CITY OF LEMON GROVE
CITY COUNCIL
STAFF REPORT
Item No. 1.A
Meeting Date: January 17, 2023
Submitted to: Honorable Mayor and Members of the City Council Department: City Manager’s Office
Staff Contact: Kristen Steinke, City Attorney
Item Title: Waive the Full Text Reading of all Ordinances Summary: Waive the full text reading of all ordinances included in this agenda.
Ordinances shall be introduced and adopted by title only.
Environmental Review:
Not subject to review Negative Declaration
Categorical Exemption, Section Mitigated Negative Declaration Fiscal Impact: None.
Public Notification: None.
City of Lemon Grove
REGULAR CITY COUNCIL MEETING
CALL TO ORDER
PLEDGE OF ALLEGIANCE
CHANGES TO THE AGENDA
PUBLIC COMMENT
• Please fill out and submit a speaker slip to the City Clerk BEFORE the item on the agenda has been heard at the City Council Meeting to address the Council. • Speaker slips are located at the entrance of the Chambers.
ALL SPEAKER RELATING TO PUBLIC COMMENT WILL HAVE 3 MINUTES TO ADDRESS COUNCIL UNLESS OTHERWISE INDICATED BY THE MAYOR.
CONSENT CALENDAR
SEWER RATE STUDY:
DRAFT RESULTS
LEMON GROVE SANITATION DISTRICT
JANUARY 17, 2023
TOPICS
8 RATE STUDY
OVERVIEW
DRAFT RESULTS
AND
ALTERNATIVE
RATES
DISCUSSION NEXT STEPS
RATE STUDY GOALS
9 STRATEGIES FOR COST RECOVERY
▪ Prepare a Five-Year Financial Plan to incorporate forecasted costs and overall utility revenue needs (FY 2023/24 – FY 2027/28)
▪ Evaluate alternative hybrid rate structure for District consideration ▪ Residential: Maintain flat charge structure - $/EDU
▪ Commercial: Move from flat charge structure - $/EDU where EDUs are assigned by type of business to a volume-based structure incorporating actual water usage and strength characteristics
– Requires detailed analysis of commercial customer water usage and strength characteristics for appropriate allocation of cost shares to commercial class categories (low strength, medium strength, high strength) 10 RATE STUDY COMPONENTS
SUFFICIENT AND FAIR RATES
REVENUE
REQUIREMENT
• Compares annual sources of funds (revenue) to annual expenditures to determine the overall annual utility rate adjustment required
COST OF
SERVICE
• Allocates the revenue requirement to the customer classes of service to assign class cost shares in a fair and equitable manner
RATE DESIGN
• Considers both the level and structure of the rate design to collect the target level of service
REVENUE REQUIREMENT
11 OVERVIEW
▪ Determines the amount of
revenue necessary to meet all
utility financial obligations
▪ Determines amount of revenue
that needs to be recovered
annually from rates
▪ Evaluates sufficiency of current
rates
▪ Develops multi-year utilitywide rate revenue adjustment strategy to close any gaps
Forecast Operating Expenses
Contribution to Reserves
Rate-Funded Contributions to Capital
Existing & New Debt Service
Annual
Rate
Revenue
Needs
REVENUE REQUIREMENT
12 OPERATING & MAINTENANCE (O&M) EXPENSE ▪ Metro expenses per FY 2023 forecast plus cost escalation of 10%
in FY 2024 and 5% per year
thereafter – Pure Water O&M and capital costs
to be recovered through use of
Pure Water Reserve
▪ District O&M expense per FY 2023
budget plus 3.5% annual cost
escalation
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
2023 2024 2025 2026 2027 2028
Metro Pure Water O&M & Capital Metro Annual Capacity & Treatment Sanitation O&M Expenses Use of Pure Water Reserve
REVENUE REQUIREMENT
13 CAPITAL IMPROVEMENT PROGRAM (CIP) ▪ Sanitation CIP escalated at 4.0% per year – Average annual spending of $3.1
million
– Total CIP of $18.4 million
▪ Assumed to be funded through
rates, capital cash reserves, and
sewer capacity charges – No new debt planned over study period
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
