure III-9 summarizes the projected revenue from current rates, annual revenue requirements, annual variances, and the rate increases necessary to cover the Town’s costs.

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Figure III-8. Rate Increase Calculations
Rate increases account for rate revenue, growth, and future revenue requirements. The revenue requirement (shown in greater detail in Figure III-7) increases due to a rebound in water demand and increasing water supply costs. Also, the Town’s capital improvement program projects a higher average annual level of expense than the historic average of $2.0 million. Figure III-9 summarizes the resulting annual increases in rates and revenues from the proposed Service and Volume Charge rates. In FY 2022-23, the percentage rate adjustment varies by charge because of the rate structure modifications. The fiscal year increase in revenue and rate adjustment columns typically do not match. This is the result of two factors. First, the Town implements rate increases mid-fiscal year. Thus, any changes to the rates apply to six months instead of the whole fiscal year period. In effect, the rates of one calendar year are made up of rates set in adjoining fiscal years. Second, fluctuations in projected water use result in larger revenue increases than the given fiscal year rate adjustment. Beginning FY 2024-25, the rate increases are applied as equal percentages across the board to all rates.

Figure III-9. Projected Revenue Increases
Source: Model tab 3. Revenue Increase
It is assumed that the rate increases will occur January 1 of each year. Hence, the revenue from each year’s rate increase is generated for half of the fiscal year.

Projected
FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Revenue from Current Rates $14,881,123 $14,881,123 $16,045,751 $16,045,751 $16,045,751 Revenue Requirement ($16,921,145) ($17,278,784) ($18,106,949) ($18,332,197) ($18,588,744) Non-Operating Revenue $56,500 $56,500 $56,500 $56,500 $56,500 Net Revenue Requirement ($16,864,645) ($17,222,284) ($18,050,449) ($18,275,697) ($18,532,244) Revenue Surplus/(Shortfall) ($1,983,521) ($2,341,160) ($2,004,698) ($2,229,946) ($2,486,493) Proposed Rate Increase 6% 6% 5% 4% 2%
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The rates are derived in Chapter V. With these rate increases, the Water Fund is able to cover its annual O&M and capital expenses, maintain adequate debt service coverage, and maintain adequate reserves, as further discussed below.

DEBT COVERAGE
Figure III-10 shows the debt service coverage provided by the revenue increases in Figure III-9. The Town is required to maintain a minimum coverage ratio of 1.20. A higher ratio provides a greater margin of safety to bondholders and enhances the credit rating on bonds. This is particularly true with water utilities whose revenues are vulnerable to periods of conservation, such as the Town recently experienced. The Town’s long-term rating is currently AAA with S&P and AA+ with Fitch Ratings, which is partially attributable to a coverage ratio that is well above the minimum required by the bonds. Again, a higher credit rating benefits rate payers by reducing the cost of borrowing.

Figure III-10. Debt Service Coverage
Source: Model tab 6a. Debt Service

RESERVE FUND BALANCE
Figure III-11 shows the annual fluctuations (solid green line) in the fund balance that are caused by the differences between the revenue requirement and revenue from rates with the rate increases; the dashed green line is the projected fund balance without rate increases. The revenue and rate increases in Figure III-9 were derived to achieve the target reserves balance by FY 2026-27. Maintaining a fund balance close to the present level helps to protect the Town’s credit rating, which lowers the cost of financing, thereby benefiting rate payers.

Figure III-11 contains three reserve lines. First, the Town has a minimum Operating Reserve balance (red line) to cover O&M expenses and a bond reserve. Second, the Town has a capital reserve component. Just as working capital is needed to pay salaries and on-going O&M expenses, working capital is also needed to fund construction of cash-funded (i.e., as opposed to debt-funded) capital projects. When added to the minimum Operating Reserve this establishes the Target Reserve (blue line). Finally, the Town’s rate stabilization target (dashed, black line) provides funding to weather unexpected reductions in revenue or Debt Coverage Ratio Calculation
FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27
Gross Rate Revenue
Service Charges $4,777,242 $4,881,032 $5,148,778 $5,379,845 $5,540,186 Volume Charges $10,550,319 $11,366,178 $12,700,208 $13,977,247 $14,393,824 Total Gross Rate Revenue $15,327,561 $16,247,211 $17,848,986 $19,357,093 $19,934,010 Operating Expenses
Purchased Water $5,690,991 $6,259,563 $6,914,499 $6,965,726 $6,969,460 Other Operating Expenses $6,866,590 $6,607,136 $6,800,396 $6,991,616 $7,214,208 Non-Operating Revenue ($56,500) ($56,500) ($56,500) ($56,500) ($56,500) Net Operating Expenses $12,501,081 $12,810,198 $13,658,396 $13,900,842 $14,127,168 Net Available Revenues $2,826,480 $3,437,012 $4,190,590 $5,456,251 $5,806,842 Debt Service $1,165,776 $1,214,298 $1,194,266 $1,177,068 $1,207,289 Debt Coverage Ratio 2.42 2.83 3.51 4.64 4.81
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unexpected increases in expenses. The sum of the Operating Reserve, Target Reserve, and rate stabilization reserves equals the current reserve balance of $9.0 million as of FY 2021-22.

As shown in Figure III-11, the projected year-end fund balance with rate increases (solid green line) initially dips below the blue line, as the Town uses reserves to fund the projected revenue requirement, which includes major capital projects. After FY 2025-26, the Town begins adding to reserves, increasing the fund balance to meet the Target Reserve by the end of FY 2026-27.

Figure III-11. Projected Year-End Fund Balance
Source: Model tab 1a. Summary
The recommended rate increases are balanced with the use of reserves. Reserves help offset the increased costs projected, reducing the potential for larger increases to be borne by ratepayers.

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IV. COST-OF-SERVICE ANALYSIS

GENERAL APPROACH
Base/Extra Capacity Method
The revenue requirement analysis establishes how much revenue is required from rates. The next step in the analysis is determining the cost of service (see Figure II-1). Cost-of-service analysis is used to derive rates that proportionally allocate the cost of service. The cost-of-service analysis performed in this study follows a procedure described by the American Water Works Association (AWWA), which is referred to as the “base/extra capacity method.” This method allocates the revenue requirements to the components of the rate structure.

The base/extra capacity method in the AWWA M1 Manual contains three categories: base, maximum day, and maximum hour. Base capacity is determined by the average daily flow during the year. The average daily flow determines how much base capacity is needed to provide that flow. Maximum day capacity is determined by the flow on the maximum day of the year. In other words, the maximum day capacity is greater than the base capacity, including the base capacity plus the additional capacity needed to provide for the maximum day flow of the year. Maximum hour capacity is determined by the flow during the maximum hour on the maximum day. In other words, the maximum hour capacity is greater than the maximum day capacity by the amount of peak hour that occurs during the maximum day flow.

We have refined AWWA’s version of the base/extra capacity method. What AWWA considers “base” capacity is not purely base capacity because AWWA defines “base” as average day capacity. Average day capacity includes average peaking, which is greater than how “base” is defined in this report. In this report, “base” demand does not include peaking. We have introduced a fourth category that corresponds to base demand with no peaking, which we call Base Day. This Base Day demand is derived from average winter demand, when there is the least amount of peaking. Hence, in addition to Average Day, Maximum Day, and Maximum Hour categories, we have added Base Day. We have calculated the proportional cost of providing service for each of these four categories in this report.

The need for four categories is driven by the use of the base/extra capacity method beyond its typical use.

Historically, the base/extra capacity method was used only for allocating the cost of service to rate components. Once the revenue requirement associated with volume charges was apportioned, it was common industry practice to structure tiered rates using discretion to achieve a balanced price signal.

For purposes of this study, the base/extra capacity method is first used for allocating the cost of service to the fixed and variable rate components. It is also used for determining the tiered Volume Charge rates.

It was appropriate to refine the base/extra capacity method in this way to address the specific circumstances within the Town to ensure that rates were derived that are proportional to the cost of providing service.

Customer Classes
The cost-of-service analysis distributes the revenue requirements among customer classes in proportion to their service requirements. There is also no industry standard that specifies which customer classes Town of Hillsborough Water Rate Cost-of-Service Study
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should be used. The law allows utilities to exercise discretion in determining the appropriate customer classes provided the rates yield charges that are proportional to the cost of providing service for each category. As a result, the base/extra capacity method needs to be tailored to the customer classes.

The Town currently has two customer classes: Residential and Non-Residential. These classes were adopted as part of the previous cost-of-service study in 2016 to differentiate single-family customers from non-residential customers. The contrast stems from the typical pattern of usage between these two customer classes. Residential use varies according to indoor and outdoor needsthroughout the year, producing periods of peak demands for which the system must be designed to meet. Non-Residential customers use produces fewer peak periods due to less homogenous use.

Rate Structure
There is also no industry standard that specifies what rate structure must be used. The law allows utilities to exercise discretion in determining their rate structure as long as the rates yield charges that are proportional to the cost of providing the service. As a result, the base/extra capacity method needs to be tailored to the rate structure under consideration.

In the Town’s case, its water rate structure consists of a fixed Service Charge component and a variable Volume Charge component. The use of a pair of Service and Volume Charges is the most common standard in the industry. There is no reason for the Town to change.

The fixed monthly Service Charge rates are billed per account. The charge is graduated in proportion to the capacity of the service (i.e., meter-size), which is an industry standard for metered water systems. As the name implies, this charge is related to the customer’s service, which provides a fixed, upper limit on the amount of capacity that is available in the water system.

The rates for the Service Charges are not dependent on customer class – an inch of capacity is the same capacity regardless of what kind of customer is connected to it or how much water is used at what time.

The cost-of-service analysis determines how much of the revenue requirement should be recovered from the Service Charge.

The Volume Charge rates are billed based on metered water use during the billing period. In the Town’s case, water is metered in hundred cubic feet (HCF or CCF, see the Glossary at the beginning of this report).

As such, the charge will vary from bill to bill depending on the amount of water used. The Town has two types of Volume Charge rates that are charged to its two customer classes. The cost-of-service analysis also determines how much of the revenue requirement should be recovered from the Volume Charge rates for each customer class.

Volume charges can be structured in a variety of ways: uniform, increasing block, decreasing block, seasonal, etc. The appropriate type of Volume Charge rate structure depends on the customer classes. Generally speaking, increasing block tiered rates are most suitable for homogeneous classes of customers with similar water uses and demand patterns (including similar peaking demand patterns), such as Residential customers. Residential customers are a homogeneous class that uses water for indoor and outdoor needs and not for other purposes, such as providing services or for commercial production.

Tiered rates are not as suitable for non-single family residential customer classes, which may be a combination of customers that use very little or a lot of water, whose demand patterns may range from constant Town of Hillsborough Water Rate Cost-of-Service Study
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to summer season only, and whose types of water use vary widely (e.g., part of a product such as beverages, for cleaning, for irrigation). For non-single family residential customers, demand patterns are not limited to the number of occupants and size of irrigated landscape. Their water use may have very little discretionary use.

In the Town’s case, the minimal Non-Residential water use consists of schools, CalTrans, a country club, and a racquet club . For such a small, mixed group of customers, a uniform Volume Charge rate is appropriate. Disparate customer usage patterns do not justify tiered rates. Moreover, more sophisticated tiered rate structures rely on a large population of bills to derive breakpoints based on statistical averages. The Town’s Non-Residentialsample size is too small for deriving statistically valid tiered rate structures for this customer class.

The Town should continue to charge tiered Residential and uniform Non-Residential Volume Charge rates.

The design of the tiered rates is further discussed in Chapter V of this report.

Although the Town has different pressure zones, we do not recommend that the Town charge rates by zone. The Town’s water facilities are an integral distribution network, not a series of isolated zones served by separately dedicated reservoirs, pumps, and distribution pipelines. Water facilities are designed as integral networks that balance pressures and keep water from stagnating. Water that is pumped to the highest zones not only benefits customers in the highest zones but can also benefit customers in lower zones to which the water also flows.

COST-OF-SERVICE ALLOCATIONS
As the name implies, cost-of-service analysis is a process of determining how much services cost. The service that water systems provide is obviously water. In order to provide that service, infrastructure must be constructed, operated, and maintained, which must be paid for from cash or debt. The type and size of infrastructure depends on how much service customers require. Water systems are designed to provide sufficient capacity to meet customer demands for service wherever, whenever, and for as long as demanded.

Although each customer places unique demands on the system, water system design is based on the maximum or peak demand for service placed on the system by all customers during the peak demand period.

The size of the infrastructure that is needed will depend on the maximum demand. Higher demands will obviously require larger, more costly infrastructure as well as increased operating and O&M costs. Here, the goal of a cost-of-service analysis is to allocate the cost of the capacity to meet the peak demand in proportion to how much of the capacity is required by each customer. The proportions correspond to the maximum amount of capacity provided by the infrastructure. This means that customers that place greater demands on the infrastructure – customers with greater service needs (i.e., higher peak demands) – will be apportioned a greater share of the operating and capital costs of the infrastructure required to meet that demand.

It is important to realize that once the peak demand is used to design the infrastructure, the capacity is available at all times, not just during peak demands. The capacity is available for the potential peak when it occurs. During off-peak demands, the same facilities are being used, but the capital cost of the facilities is determined by the peak demand only, and it is the peak demand that is used to allocate costs. Note that the costs are not allocated only to those who peak. Those who do not peak as much are also using Town of Hillsborough Water Rate Cost-of-Service Study
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the same facilities. Consequently, they are allocated a share of the costs of the facilities in proportion to their contribution to the peak demand, even though their contribution may be significantly less.

Analytical Procedure
The cost-of-service analysis in this study involved a series of four steps that allow for reasonable cost allocations (see Figure II-1). Costs must first be classified according to the associated function. Functions provide the level of service required by customers. The cost of functions can be allocated in proportion to the service provided.

1. Service function cost classification – Revenue requirements need to be converted into service function cost categories, which conversion is needed for allocating costs that will be used for calculating rates. (See Figure IV-1.)

2. Demand service function allocation percentages – Base and extra capacity allocation factors are needed to apportion costs related to the demand service functions and to customer classes. (See Figure IV-5 and Figure IV-7.)

3. Service function allocations – Costs from Step 1 are allocated to the demand and customer service functions from Step 2. The demand service function costs are further allocated among the demand service levels. (See Figure IV-6.)

4. Customer class allocations – The costs allocated to the demand service function in Step 3 are further apportioned between the two customer classes. (See Figure IV-8.) This sequence of steps is further explained below. The steps constitute the cost-of-service analysis, which converts the revenue requirement for FY 2022-23 in Figure IV-2 into the eventual cost of service for setting Service Charge rates and Volume Charge rates in Figure IV-6.

Service Function Cost Classification
After determining a utility’s revenue requirements, the cost-of-service analysis begins by aligning the budget items with the associated function. For example, some cost items are related to functions that support the ability to meet base and peak water demands while other costs are incurred to provide customer service. In other words, “function” refers to the type of operational activity or capital cost needed to provide service. Organizing the budget by functions correlates budget items with the rate that will fund the cost.

For both indoor and outdoor water use, customers expect water to be available when they want it. The service they receive ranges from non-seasonal demand for essential indoor uses (Base Day) to discretionary peak hour outdoor water use and irrigation demands (Maximum Hour). To provide this “readiness to serve,” the Town’s water system needs to have pipes, pumps, and storage reservoirs that are sized and operated to transmit and distribute water whenever it is needed. As previously mentioned, the capacity required to provide the required flows for facilities as well as the elevation differentials within the pressure zone determine how reservoirs, valves, and appurtenances are designed. Water main design is also influenced by the number of connections along a pipeline. Peak demands create larger flows for which larger and more costly infrastructure is needed and for which there are more operations and maintenance costs.

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The Town’s water system is complex for a system of its size. The steep topography results in numerous pressure zones that require more storage reservoirs and pumps whose operations must be coordinated with sophisticated instrumentation and staff. Moreover, the Town’s studies indicate that the lot size in Hillsborough is more than twice as large as neighboring communities. Sparser development means that there is more infrastructure required per connection, which raises the cost per service connection. Moreover, the higher cost of service must be borne by fewer customers.

The service functions for each cost category determine how the capital and O&M costs are allocated. The service functions fall into two categories:
• Demand service function - functions related to delivering water to customers at varying levels of demand. These costs will be recovered from the proposed Volume Charges. • Customer service function - functions related to customer service. These costs will be recovered from the proposed Service Charges.

Demand Service Function
There is a sequence of five demand service functions beginning with the origin of the water through pipelines that convey the water to pumps that lift the water for
storage until customers demand it. In describing each of these demand service functions, the corresponding allocation factors are indicated. The definition of each demand service function allocation factor is provided below in the discussion under Demand Service Function Allocation Factors. • Water Supply – The Town does not have its own
surface water or groundwater resources; the
Town is not supplied by lakes, river diversions,
or wells. Instead, the Town purchases treated
water from the SFPUC. Other than the cost of
the master meters at the SFPUC’s turnouts, the
Town has very little of its own capital cost for its
water supply. The cost of its water supply is included in the cost paid to the SFPUC, which is the Town’s single largest O&M expense. In addition to the cost of water, this category also includes the Town’s water quality O&M expenses related to personnel. This cost category is allocated to customers in proportion to their Base Day demand. Base Day costs vary with the total
quantity of water used and are independent of rates of demand. • Transmission – Pipelines 12” and larger in diameter convey water from the SFPUC’s master meters to the Town’s pumps, which lift the water to distribution reservoirs. These 12” or larger pipes are sized for Maximum Day demands. Both the capital and O&M costs are allocated in proportion to Maximum Day demands.

Fire Flow Cost Allocations
The distribution system also includes hydrants
for fire suppression. The design of the distribution system to meet peak hour demands provides the capacity that is also required for fire flows. The capacity for fire protection is not the
governing criterion for designing the distribution
system. The distribution system was not sized
for fire flows with the expectation that the fire
flow would be sufficient to meet Maximum Hour
demands. Hence, there are no identifiable extra
costs to allocate to a separate charge for fire service.

In systems where the cost of fire flow capcity is
significant enough to track, the cost is often either combined with the customer capacity component of the Service Charge or with the Maximum Hour costs.

In systems where there are separate charges for
fire flow capacity, it is often a nominal administrative charge because the capacity is already recovered from service or volume charges.

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• Pumping Stations – Water is pumped to distribution reservoirs at a rate equal to the Maximum Day demand. Both the capital and O&M costs are allocated in proportion to Maximum Day demands. • Storage – Distribution reservoirs are located at high points in the system so that water can flow to customers by gravity as demanded. Water fills the reservoirs from pump stations at a fairly steady rate compared to the outflow to customers, which occurs at the peak hour of the peak day. Both the capital and O&M costs are allocated in proportion to Maximum Hour demands. • Distribution – Water flows out of reservoirs under gravity to the customer tap through distribution pipelines (less than 12” inches in diameter). The distribution system is sized for peak hour flows and therefore the capital and O&M costs are allocated in proportion to Maximum Hour demands. The Maximum Hour flow is based on the Maximum Day flow (i.e., Maximum Hour flow is deemed to be two times Maximum Day flow based on engineering design principles), not on independent calculations of fire flows.

Customer Service Function
There is one customer service function.
• Customer Service – This category includes two types of costs that are not related to rates of flow.

One type is related to customer accounts, processing meter reads for billing, billing activities, and general administration. These costs are independent of rates of flow and are apportioned on the basis of the number of accounts. The other type of costs included in this category are related to the capacity of a service connection. These costs are apportioned in proportion to the capacity of each meter.

The cost of these service functions is derived from the Town’s FY 2022-23 budget. The budget is formatted using the Town’s chart of accounts, which is different from the service function cost categories that are needed for the cost-of-service analysis. It is possible, however, to convert the budget’s chart of accounts into the service function categories. Figure IV-1 shows the classification of the budgeted operating and capital expenses and non-operating revenues by function.

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Figure IV-1. Revenue Requirements by Function (FY 2022-23) Source: Model tab 8. Allocations.

Some expenses, like Purchased Water, SFPUC Service Charge, BAWSCA Surcharge, fall within a single functional category. Others were classified by the Town across multiple functional categories:
• Salaries and Benefits – These costs were classified based on the function performed by personnel to operate facilities or to manage and administer the system. • Materials and Services – The classification of these costs followed the associated personnel. • Transfer to Capital Reserves – The classification of these pay-as-you-go capital costs was based on the functions performed by the facilities budgeted in the five-year capital improvement program. A portion of the costs (36%) were assigned to customer capacity to be included as part of the Fixed Service Charge.
• Debt Service - The classification of debt service was based on the functions performed by the facilities that were debt funded. Some of the facilities were categorized as customer service functions and assigned to customer capacity so that customers reserving a greater capacity within the system would pay proportionately more via the Fixed Service Charge. • Transfers (from) Reserves – The use of reserves to fund the revenue requirement was divided among the demand and service functions according to the ratio of each functions portion of the revenue requirement to the overall O&M and Capital revenue requirement.

Figure IV-2 summarizes the costs by service function, organizing them into O&M and capital categories.

Functions
Water Supply Customer Service
Revenue Requirements Variable Fixed Transmission Pumping Storage Distribution Customer
Accounts
Customer
Capacity Total
O&M Expenses
Purchased Water $5,064,621 - - - - - - - $5,064,621
SFPUC Service Charge - - - - - - - $138,683 $138,683
BAWSCA Surcharge - - - - - - - $487,687 $487,687
Salaries & Benefits - $159,484 $155,375 $94,318 $219,142 $568,742 $67,959 $1,265,020 Materials & Services - $414,954 $501,356 $706,955 $415,215 $640,124 $148,264 $2,826,866 Internal Service Fund Transfer - - - - - - $265,000 - $265,000 Overhead Allocation - - - - - - $2,509,704 - $2,509,704 Subtotal - O&M Expenses $5,064,621 $574,438 $656,731 $801,273 $634,357 $1,208,866 $2,774,704 $842,592 $12,557,581 Capital Expenses
Transfer to Capital Reserves - - $73,239 $1,035,118 $937,953 - - $1,151,477 $3,197,787 Debt Service - - $346,257 - $462,545 - - $356,974 $1,165,776 Subtotal Capital Expenses $0 $0 $419,497 $1,035,118 $1,400,498 $0 $0 $1,508,451 $4,363,564 Non-Operating Revenue
Reconnect, Service Charges - - - - - - ($56,500) - ($56,500) Transfer to/(from) Reserves ($363,466) - ($69,335) ($117,887) ($131,668) ($77,918) ($178,844) ($151,537) ($1,090,654) Subtotal Non-Op Revenue ($363,466) $0 ($69,335) ($117,887) ($131,668) ($77,918) ($235,344) ($151,537) ($1,147,154) Net Revenue Requirement $4,701,155 $574,438 $1,006,893 $1,718,503 $1,903,188 $1,130,948 $2,539,360 $2,199,507 $15,773,991 Town of Hillsborough Water Rate Cost-of-Service Study
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Figure IV-2. Revenue Requirement by Service Function
Once the costs are organized by service function, it is possible to allocate them based on the allocation percentages that correspond to each service function. The allocation percentages are derived from the units of service associated with each service function.

Demand Service Function Allocation Factors
A cost-of-service analysis categorizes costs between the demand and customer service functions. Within the demand service function, further allocations are made to varying levels of service ranging from base, non-seasonal, indoor demand, which are the least discretionary, to the highest level of seasonal peak demand for outdoor water use and irrigation during the peak hour of the peak day, which are the most discretionary. With these further allocations, rates can be designed for each customer class’s Volume Charges.

The costs allocated to the customer service function are differentiated between those that are related to accounts and those that are related to capacity. Those two categories are used in deriving Service Charge rates.

As described below, there are four levels of demand used for the demand service function cost-of-service analysis.

Revenue Requirements FY 2022-23
O&M Expenses
Water Supply - Variable $5,064,621
Water Supply - Fixed $574,438
Transmission $656,731
Pumping $801,273
Storage $634,357
Distribution $1,208,866
Customer Accounts $2,774,704
Customer Capacity $842,592
Subtotal $12,557,581
Capital Expenses
Water Supply $0
Transmission $419,497
Pumping $1,035,118
Storage $1,400,498
Distribution $0
Customer Accounts $0
Customer Capacity $1,508,451
Subtotal $4,363,564
Less: Non-Op Revenue
Demand Functions ($760,273)
Customer Service Functions ($386,880)
Subtotal ($1,147,154)
Total Revenue Requirement $15,773,991
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Base Day Demand
Base Day demand is the average daily demand in the lowest billing period of the year when most of the water use is for indoor needs and when there is the least irrigation and peaking. If there were no seasonal peaking, the Town’s facilities could be designed for Base Day demand, which is only 17.5% of the current peak demand (refer to Figure IV-5).

Average Day demand
Average Day demand includes Base Day demand plus
average seasonal peaking. The value is the average of
2021 customer billing data. The Town’s Average Day
peak is over twice the Base Day demand. Thisis comparatively high and indicates that the Town has high seasonal peaking; indeed, 52.5% of demand in 2021 was seasonal demand. If peaking were no greater than average, the Town’s facilities could be sized at one-third of current peak demands.

Maximum Day demand
Maximum Day demand includes Average Day demand plus peak day demand in the irrigation season. The total value is based on systemwide flow data maintained by the Town. Maximum Day demand for each customer class was prorated from the total Maximum Day demand using Average Day demands for the two customer classes. If peaking did not exceed Maximum Day demand, the Town’s facilities could be sized at one-half the size of current peak demands.

Maximum Hour demand
Maximum Hour demand represents the Maximum Hour demand on the Maximum Day. The Town does not maintain data on its Maximum Hour demand. Hence, this value is estimated based on the State of California’s design requirements for new and existing source capacity. 14 . Facilities that are needed for
Maximum Hour demands are sized at a minimum by 1.5 times Maximum Day demand. As previously discussed, sizing Maximum Hour facilities at 1.5 times the capacity of Maximum Day demands serves to simultaneously provide capacity for both peak hour demands by customers and for fire flows. In effect, Maximum Day demands determine how much capacity should be built into facilities needed for Maximum Hour peaks, which also accommodate fire flow capacity. Assuming a Maximum Hour multiplier greater than the minimum design standard would result in more peaking costs shifting to the highest tier. Our use of the 1.5 multiplier would be considered conservative as not to burden high water users with unsubstantiated costs.

Allocation percentages were calculated for each demand service level using load factors derived from customer billing data for 2021 (Base and Average Day), system-wide flow data (Maximum Day), and engineering design criteria (Maximum Hour). Load factors are the ratio of higher levels of demand to the Base Day demand. Figure IV-3 summarizes the units of service and load factors for each of the service levels based on CY 2021 data.
14 ”If daily water usage data are available, identify the day with the highest usage during the past ten years to obtain MDD; determine the average hourly flow during MDD and multiply by a peaking factor of at least 1.5 to obtain the [peak hour demand].” 22 CCR § 64554.

Designing For Peak Demands
The Town’s Maximum Day flow was measured
at 1.81 times the average daily flow, which is
slightly higher than common design guidelines.

The Town’s Maximum Hour flow was estimated
at 1.5 times the maximum daily flow based on
engineering design standards. This estimate resulted in a Maximum Hour flow of 2.71 times the average daily flow, which is within the range of
common design guidelines.

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Load Factors
The load factors are the ratio of the flows for the peak service levels (i.e., Average Day, Maximum Day, and Maximum Hour) compared to the Base Day, non-seasonal flow. The load factors represent how much higher Average Day, Maximum Day, and Maximum Hour flows are compared with Base Day demand.

Figure IV-3. Service Level Demands and Load Factors
Source: Model tab 7. Load Factors.

The load factors indicate how much additional capacity is required to supply higher levels of service. Maximum Hour peak flows are over five times the Base Day non-seasonal demand. Pipeline diameters are used as an example in Figure IV-4 to underscore and visually illustrate how much more infrastructure is needed to meet peak demands at significantly greater cost to the utility. As service levels increase, so does the capacity of pipelines, pumps, and reservoirs required to meet the demand. 15 Figure IV-4. Pipeline Capacity Needed For Demand Service Levels 15 Note that the need for pipeline capacity increases as flow gets closer to individual customers. For example, Maximum Hour capacity is provided by many miles of small pipelines from storage reservoirs to customers whose aggregated capacity provides for 8,500 HCF of Maximum Hour demand.

Demand Service Levels
Demand by Customer Category (HCF) Base Day Average Day
Maximum
Day
Maximum
Hour
Residential 1,453 2,998 5,378 8,067
Non-Residential 36 140 289 433
Total Demand (HCF) 1,489 3,139 5,666 8,500
Load Factor Calculation
Total Demand 1,489 3,139 5,666 8,500
÷ Base Day Demand 1,489 1,489 1,489 1,489
Load Factors 1.00 2.11 3.81 5.71
Not drawn to scale.

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The load factors are the source of the allocation percentages that are needed to allocate costs. They are derived in Figure IV-5. For example, the Average Day load factor for the system is 2.11. Of that total 2.11 load, 1.11 is in excess of Base Day demand and is related to the Average Day peak, which is 53% of the total Average Day load (i.e., 1.11/2.11 = 52.6%). For purposes of allocating costs associated with meeting Average Day demands, 52.6% is allocated to the Average Day service and 47.4% is allocated to the Base Day service.

Maximum Day demand includes Base Day, Average Day, and Maximum Day components. And Maximum Hour demand has all four service levels of demand. While system capacity is essentially designed to meet peak demands, and peak users should assume cost responsibility for the capacity required to serve this peak demand, it is important to understand that the cost of facilities that are sized for peak demands is not borne by only customers that peak.

Figure IV-5. Demand Related Allocation Percentages
Source: Model tab 7. Load Factors.

Using distribution pipelines as an example, they are sized to meet Maximum Hour demands. Even though they are sized for the highest level of service, lower peak demands are also accommodated by these pipelines. Hence, the cost of the pipelines is not allocated 100% to the Maximum Hour service level. The cost is apportioned across the lower service levels, too. Thus, the costs of peaking are shared by all customers and not exclusively allocated to those who peak the most.16 Service Function Allocations
The revenue requirements in Figure IV-2 are allocated to the demand and customer service functions in Figure IV-6. The resulting allocations indicate that about 70% of the revenue requirement is attributable to the demand service function and 30% to the customer service function. As previously mentioned, the Volume Charge rates are designed to recover the costs allocated to the demand service function and the Service Charge rates are designed to recover the customer service function costs. 16 This is further discussed in footnote 19.

Load Base Average Maximum Maximum
Allocation Basis Factor Day Day Day Hour Total %
Base Day 1.00 1.00
Allocation % 100.0% 100%
Average Day 2.11 1.00 1.11
Allocation % 47.4% 52.6% 100%
Maximum Day 3.81 1.00 1.11 1.70
Allocation % 26.3% 29.1% 44.6% 100%
Maximum Hour 5.71 1.00 1.11 1.70 1.90
Allocation % 17.5% 19.4% 29.7% 33.3% 100%
Demand Service Levels
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Figure IV-6. Service Function Allocations
Source: Model tab 8 Allocations.

Figure IV-7 summarizes the allocation factors used in the analysis and within Figure IV-6. The Max Day and Max Hour allocation percentages derived from Figure IV-5 were modified to distribute some peaking costs to the portion of the Service Charge that is variable according to meter capacity. This shift reduced the initial calculated portion of the volumetric charge cost-of-service, creating a more traditional 70/30 split of revenue between volumetric and fixed rate revenue. The increase to fixed service charge revenue assures the Town maintains a similar level of revenue stability. These modified allocations are shown as Max Day Applied and Max Hour Applied in Figure IV-6 and Figure IV-7.

The capacity required of the water system is driven by the peaking habits of the system, as well as the capacity reserved by meters in the system. Therefore, it still is appropriate to shift peaking costs to the capacity-related portion of the Service Charge.

FY 2022-23 Allocation Base Average Maximum Maximum Customer Customer Budget Factor Day Day Day Hour Accounts Capacity
O&M Expenses
Water Supply
Purchased Water 5,064,621 Base $5,064,621 $0 $0 $0 $0 $0 SFPUC Service Charge Customer Capacity 138,683 $0 $0 $0 $0 $0 $138,683 BAWSCA Surcharge $487,687 Customer Capacity $0 $0 $0 $0 $0 $487,687 Water Quality 574,438 Base $574,438 $0 $0 $0 $0 $0
Subtotal - Water Supply 6,265,428 $5,639,059 $0 $0 $0 $0 $626,370 Transmission Max Day Applied $172,545 $191,204 $292,982 699,745 $0 $0 $43,014 Pump Stations Max Day Applied $210,521 $233,286 $357,465 853,754 $0 $0 $52,482 Storage Max Hour Applied $111,111 $123,126 $188,667 $211,452 675,906 $0 $41,549 Distribution 1,288,044 Max Hour Applied $211,740 $234,636 $359,534 $402,955 $0 $79,178 Customer Service $2,774,704 Customer Accounts $0 $0 $0 $0 $2,774,704 $0 Total O&M Expenses 12,557,581 $6,344,976 $782,252 $1,198,648 $614,408 $2,774,704 $842,592 O&M Composite 50.5% 6.2% 9.5% 4.9% 22.1% 6.7%
Capital Expenses (Debt and PayGo)
PAYGo projects $3,197,787 PAYGo Composite $651,206 $457,759 $701,425 $235,922 $0 $1,151,477 Debt Service $1,165,776 D/S Composite $171,991 $190,589 $292,041 $154,182 $0 $356,974 Total Capital Expenses $4,363,564 $823,196 $648,348 $993,466 $390,103 $0 $1,508,451 Subtotal - O&M and Capital $16,921,145 $7,168,173 $1,430,600 $2,192,114 $1,004,511 $2,774,704 $2,351,043 100.0% Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%
Non-Operating Revenue
Reconnection Charges ($50,000) Customer Accounts $0 $0 $0 $0 ($50,000) $0 Service Charges ($6,500) Customer Accounts $0 $0 $0 $0 ($6,500) $0 Transfer to/(from) Op Reserves ($1,090,654) Exp Composite ($462,025) ($92,209) ($141,293) ($64,746) ($178,844) ($151,537) Subtotal - Non-Operating Revenue ($1,147,154) ($462,025) ($92,209) ($141,293) ($64,746) ($235,344) ($151,537) Total Revenue Requirement $15,773,991 $6,706,148 $1,338,391 $2,050,821 $939,765 $4,738,866 $11,035,124 $4,738,866
Volume Charge COS Service Charge COS
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Figure IV-7. Allocations Factors
Source: Model tab 8 Allocations.

Figure IV-8 summarizes the shift in the Service Charge revenues to Volume Charge revenues to align with the cost-of-service. The exercise performed in IV-6 indicates Service Charge revenues will decrease from 32% to 30%, while Volume Charge revenues will increase from 68% to 70%.

Figure IV-8. Cost-of-Service Revenue Summary
Customer Class Allocations
The customer service function is independent of the customer class. Once its allocation is derived, rates for the Service Charges are derived without any further allocation to customer classes. The demand service function requires further allocations to customer classes in designing rates. When separate customer classes exist, the cost of service must be allocated proportionately to each class. Figure IV-9 derives the cost of service for the Town’s two customer classes. The revenue requirement for each service function is apportioned between the Residential and Non-Residential customer classes based on the corresponding annual demand in units of service (i.e., flows) for each customer class.

Average Maximum Maximum Customer Customer
System-Wide Allocation Factors Base Day Day Hour Accounts Capacity System-wide
Base 100.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Average Day 47.4% 52.6% 0.0% 0.0% 0.0% 0.0%
Max Day 26.3% 29.1% 44.6% 0.0% 0.0% 0.0%
Max Hour 17.5% 19.4% 29.7% 33.3% 0.0% 0.0%
Max Hour Only 0.0% 0.0% 0.0% 100.0% 0.0% 0.0%
Max Day Applied 24.7% 27.3% 41.9% 0.0% 0.0% 6.1%
Max Hour Applied 16.4% 18.2% 27.9% 31.3% 0.0% 6.1%
Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%
O&M Composite 50.5% 6.2% 9.5% 4.9% 22.1% 6.7%
Customer Accounts 0.0% 0.0% 0.0% 0.0% 100.0% 0.0%
Customer Capacity 0.0% 0.0% 0.0% 0.0% 0.0% 100.0%
Exp Composite 42.4% 8.5% 13.0% 5.9% 16.4% 13.9%
PAYGo Composite 20.4% 14.3% 21.9% 7.4% 0.0% 36.0%
D/S Composite 14.8% 16.3% 25.1% 13.2% 0.0% 30.6%
Components of Rate Structure
Volume Charges
Residential $9,722,825 $10,662,053 $939,228 9.7%
Non-Residential $342,689 $373,071 $30,382 8.9%
$10,065,514 68% $11,035,124 70% $969,610 9.6%
Service/Meter Charge $4,815,618 32% $4,738,866 30% ($76,751) -1.6% Total $14,881,132 100% $15,773,991 100% $892,859 6.0%
Current Revenue Cost Difference
(eff. 1/1/22) of Service COS Minus Current
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Figure IV-9. Customer Class Allocations for Demand Service Levels Source: Model tab 8. Allocations
Note that the Non-Residential classis only 3.9% of the Town’s total demand. Figure IV-10 summarizes the annual demands for the Residential and Non-Residential customer classes.

Figure IV-10. Customer Class Projected FY 2022-23 Demands Source: Model tab 3c. Volumetric Revenue.

SUMMARY OF COST-OF-SERVICE ALLOCATIONS
Figure IV-11 summarizes the flow of the analysis through the four steps in the cost-of-service analysis.