2023 2024 2025 2026 2027 2028 TOTAL CAPITAL PROGRAM (ESCALATED $) AVERAGE ANNUAL CAPITAL SPENDING
REVENUE REQUIREMENT
14 ▪ No overall utility rate revenue
increase for FY 2024 – Commercial category rates will
vary based on cost shares under
the alternative volume-based rate
structure
▪ Proposed uniform rate increases for
all customer classes of 3.0% per year
(FY 2025-FY 2028) provides for:
– Cash funding of capital program – Metro / District O&M expense – Stable cash reserves
FIVE-YEAR FINANCIAL PLAN
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
2024 2025 2026 2027 2028 METRO PURE WATER O&M & CAPITAL METRO ANNUAL CAPACITY & TREATMENT SANITATION O&M EXPENSE CONTRIBUTIONS TO OPERATING RESERVE CONTRIBUTIONS TO CAPITAL TOTAL REVENUE UNDER CURRENT RATES TOTAL REVENUE UNDER PROPOSED RATES
REVENUE REQUIREMENT
15 CAPITAL RESERVES ▪ Management of prioritized capital program; avoid use of debt
▪ Maintain stable cash position to
address known and unknown
expenditures – Accumulation of reserves in lower
capital spending years
– Use of reserves in higher capital
spending years
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
2024 2025 2026 2027 2028 ENDING CAPITAL FUND CASH BALANCE ENDING CAPACITY FUND CASH BALANCE
REVENUE REQUIREMENT
16 OPERATING RESERVES ▪ Working capital equal to 40% of total District/Metro expenses (excluding
Pure Water Program) – Manage natural fluctuations in
revenue and expense cycles; semi-
annual revenue receipts
▪ Rate stabilization reserve equal to
annual Metro Capacity & Treatment
costs – Flexibility to smooth rates over
multiple years; potential variability
in Metro “uncontrollable” costs
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
2024 2025 2026 2027 2028 ENDING SANITATION FUND CASH BALANCE MINIMUM OPERATING RESERVE MINIMUM RATE STABILIZATION RESERVE
REVENUE REQUIREMENT
17 PURE WATER PROGRAM RESERVES
▪ Annual draw down of cash reserve
to pay forecasted annual Pure
Water Program costs
▪ Monitor over time to ensure rate
levels are adjusted to be adequate
to pay future Pure Water Program
costs as the reserve is depleted over
time
REVENUE REQUIREMENT
18 TOTAL CASH RESERVES
$19,000,000
$19,500,000
$20,000,000
$20,500,000
$21,000,000
$21,500,000
$22,000,000
$22,500,000
$23,000,000
$23,500,000
$24,000,000
$24,500,000
2024 2025 2026 2027 2028
TOTAL ENDING CASH BALANCES
19 CURRENT AND PROJECTED ANNUAL RATES:
UNDER EXISTING RATE STRUCTURE - $/EDU
FY 2023/24 FY 2024/25 FY 2025/26 FY 2026/27 FY 2027/28
UNIT CHARGE DESCRIPTION July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027
0.00% 3.00% 3.00% 3.00% 3.00%
Sewer Service Charge - $/EDU [1] $ 655.20 $ 655.20 $ 674.86 $ 695.10 $ 715.95 $ 737.43 Dollar Change $ - $ 19.66 $ 20.25 $ 20.85 $ 21.48
Customer Category
Single Family Residential 1.00 Per dwelling
Condominium 1.00 Per dwelling
Multi-Family 1.00 Per living unit *rates may be adjusted to reflect flow based upon potable water records Mobile Home 1.00 Per space * rates may be adjusted to reflect flow based upon potable water records General Commercial/Professional/Industrial 1.20 Minimum of 1.2 EDUs charged Food Service Establishments 3.00 Minimum of 3.0 EDUs charged Hotels/Motels without Kitchen 0.38 Per living unit
Hotels/Motels with Kitchen 0.60 Per living unit
Self-Service Laundry 1.00 Per Washer
Churches/Theaters/Auditoriums 1.50 Minimum of 1.5 EDUs charged Schools 1.00 Based on number of pupils
[1] EDU = equivalent dwelling unit; gpd = gallons per day; mg/l = milagrams per liter; BOD = biochemical oxygen demand; SS = suspended solids.
CURRENT
RATE
PROPOSED ANNUAL RATES, EFFECTIVE:
CURRENT RATE STRUCTURE
1 EDU = 240 gpd flow; sewage strength levels of 200 mg/l each for BOD and SS. Higher charges will be assessed for commercial/industrial EDUs with sewage strength higher than combined 400 mg/l BOD & SS.
Increases Applied Uniformly to all Customer Classes
COST OF SERVICE
20 OVERVIEW
▪ Assigns “cost shares” to
customer classes
– Number of customers
– Patterns of use
– Level of service
▪ Determines appropriate
grouping of customer classes
▪ Serves as the foundation for
both the level and structure
of rates
Determine Customer Classes
Allocate Costs to Customer Classes
Identify Utility Service Functions
Allocate Assets & Expense to Functions
Customer
Class Cost
Shares
• Auto steam cleaning
• Bakery, wholesale
• Bar w/dining
• Special manufacturing
• Hotels w/dining
• Industrial laundry
• Supermarkets / deli
• Mortuary
• Restaurant
• Septage hauler
(<=200 mg/l BOD & SS)
• Bars w/o dining
• Commercial laundry
• Hotel/motel w/o
dining
• Mixed use
• Shopping centers /
theaters
• Repair shop / service
station
• Basic commercial
• Car wash
• Department / retail
stores
• Hospital /
convalescent
• Laundromat
• Light manufacturing
• Offices/storage,
medical, dental,
veterinary
• School / college
• Single-family
residential
• Condominiums
• Multi-family
residential
• Mobile home park
RESIDENTIAL (NO
CHANGE)
COMMERCIAL-LOW COMMERCIAL-MEDIUM COMMERCIAL-HIGH
(<=200 mg/l BOD & SS) (201 - 400 mg/l BOD & SS) (401 - 800+ mg/l BOD & SS)
PROPOSED CUSTOMER CLASSES
STRENGTH ASSIGNMENT PER INDUSTRY STANDARDS
21 Customer
, 8%
Flow, 72%
BOD Strength,
10%
SS Strength,
10%
COST OF SERVICE
22 ALLOCATION OF REVENUE REQUIREMENTS TO SERVICE FUNCTIONS Test Year
FY 2023/24 BOD SS
Total District Expenses $ 3,845,795 $ 495,999 $ 3,349,795 $ - $ - Less: Other Revenues (91,059) (11,744) (79,315) - -
Addition to/(Uses) of Reserves 490,155 63,216 426,939 - - Rate Revenue Requirement $ 4,244,891 $ 547,472 $ 3,697,420 $ - $ - % Allocation 100% 13% 87% 0% 0%
Total Metro Expenses
Metro Annual Capacity & Treatment $ 2,861,138 $ - $ 1,439,498 $ 734,722 $ 686,917 Pure Water O&M & Capital 265,318 - 119,916 77,243 68,160 Less: Use of Pure Water Reserve (265,318) - (119,916) (77,243) (68,160) Rate Revenue Requirement $ 2,861,138 $ - $ 1,439,498 $ 734,722 $ 686,917 % Allocation 100% 0% 50% 26% 24%
Rate Revenue Requirement $ 7,106,029 $ 547,472 $ 5,136,918 $ 734,722 $ 686,917 % Allocation 100% 8% 72% 10% 10%
REVENUE REQUIREMENT Strength
FUNCTIONS OF SERVICE
Customer Flow
COST OF SERVICE
23 CUSTOMER CLASS DEMAND CHARACTERISTICS
▪ Sewer flow derived from FY 2021
customer water usage data from
Helix Water District
– Residential flow based on
average winter period usage
(90% of total water usage)
– 675 cubic feet per month per
unit
▪ Commercial flow based on total
water usage
▪ Strength assignments based on
industry standards Hcf mg/l
Residential 715,567 200 1.00
Commercial - Low 109,917 200 1.00
Commercial - Medium 23,351 400 2.00
Commercial - High 9,822 800 4.00
Total 858,657
[1] Hcf = 100 hundred cubic feet; mg/l = milagrams per liter.
CUSTOMER CLASS DEMAND
CHARACTERISTICS
Estimated
Annual Flow
Strength
Average BOD &
SS
Ratio to
Residential
COST OF SERVICE
CUSTOMER CLASS UNITS OF SERVICE
BOD SS
Residential 6,457 715,567 715,567 715,567
Commercial - Low 305 109,917 109,917 109,917
Commercial - Medium 40 23,351 46,702 46,702
Commercial - High 22 9,822 39,286 39,286
Total 6,824 858,657 911,472 911,472
No. of
Accounts
Weighted
Flow (Hcf)
Weighted
Flow (Hcf)
FUNCTIONS OF SERVICE
Strength Customer Flow
Annual Flow
(Hcf)
CUSTOMER CLASS UNITS OF
SERVICE ▪ Strength factors applied to flow to derive weighted flow 24 BOD SS
Residential 94.6% 83.3% 78.5% 78.5% 83.2%
Commercial - Low 4.5% 12.8% 12.1% 12.1% 12.0%
Commercial - Medium 0.6% 2.7% 5.1% 5.1% 3.0%
Commercial - High 0.3% 1.1% 4.3% 4.3% 1.7%
Total 100.0% 100.0% 100.0% 100.0% 100.0%
BOD SS
Residential $ 518,018 $4,280,883 $ 576,806 $ 539,276 $5,914,983 Commercial - Low 24,464 657,581 88,602 82,837 853,485
Commercial - Medium 3,219 139,697 37,646 35,196 215,758 Commercial - High 1,770 58,758 31,668 29,607 121,803
Total $ 547,472 $5,136,918 $ 734,722 $ 686,917 $7,106,029 CUSTOMER CLASS $ SHARE
OF UNITS OF SERVICE
FUNCTIONS OF SERVICE
Total
Customer Flow Strength
Total CUSTOMER CLASS % SHARE
OF UNITS OF SERVICE