Base Average Maximum Maximum
Volume Rate Cost of Service Day Day Day Hour Total
Revenue Requirement Allocations
O&M (net of Non-Op Revenue) $6,344,976 $782,252 $1,198,648 $614,408 $8,940,285 Capital $823,196 $648,348 $993,466 $390,103 $2,855,113
Non-Op Revenue ($462,025) ($92,209) ($141,293) ($64,746) ($760,273) $6,706,148 $1,338,391 $2,050,821 $939,765 $11,035,124
Units of Service (HCF)
Residential 1,453 2,998 5,378 8,067
Non-Residential 36 140 289 433
1,489 3,139 5,666 8,500
Proportional Allocation Factors
Residential 97.60% 95.53% 94.91% 94.91%
Non-Residential 2.40% 4.47% 5.09% 5.09%
100.00% 100.00% 100.00% 100.00%
Customer Class Allocations
Residential $6,545,245 $1,278,513 $1,946,386 $891,909 $10,662,053 Non-Residential $160,903 $59,878 $104,435 $47,856 $373,071 $6,706,148 $1,338,391 $2,050,821 $939,765 $11,035,124
Customer Class Demand (HCF)
Residential 1,024,748 96.1%
Non-Residential 41,488 3.9%
1,066,236 100.0%
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Figure IV-11. Allocation Summary
Revenue Requirement ($1000s) Functional Costs ($1000s) Service Costs ($1000s) Rate Components ($1000s) O&M Functions Demand Service Volume Charges
SFPUC Water $5,691 Water Supply $5,276 Base Day $6,706 Residential (by tier) $10,662 Salaries & Benefits $1,265 Transmission $1,007 Average Day $1,338 Non-res. (uniform) $373 Materials $2,827 Pump Stations $1,719 Maximum Day $2,051 $11,035 Other $1,628 Storage $1,903 Maximum Hour $940 Service Charges Capital Distribution $1,131 $11,035 By meter $4,739
PAYGo $3,198 Customer Service $4,739 Customer Service Total $15,774 Debt $1,166 Total $15,774 Accounts $2,539
Total $15,774 Capacity $2,200
$4,739
Total $15,774
Budget costs classified
according to functions
performed by the facilities.

Costs of functions
allocated to base and
extra capacity services.

Costs of services allocated
to rates that charge in
proportion to service
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V. RATE DESIGN
The Town has historically charged water customers the combination of a fixed Service Charge and a variable Volume Charge based on metered water use. As previously discussed, this is a common set of charges that is prevalent throughout the water industry. This chapter explains the derivation of the Volume and Service Charge rates that reflect the projected cost of service.

VOLUME CHARGE DESIGN
As previously discussed, the Town’s Volume Charge rates are different for its two customer classes, Residential and Non-Residential.

Residential Volume Charge Rates
The Town’s Residential customers are currently charged a four-tier increasing block rate structure, one outcome of the previous cost-of-service study.
17 The structure is a series of blocks of water whose unit cost increases with each block. The structure is “progressive” in the sense that water is billed sequentially by block up to the highest block. It is not the case that all of the water is billed at the rate for the highest block. All metered water use is at least billed the Tier 1 rate. Water use beyond Tier 1 is only billed the Tier 2 rate for the volume of water allocated to Tier 2, and water use beyond the volume of water allocated to Tier 2 is billed at the Tier 3 rate, and so forth.

Increasing block rates have become more common as the need has grown to set rates that more precisely recover the cost of service. As previously discussed, increasing block rates continue to be well suited for the Town’s Residential customer class.

When increasing block rates are implemented, the number of tiers must be determined. There is no absolute industry standard or law that prescribes how many tiers must be used. Judgment that is supported by facts is allowed. However, no matter how many tiers are used, the rates should yield charges that do not exceed the proportional cost of service.

Breakpoints Between Tiers
The base/extra capacity cost-of-service analysis leads to four distinct services defined by the functions performed by facilities that are designed to provide the services. Each service has an average flow that can be used as the division (i.e., “breakpoint”) between each service, as shown in Figure V-1. 17 For simplicity, we use the term “tiered rates” synonymously with “increasing block rates.” “Inclining block rates” is commonly used for “increasing block rates.” However, because an incline can slope both up or down, it is ambiguous in this context and therefore is not used in this study.

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Figure V-1. Breakpoint Locations – Residential
Source: HCF per day from Figure IV-3. Bi-monthly bills calculated from Residential meter counts provided by Town staff in May 2022.

See Model tab 3a. Service Charge revenue.

The averages for Base Day, Average Day, and Maximum Day yield the following breakpoints:
• Tier 1/Tier 2 breakpoint – 22 HCF (274 GPD) per bi-monthly period. • Tier 2/Tier 3 breakpoint – 44 HCF (549 GPD) per bi-monthly period. • Tier 3/Tier 4 breakpoint – 78 HCF (972 GPD) per bi-monthly period.

Note, a bi-monthly period is assumed to be 60 days. The breakpoints calculated were rounded up to the nearest even integer to facilitate monthly billing for a small portion of the Town’s Residential customer base. Bills for these customers utilize the same rates but breakpoints are halved to compensate for the one-month billing period. Proposed monthly bill subscription tiers are as follows: 11 HCF, 22 HCF, and 39 HCF.

Rates Per Tier
With breakpoints that correspond to the service levels in the cost-of-service analysis, it is possible to calculate the rate per tier by dividing the cost of service per tier by the water demand in each tier. The resulting rates represent the unit cost of service for each tier. 18 Figure V-2 shows the calculations of the incremental cost per tier. Using the Base Day service function as an example, it can be seen how much of the revenue requirement is recovered from Tier 1. The $6,545,245 in Figure IV-8 includes the costs that were directly attributable to the Base Day service function plus the Base Day service function’s share of costs attributable to higher levels of service. The Base Day cost of service is 60% of the aggregated amount of $10,662,053 in Figure IV-7 that is allocated to the Residential Volume Charge. All of the water sold, including water in Tiers 2, 3, and 4, benefits from the Tier 1 costs and shares in paying them. Dividing the Base Day costs by the total demand of 1,024,748 HCF in Figure V2 yields a Tier 1 rate of $6.39 per HCF.

Demand that does not exceed the 22 HCF Tier 1 breakpoint is only charged the Tier 1 rate. Demand that does not exceed Tier 1 is not responsible for the additional costs of peaking that were allocated to the higher service levels. These additional peaking costs are both the initial capital cost, the subsequent 18 In this report, “rates” and “unit costs” are synonymous.

Flow Per Customer (HCF bimonthly) Demand Service Levels Residential Class Base Day Average Day
Maximum
Day
Maximum
Hour
HCF per Day 1,453 2,998 5,378 8,067
HCF/Bi-monthly period 87,183 179,887 322,675 484,012
Load Factors 1.00 2.06 3.70 5.55
Proposed Breakpoints
Bi-Monthly Bills 4,190 4,190 4,190 4,190
Average flow per Bi-Monthly Bill 22 44 78 >78
Average gallons per day 274 549 972 >972
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rehabilitation and renewal costs, and the operations and maintenance costs for larger pipelines, additional pumps, and larger reservoirs. Bills that exceed Tier 1 pay additional rate increments. The next increment of demand is responsible for the costs allocated to Average Day service, $1,278,513 in Figure IV8. This increment of cost is divided by the demand that exceeds Tier 1, 614,073 HCF, resulting in an incremental Tier 2 rate of $2.08 per HCF (Figure V-2).

The calculations of the Tier 3 and Tier 4 rate increments proceed similarly. It can be seen that the incremental rate for Tier 3 and 4 is much higher than Tier 2. The $891,909 in Figure IV-7 allocated to the Maximum Hour service level is only slightly higher, but it is only the highest 186,357 HCF that create the need for this increment of peak capacity. To meet this peak hour demand, storage reservoirs and distribution pipelines are sized twice as large as the Maximum Day demand. The rest of the year, the peak capacity is idle. There is a considerable cost to pay for this peak service.

Figure V-2. Incremental Unit Cost – Residential
Source: Cost of service from Figures IV-8. Demand per tier from Town’s CY 2021 billing system.

The incremental rates are additive. In other words, demand in Tier 1 only pays the Base Day rate. Demand in Tier 2 pays the Base Day rate plus the Average Day increment, and so forth through Tiers 3 and 4. Adding the increments yields the rates per tier, which are summarized in Figure V-3.

Figure V-3. Calculation of Proposed Volume Charge Rates – Residential Source: Figure V-2.

Clearly, as demand progresses through the tiers, the additional costs of peaking are allocated to recover the cost of the higher levels of service. Figure V-4 plots the cost increments per tier. It is evident that the most expensive components of peaking are for storage and distribution pipelines.

Base Average Maximum Maximum
Day Day Day Hour Total
Residential Cost-of-Service $6,545,245 $1,278,513 $1,946,386 $891,909 $10,662,053 Demand per Tier (HCF)
Tier 1: 0-22 410,675
Tier 2: 23-44 235,588 235,588
Tier 3: 45-78 192,129 192,129 192,129
Tier 4: 79+ 186,357 186,357 186,357 186,357
Total HCF per Tier 1,024,748 614,073 378,486 186,357
Cost-of-Service per Unit (HCF) $6.39 $2.08 $5.14 $4.79
Base Average Maximum Maximum
Total Day Day Day Hour Total
Proposed Rates
Tier 1 - 0 - 22 HCF $6.39 $6.39
Tier 2 - 23 - 44 HCF $6.39 $2.08 $8.47
Tier 3 - 45 - 78 HCF $6.39 $2.08 $5.14 $13.61
Tier 4 - 79+ HCF $6.39 $2.08 $5.14 $4.79 $18.40
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Figure V-4. Cost-of-Service Increments Per Tier – Residential Source: Incremental cost components by Tier are calculated on Model Tab. 9b Quantity Charge Calculations.

The $10.40 per HCF average rate is also shown. The average rate is derived by dividing the total Residential cost-of-service of $10,662,053 in Figure V-2 by the total Residential water use of 1,024,748 HCF in Figure IV-9. In effect, the average rate represents the non-tiered, uniform rate, which makes no distinction between various levels of service.

The average rate is the most general form of the cost of service. It treats the cost of water service as though it is linear. A more exacting cost of service analysis derives the average rate for each level of service. In effect,
tiered rates are a sequence of the average rate corresponding to a discrete level of service. As Figure V-5 shows, the unit cost across the range of demand is not
linear. The unit cost increases with each tier.

Plotting the average rate with the tiered rates illustrates the result of tiering the rates. Tier 1 and Tier 2 pay less than the average rate for the below-average level of service that they require. Tiers 3 and 4 pay more than the average rate for the above-average level of service they require. Tiering the rates is a more precise allocation of costs to the levels of demand that create the need for the costs. The rates in Tiers 3 and 4 increase as a result of applying allocation factors derived from flows in each tier to the costs associated with providing the level of service in each tier. All of the costs that are allocated are either related to O&M or capital costs.

Each Service Level Pays Its Share
Even though facilities are designed for the
maximum demand, their cost is allocated to
all customers, not just to the highest peaking
customers. The combination of all use determines the size of facilities. Low-use customers also contribute to the peak. Hence, all customers share in the cost in proportion to
how much they peak.

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Figure V-5 graphically compares the current structure with approved breakpoints with the proposed rate structure and breakpoint adjustments. Note that nearly two-thirds of the bills (65% of the total bills) are within the first two tiers. Approximately 35% of the highest bills are within Tiers 3 and 4. In other words, only slightly more than one-third of the bills are above average.

Figure V-5. Volume Charge Structure Comparison
Non-Residential Volume Charge Rates
We recommend the Town continuing with the same uniform rate structure for all Non-Residential customers. The proposed adjustment for CY 2023 is intended to increase the uniform rate to re-align with the cost of service for this customer class. Of the total revenue requirement for FY 2022-23, $310,294 was allocated to the Non-Residential customer class, which is only 2.3% of the revenue requirement.

The uniform rate is derived by dividing this class’ share of the FY 2022-23 revenue requirement by the class’s projected annual demand based on data in Figure IV-9.

Figure V-6. Calculation of Non-Residential Uniform Volume Charge Source: Revenue requirement from Figure IV-8.

Projected demand from Figure IV-9.

Non-Residential Revenue Requirement $373,071
Projected demand (HCF) 41,488
Uniform Volume Charge per HCF $8.99
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Volume Charge Rate Summary
The five-year schedule of proposed Volume Charge rates for Residential and Non-Residential customers is shown in Figure V-7.

Figure V-7. Proposed Volume Charge Rates
The proposed Volume Charge rate design for the Residential customer includes some initial shifts to the existing breakpoints. The Tier 1 breakpoint increases from 20 to 22 HCF. However, the Tier 2 breakpoint is maintained at 44 HCF, keeping the same dividing line between the top two and bottom two tiers. For the current rates, the $16.40 rate in the highest tier is 2.66 times the $6.16 in the lowest tier. For the proposed rates, the ratio is steeper at 2.88 times. The increasing proportion of the ratio between the highest and lowest tier demonstrates the shift of additional costs toward high water use customers.

The proposed Volume Charge rate for the Non-Residential customer class is an 8.8% increase to the current uniform Volume Charge.

Revenue Stabilization Charge
During prolonged shortages, customers are required to conserve or even ration their water use. The magnitude of the water savings can significantly reduce water sales revenue from quantity charges.

During the previous cost-of-service study HF&H recommend a set of Revenue Stabilization Factors that would be applied to the rates for the Volume Charges and implemented during declared water shortage stages in accordance with the Town’s Water Shortage Contingency Plan (WSCP), state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand that requires reductions in water use. The recommended revenue stabilization factors applied uniformly to Residential and Non-Residential Volume Charges.

As part of this study to update the Revenue Stabilization Factors, it is proposed that the shortage reductions will vary by customer class, based on their respective abilities to conserve water. A customer classes’ ability to conserve is directly related to the proportion of their current water use which is highly discretionary and considered a non-beneficial use (e.g., water used for landscape purposes, “outdoor” water use) and less discretionary use for health and safety (e.g., water used for cooking, cleaning, bathing, “indoor” water use). Each class’ reduction will be determined by reducing their proportion of water that is for “outdoor” water use (seasonal water use) 5.0 times more than their “indoor” (average winter water use) water use. As described in more detail under “Implementation” at this end of this section, the calculated factors will be applied to each tier of the Volume Charge rates. The higher rates will generate the Current Current Proposed
Breakpoints Rate Breakpoints CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 Residential (hcf) (hcf)
Tier 1 0-20 $6.16 0-22 $6.39 $6.77 $7.11 $7.39 $7.54
Tier 2 21-44 $7.82 23-44 $8.47 $8.98 $9.43 $9.80 $10.00 Tier 3 45-70 $10.74 45-78 $13.61 $14.43 $15.15 $15.76 $16.07 Tier 4 71+ $16.40 79+ $18.40 $19.50 $20.48 $21.30 $21.72 Non-Residential uniform $8.26 uniform $8.99 $9.53 $10.01 $10.41 $10.62 Town of Hillsborough Water Rate Cost-of-Service Study
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revenue which was lost due to conservation and has been calculated to keep the Town revenue neutral so they can cover the portion of fixed costs which have paid through the Volume Charge Rates Analysis
Based on calendar year 2021 metered consumption data, the resulting reductions are summarized in Figure V-8. The reductions shown represent the customer class reductions required to achieve the reduction associated with each shortage stage. The customer class reductions are greater or less than the overall average for each stage depending on how much of each class’ water demand is seasonal.

Figure V-8. WSCP Required Water Use Reductions by Class Source: Model tab 11b. Revenue Stabilization Tables.

Figure V-9 shows the calculation of each customer class’ respective shortage reduction required during each shortage stage. The annual demand for each class is separated into indoor and outdoor water use where indoor water use is defined as the period from January through February multiplied times 6 to get the annualized indoor water use over 12 months. Subtracting indoor water use from the total annual water use determines the seasonal outdoor water use.

The percentage reductions for each customer class required to achieve the overall reduction for a particular stage are derived so that outdoor consumption is reduced 5.0 times indoor consumption. In a Stage 1 shortage, a 2.8% reduction in indoor water use and a 14.2% reduction in outdoor water use are required to achieve an overall 10% reduction. Applying the same reduction factors to each class results in different overall reductions for the class based on the relative proportions of their indoor and outdoor water use.

In each stage reduction Residential and Non-Residential customers are required to conserve different percentages. This is because Non-Residential customers have higher seasonal use compared to Residential customers, as a result of irrigation demand to water the Town’s school fields. In the example shown in Figure V-9, a 55% reduction is assumed.

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction Residential 9.9% 19.9% 29.8% 39.8% 49.7% 54.7%
Non-Residential 11.4% 22.8% 34.1% 45.5% 56.9% 62.6%
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Figure V-9. Calculation of Shortage Reductions by Stage and Customer Class Source: Model tab 11b. Revenue Stabilization Tables.

The service charges are fixed and generate 30% of the total rate revenue regardless of shortages. The remaining 70% of revenue is generated by the volumetric rates. In deriving the Water Shortage Revenue Stabilization Factors, the factors will only apply to the volumetric rates because fluctuations in water use correlate with fluctuations in variable costs. Each customer class has its own set of Revenue Stabilization Factors corresponding to its reduction in each stage of shortage.

The formula for the Revenue Stabilization Factors comprises conservation and variable cost components.

The conservation component adjusts to account for the required reduction in water demand. A portion, not all, of the costs (e.g., power, water purchases) covered by Volume Charge rates are variable and will not be incurred when less water is used. To ensure the Revenue Stabilization Factors do not result in 10% Stage 1 Reduction (up to 10% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 2.8% 14.2% 12,511 105,148 117,659 10% Non-Residential 44,908 11,094 33,814 2.8% 14.2% 4,794 315 5,109 11% Total 1,227,682 452,292 775,390 2.8% 14.2% 12,826 109,942 122,768 10.0% 20% Stage 2 Reduction (up to 20% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 5.7% 28.4% 25,023 210,295 235,318 20% Non-Residential 44,908 11,094 33,814 5.7% 28.4% 9,589 629 10,218 23% Total 1,227,682 452,292 775,390 5.7% 28.4% 25,652 219,884 245,536 20.0% 30% Stage 3 Reduction (up to 30% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 8.5% 42.5% 37,534 315,443 352,977 30% Non-Residential 44,908 11,094 33,814 8.5% 42.5% 14,383 944 15,327 34% Total 1,227,682 452,292 775,390 8.5% 42.5% 38,478 329,826 368,305 30.0% 40% Stage 4 Reduction (up to 40% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 11.3% 56.7% 50,046 420,591 470,637 40% Commercial/Recycled Water 44,908 11,094 33,814 11.3% 56.7% 1,258 19,178 20,436 46% Total 1,227,682 452,292 775,390 11.3% 56.7% 51,304 439,769 491,073 40.0% 50% Stage 5 Reduction (up to 50% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 14.2% 70.9% 62,557 525,738 588,296 50% Commercial/Recycled Water 44,908 11,094 33,814 14.2% 70.9% 1,573 23,972 25,545 57% Total 1,227,682 452,292 775,390 14.2% 70.9% 64,130 549,711 613,841 50.0% 55% Stage 6 Reduction (greater than 50% reduction)
Class Total Indoor Outdoor Indoor Outdoor Indoor Outdoor Total Total Residential 1,182,774 441,198 741,576 15.6% 78.0% 68,813 578,312 647,125 55% Commercial/Recycled Water 44,908 11,094 33,814 15.6% 78.0% 1,730 26,370 28,100 63% Total 1,227,682 452,292 775,390 15.6% 78.0% 70,543 604,682 675,225 55.0% Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
Baseline Annual Demand (HCF) Reductions
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excess revenue collection, the variable cost component of the calculation reduces the factor to account for the portion of variable costs, which is covered by the quantity charges, and will not be incurred when demand decreases.

The Revenue Stabilization Factors are the product of the conservation component multiplied by the variable cost component. Each component is defined as follows:

Revenue Stabilization Factor = Conservation Component multiplied times Variable Cost Component, where Conservation Component = 1/(1 - a), where
a = required percentage reduction, which varies by customer class.

Variable Cost Component = (b - (c * a))/b, where
a = required percentage reduction, which varies by customer class. b = percentage of revenue from total service charges and volumetric rates for all customer classes that is attributable to volumetric rates, an amount that is 70% based on the costof-service analysis. c = percentage of total revenue requirement covered by service charges and volumetric rates that varies based on fluctuations in demand, an amount that is currently 38%.19 The following example illustrates how the formula determined the 1.113 Revenue Stabilization Factor in Figure V-10 for the Residential customer class in a Stage 2 shortage in which an overall conservation goal of 5% if required.

Conservation Component: 1/(1 - a) = 1/(1 - 0.19895) = 1.2483, where a = required percentage reduction is 19.895% for the Residential customer class (see Figure V-9 where a rounded 20% is shown).

Variable Cost Component: (b - (c * a))/b = (0.70 - (0.38 * 0.19895))/0.70 = 0.89199, where a = 19.895% reduction for Residential customers in a Stage 1 shortage. b = 70% of total rate revenue is generated by quantity charges; and c = 38% of revenue requirement is related to variable costs.

Revenue Stabilization Factor = 1.2483 * 0.89199 = 1.113, as it is shown in Figure V-10. 19 The cost of SFPUC water is the largest example of a variable cost, which varies with water demand.

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The Residential Volume Charge rates in effect under non-shortage conditions would be multiplied by

1.113 to derive the quantity charge rates to be in effect during a Stage 2 water shortage. Figure V-10 shows the Revenue Stabilization Factors that would be applied to the rates that would normally be in effect absent declared shortages.

Figure V-10. Revenue Stabilization Factors by WSCP-Defined Shortage Stage Source: Model tab 11b. Revenue Stabilization Tables.

Implementation
The recommended Revenue Stabilization Factors in Table V-10 are implemented only during periods of declared water shortage emergencies. Once a mandatory shortage is declared, the City Council has discretion to enact Revenue Stabilization Adjustments corresponding to the level of shortage reduction implemented using the factors provided in Table V-10 or calculated using the formula for a specific level of reduction. The adjustments can go in either direction from stage to stage depending on whether the level of reduction is increasing or decreasing during the shortage. At least 30 days prior to making the adjustment, notice must be provided to rate payers, which can be included in the customer’s bills. No protest process is required. These adjustments would be temporary, and rates would return to the regular schedule at the conclusion of the water shortage emergency.

The Revenue Stabilization Factors could be applied when the Town requires its customers to reduce consumption. At such times, the Revenue Stabilization Factors would be multiplied times the Volume Charge rates proposed in the current rate study. These proposed Volume Charge rates are based on FY 2022-23 demand. The specific demand projections for each year are listed in Figure III-2. Rates have been set assuming fluctuating patterns of usage. The Town can choose to enact Revenue Stabilization Factors when the water emergency demand levels will fall short of the respective year of modeled demand.

The Revenue Stabilization Factors only apply to the tiered and uniform Volume Charge rates and not to Service Charge rates, which are independent of water demand. The Revenue Stabilization Factors are multiplied times the non-water shortage, normal-year Volume Charge rates proposed in this report. The Revenue Stabilization Factors would be adopted as part of the rate notification in the Proposition 218 implementation process. Once adopted, the Town could apply the Revenue Stabilization Factors as needed during conservation stages.

As a further example, Figure V-11 has Volume Charge rates after applying the Revenue Stabilization Factors to the rates proposed for 2017. The table shows the proposed rates followed by the rates that correspond to each stage of conservation.

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6
Up to Up to Up to Up to Up to Greater than
Customer Class 10% Reduction 20% Reduction 30% Reduction 40% Reduction 50% Reduction 50% Reduction Residential 1.050 1.113 1.194 1.302 1.452 1.552
Non-Residential 1.059 1.135 1.237 1.381 1.603 1.764
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Figure V-11. Sample Rates With Revenue Stabilization Factors – 2023 Source: Model tab 11b. Revenue Stabilization Tables.

Note that if reductions in water use are higher or lower than the specified stages set in the WSCP due to state mandated reductions in the level of potable water usage, or other natural disaster or event that results in a water shortage and an unforeseen drop in water demand, the Revenue Stabilization Factors will be adjusted in accordance with the formula above.

Pass-Through Adjustment
The cost of SFPUC water is the single largest component of the Town’s revenue requirements. Because the Town has no control over the SFPUC’s wholesale water rate, this cost is simply passed through to the Town’s customers. The SFPUC provides projections of its future wholesale water rates, which are built into the rate projections in this study. The SFPUC updates its projections each year as part of the ratemaking process legally prescribed in the wholesale Water Supply Agreement. California Government Code Section 53756 authorizes water suppliers to adjust their rates in response to changes in pass-through costs. We recommend that the Town incorporate annual pass-through adjustments in its volumetric rates.

Each year the Town should determine how much, if any, pass-through adjustment is required as soon as the SFPUC submits its updated wholesale rates, which is typically in April or May each year. The wholesale rate used for the projections in this study should be compared with the updated rate and the difference either added or subtracted from the Town’s Volume Charge rates for Residential and Non-Residential customers. The wholesale rates per HCF used in this study20 are as follows:

FY 2022-23 – $4.75
FY 2023-24 – $5.28
FY 2024-25 – $5.28
FY 2025-26 – $5.32
FY 2026-27 – $5.32
For example, if the updated SFPUC rate for FY 2023-24 is $5.38, the $0.10 difference should be added to the Volume Charge rates charged to Residential and Non-Residential water customers. If the updated 20 Rates included in letter from SFPUC to Nicole Sandkulla RE: Fiscal Year 2021-22 Wholesale Water Rates Notice, dated May 7, 2021.

Water Emergency Shortage Stage Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 Stage 6 10% 20% 30% 40% 50% >50%
Residential Revenue Stabilization Factors 1.050 1.113 1.194 1.302 1.452 1.552 Non-Residential Revenue Stabilization Factors 1.059 1.135 1.237 1.381 1.603 1.764 Proposed 2023 Rates Rates with Revenue Stabilization Factors Applicable to % Reductions Residential
Tier 1 $6.39 $6.71 $7.11 $7.63 $8.32 $9.27 $9.91
Tier 2 $8.47 $8.90 $9.43 $10.11 $11.03 $12.30 $13.14
Tier 3 $13.61 $14.30 $15.16 $16.26 $17.72 $19.76 $21.12 Tier 4 $18.40 $19.33 $20.49 $21.97 $23.95 $26.71 $28.55 Non-Residential $8.99 $9.52 $10.20 $11.12 $12.42 $14.41 $15.86 Town of Hillsborough Water Rate Cost-of-Service Study
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SFPUC rate is less than the foregoing rates, the difference should be subtracted from the Town’s volumetric rates. In other words, the adjustment should be made in either direction.

The pass-through adjustment acts similarly to the Revenue Stabilization Factors, which was incorporated into the Proposition 218 notice in the previously adopted cost-of-service study. The pass-through adjustment allows the Town to adjust volumetric rates to track any difference between the SFPUC rates that were included in the model and the actual rates adopted each year by SFPUC. The pass-through adjustment can also be made by providing 30-day notice in the customer bills without triggering the need for a Proposition 218 protest process.

SERVICE CHARGE DESIGN
Service Charge rates are fixed rates charged per account that are billed each billing period to recover the cost of the customer service function. The Service Charge rates are graduated in proportion to the capacity of the service (i.e., water meter) serving a property. Service Charge rates are also independent of customer classes because the capacity of a service does not change depending on what class of customer that is connected to the water system.

The cost-of-service analysis determined how much of the revenue requirement is attributable to the customer service function. The function has two components – customer accounts and customer capacity – each of which is itemized in the cost-of-service analysis in Figure V-12. Costs attributable to customer accounts are allocated to customers in proportion to the number of accounts. Costs attributable to customer capacity are allocated to customers in proportion to the capacity of their services. The sum of the two components equals the Service Charge rate per connection.

Figure V-12 lists the units of service corresponding to each of the cost components. The 4,301 accounts are used for apportioning the customer accounts cost component.

Capacity costs associated with the distribution system are apportioned among the connections in proportion to the capacity associated with each connection. Accounts are converted to Equivalent Meter Units (EMUs) to apportion the customer capacity cost component. An EMU represents the number of ¾-inch meters to which a larger meter is equivalent. For example, a 1-inch meter provides 1.57 times as much capacity as a ¾-inch meter. The capacity multipliers are based on the manufacturer’s nominal capacity of the Town’s new meters that were installed in 2016. The 3,721 1-inch meters equal 5,847 EMUs. There are 7,898 total EMUs. In effect, the 4,268 services of assorted sizes have the equivalent capacity as 7,898 ¾- inch meters.

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Figure V-12. Service Charge Units of Service
Source: Model tab 9a. Service Charge Allocations.
*Capacity multiplier assumes ¾” meter = 1 EMU = 35 gallons per minute.

Capacity multipliers from Town based on new AMI meters.

Figure V-13 derives the unit costs for the customer accounts and customer capacity cost components.

Each account is allocated $98.40 for the customer account cost component. That amount represents the costs the Town incurs to maintain an account regardless of the capacity of the service. Each account is also allocated $46.41 per EMU. That amount represents a portion of the cost of providing distribution system capacity for each account, and increases based on the capacity of the meter.

Figure V-13. Service Charge Unit Costs
Source: Customer Service Expenses from Figure IV-6; Units of Service from Figure V-12.

Figure V-14 combines the customer service and capacity components into a single Service Charge for each size service and compares proposed rates to the current rates.

Service # of Meter Capacity
Size Accounts Ratings (gpm) Multiplier* EMUs
a b c = b ÷ 35 a * c
3/4" 76 35 1.00 76
1" 3,721 55 1.57 5,847
1-1/2" 230 100 2.86 657
2" 272 160 4.57 1,243
3" 0 320 9.14 0
6" 1 1,000 28.57 29
8" 1 1,600 45.71 46
4,301 7,898
Customer Customer
FY 2022-23 Customer Account Capacity
Service Expenses Component Component Total
O&M Expenses $2,774,704 $842,592 $3,617,296
Capital Expenses $0 $1,508,451 $1,508,451
Non-Operating Revenue ($235,344) ($151,537) ($386,880)
Total FY 2022-23 $2,539,360 $2,199,507 $4,738,866
Units of Service 4,301 7,898
Accounts EMUs
Unit Cost (bi-monthly) $98.40 $46.41
per Account per EMU
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Figure V-14. Proposed Bi-Monthly Service Charge Rates – FY 2022-23 Source: Figures V-12 and V-13.

All meters 1” and larger would receive a rate decrease while customers with a ¾” meter would see an increase. Increased Town overhead allocation expenses are driving a larger increase to the fixed account component portion of the calculated meter charge. As a result, a larger portion of the proposed service charge is fixed, while less of the charge is attributable to the capacity component of the service charge.

For reference, under the previous cost-of-service study, the customer account unit rate of $39.35 per account and the customer capacity component was $24.25 per EMU. This meant for a ¾” meter, the customer account unit rate made up 62% of the overall charge. In contrast, the proposed $98.40 per account is the equivalent of 68% of the overall service charge. A reduced capacity component creates a smaller increment in service charges across the spectrum of available meter sizes.

Figure V-15 shows the proposed five-year schedule of Service Charge rates.

Figure V-15. Proposed Bi-Monthly Service Charge Rates

FIXED AND VARIABLE COSTS AND CHARGES
Balancing the revenue from fixed and variable charges with fixed and variable costs is a consideration in rate design. The differences between fixed and variable costs and charges can affect cash flow, which is also a consideration in determining reserve fund target balances. Greater cash flow differences call for higher target balances to buffer the fluctuations. The following test was made to see how closely the fixed and variable costs match the fixed and variable charges in the rate structure.

Account Total Current
Service Component Capacity Meter Charge Meter Charge $ Change Size ($/bill period) $/EMU Multiplier Total ($/bill period) ($/bill period) ($/Bill period a b c d = b * c e = a + d
3/4" $98.40 $46.41 1.00 $46.41 $144.82 $141.48 $3.34
1" $98.40 $46.41 1.57 $72.94 $171.34 $172.32 ($0.98)
1 1/2" $98.40 $46.41 2.86 $132.61 $231.01 $241.66 ($10.65) 2" $98.40 $46.41 4.57 $212.18 $310.58 $334.13 ($23.55)
3" $98.40 $46.41 9.14 $424.36 $522.76 $580.73 ($57.98)
6" $98.40 $46.41 28.57 $1,326.11 $1,424.52 $1,628.74 ($204.22) 8" $98.40 $46.41 45.71 $2,121.78 $2,220.18 $2,553.45 ($333.27) Capacity Component
Current
Proposed
Service Size Charge CY 2023 CY 2024 CY 2025 CY 2026 CY 2027 3/4" $141.48 $144.82 $153.50 $161.18 $167.63 $170.98
1" $172.32 $171.34 $181.62 $190.70 $198.33 $202.29
1-1/2" $241.66 $231.01 $244.87 $257.12 $267.40 $272.75
2" $334.13 $310.58 $329.22 $345.68 $359.50 $366.69
3" $580.73 $522.76 $554.12 $581.83 $605.10 $617.21
6" $1,628.74 $1,424.52 $1,509.99 $1,585.49 $1,648.91 $1,681.88 8" $2,553.45 $2,220.18 $2,353.40 $2,471.07 $2,569.91 $2,621.31 Town of Hillsborough Water Rate Cost-of-Service Study
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As shown in Figure V-16, the Town’s fixed costs are approximately 62% of the FY 2022-23 revenue requirement. The majority of these fixed costs is for salaries and capital expenditures. 38% of the total revenue requirement is considered to be variable because they vary depending on water demand. 21 Clearly,
the SFPUC volumetric charge is a substantial variable cost.

It is not the practice in the water industry to set the revenue from fixed charges equal to the fixed costs.

The California Urban Water Conservation Council’s best management practice for setting rates recommends limiting the revenue from fixed charges to 30% of total rate revenue because it is recognized that not all fixed revenue comes from fixed charges. A significant amount of revenue comes from Volume Charges associated with non-seasonal water demand (i.e., primarily indoor water use, and minimal outdoor water use and irrigation), which is predictably fixed. In a balanced water rate design, the combination of revenue from fixed charges plus non-seasonal Volume Charges will come close to the fixed costs. If this balance is not met, an allowance for a higher reserve target balance should be made.

As shown in Figure V-16, the revenue from the proposed fixed Service Charges is 30% of the total annual rate revenue. Revenue from the proposed Volume Charges from the highly reliable, non-seasonal Base Day water demand, is 33% of the total annual rate revenue. The sum of the 30% of Service Charge revenue plus the 33% of Base Day Volume Charge revenue is 63% of total revenue, which effectively covers the Town’s fixed costs of 62%. This close match means that cash flows will also match well and that no special provision for additional reserves is warranted. In other words, the rates from Service Charges can be designed to generate less revenue than the fixed costs of the Town because the cumulative revenue received from the Town’s baseline level of demand (i.e., Base Day Demand) and the fixed Service Charges is sufficient to meet its fixed costs.

Figure V-16. Balance of Fixed and Variable Costs and Charges 21 The distinction between fixed and variable costs depends on definitions. Costs that vary based on changes in demand are always considered to be variable. Costs that are unrelated to flow are not necessarily fixed. For example, the amount to spend on annual PAYGo capital improvements or on contributionsto reserves is not as fixed as salaries or debt service, which cannot be deferred.

Fixed Variable Total
$ % of Total $ % of Total $ % of Total
Net Expenses
SFPUC $138,683 1% $5,552,308 35% $5,690,991 36%
Utilties $0 0% $442,075 3% $442,075 3%
Salaries/Benefits $1,265,020 8% $0 0% $1,265,020 8%
Overhead Allocation $2,509,704 16% $0 0% $2,509,704 16% Other O&M (Net of Non-Op Rev.) $1,502,637 10% $0 0% $1,502,637 10% Capital (Debt Service/PAYGo) $4,363,564 28% $0 0% $4,363,564 28% Total $9,779,608 62% $5,994,383 38% $15,773,991 100%
Rate Revenue
Service charges $4,738,866 30% $0 0% $4,738,866 30%
Volume Charges
Non-seasonal Base $5,234,543 33% $0 0% $5,234,543 33%
Seasonal $0 0% $5,800,582 37% $5,800,582 37%
Total $9,973,409 63% $5,800,582 37% $15,773,991 100%
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The correspondence between the fixed and variable costs and charges is not perfectly exact but is certainly reasonable. Customer charges are additive starting with no flow and ending with the highest peak demands. Customers with lower demands do not pay the costs for the highest peak demand but do share in the underlying base costs. Customers with the highest demands only pay the incremental cost of peaking.

It should be noted that the tiered rate structure is applied for entire billing periods, not for increments of time corresponding to seasons, days, or hours. Customers can be charged peak rates for use at any time, not just during the peak hour or peak day. Customers who irrigate during non-peak hours may still be subject to paying peak rates because their total demand during the billing period was so high that their demand was met with the use of peak facilities.

It should also be noted that the high cost of peaking may lead customers to irrigate off the peak or less overall, which could lower peak demands on the system. Although the system is designed to have a certain amount of capacity, the costs of the system are already embedded in the cost structure and will remain until the facilities are replaced.

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VI. CUSTOMER BILL IMPACTS
In the previous chapter, the Volume and Service Charge structures were compared for the current and proposed rates. A further understanding of the differences between the two structures can be gained by comparing bills based on both rate structures.

BILL COMPARISON
Bills Under Proposed and Approved Rates
Customers pay the sum of the Service Charge corresponding to the capacity of their service plus a Volume Charge for water use during the billing period. For purposes of calculating bills, it was assumed that a Service Charge rate for a 1” meter applied; 1” meters are the most common size in the Town. Figure VI-1 provides sample bills for low, average, high (Tier 3), and very high-water users (99th percentile of Residential bills).

Figure VI-1. Sample Customer Bills - Residential (with 1” Meter) Almost two-thirds of bills will see a bi-monthly bill increase of $15.06 or less. That does not mean, however, that two-thirds of customers will see this specific level of increase each billing period. Customers’ bills vary during the year, which means that a customer may have a low bill at one time of the year and pay less and a high bill at another time and pay more. According to 2021 billing data, at least once during the year, 62% of Residential meters recorded a level of consumption that would fall within Tier 3 or Tier 4 levels of demand. Further, during 2021, 35% of Residential meters recorded a level of Tier 4 consumption at least once.

Figure VI-2 provides additional perspective on the impact of the proposed (green line) and approved rates (blue line) .This graph plots bills across a range of consumption. The top of the graph indicates the ranges Low Average High Very High
Demand Assumptions
hcf/bi-monthly period 22 44 78 220
gallons per day 274 549 972 2,743
% of bills up to flow assumption 41% 65% 84% 99%
Bills at Current Rates
Service charge (Meter size) $172.32 $172.32 $172.32 $172.32 Volume Charges $138.84 $310.88 $721.32 $3,050.12
Total Bill $311.16 $483.20 $893.64 $3,222.44
Bills at Proposed Rates
Service charge (Meter size) $171.34 $171.34 $171.34 $171.34 Volume Charges $140.58 $326.92 $789.66 $3,402.46
Total Bi-Monthly Bill $311.92 $498.26 $961.00 $3,573.80 $ Difference $0.76 $15.06 $67.36 $351.36
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of demand corresponding to the tiers developed in the cost-of-service analysis. Customers can expect an increase for a given level of consumption when the proposed rate structure line is above the current rate structure line.

Figure VI-2. Residential Bill Comparison
Source: Town billing data for 2018-2021.