FUNCTIONS OF SERVICE
Customer Flow Strength
COST OF SERVICE
CUSTOMER CLASS SHARES BY FUNCTION
25 ALTERNATIVE HYBRID RATE STRUCTURE
26 COMMERCIAL (REVISED)
• Maintain flat charge structure -
$/EDU
• Base charge equal to residential
flat charge - $ per account
• Includes first 675 cubic feet of
water usage per month
• Volume charge - $ per hundred
cubic foot applied to water usage
over base charge allowance
• Rates vary by commercial
strength category
RESIDENTIAL (NO CHANGE)
27 CURRENT AND PROJECTED ANNUAL RATES:
UNDER HYBRID RATE STRUCTURE – FLAT RESIDENTIAL CHARGE - $/EDU; VOLUME-BASED COMMERCIAL RATES
FY 2023/24 FY 2024/25 FY 2025/26 FY 2026/27 FY 2027/28
UNIT CHARGE DESCRIPTION July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027
CURRENT RATE STRUCTURE
Sewer Service Charge - $/EDU [1] $ 655.20
3.00% 3.00% 3.00% 3.00%
Residential - All Occupied Categories
Sewer Service Charge - $/EDU $ 655.20 $674.86 $695.10 $715.95 $737.43 Dollar Change $ - $19.66 $20.25 $20.85 $21.48
Residential Categories
Single Family Residential Per dwelling
Condominium Per dwelling
Multi-Family Per living unit
Mobile Home Per space
Vacant Residential Per dwelling, living unit, or space $ 58.64 $60.40 $62.21 $64.08 $66.00 Commercial Categories
Base Charge - All Occupied Categories Per account (Includes first 6.75 hcf per month) $ 655.20 $674.86 $695.10 $715.95 $737.43 Vacant Commercial Per account $ 80.23 $82.64 $85.12 $87.67 $90.30 Volume Charge - $/Hcf * Per Hcf of water usage over 6.75 hcf per month Commercial-Low $ 7.04 $7.26 $7.47 $7.70 $7.93
Commercial-Medium $ 8.95 $9.22 $9.50 $9.78 $10.08
Commercial-High $ 13.18 $13.57 $13.98 $14.40 $14.83
[1] EDU = equivalent dwelling unit; gpd = gallons per day; mg/l = milagrams per liter; BOD = biochemical oxygen demand; SS = suspended solids. [2] Hcf represents 100 cubic feet. One cubic foot is equivalent to 7.48 gallons. 675 cubic feet is equivalent to 5,049 gallons. ** Refer to Ordinance for assignment of commercial strength categories by type of business Varies for
Commercial
CURRENT
RATE
PROPOSED ANNUAL RATES, EFFECTIVE:
1 EDU = 240 gpd flow; sewage strength levels of 200 mg/l each for BOD and SS. Higher charges will be assessed for commercial/industrial EDUs with sewage strength higher than combined 400 mg/l BOD & SS.
ALTERNATIVE HYBRID RATE STRUCTURE Increases Applied Uniformly to all Customer Classes
COMMERCIAL BILL IMPACTS
28 ▪ Commercial bill impacts will vary widely by individual customer depending on current assignment of EDUs, actual water usage and strength category – The current EDU-based rate structure uses a combination of measurements to assign commercial EDUs depending on type of business (e.g., square footage, plumbing fixtures, pupils, etc.)
– A change in the commercial rate structure to volume-based rates will result in varying levels of decreases and/or increases for individual commercial customers
▪ If decision is made to move to the alternative commercial structure, District staff will complete commercial property audit to validate assignment of strength category and begin outreach to commercial property owners to discuss new structure and impacts
SURVEY OF SAMPLE ANNUAL SEWER BILLS
29 SINGLE FAMILY RESIDENTIAL CUSTOMER [1]
[1] Current rates from Website research; assumes 675 cubic feet of flow per month
DISCUSSION
30 ▪ Proposed overall annual rate revenue increases
▪ Rate structure and resulting customer class rates
▪ Other
3 1
2 ND READING / PUBLIC HEARING
• May 2, 2023
1 ST READING / PUBLIC HEARING
• April 18, 2023
MAIL PROP 218 NOTICE
• By March 3, 2023
STUDY DOCUMENTATION:
• February 2023
• Draft Report
• Draft
Ordinance
• Prop 218
Notice
Board Adopts New Rates June 1, 2023; New Rates go into Effect July 1, 2023
Next Steps
4. REPORTS TO COUNCIL
Appointment of City Council Members to
Committees, Commissions, and Boards
Presented by: Racquel Vasquez, Mayor
RECOMMENDATION:
Ratify the Mayor’s Committees, Commissions and
Boards assignments for City Council Members.
CITY COUNCIL REPORTS ON MEETINGS
ATTENDED AT THE EXPENSE OF THE CITY
CITY MANAGER REPORT
ADJOURNMENT