Note: 6% of all Residential customer bills exceed 120 HCF of water use during the bi-monthly billing period.

The scale of the graph makes it difficult to discern the variance between bills at current rates and proposed rates for customers falling within the Tier 1 or Tier 2 range. Customers using 4 HCF or less will see a small savings per bill period while those using between 5 to 44 HCF can expect to see an increase between $0.17 to $15.06 per billing period. Tier 3 Customers using between 45 to 78 HCF will see an increase ranging between $17.93 to $89.68 per bill, as tier breakpoints have shifted under the proposed structure. The cumulative increases to Tier 1 and Tier 2 rates serve to increase Tier 3 and Tier 4 rates. + In these higher tiers, the range of bill increase for a given volume of use depends on the relation of use to the proposed breakpoints. In most cases, the amount of the bill increase grows relative to consumption.

The width of the proposed rates line grows wider from the current rates line. However, customers with usage between 71-78 HCF who pay Tier 4 rates currently will see a smaller increase because of the proposed Tier 3 breakpoint that shifts from 70 to 78 HCF. The incremental unit rate difference between the Tier 3 and Tier 4 rates proposed shrinks from current rates, thus resulting in a smaller increase in slope and a smaller bill increase to customers entering the Tier 4 volume of consumption.

All Non-Residential bills will increase proportionately to the level of consumption. This is reflected by the widening gap between the two lines in Figure VI-3. A 1” meter has been assumed in this comparison, as well.

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Figure VI-3. Non-Residential Bill Comparison

WATER RATE COST-OF-SERVICE STUDY
Appendix. Water Rate Model

July 26, 2022 – DRAFT REPORT

THE TOWN OF HILLSBOROUGH

SOLID WASTE RATE STUDY
ATTACHMENT 2

Managing Tomorrow’s Resources Today
201 N. Civic Drive, Suite 230 Robert D. Hilton, Emeritus Walnut Creek, California 94596 John W. Farnkopf, PE
Telephone: 925/977-6950 Laith B. Ezzet, CMC
www.hfh-consultants.com Richard J. Simonson, CMC
Marva M. Sheehan, CPA
Robert C. Hilton, CMC
July 26, 2022
Ms. Jan Cooke
Finance Manager
Town of Hillsborough
1600 Floribunda Avenue
Hillsborough, CA 94010
Subject: Solid Waste Rate Study – Draft Report
Dear Ms. Cooke:

HF&H Consultants, LLC (HF&H) is pleased to submit this Cost of Service (COS) report to the Town of Hillsborough (Town). The report is organized beginning with determining how much projected revenue is needed from solid waste rates during the next five fiscal years (FYs), FY 2022-23 through FY 2026-27.

The report describes how the collection, processing, and disposal costs are apportioned between residential and commercial customers. The report concludes with a discussion of the rate design that is appropriate for each customer class to ensure that customers are paying their proportionate share.

The report reflects input from the Town’s staff in refining the rates. The resulting rate increases are necessary for several reasons: (1) the cost of collection of solid waste, recycling, and organics materials has increased; (2) the cost of processing recyclable materials and organic materials has increased; (3) the cost of landfilling solid waste has increased; and (4) new State-mandated diversion programs require additional funding.
* * * *
We are pleased to have had the opportunity to assist the Town with this study and would like to thank you for your support during the project.

If you have any questions, please call me at (925) 977-6957 Sincerely,

HF&H CONSULTANTS, LLC
Rick Simonson, CMC
Senior Vice President
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Town of Hillsborough Table of Contents, Definitions, Limitations, and Acknowledgments Draft Report Solid Waste Rate Study
HF&H Consultants, LLC i July 26, 2022

TABLE OF CONTENTS
EXECUTIVE SUMMARY ................................................................................................ 1 Annual Revenue Reconciliation/Balancing Account .................................................. 1 Proposition 218.......................................................................................................... 1 Study Purpose and Objectives................................................................................... 2 Findings and Recommendations ............................................................................... 2 Implementation .......................................................................................................... 5 SECTION 1. INTRODUCTION........................................................................................ 6 Study Purpose ........................................................................................................... 6 Billing Procedures and Current Rates........................................................................ 6 Legal Requirements................................................................................................... 7 SECTION 2. REVENUE REQUIREMENT PROJECTIONS............................................ 9 Balancing Account ..................................................................................................... 9 Expense Projections .................................................................................................. 9 Revenue Increases.................................................................................................. 16 SECTION 3. COST OF SERVICE STUDY.................................................................... 17 Methodology ............................................................................................................ 17 2023 Cost-of-Service ............................................................................................... 17 SECTION 4. RATE DESIGN – 2023 COST-OF-SERVICE........................................... 19 Volumetric (Variable) Collection Costs..................................................................... 19 Fixed Collection Costs – Solid Waste ...................................................................... 21 Tipping Fees at the Shoreway Environmental Center.............................................. 22 Multiple Collections per Week.................................................................................. 23 Additional Solid Waste Containers........................................................................... 24 Total Cost/Rate by Customer Class and Service Level - 1 st Container.................... 25

ATTACHMENTS
A Rate Model
B Complete list of Commercial Bin Rates
Town of Hillsborough Table of Contents, Definitions, Limitations, and Acknowledgments Draft Report Solid Waste Rate Study
HF&H Consultants, LLC ii July 26, 2022

ACRONYMS/DEFINITIONS
FY Fiscal Year
COS Cost-of-Service
ECU Equivalent Container Unit
ECF Equivalent Container Factor
Fixed Collection Costs Costs not dependent on the subscribed volume of service.

Frequency Surcharge Additional cost for receiving service multiple times per week. Routing is negatively impacted when trucks must return to areas previously serviced.

FTE Full time equivalent
MRF Material Recovery Facility
Organics Refers primarily to food, green material, landscape and/or pruning waste.

SB 1383 California law to reduce short-lived climate pollutants, including methane.

Reduction of organic waste disposal is a primary component resulting in new yard and food waste recycling organics programs to be in effect beginning January 1, 2022.

SFR Single-Family Residential
Transfer Facility Refers to the Shoreway Environmental Center in San Carlos. Solid Waste and Organic Materials collected in the Town are delivered to the Shoreway Environmental Center and transferred to the Processing or Disposal Site.

Volumetric charge Refers to the variable costs associated with the size of the container subscribed to by residential or commercial customers.

Town of Hillsborough Table of Contents, Definitions, Limitations, and Acknowledgments Draft Report Solid Waste Rate Study
HF&H Consultants, LLC iii July 26, 2022

HF&H Consultants, LLC
Rick Simonson, C.M.C., Senior Vice President
Gabe Sasser, P.E., Senior Associate
Town of Hillsborough Table of Contents, Definitions, Limitations, and Acknowledgments Draft Report Solid Waste Rate Study
HF&H Consultants, LLC iv July 26, 2022

LIMITATIONS
This study was prepared solely for the Town of Hillsborough (Town) in accordance with the contract between the Town and HF&H and is not in intended for use by any other party for any other purpose.

In preparing this study, HF&H relied on information from the Town’s franchised solid waste hauler, Recology of San Mateo County, which we consider to be accurate and reliable and did not independently verify.

The cost-of-service model and accompanying analyses contain projections of revenues and expenditures based on various assumptions and estimates. While we reviewed these projections with Town staff for reasonableness, actual results of operations will usually differ from projections because events and circumstances do not always occur as expected. Those differences may be significant and materially affect the analyses and findings presented in this report.

Rounding differences caused by stored values in electronic models may exist.

This study addresses relevant laws, regulations, and court decisions but should not be relied upon as legal advice. Questions concerning the interpretation of legal authorities referenced in this study should be referred to a qualified attorney.

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Town of Hillsborough Executive Summary
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 1 July 26, 2022

EXECUTIVE SUMMARY
The Town is a member of the South Bayside Waste Management Authority Joint Powers Agreement (SBWMA). Under the SBWMA Joint Powers Agreement, each member agency sets its own solid waste rates for residential and commercial customers. Each of the eleven SBWMA member jurisdictions has a franchise agreement with Recology of San Mateo County (Recology) for residential and commercial solid waste, residential recycling, and residential green waste collections. The current franchise agreement runs from January 1, 2021, through December 31, 2035. Recology provides service to approximately 3,800 residential accounts and 6 commercial accounts in the Town.

In addition, a contract with South Bay Recycling provides for operations at the Shoreway Environmental Center (SEC), which is owned the SBWMA. The Shoreway facility serves as a regional solid waste and recycling facility for the receipt, handling and transfer of refuse, recyclable, and organic materials.

For the annual contractors’ compensation review process, staff reviews the various cost components attributable to its solid waste services, which in turn determines the revenue required from its customers for subsequent rate years. Each member of the SBWMA is responsible for establishing the rates in their respective jurisdictions. The rates are then applied based on the garbage cart/bin size of the customer and frequency of collection services.

The Town’s residential accounts are billed for services in two ways: 1) a flat $330 annual charge on the tax roll (which equates to $27.50/month); and, 2) a monthly charge, billed quarterly, by Recology, based on the size of solid waste container placed for collection (20-gallon, 32-gallon, etc.). Commercial customers are also billed quarterly by Recology based on the size of container placed for collection (32- gallon cart, 1 cubic yard bin, etc.) and the frequency of collection (1 time per week, 2 times per week, etc.) Rates are developed to cover costs for the following components:
• Recology's compensation to collect and deliver materials to the SEC • Tipping (disposal and processing) fees at the SEC
Annual Revenue Reconciliation/Balancing Account
Annually, revenues collected are compared to Recology’s SBWMA-approved compensation for services to the Town. If actual revenues collected exceed the approved compensation, the excess revenue is held by Recology in a balancing account. When actual revenues collected are less than Recology’s approved compensation, the Town’s balancing account is decreased. As of December 31, 2021, the Town has a positive balancing account with Recology of $483,000. The balancing account can go negative if sufficient revenues are not collected. At the expiration of the franchise agreement, the Town will owe Recology if the balancing account is negative or Recology will owe the Town if the balancing account is positive.

Proposition 218
To increase rates for these services, the Town intends to comply with article XIII D, section 6 of the California constitution, which was added by Proposition 218 in 1996. Article XIII D, section 6 requires that:
(1) revenues derived from fees or charges for property-related services do not exceed the cost to provide service; (2) revenues derived from fees or charges are not be used for any purpose other than that for which it was imposed; (3) the amount of a fee or charge imposed not exceed the proportional cost of the service attributable to the parcel; (4) no fee or charge may be imposed for a service unless that service is Town of Hillsborough Executive Summary
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 2 July 26, 2022
actually used by, or immediately available to, the owner of the property; and, (5) no fee or charge may be imposed for general governmental services. The analysis conducted in support of this study was conducted in consultation with the Town and its legal counsel.

Study Purpose and Objectives
The purpose of this solid waste rate study is to conduct a comprehensive analysis of the Town’s solid waste rates, including documentation of the analysis, underlying assumptions, and the rationale for the recommended rates.

This study has several key objectives:
• Determine the revenue requirement (expenses) which the Town’s solid waste rates need to cover, including Recology’s compensation, tipping fees and the SEC, while maintaining an adequate balancing account balance with Recology;
• Determine the cost of service attributable to parcel based upon the type and size of container serving the property and the subscribed service level; and,
• Ensure that the proposed rate structure is compatible with Proposition 218 mandates.

These objectives are met by applying industry best practices and by complying with all applicable laws.

Findings and Recommendations
In preparing this solid waste rate update, the following findings were made.

1. Operating Cost Increases.
a. Recology’s SBWMA-approved compensation for 2023 is increasing 5.1%. Recology’s allowable compensation is generally tied the percentage increases in various consumer price indices (e.g., fuel, labor, vehicle repairs and maintenance) published by the Bureau of Labor Statistics. Due to current economic conditions, the analysis assumes a 5% increase in compensation in 2024 and 4% annual increases thereafter for years 2025- 2027.
b. Tipping fees for materials collected and hauled to the SBWMA’s Shoreway Environmental Center (SEC) for processing or transfer to another processing facility or landfill, are projected to increase by 3.5% in 2023 based on tip fee increases and projected tons. Due to current economic conditions, the analysis assumes a 5% increase in tipping fees in 2024 and 4% annual increases thereafter for years 2025-2027.

2. Prior Year Revenue Shortfall. A review of current year-to-date revenue collected through May 2022 indicates that total allowable expenses will exceed rate revenue by approximately $175,000, a 5.0% revenue shortfall.

3. Projected Revenue Increases Needed. The COS study projects the rate increases needed to generate additional overall revenue to cover: 1) the recent cost increases and 2) the prior year revenue shortfall. Comparing the revenue required to cover the cost of providing service with the revenue from current rates indicates the need for rate increases sufficient to generate additional revenue, as follows:
2022 – 5.0%*
2023 – 4.5%
Town of Hillsborough Executive Summary
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 3 July 26, 2022
2024 – 4.5%
2025 – 4.0%
2026 – 4.0%
The increases are lower than otherwise needed, as the Town currently has a positive balance in their balancing account with Recology. The increases reflect drawing the balancing account down by approximately $182,000 (to $234,000) over the five-year planning period. How the balancing account was established and how it is adjusted annually, is discussed in more detail in Section 2 of this report.
*The percentage increase in revenue needed for 2023 is not applied uniformly to all current rates.

A cost-of-service analysis was done (see Section 4 of this report) to apportion costs to each customer class and service level within each of those customer classes. As a result, some service level rates will increase, and some will decrease.

4. 2023 Revenue Increases by Customer Class. Customer classes for the purpose of this study are residential and commercial. Figure ES-1 compares the revenue from current rates with the COS for 2023, by customer class.

Figure ES-1. Current Rate Revenue Compared with the Cost of Service (2023)

5. Current and Proposed Residential Rates. Based on the cost-of-service analysis (described in detail in Section 4 of this report), which apportions the cost to each level of service (i.e., 20-gallon cart, 32-gallon cart, etc.), the monthly charge in rates differs depending on container size. Figure ES-2 compares the current and proposed residential rates by service level. A breakdown of the proposed rates is included in Section 4, Figure 4-13.-Current and proposed rates include weekly solid waste, recycling, and organics collection services.

Figure ES-2. Current and Proposed Monthly Residential Rates 2023 Revenue at Surplus/ Revenue
Cost of Service Current Rates (Shortfall) Adj
Residential $3,599,699 $3,429,659 ($170,040) 5%
Commercial $98,999 $94,380 ($4,619) 5%
TOTAL $3,698,697 $3,524,039 ($174,658) 5%
MONTHLY RATES Current Proposed $
Rates eff. 1/1/2023 Change 1/1/2024 1/1/2025 1/1/2026 1/1/2027 Flat fee per Parcel1$27.50 $28.88 $1.38 $30.32 $31.68 $33.11 $34.60 Service Level2
20-Gallon Cart $23.55 $29.25 $5.70 $30.57 $31.95 $33.23 $34.56 32-Gallon Cart $31.90 $35.72 $3.82 $37.33 $39.01 $40.57 $42.19 64-Gallon Cart $52.86 $55.50 $2.64 $58.00 $60.61 $63.03 $65.55 96-Gallon Cart $77.15 $80.98 $3.83 $84.62 $88.43 $91.97 $95.65 Extra Organics Cart $23.42 $24.77 $1.35 $25.88 $27.04 $28.12 $29.24 ¹ Billed annually on the tax Roll
² Billed quarterly by Recology
Proposed
Town of Hillsborough Executive Summary
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 4 July 26, 2022

6. Current and Proposed Commercial Rates. Based on the cost-of-service analysis (described in detail in Section 4 of this report), which apportions the cost to service commercial customers to each level of service, the percentage change in rates differs by level of service. Figures ES-3 and ES-4 summarizes the current and 2023 proposed commercial solid waste rates by service level.

Figures ES-5 and ES-6 summarizes the current and 2022 proposed commercial organics rates by service level. To minimize the length of the Executive Summary, the respective proposed commercial rates for 2024-2027 are included in Attachment B.

Figure ES-3. Monthly Commercial Solid Waste Rates (Current) Figure ES-4. Proposed Monthly Commercial Solid Waste Rates (effective 1/1/2023) 32 64 96 1 2 3 6
1 /week $49.85 $54.33 $66.28 $127.62 $242.32 $386.48 $966.29 2 /week $80.33 $104.22 $132.78 $236.27 $465.67 $754.00 $1,913.62 3 /week $106.33 $142.17 $185.01 $344.93 $689.02 $1,121.52 $2,860.95 4 /week $132.33 $180.11 $237.23 $453.58 $912.38 $1,489.03 $3,808.28 5 /week $158.32 $218.06 $289.46 $562.24 $1,135.73 $1,856.55 $4,755.61 6 /week $184.32 $256.00 $341.69 $670.89 $1,359.09 $2,224.07 $5,702.94 Additional Containers
1 /week $7.77 $12.26 $24.29 $91.31 $207.02 $352.20 $936.06 2 /week $38.26 $104.22 $132.78 $226.90 $456.30 $744.63 $1,904.25 3 /week $64.26 $142.17 $185.01 $326.19 $670.29 $1,102.78 $2,842.21 4 /week $90.25 $180.11 $237.23 $425.48 $884.28 $1,460.93 $3,780.18 5 /week $116.25 $218.06 $289.46 $524.76 $1,098.26 $1,819.08 $4,718.14 6 /week $142.25 $256.00 $341.69 $624.05 $1,312.25 $2,177.23 $5,656.10 Bin Size (Cubic Yards)
Frequency
Cart Size (Gallons)
32 64 96 1 2 3 6
1 /week $53.10 $66.88 $79.97 $131.96 $249.06 $404.91 $1,027.39 2 /week $79.57 $107.12 $133.31 $246.66 $480.86 $792.54 $2,037.52 3 /week $106.03 $147.36 $186.65 $361.35 $712.65 $1,180.18 $3,047.64 4 /week $132.50 $187.61 $239.99 $476.04 $944.45 $1,567.82 $4,057.77 5 /week $158.96 $227.85 $293.33 $590.74 $1,176.24 $1,955.45 $5,067.89 6 /week $185.43 $268.09 $346.67 $705.43 $1,408.04 $2,343.09 $6,078.02 Additional Containers
1 /week $12.73 $26.59 $39.73 $97.35 $215.47 $372.32 $998.86 2 /week $39.19 $66.83 $93.07 $212.04 $447.26 $759.96 $2,008.98 3 /week $65.66 $107.07 $146.41 $326.74 $679.05 $1,147.59 $3,019.11 4 /week $92.12 $147.31 $199.74 $441.43 $910.85 $1,535.23 $4,029.23 5 /week $118.59 $187.56 $253.08 $556.13 $1,142.64 $1,922.87 $5,039.36 6 /week $145.05 $227.80 $306.42 $670.82 $1,374.44 $2,310.50 $6,049.48 Cart Size (Gallons)
Frequency
Bin Size (Cubic Yards)
Town of Hillsborough Executive Summary
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 5 July 26, 2022
Figure ES-6. Monthly Commercial Organics Rates (Current) Figure ES-7. Proposed Monthly Commercial Organics Rates (effective 1/1/2023) Implementation
After increasing rates effective January 1, 2023, the Town should monitor its rates before implementing subsequent rate increases. There are future events that will impact the Town’s solid waste operations.

The SBWMA, Recology, and the Town are still evaluating the full impacts of implementing programs related to SB 1383 regulations, which became effective January 1, 2022. Primarily, the requirement for each jurisdiction to purchase 0.08 tons per capita per year of recovered organic material waste products (e.g., compost, mulch, renewable natural gas (RNG), and/or electricity from biomass conversion). In addition, the SBWMA will be renegotiating some long-term operating and processing contracts at the Shoreway Environmental Center, which are expiring in 2023 and 2024. The cost impacts (either up or down) are unknown at this time and may affect the proposed rates for 2023-2027 presented above and included in Attachment B (Commercial Bin Rates).

The five-year financial plan includes annual cost increases of 4%-5% to account for the unknown costs increases, in addition to baseline inflation. The Town’s balancing account funds are available if costs for the organic material purchases and processing contracts increase costs greater than projected in this fiveyear financial analysis. 32 64 96 1 2 3 6
1 /week $24.92 $27.16 $33.14 $63.81 $121.16 $193.24 $483.15 2 /week $40.16 $52.11 $66.39 $118.14 $232.84 $377.00 $956.81 3 /week $53.16 $71.08 $92.50 $172.46 $344.51 $560.76 $1,430.47 4 /week $66.16 $90.06 $118.62 $226.79 $456.19 $744.52 $1,904.14 5 /week $79.16 $109.03 $144.73 $281.12 $567.87 $928.27 $2,377.80 6 /week $92.16 $128.00 $170.84 $335.45 $679.54 $1,112.03 $2,851.47 Additional Containers
1 /week $3.88 $6.13 $12.14 $45.66 $103.51 $176.10 $468.03 2 /week $19.13 $52.11 $66.39 $113.45 $228.15 $372.32 $952.13 3 /week $32.13 $71.08 $92.50 $163.10 $335.14 $551.39 $1,421.11 4 /week $45.13 $90.06 $118.62 $212.74 $442.14 $730.46 $1,890.09 5 /week $58.13 $109.03 $144.73 $262.38 $549.13 $909.54 $2,359.07 6 /week $71.13 $128.00 $170.84 $312.03 $656.12 $1,088.61 $2,828.05 Cart Size (Gallons) Bin Size (Cubic Yards)
Frequency 32 64 96 1 2 3 6
1 /week $26.55 $33.44 $39.99 $65.98 $124.53 $202.45 $513.70 2 /week $39.78 $53.56 $66.66 $123.33 $240.43 $396.27 $1,018.76 3 /week $53.02 $73.68 $93.33 $180.67 $356.33 $590.09 $1,523.82 4 /week $66.25 $93.80 $119.99 $238.02 $472.22 $783.91 $2,028.88 5 /week $79.48 $113.92 $146.66 $295.37 $588.12 $977.73 $2,533.95 6 /week $92.71 $134.05 $173.33 $352.72 $704.02 $1,171.54 $3,039.01 Additional Containers
1 /week $6.36 $13.29 $19.87 $48.68 $107.73 $186.16 $499.43 2 /week $19.60 $33.41 $46.53 $106.02 $223.63 $379.98 $1,004.49 3 /week $32.83 $53.54 $73.20 $163.37 $339.53 $573.80 $1,509.55 4 /week $46.06 $73.66 $99.87 $220.72 $455.42 $767.61 $2,014.62 5 /week $59.29 $93.78 $126.54 $278.06 $571.32 $961.43 $2,519.68 6 /week $72.53 $113.90 $153.21 $335.41 $687.22 $1,155.25 $3,024.74 Bin Size (Cubic Yards)
Frequency
Cart Size (Gallons)
Town of Hillsborough Section 1. Introduction
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 6 July 26, 2022
SECTION 1. INTRODUCTION
The Town’s franchised hauler, Recology, provides solid waste, recyclable material, and organics collection services to all residents and businesses in Town
The Town contracted with HF&H to develop a cost-of-service rate model and rate structure based on the level of service received by each customer class. The purpose of this report is to document the analysis and summarize our assumptions, findings, and recommendations.

Study Purpose
The main purpose of this report is to document that the proposed rates comply with the relevant laws in California forsetting solid waste rates. Another key purpose is to ensure that the rates generate sufficient revenue to fund the solid waste, recyclable material, and organics collection, processing, and disposal activities over the five-year planning period (2022-2026) operating and capital costs as well as to maintain adequate reserves.

Billing Procedures and Current Rates
Residents are billed for weekly collection of solid waste, recyclable material, and organics carts in two ways: 1) a flat $330 annual charge on the tax roll (which equates to $27.50/month); and, 2) a monthly charge, billed quarterly by Recology, based on the size of solid waste container placed for collection (20- gallon, 32-gallon, etc.) and the frequency of service.

Commercial customers are also billed quarterly by Recology, based on the size of solid waste and organics material containers placed for collection (1 cubic yard bin, 2 cubic yard bin, etc.) and how frequently it is collected (1x per week, 2x per week, etc.).

The current rates are summarized in Figures 1-1 through 1-3. The amount billed on tax roll is an annual lump sum amount of $330 charged on the tax roll. For analysis of monthly rates, it is reflected in the table as $27.50 per month rate.

Figure 1-1. – Current Monthly Residential Rates
Billed Billed Total
on Tax Roll by Recology Charge
$/mo $/mo $/mo
Solid Waste Subscription
20-Gallon Cart $27.50 $23.55 $51.05
32-Gallon Cart $27.50 $31.90 $59.40
64-Gallon Cart $27.50 $52.86 $80.36
96-Gallon Cart $27.50 $77.15 $104.65
Extra Organics Cart (Green) $0.00 $23.42 $23.42
Town of Hillsborough Section 1. Introduction
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 7 July 26, 2022
Figure 1-2. Current Monthly Commercial Solid Waste Rates Figure 1-3. Current Commercial Organics Rates
Legal Requirements
The Town is responsible for setting rates in compliance with California law. Voters passed Proposition 218 in November 1996, which added article XIII D to the California constitution. Article XIII D section 6(b)(1-5) has five substantive requirements that must be met:

1. Revenue from rates must not exceed the cost of providing service.

2. Revenue from rates must be used for providing service.

3. Fees and charges imposed must be proportional to the cost of providing the service attributable to the parcel.

4. Fee or charge may not be imposed for a service unless that service is used by, or immediately available to, the owner of the property.

5. No fee or charge may be imposed for general governmental services. 32 64 96 1 2 3 6
1 /week $49.85 $54.33 $66.28 $127.62 $242.32 $386.48 $966.29 2 /week $80.33 $104.22 $132.78 $236.27 $465.67 $754.00 $1,913.62 3 /week $106.33 $142.17 $185.01 $344.93 $689.02 $1,121.52 $2,860.95 4 /week $132.33 $180.11 $237.23 $453.58 $912.38 $1,489.03 $3,808.28 5 /week $158.32 $218.06 $289.46 $562.24 $1,135.73 $1,856.55 $4,755.61 6 /week $184.32 $256.00 $341.69 $670.89 $1,359.09 $2,224.07 $5,702.94 Additional Containers
1 /week $7.77 $12.26 $24.29 $91.31 $207.02 $352.20 $936.06 2 /week $38.26 $104.22 $132.78 $226.90 $456.30 $744.63 $1,904.25 3 /week $64.26 $142.17 $185.01 $326.19 $670.29 $1,102.78 $2,842.21 4 /week $90.25 $180.11 $237.23 $425.48 $884.28 $1,460.93 $3,780.18 5 /week $116.25 $218.06 $289.46 $524.76 $1,098.26 $1,819.08 $4,718.14 6 /week $142.25 $256.00 $341.69 $624.05 $1,312.25 $2,177.23 $5,656.10 Bin Size (Cubic Yards)
Frequency
Cart Size (Gallons)
32 64 96 1 2 3 6
1 /week $24.92 $27.16 $33.14 $63.81 $121.16 $193.24 $483.15 2 /week $40.16 $52.11 $66.39 $118.14 $232.84 $377.00 $956.81 3 /week $53.16 $71.08 $92.50 $172.46 $344.51 $560.76 $1,430.47 4 /week $66.16 $90.06 $118.62 $226.79 $456.19 $744.52 $1,904.14 5 /week $79.16 $109.03 $144.73 $281.12 $567.87 $928.27 $2,377.80 6 /week $92.16 $128.00 $170.84 $335.45 $679.54 $1,112.03 $2,851.47 Additional Containers
1 /week $3.88 $6.13 $12.14 $45.66 $103.51 $176.10 $468.03 2 /week $19.13 $52.11 $66.39 $113.45 $228.15 $372.32 $952.13 3 /week $32.13 $71.08 $92.50 $163.10 $335.14 $551.39 $1,421.11 4 /week $45.13 $90.06 $118.62 $212.74 $442.14 $730.46 $1,890.09 5 /week $58.13 $109.03 $144.73 $262.38 $549.13 $909.54 $2,359.07 6 /week $71.13 $128.00 $170.84 $312.03 $656.12 $1,088.61 $2,828.05 Cart Size (Gallons) Bin Size (Cubic Yards)
Frequency
Town of Hillsborough Section 1. Introduction
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 8 July 26, 2022
The basis for setting rates that are proportional to the cost of providing service was not prescribed in article XIIID; therefore, the analyst was responsible for meeting the requirements of Sections 6(b) 1-5, as reasonably as possible. “Reasonable” rates are not capricious (there is a documented source for all data), not arbitrary (decisions required to make assumptions and analyze data have a sound reason), and not discriminatory (the results do not unduly favor one customer at the expense of another).

We interpret this concept to mean that rates must be proportionate to the COS across the range of subscribed service. We further interpret it to mean that the rates for each level of service must correlate with the actual demand that customers place on the collection vehicles and for which the system must be designed to provide the level of service customers require.

Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
SECTION 2. REVENUE REQUIREMENT PROJECTIONS
To determine whether additional rate revenue is required, projected operating expenses are compared with projected revenue from current rates. Rates are then increased so that projected expenses are covered.

Balancing Account
The franchise agreement with Recology includes an annual revenue reconciliation process where actual revenues billed are compared to Recology’s approved compensation. If there is a positive balancing account, the Town may keep rates flat or increase rates at a lower than necessary level, which draws down the balancing account. Excess revenues are accumulated and tracked by Recology on an annual basis and audited by the SBWMA. If revenues are less than the approved compensation, the balancing account is reduced. The Town currently has a positive balancing account with Recology at $483,083 (as of December 31, 2021). Year-to-date projections for 2022 indicate that revenues will be less than Recology’s approved compensation, resulting in a projected balancing account of $415,765 by December 31, 2022, as shown in Figure 2-1, Row 14). This balancing account is available to keep future rate increases lower than they otherwise would need to be or cover unexpected cost increases that were not known at the time rates were set. The estimated 2022 shortfall is not unexpected. The cost-of-service analysis conducted last year for 2022 rates indicated double digit increases were necessary to residential 20- and 32-gallon cart rates. To soften the rate impact, City Council approved the use of a portion of the balancing account to phase the increase in over two years.

Figure 2-1. Balancing Account Summary (2017 - 2022)
1 Attachment Q services are for one-time, unscheduled, services provided and billed separately by Recology and are not part of base services provided to all customers. Included for informational purposes only, in order to tie with Recology’s annual revenue reconciliation statements.

Expense Projections
Rates are developed to cover costs for the following projected expenses over the five-year planning period:

Recology’s approved collection costs, including amounts collected for Recology to meet its obligation to pay 2017
Actual
2018
Actual
2019
Actual
2020
Actual
2021
Actual
2022
Estimated
1 $3,162,685 $3,024,026 $3,051,929 $3,177,311 $3,262,909 $3,463,635 2 Base Charge Revenue - Recology (res) $2,119,726 $2,168,990 3 Base Charge Revenue - Tax Roll (res) $1,169,100 $1,228,545 4 Subtotal - Residential Revenue $3,288,826 $3,397,535
5 Base Charge Revenue - Recology (comm) $94,380 $94,380 6 Subtotal - Base Charge Revenue $3,383,206 $3,491,915
7 Sch Q "Extras" Rev. (i.e., backyard srvc) $73,452 $76,967 8 Total Revenue (after rate adjustments) $3,024,026 $3,051,929 $3,177,311 $3,262,909 $3,463,635 $3,568,882 Expenses
9 Recology Collection Costs $1,913,988 $1,967,015 $2,004,278 $2,136,851 $2,085,460 $2,119,350 10 Disposal & Processing Fees $860,690 $886,775 $1,056,999 $1,065,722 $1,160,646 $1,193,348 11 Agency Franchise & Other Fees $275,010 $277,570 $288,973 $296,867 $315,051 $323,500 12 Total Expenses $3,049,688 $3,131,360 $3,350,250 $3,499,440 $3,561,157 $3,636,199 13 Surplus / (Shortfall) After Rate Increase ($25,662) ($79,431) ($172,939) ($236,531) ($97,522) ($67,318) 14 Balancing Acct. (Proj. Year-End Balance) $1,069,506 $990,075 $817,136 $580,605 $483,083 $415,765 15 Add/(Less): Adjustments
16 Add/(Less): Adjustments
17 Adjusted Balancing Account (Year-End) $1,069,506 $990,075 $817,136 $580,605 $483,083 $415,765 Balancing Account as % of Total Rev. Req. 35% 32% 24% 17% 14% 11% Estimated Revenue (Before Rate Increase)

COLLECTION COST PROJECTION
9 Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
the Town its franchise fee, as well as tipping fees at the Shoreway Environmental center. Projected costs from 2022 through 2027 are summarized in Figure 2-2, Rows 9-11).

In addition, Figure 2-2 summarizes the current revenue at current rates for the five-year period if rates remained the same. This illustrates the effect on the Town’s balancing account with Recology if rates were not changed during the next five-year planning period. With no rate increases, the balancing account is projected to be depleted before year-end 2024. A summary of expense projections follows Figure 2-2. The next subsection of this report discusses the necessary annual revenue increases to bridge the revenue shortfall if rates remain the same for the next five-year period.

Figure 2-2. Projected Expenses (2022-2027) and Revenue at Current Rates (No Rate Increases) Recology's annual collection compensation (Row 9 in Figure 2-2) was calculated in accordance with the Franchise Agreement with the Town. Recology’s 2023 compensation calculation is currently being audited by the SBWMA. The audit is scheduled for completion in August 2022, with final compensation approval at the SBWMA’s September Board meeting.

A summary of Recology’s 2023 compensation by customer class is provided in Figure 2-3 and further details are provided in Figures 2-4 through 2-6. For financial planning purposes, Recology’s allowable 2023 compensation is projected to increase by 5.0% in 2024, a greater than historical average to reflect current economic conditions (e.g., increased price of fuel, higher general inflation), and 4.0% per year thereafter.

Franchise fees are levied by the Town on Recology pursuant to the Franchise Agreement. The franchise fee is an obligation of Recology’s, paid out of the total amount imposed on ratepayers. (Row 11 in Figure 2-2).

Tipping (disposal and processing) fees at the Shoreway Environmental Center (Row 10 in Figure 2-2). 2023 tipping fees are estimated by the SBWMA based on projected volumes collected within the Town and the approved per-ton tips by material type. A summary of the SBWMA’s 2023 projections, by customer class, is provided in Figure 2-7. Similar to Recology’s collection costs, the SBWMA’s 2023 tipping fees are projected to increase by 5.0% in 2024, and 4.0% each year thereafter.

Revenue Increase and Cost Inflation Factors
2022
Estimated
2023
Projected
2024
Projected
2025
Projected
2026
Projected
2027
Projected
2023 vs
2022 %
2024 vs
2023 %
2025 vs
2024 %
2026 vs
2025 %
2027 vs
2026 %
1 $3,463,635 $3,568,882 $3,628,327 $3,628,327 $3,628,327 $3,628,327 ASSUMING NO RATE INCREASES 2 Base Charge Revenue - Recology (res) $2,168,990 $2,168,990 $2,168,990 $2,168,990 $2,168,990 $2,168,990 3 Base Charge Revenue - Tax Roll (res) $1,228,545 $1,287,990 $1,287,990 $1,287,990 $1,287,990 $1,287,990 4 Subtotal - Residential Revenue $3,397,535 $3,456,980 $3,456,980 $3,456,980 $3,456,980 $3,456,980 5 Base Charge Revenue - Recology (comm) $94,380 $94,380 $94,380 $94,380 $94,380 $94,380 6 Subtotal - Base Charge Revenue $3,491,915 $3,551,360 $3,551,360 $3,551,360 $3,551,360 $3,551,360 7 Sch Q "Extras" Rev. (i.e., backyard srvc) $76,967 $76,967 $76,967 $76,967 $76,967 $76,967 8 Total Revenue (after rate adjustments) $3,568,882 $3,628,327 $3,628,327 $3,628,327 $3,628,327 $3,628,327 Expenses
9 Recology Collection Costs $2,119,350 $2,226,580 $2,337,909 $2,431,425 $2,528,682 $2,629,829 5.1% 5.0% 4.0% 4.0% 4.0% 10 Disposal & Processing Fees $1,193,348 $1,235,248 $1,297,010 $1,348,891 $1,402,846 $1,458,960 3.5% 5.0% 4.0% 4.0% 4.0% 11 Agency Franchise & Other Fees $323,500 $339,572 $339,572 $339,572 $339,572 $339,572 5.0% 0.0% 0.0% 0.0% 0.0% 12 Total Expenses $3,636,199 $3,801,399 $3,974,491 $4,119,887 $4,271,100 $4,428,361 13 Surplus / (Shortfall) After Rate Increase ($67,318) ($173,073) ($346,164) ($491,561) ($642,774) ($800,035) 14 Balancing Acct. (Proj. Year-End Balance) $415,765 $242,692 ($103,472) ($595,033) ($1,237,806) ($2,037,841) Estimated Revenue (Before Rate Increase)

COLLECTION COST PROJECTION
10 Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
Figure 2-3. Summary of Recology’s 2023 Projected Compensation 1 Allocated based on percentage share of total number of accounts 2 Allocated based on percentage share of direct costs
3 Source: Figure 2-4
4 Source: Figure 2-5
5 Source: Figure 2-6
6 Revenue billed by Recology for non-base services which does not come from base rates. 7 Source: Figure 2-7
8 Estimate based on 10% of anticipated revenue after rate adjustments Town
Facilities1 Other2
2022 Total
Collection Compensation - Base Services
Residential $2,119,701 3$11,356 $0 $2,131,057
Commercial $57,098 4$18 $0 $57,116
Total - Base Services $2,176,799 $11,374 5$0 $2,188,173 Plus: Recology Sch. Q rate revenue for extra services $38,407 6 $2,226,580
Tip Fees7
Residential $1,128,485 $73,149 $0 $1,201,634
Commercial $33,496 $118 $0 $33,614
Total $1,161,981 $73,267 $0 $1,235,248
Franchise Fees8
Residential $330,572 $0 $0 $330,572
Commercial $9,000 $0 $0 $9,000
Total $339,572 $0 $0 $339,572
Total Recology Compensation by Customer Class (from above) Residential $3,578,758 $84,505 $0 $3,663,263
Commercial $99,594 $136 $0 $99,730
Total $3,678,352 $84,641 $0 $3,762,993
Plus: Recology Sch. Q rate revenue for extra services $38,407 TOTAL Revenue Requirement $3,801,399
Allocated Costs
Direct
Costs
Customer
Class
11 Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
Figure 2-4. Recology’s 2023 Projected Compensation – Residential Services Cost Category
Solid Waste
Targeted
Recyclable
Materials
Organic
Materials
On-call /
Abandoned
Material
Single
Family
Dwelling
Total
Annual Cost of Operations
Direct Labor-Related Costs
Wages for CBAs $229,226 $201,523 $197,279 $32,726 $660,754 Benefits for CBAs $99,888 $91,647 $87,599 $16,743 $295,877 Payroll Taxes $18,567 $16,323 $15,980 $2,651 $53,521
Workers Compensation Insurance $16,332 $14,358 $14,055 $2,537 $47,282 Total Direct Labor Related-Costs $364,013 $323,851 $314,913 $54,657 $1,057,434 Direct Fuel Costs $36,218 $38,162 $38,256 $2,333 $114,969 Other Direct Costs $32,013 $33,731 $34,235 $2,379 $102,358 Depreciation - Collection Vehicles $33,255 $32,172 $38,001 $2,033 $105,461 Depreciation - Containers $10,563 $10,810 $15,008 $0 $36,381 Depreciation for Collection Equipment $43,818 $42,982 $53,009 $2,033 $141,842 Lease $0 $0 $0 $0 $0
Allocated Indirect Costs excluding Depreciation and Interest (Form 9) $0 General and Administrative $73,301 $75,504 $75,704 $2,081 $226,590 Operations $21,288 $22,811 $26,833 $425 $71,357
Vehicle Maintenance $40,687 $43,597 $51,284 $811 $136,379 Container Maintenance $10,679 $11,022 $12,439 $299 $34,439 Total Allocated Indirect Costs excluding Depreciation and Interest $145,955 $152,934 $166,260 $3,616 $468,765 Total Allocated Indirect Depreciation Costs (Form 9) $1,207 $1,297 $1,564 $24 $4,092 Annual Implementation Cost Amortization (Form A) $0 $0 $0 $0 $0 Total Annual Cost of Operations $623,224 $592,957 $608,237 $65,042 $1,889,460 Profit (insert Operating Ratio below) $65,421 $62,244 $63,848 $6,828 $198,341

0.905
Total Proposed Costs before Pass-Through Cost Allocation $688,645 $655,201 $672,085 $71,870 $2,087,801 Contractor Pass-Through Costs
Lift Adjustments/Disincentive Pymts to Town -$3,261 -$3,261 Interest Expense $10,873 $10,664 $13,145 $479 $35,161
Total Contractor Pass-Through Costs $7,612 $10,664 $13,145 $479 $31,900 TOTAL BASE CONTRACTOR'S COMPENSATION $696,257 $665,865 $685,230 $72,349 $2,119,701 12 Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
Figure 2-5. Recology’s 2022 Approved Compensation – Commercial Services Cost Category
Solid Waste
Targeted
Recyclable
Materials
Organic
Materials Drop Box
On-call /
Abandoned
Material
MFD &
Commercial
Total
Annual Cost of Operations
Direct Labor-Related Costs
Wages for CBAs $5,240 $929 $5,485 $0 $5,275 $16,929
Benefits for CBAs $2,354 $392 $1,629 $0 $2,468 $6,843
Payroll Taxes $424 $75 $444 $0 $427 $1,370
Workers Compensation Insurance $373 $66 $391 $0 $409 $1,239 Total Direct Labor Related-Costs $8,391 $1,462 $7,949 $0 $8,579 $26,381 Direct Fuel Costs $907 $144 $1,102 $0 $865 $3,018
Other Direct Costs $843 $156 $895 $0 $759 $2,653
Depreciation - Collection Vehicles $547 $113 $1,317 $0 $556 $2,533 Depreciation - Containers $63 $125 $374 $0 $100 $662
Depreciation for Collection Equipment $610 $238 $1,691 $0 $656 $3,195 Lease $0 $0 $0 $0 $0 $0
Allocated Indirect Costs excluding Depreciation and Interest (Form 9) $0 General and Administrative $588 $794 $3,533 $0 $856 $5,771 Operations $269 $96 $2,285 $0 $175 $2,825
Vehicle Maintenance $514 $184 $4,367 $0 $334 $5,399
Container Maintenance $76 $177 $633 $0 $123 $1,009
Total Allocated Indirect Costs excluding Depreciation and Interest $1,447 $1,251 $10,818 $0 $1,488 $15,004 Total Allocated Indirect Depreciation Costs (Form 9) $16 $7 $139 $0 $10 $172 Annual Implementation Cost Amortization (Form A) $0 $0 $0 $0 $0 $0 Total Annual Cost of Operations $12,214 $3,258 $22,594 $0 $12,357 $50,423 Profit (insert Operating Ratio below) $1,282 $342 $2,372 $0 $1,297 $5,293

0.905
Total Proposed Costs before Pass-Through Cost Allocation $13,496 $3,600 $24,966 $0 $13,654 $55,716 Contractor Pass-Through Costs
Interest Expense $270 $91 $721 $0 $300 $1,382
Total Contractor Pass-Through Costs $270 $91 $721 $0 $300 $1,382 TOTAL BASE CONTRACTOR'S COMPENSATION $13,766 $3,691 $25,687 $0 $13,954 $57,098 13 Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
Figure 2-6. Recology’s 2022 Approved Compensation – Agency Facilities Cost Category
Cart and Bin
Solid Waste
Cart and Bin
Organic
Materials
Cart and Bin
Recyclable
Materials
Drop Box Venues and
Events
Agency
Facilities
Total
Annual Cost of Operations
Direct Labor-Related Costs
Wages for CBAs $62 $222 $424 $1,437 $80 $2,225
Benefits for CBAs $27 $98 $187 $634 $35 $981
Payroll Taxes $5 $18 $34 $116 $6 $179
Workers Compensation Insurance $4 $16 $30 $102 $6 $158
Total Direct Labor Related-Costs $98 $354 $675 $2,289 $127 $3,543 Direct Fuel Costs $11 $39 $75 $255 $15 $395
Other Direct Costs $14 $50 $95 $323 $19 $501
Depreciation - Collection Vehicles $16 $78 $169 $778 $28 $1,069 Depreciation - Containers $0 $0 $0 $0 $0 $0
Depreciation for Collection Equipment $16 $78 $169 $778 $28 $1,069 Lease $0 $0 $0 $0 $0 $0
Allocated Indirect Costs excluding Depreciation and Interest (Form 9) General and Administrative (using $34 $142 $322 $1,414 $588 $2,500 Operations $10 $41 $93 $409 $18 $571
Vehicle Maintenance $19 $79 $178 $782 $34 $1,092
Container Maintenance (using lifts for Agency Costs) $5 $20 $46 $203 $84 $358 Total Allocated Indirect Costs excluding Depreciation and Interest $68 $282 $639 $2,808 $724 $4,521 Total Allocated Indirect Depreciation Costs (Form 9) $1 $3 $6 $28 $1 $39 Annual Implementation Cost Amortization (Form A) $0 $0 $0 $0 $0 $0 Total Annual Cost of Operations $208 $806 $1,659 $6,481 $914 $10,068 Profit (insert Operating Ratio below) $22 $85 $174 $681 $96 $1,058

0.905
Total Operating Costs before Pass-Through Cost Allocation $230 $891 $1,833 $7,162 $1,010 $11,126 Contractor Pass-Through Costs $0
Interest Expense $4 $18 $39 $180 $7 $248
Total Contractor Pass-Through Costs $4 $18 $39 $180 $7 $248 TOTAL BASE CONTRACTOR'S COMPENSATION $234 $909 $1,872 $7,342 $1,017 $11,374 14 Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
Figure 2-7. Summary of Tipping Fees (2023-2027)
Source: Projected 2023 tip fee provided by the SBWMA financial manager; subsequent tip fees projected by HF&H based on average historical increases and current economic conditions Per-Ton Tip Fees projected projected projected projected projected 2023 2024 2025 2026 2027

5.0% 4.0% 4.0% 4.0%
Material Type
Solid Waste $137 $144 $150 $156 $162
Organics $145 $152 $158 $165 $171
Recycling $0 $0 $0 $0 $0
Commercial Food Waste $145 $152 $158 $165 $171
Agency C&D - Self-haul $120 $126 $131 $136 $142
Tons projected projected projected projected projected
2023 2024 2025 2026 2027
Residential
Solid Waste 2,580 2,580 2,580 2,580 2,580
Organics 5,345 5,345 5,345 5,345 5,345
Recycling 1,884 1,884 1,884 1,884 1,884
Total Residential 9,809 9,809 9,809 9,809 9,809
Commercial
Solid Waste 163 163 163 163 163
Organics 77 77 77 77 77
Recycling 50 50 50 50 50
Total Residential 290 290 290 290 290
Agency
Solid Waste 246 246 246 246 246
Organics 157 157 157 157 157
Recycling 250 250 250 250 250
Agency C&D - Self-haul 140 140 140 140 140
Total Residential 793 793 793 793 793
Total Tip Fee Expenses projected projected projected projected projected 2023 2024 2025 2026 2027
Residential
Solid Waste $353,460 $371,133 $385,978 $401,417 $417,474 Organics $775,025 $813,776 $846,327 $880,180 $915,388
Recycling $0 $0 $0 $0 $0
Total Residential $1,128,485 $1,184,909 $1,232,306 $1,281,598 $1,332,862 Commercial
Solid Waste $22,331 $23,448 $24,385 $25,361 $26,375
Organics $11,165 $11,723 $12,192 $12,680 $13,187
Recycling $0 $0 $0 $0 $0
Total Residential $33,496 $35,171 $36,578 $38,041 $39,562 Agency
Solid Waste - Coll Route $33,702 $35,387 $36,803 $38,275 $39,806 Organics - Coll Route $22,765 $23,903 $24,859 $25,854 $26,888 Recycling $0 $0 $0 $0 $0
Agency C&D - Self-haul $16,800 $17,640 $18,346 $19,079 $19,843 Total Residential $73,267 $76,930 $80,008 $83,208 $86,536 GRAND TOTAL TIP FEES $1,235,248 $1,297,010 $1,348,891 $1,402,846 $1,458,960 15 Town of Hillsborough Section 2. Revenue Requirement Projections Draft Report Solid Waste Rate Study
HF&H Consultants, LLC July 26, 2022
Revenue Increases
Working with staff, proposed revenue increases were derived to cover the cost of providing service to property within the Town (Row 11 of Figure 2-7). Figure 2-7 summarizes the projected revenue from proposed rate increases, annual revenue requirements, and the projected year-end balancing account balance by 2027. The revenue projections assume the full cost-of-service rate increases are implemented to meet the current year revenue requirement.

The revenue increase strategy was to utilize a small portion of the balancing account each year to reduce the necessary rate increases (see Row 13 of Figure 2-7). This strategy allows the Town to avoid a rate spike necessary to meet the Town’s updated cost of service, while also keeping a reasonable balancing account balance in case of higher than expected cost increases in the future. The proposed annual revenue increases are shown on Row 6 of Figure 2-7. These annual revenue increases are achieved by increasing Recology’s base rates by the percentages shown on Rows 2 and 3). It should be noted that in Calendar Year 2023, actual revenues are projected to increase 5.9% with only an average rate increase of 5.0%. The higher revenue results from the 10% increase in the Town’s tax roll charge, adopted by Council in 2021, which went into effect July 1, 2022. The 5.9% in additional revenue in Calendar Year 2023 includes the second six months of the tax roll increase in addition to the 5.0% average increase proposed to be effective January 1, 2023.

Figure 2-7. Projected Expenses (2023-2027) and Revenue at Proposed Revenue Increases Revenue Increase and Cost Inflation Factors
2023
Projected
2024
Projected
2025
Projected
2026
Projected
2027
Projected
2023 vs
2022 %
2024 vs
2023 %
2025 vs
2024 %
2026 vs
2025 %
2027 vs
2026 %
1 $3,568,882 $3,773,695 $3,943,268 $4,117,251 $4,282,396 2 Base Charge Revenue - Recology (res) $2,277,439 $2,379,924 $2,487,021 $2,586,502 $2,689,962 5.0% 4.5% 4.5% 4.0% 4.0% 3 Base Charge Revenue - Tax Roll (res) $1,320,190 $1,382,818 $1,445,045 $1,506,380 $1,566,635 5.0% 4.5% 4.5% 4.0% 4.0% 4 Subtotal - Residential Revenue $3,597,629 $3,762,742 $3,932,066 $4,092,882 $4,256,597 5.9% 4.5% 4.5% 4.0% 4.0% 5 Base Charge Revenue - Recology (comm) $99,099 $103,558 $108,218 $112,547 $117,049 5.0% 4.5% 4.5% 4.0% 4.0% 6 Subtotal - Base Charge Revenue $3,696,728 $3,866,301 $4,040,284 $4,205,429 $4,373,646 5.9% 4.5% 4.5% 4.0% 4.0% 7 Sch Q "Extras" Rev. (i.e., backyard srvc) $76,967 $76,967 $76,967 $76,967 $76,967 0.0% 0.0% 0.0% 0.0% 0.0% 8 Total Revenue (after rate adjustments) $3,773,695 $3,943,268 $4,117,251 $4,282,396 $4,450,613 5.7% 4.5% 4.4% 4.0% 3.9% Expenses
9 Recology Collection Costs $2,226,580 $2,337,909 $2,431,425 $2,528,682 $2,629,829 5.1% 5.0% 4.0% 4.0% 4.0% 10 Disposal & Processing Fees $1,235,248 $1,297,010 $1,348,891 $1,402,846 $1,458,960 3.5% 5.0% 4.0% 4.0% 4.0% 11 Agency Franchise & Other Fees $339,572 $354,809 $370,775 $385,559 $400,982 5.0% 4.5% 4.5% 4.0% 4.0% 12 Total Expenses $3,801,399 $3,989,728 $4,151,091 $4,317,088 $4,489,771 13 Surplus / (Shortfall) After Rate Increase ($27,704) ($46,460) ($33,840) ($34,692) ($39,159) 14 Balancing Acct. (Proj. Year-End Balance) $388,060 $341,600 $307,761 $273,068 $233,910 15 Add/(Less): Adjustments
16 Add/(Less): Adjustments
17 Adjusted Balancing Account (Year-End) $388,060 $341,600 $307,761 $273,068 $233,910 Balancing Account as % of Total Rev. Req. 10% 9% 7% 6% 5% Estimated Revenue (Before Rate Increase)

COLLECTION COST PROJECTION
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SECTION 3. COST OF SERVICE STUDY
Methodology
A COS Study determines the unit cost of the services provided to the Town’s solid waste customers. Each customer class is charged the same unit cost for its share of the services that it requires. In this way, the total revenue requirement is split between the fixed service charges and the volumetric charges; with the volumetric charges further proportioned among the customer classes. The customer classes for this study are residential and commercial.

The majority of the Town’s solid waste services are related to meeting customer demands for the solid waste, recycling, and organics collection services.

The collection services vary based on the customer’s subscribed size and type of container (bin vs. cart vs. roll-off) used for the collection of solid waste materials.

The solid waste collection service levels are defined as follows:

1. Residential Customers – Cart customers receive service in a 20- 32-, 64- or 96-gallon cart for solid waste, a 64-gallon cart for recycling, and a 96-gallon cart for organics. Additional carts may be provided if requested, for an additional fee. The carts are typically collected by an automated side loader truck. The complete costs of the
collection, transportation, and disposal system includes three main categories: 1) Recology’s approved collection expenses; 2) processing and disposal costs at the SBWMA’s Shoreway Environmental Center; and, 3) Town franchise fees. The
franchises cover the Town’s overhead costs to manage the contract with Recology, participate as a member of the
SBWMA JPA, provide community outreach and education, etc.

2. Commercial Customers – Commercial customerstypically receive service in bins (ranging from 1 – 6 cubic yards) as they produce more materials than a typical household. The bins are collected by a front-loader truck.

Commercial customer can choose their containers size, including carts, and how frequently the container is collected each week (up to 6 times per week). The size and frequency of collection will differ between container type (solid waste, recycling, organics) and by customer. 2023 Cost-of-Service
Figure 3-1 summarizes the net revenue requirement by customer class. As shown in Figure 3-1, the Town’s tax roll billing and Recology’s base rate services billings are not the only sources of revenue to cover the $3,798,110 cost-of-service for 2023 (Row 12 in Figure 2-7). In addition to tax roll and base rate revenues, other revenues used to keep rates as low as practical include: contributions from the balancing account and revenue from backyard collection services.

Solid Waste Bin
Solid Waste
Cart
Recycling
Cart
Organics
Cart
-
Town of Hillsborough Section 3. Cost of Service Study
Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 18 July 26, 2022
Figure 3-1. 2023 Net Revenue Requirement by Customer Class The customer class allocations and the expenses attributable to customer accounts are compared with the estimated revenue from current rates in Figure 3-2.

Figure 3-2. Current Rate Revenue Compared to Cost of Service Rates need to be designed to generate each class’s share of the revenue requirement. Section 4 provides a recommended rate structure to meet the COS.

Town
Facilities Other 2022 Total
Recology Compensation
Collection Costs
Residential $2,119,701 $11,356 $0 $2,131,057
Commercial $57,098 $18 $0 $57,116
Agency Franchise Fees & Other Fees
Residential $330,572 $0 $0 $330,572
Commercial $9,000 $0 $0 $9,000
Tip Fees
Residential $1,128,485 $73,149 $0 $1,201,634
Commercial $33,496 $118 $0 $33,614
Total - Base Services $3,678,352 $84,641 $0 $3,762,993
Plus: Recology Sch. Q revenue not included in base comp $38,407 Total Compensation $3,801,400
Total Recology Compensation by Customer Class
Residential $3,578,758 $84,505 $0 $3,663,263
Commercial $99,594 $136 $0 $99,730
Total $3,678,352 $84,641 $0 $3,762,993
Plus: Recology Sch. Q expenses not included in base comp, billed separately $36,857 GROSS Revenue Requirement (from Figure 2-8, Row 12) $3,799,850 Net Revenue Requirement by Customer Class
Residential Commercial Total
Gross Revenue Requirement $3,663,263 $99,730 $3,762,993 Less: Backyard Service Revenue1($36,594) $0 ($36,594)
Less: Contribution from Balancing Acct2($26,970) ($734) ($27,704) Net Revenue needed from Rates $3,599,698 $98,996 $3,698,694 1 Cost of providing backyard service is included in Recology's direct costs. Residents with backyard collection service are billed directly and not included in the base rates. This revenue is removed to avoid double counting. 2 Allocated to each customer class based on their respective percentage share of Gross Revenue Requirement Customer
Class
Direct
Costs
Allocated Costs
2023 Revenue at Surplus/ Revenue
Cost of Service Current Rates (Shortfall) Adj
Residential $3,599,699 $3,429,659 ($170,040) 5%
Commercial $98,999 $94,380 ($4,619) 5%
TOTAL $3,698,697 $3,524,039 ($174,658) 5%
Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
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SECTION 4. RATE DESIGN – 2023 COST-OF-SERVICE
This section discusses the design of volumetric charges for the various sizes of carts, bins, and roll-off customers, as well as the fixed service charges for each customer class. All cost categories were evaluated to determine if the cost would fluctuate (variable) or remain constant (fixed) and if there were variances in the subscribed level ofservice and type of container. The following methodology was used to calculate the cost-of-service by service level and customer class for all solid waste, recycling, and service level organics. Only the solid waste calculations have been provided in detail in the section. The full model is included in Attachment A.

Volumetric (Variable) Collection Costs
Volumetric (variable) collection costs are proportional costs based on the subscribed size and type of container for carts and bins. To properly allocate the variable costs, the various factors identified below were calculated based on existing subscription levels of the Town’s residents and businesses. The variable collection costs exclude transfer and disposal and fixed costs, which are calculated separately.

Full Time Equivalent Route Factors – Solid Waste
The subscribed level of service of each customer, in essence, reserves that equivalent volume of space in the collection vehicle. Recology must route its drivers and vehicles in order to ensure the collection trucks on those routes have sufficient capacity to accept the amount of material set out for collection by the customer. The size of the containers multiplied by the number of containers will determine the amount of truck capacity required. Therefore, a “Full Time Equivalent Route Factor” (FTE Route Factor) was calculated for each container size based on Recology’s actual collection trucks capacity, average route hours, and disposal trip time. Figure 4-1 lists the FTE Route Factors for Carts and Bins:

Figure 4-1. Solid Waste Full Time Equivalent Route Factor Equivalent Container Factor – Solid Waste Carts and Bins An Equivalent Container Factor (ECF) was calculated to determine the variable component of the monthly rates as follows:

1. An adjusted number of loads for each size of container were calculated assuming 100% of customers subscribed to one size.

2. An adjusted loads cost was determined based on the actual collection costs divided by actual loads multiplied by the adjusted Loads.

Customer Sub-Class
FTE Route
Factor
Residential
20 Gallon 1.00
32 Gallon 1.33
64 Gallon 1.82
96 Gallon 2.32
Commercial
1 Cubic Yard 1.40
2 Cubic Yard 1.73
3 Cubic Yard 2.17
6 Cubic Yard 3.26
Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
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3. The ECF was calculated by dividing the adjusted Loads Costs (step 2) by the minimum cost per load.

Figure 4-2 lists the ECF for each customer class:

Figure 4-2. Solid Waste Equivalent Container Factor
Equivalent Container Units – Solid Waste Carts and Bins Equivalent Container Units (ECU) were calculated to properly allocate the variable collection costs, excluding the solid waste transfer, disposal, and processing costs. ECUs were calculated by multiplying the number of containers by size, by the applicable ECF. Current containers in service were provided by the Town from Recology’s billing system and operational data. Figure 4-3 shows the calculation of the ECU’s for each customer class.

Figure 4-3. Solid Waste Equivalent Container Units
Customer Sub-Class
Equivalent
Container
Factor (ECF)
Residential
20 Gallon 1.00
32 Gallon 2.13
64 Gallon 5.84
96 Gallon 11.13
Commercial
1 Cubic Yard 1.00
2 Cubic Yard 2.47
3 Cubic Yard 4.65
6 Cubic Yard 14.03
Customer Sub-Class
Equivalent
Container
Factor
(ECF)*
Current
Containers
in Service
Equivalent
Container
Units
(ECU)*
A B A X B = C
Residential
20 Gallon 1.00 549 549
32 Gallon 1,722 2.13 3,664
64 Gallon 1,076 5.84 6,281
96 Gallon 11.13 441 4,908
Total Carts ECUs 15,402
Commercial
1 Cubic Yard 1.00 4 4
2 Cubic Yard 2.47 7 17
3 Cubic Yard 4.65 5 23
6 Cubic Yard 14.03 3 42
Total Bins ECUs 87
* Totals may differ due to rounding
Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
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Variable Route Collection Costs Calculation – Solid Waste Annual variable costs were determined based on the review of Recology’s 2023 SBWMA-approved compensation (which includes the 10% Town franchise fee). These variable costs vary based on the size, type, and number of containers and frequency of service. Costs include items such as: labor, equipment operation, and maintenance.

Residential Customers
Figure 4-4 shows the calculation of the monthly variable route collection costs per month for residential services.

Figure 4-4. Solid Waste Variable Route Collection Costs per Month - Residential Commercial Customers
Figure 4-5 shows the calculation of the monthly variable route collection costs per month for commercial services.

Figure 4-5. Solid Waste Variable Route Collection Costs – Commercial Fixed Collection Costs – Solid Waste
Fixed collection costs (Fixed Costs) are determined based on Recology’s SBWMA-approved 2022 compensation that are not dependent on the subscribed service volume. Costs include such items as:
customer service representatives, billing costs, on-call collection costs, cost to collect for Town facilities, etc. These costs are borne equally be each rate payer, regardless of the level of service. Figure 4-7 shows the calculation of Fixed Costs for solid waste carts and bins.

Cart Size (Gallons)
20 32 64 96
Annual Variable Costs 665,779$ A
Equivalent Container Units (ECU) 15,402 B
Annual Variable Costs per ECU 43.23$ A / B = C
Monthly Variable Cost per ECU 3.60$ C / 12 = D
Equivalent Container Factor E 2.13 1.00 5.84 11.13
Variable Route Collection Costs per Month* D x E 3.60$ 7.66$ 21.03$ 40.09$ * Totals may vary slightly due to rounding
1 2 3 6
Annual Variable Costs 57,055$ A
Equivalent Container Units (ECU) 87 B
Annual Variable Costs per ECU 657.61$ A / B = C
Monthly Variable Cost per ECU 54.80$ C / 12 = D
Equivalent Container Factor E 2.47 1.00 4.65 14.03
Variable Route Collection Costs per Month D x E 54.80$ 135.47$ 254.95$ 768.63$ * Totals may vary slightly due to rounding
Bin Size (Cubic Yards)
Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
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Figure 4-7. Fixed Cart and Bin Collection Costs – Solid Waste Tipping Fees at the Shoreway Environmental Center
All material is collected by Recology or direct-hauled to the SBWMA’s Shoreway Environmental Center for further processing, transfer, and disposal. The projected costs are based on anticipated volume of materials delivered to the facility at the SBWMA-approved rates (see Figure 2-6).

The cost per gallon or cubic yard of service is calculated by dividing the projected disposal costs by the number of subscribed gallons or cubic yards. Figure 4-8 summarizes the cost per month to dispose of the collected solid waste at the Shoreway Environmental Center (on a per pull per week basis).

Figure 4-8. Cart and Bin Tipping Fees – Solid Waste
Figures 4-9 and 4-10 summarize the cost to service solid waste residential carts and commercial bins collected one time per week (first container) based on the calculations in Figures 4-4 to 4-7 above. Note:

The calculated costs summarized in Figures 4-9 and 4-10 do not constitute the total monthly cost to provide all services provided. The calculated costs shown are for solid waste container collection only.

All customers receive at least weekly collection of all three container types: solid waste, recycling, and organics. These figures are for illustrative purposes to document the methodology for calculating the cost-of-service by customer class and container type. The complete model, which calculates the costs for recycling and organic container collection as well, is included in Attachment A. The total monthly cost (and their respective components) for each customer class and service level is summarized in Figures 4-9 to 4.10 of this Section.

Customer Class Residential Commercial
Total Annual Fixed Costs A $187,187 $2,930
Number of Accounts B 3,722 6
Fixed Cost per Year A / B = C $50.29 $488.26
Fixed Cost per Month C / 12 = D $4.19 $40.69
2022 Solid Waste Tip Fees A $426,609 $22,449
Subscribed Gallons /Cubic Yards B 177,284 51
Tip Fee per Gallon /Cubic Yard A / B = C $2.41 $438.81
Container Size 20-Gal 32-Gal 64-Gal 96-Gal 1 CY 2 CY 3 CY 6 CY Tip Fee per Month per pull/wk C/12 * Size $4.01 $6.42 $12.83 $19.25 $36.57 $73.14 $109.70 $219.41 Carts Bins
Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
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Figure 4-9. Residential Solid Waste Cost of Service (Service 1x per Week, First Container) Figure 4.10: Commercial Solid Waste Cost of Service (Service 1x per Week, First Container) Multiple Collections per Week
A rate for service that is provided to the same customer multiple times per week has the following components:
• First Service Day during a week - Base rate
• Next Service Day during a week – Base rate less fixed portion plus a frequency surcharge. The frequency surcharge is the additional cost (based on the driver’s hourly compensation and additional route time) for the driver to return to the area another day of the week, which results in less efficient routes.

Figure 4-11 is an example of the calculation of the COS rate for a 1-yard bin of solid waste serviced 2 times per week. The fixed portion is removed for each additional service day of service. 20-gallon 32-gallon 64-gallon 96-gallon
Solid Waste Collection - 1st Container
Variable 3.60$ 7.66$ 21.03$ 40.09$
Fixed 4.19$ 4.19$ 4.19$ 4.19$
Transfer/Disposal 4.01$ 6.42$ 12.83$ 19.25$
Cost per Month 11.80$ 18.27$ 38.05$ 63.53$
Residential Carts
1 CY 2 CY 3 CY 6 CY
Solid Waste Collection - 1st Container (before Frequency Charges) Variable 54.80$ 135.47 $ 254.95 $ 768.62$
Fixed 40.69$ 40.69$ 40.69$ 40.69$
Transfer/Disposal 36.57$ 73.14$ 109.70 $ 219.41$
Cost per Month $ 132.06 249.30 $ 405.34 $ 1,028.72$
Commercial Bins
Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
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Figure 4-11. Example of Monthly Rate Calculation for 1 Cubic Yard Bin Collected 2x per Week Additional Solid Waste Containers
There are occasions, due to service demands, where a customer may have more than one solid waste container. A rate for the additional container includes the disposal component, the variable component, and only a portion of the fixed container component. The rate for an additional container at a customer’s property should not include those fixed costs which they have already paid for in the first container.

Customers should not pay fixed costs twice. For example, the cost for Recology to provide residential customers with two on-call clean up events has been allocated equally to each residential customer by being included in the fixed cost of the first container. The only portion of fixed costs that are included in the rate for an additional container is the cost of the container (i.e., depreciation) itself. Figure 4-12 shows a calculation for an additional 96-gallon residential solid waste cart serviced one time per week of $59.79 per month, which is lower than the cost of the first container ($63.53 per month, see Figure 4-9).

Figure 4-12. Calculation of Monthly Rate for an Additional Solid Waste 96 Gallon Cart This calculation was done for each container type (carts and bins) and size. The calculations are contained within the model in Attachment A.

Base Rate for 1 Cubic Yard Bin, Collection 1x per Week) A $ 131.96 Fixed Portion B 40.69$
Frequency Surcharge (per trip beyond the first trip) C 23.42$ Rate Calculation
1st Day of Service during the week
Base Rate A $ 131.96
2nd Day of Service during the week
Base Rate A 131.96
Fixed Portion B (40.69)
Frequency Surcharge C 23.42
Total Rate - 1 Cubic Yard Bin, Collected 2x per Week 246.66 $ 96-gallon Cart Rate Components
Transfer/Disposal (source: Figure 4-9) A $ 19.25
Additional Fixed: Container Depreciation (monthly) B 0.44$ Variable Operating Costs (source: Figure 4-9) C 40.09$
Rate Calculation
Additional Container
Disposal A 19.25$
Fixed Portion B 0.44
Variable Portion C 40.09
Rate for Additional Solid Waste 96-gallon Cart 59.79$
Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
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Total Cost/Rate by Customer Class and Service Level - 1 st Container
Residential
The cost-of-service methodology described above for deriving the cost to collect solid waste containers, was used to calculate the cost-of-service to collection recycling and organics containers. The detailed calculations are included in the model included in Attachment A. Figure 4-13 summarizes the monthly costs for Recology to provide weekly solid waste, recyclable material, and organics collection, processing, and disposal services. The costs are broken down by container type for illustrative purposes; however, customers are billed the total monthly rate based on the size of their solid waste container. Figure 4-13 also reflects the fact that a portion of each customer’s rate for their first container is billed annually on the tax roll ($330 per year = $27.50 per month). The remaining costs are included in the monthly rate billed quarterly by Recology.

Figure 4-13. Residential Cost-of-Service (2023) and Monthly Rates Commercial
The cost-of-service methodology described above for deriving the cost to collect solid waste containers, was used to calculate the cost-of-service to collection recycling and organics containers. The detailed calculations are included in the model included in Attachment A.

Figure 4-14 summarizes the monthly costs for Recology to provide solid waste and recyclable material collection services, which is billed quarterly by Recology and based on each commercial customer’s specific number of solid waste containers, the size of container, and frequency of collection. Recycling collection is provided at no additional charge. The cost to provide recycling services is included in the solid waste rates. Recology bills customers on a monthly basis.

Size of Solid Waste Cart (gallons) 20 32 64 96
Solid Waste Container COS $11.80 $18.27 $38.05 $63.53
Recycling Container COS $16.27 $16.27 $16.27 $16.27
Organics Container COS $30.06 $30.06 $30.06 $30.06
Total Cost of Service ($/month) $58.13 $64.60 $84.38 $109.86 Less: Tax Roll Billing ($/month) ($27.50) ($27.50) ($27.50) ($27.50) Monthly Rate Billed by Recology $30.63 $37.10 $56.88 $82.36 Town of Hillsborough Section 4. Rate Design – 2023 Cost-of-Service Draft Report Solid Waste Rate Study
HF&H Consultants, LLC 26 July 26, 2022
Figure 4-14. Commercial Solid Waste and Recycling Cost-of-Service (2023) and Monthly Rates Figure 4-15 summarizes the monthly costs for Recology to provide organics collection services, which is billed quarterly by Recology and based on each commercial customer’s specific number of containers, the size of container, and frequency of collection.

Figure 4-15. Commercial Organics Cost-of-Service (2023) and Monthly Rates 32 64 96 1 2 3 6
1 /week $53.10 $66.88 $79.97 $131.96 $249.06 $404.91 $1,027.39 2 /week $79.57 $107.12 $133.31 $246.66 $480.86 $792.54 $2,037.52 3 /week $106.03 $147.36 $186.65 $361.35 $712.65 $1,180.18 $3,047.64 4 /week $132.50 $187.61 $239.99 $476.04 $944.45 $1,567.82 $4,057.77 5 /week $158.96 $227.85 $293.33 $590.74 $1,176.24 $1,955.45 $5,067.89 6 /week $185.43 $268.09 $346.67 $705.43 $1,408.04 $2,343.09 $6,078.02 Additional Containers
1 /week $12.73 $26.59 $39.73 $97.35 $215.47 $372.32 $998.86 2 /week $39.19 $66.83 $93.07 $212.04 $447.26 $759.96 $2,008.98 3 /week $65.66 $107.07 $146.41 $326.74 $679.05 $1,147.59 $3,019.11 4 /week $92.12 $147.31 $199.74 $441.43 $910.85 $1,535.23 $4,029.23 5 /week $118.59 $187.56 $253.08 $556.13 $1,142.64 $1,922.87 $5,039.36 6 /week $145.05 $227.80 $306.42 $670.82 $1,374.44 $2,310.50 $6,049.48 Cart Size (Gallons)
Frequency
Bin Size (Cubic Yards)
32 64 96 1 2 3 6
1 /week $26.55 $33.44 $39.99 $65.98 $124.53 $202.45 $513.70 2 /week $39.78 $53.56 $66.66 $123.33 $240.43 $396.27 $1,018.76 3 /week $53.02 $73.68 $93.33 $180.67 $356.33 $590.09 $1,523.82 4 /week $66.25 $93.80 $119.99 $238.02 $472.22 $783.91 $2,028.88 5 /week $79.48 $113.92 $146.66 $295.37 $588.12 $977.73 $2,533.95 6 /week $92.71 $134.05 $173.33 $352.72 $704.02 $1,171.54 $3,039.01 Additional Containers
1 /week $6.36 $13.29 $19.87 $48.68 $107.73 $186.16 $499.43 2 /week $19.60 $33.41 $46.53 $106.02 $223.63 $379.98 $1,004.49 3 /week $32.83 $53.54 $73.20 $163.37 $339.53 $573.80 $1,509.55 4 /week $46.06 $73.66 $99.87 $220.72 $455.42 $767.61 $2,014.62 5 /week $59.29 $93.78 $126.54 $278.06 $571.32 $961.43 $2,519.68 6 /week $72.53 $113.90 $153.21 $335.41 $687.22 $1,155.25 $3,024.74 Bin Size (Cubic Yards)
Frequency
Cart Size (Gallons)
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COST OF SERVICE AND RATE STUDY

ATTACHMENTS
A Cost-of-Service Rate Model
B Complete List of Proposed Commercial Rates (2023-2027)

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Town of Hillsborough
Cost of Service Cart Rates - 2023

SOLID WASTE
Solid Waste Cost of Service Information ‐ 2023
Object Description New Services Solid Waste Other Profit Total Variable Costs
Salaries and Benefits

10.1 Salaries and Wages $ 229,226 $ 24,062 $ 253,288

10.2 Employee Benefits $ 134,787 $ 14,149 $ 148,936 Services and Supplies

20.0 Services and Supplies $ 53,301 $ 5,595 $ 58,896

20.1 Vehicle Maintenance $ 40,687 $ 4,271 $ 44,958

20.3 Fuel & Lubricants $ 36,218 $ 3,802 $ 40,020
Other Charges
SBWMA Tip Fees $ 353,460 $ 73,149 $ 426,609 Recyclable Material Collection Costs
Fixed Costs
Services and Supplies

20.2 Container Maintenance $ 10,679 $ 1,121 $ 11,800

20.4 Depreciation ‐ Collection Vehicles $ 34,462 $ 3,618 $ 38,080

20.41 Depreciation ‐ Containers $ 10,563 $ 1,109 $ 11,672

20.50 General and Administrative $ 73,301 $ 7,695 $ 80,996

20.8 Interest ‐ Collection Vehicles $ 8,252 $ ‐ $ 8,252

20.8 Interest ‐ Containers $ 2,621 $ ‐ $ 2,621
Other Services/Adjustments
$ ‐
On‐Call Collection $ 72,349 $ 72,349
Services to Town Facilities $ 11,356 $ 11,356
Lift Adjustments $ (3,261) $ (3,261)
Intrafund Reimbursements
Transfer to/(from) Balancing Account $ (9,764) $ (9,764) Total Solid Waste Operational Requirements $ ‐ $ 987,557 $ 143,828 $ 65,421 $ 1,196,807 Franchise Fees $ ‐ $ 98,756 $ 14,383 $ 6,542 $ 119,681 Attachment Q Revenue (not kept by Recology) $ (36,594)
Additional Tax Roll Revenue $ ‐
Total Solid Waste Operational Requirements $ 1,279,893
$ ‐ $ 1,025,721 $ 157,483 $ 67,045
1st Cart $ 415,367
2nd Cart $ 11,243
Transfer/Processing/Disposal Costs $ 426,609
Fixed Costs $ 187,187
Solid Waste Collection Operational Costs $ 665,779
Cost of 2nd Container $ 318
Total Solid Waste Operational Requirements $ 1,279,893
Fig Check s/b 0 $ ‐
Solid Waste Tip Fees per Gallon/Month $ 0.201
Solid Waste Lbs/Gallon 0.56
20 Gal Refuse Pounds per Setout 11.19
32 Gal Refuse Pounds per Setout 17.91
64 Gal Refuse Pounds per Setout 35.82
96 Gal Refuse Pounds per Setout 53.73
Side Loaders 1.00
Rear Loaders
S/L Capacity 25
R/L Capacity
Collection Body Refuse Yards 26.00
Collection Body Refuse Tons
26 7.80
$ 4.68

3.00 $ 14.05
HF &H Consultants, LLC
7/26/2022
Attachment A

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Hillsborough City CouncilSeptember 12, 2022

Hillsborough City Council
September 12, 2022