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. HF&H has developed shortage reduction factors and an implementation process that eliminates the need for a Proposition 218 process every time revenueneutral rate adjustments are needed during shortages.
Wholesale water rates can create additional uncertainty. Typically, the single largest expense for a water utility is the cost of purchased water; for the City, we would develop a passthrough adjustment methodology for changes in the Water Assessment Charge the City pays to The Main San Gabriel Basin Watermaster, San Gabriel Valley Municipal Water District, and Water Quality Authority. We will also explore if there are opportunities for a similar passthrough adjustment related to any of thesewer
expenses. HF&H has worked with water enterprises to
rates to pass through cost increases for the purchase of wholesale water. The index allows for revenueneutral rate adjustments that can be made without triggering a full Proposition 218 protest process. Indexing helps safeguard rates against cost projections that do not pan out.
Our approach is uniquely tailored to each client based on actual water needs and customer make up within each community. Our models are known for their simplicity and ease of use, which is essential in meeting the burden of proof. We have been hired to redo other rate models that were difficult to navigate and/or too sprawling to be printedleaving the client with little confidence that the results were accurate.
HF&H Delivers the Public Support You Need
Public support is the key to a smooth and efficient rate adjustment.
Effective public outreach is crucial. Typically, the public is not necessarily interested in how the rates are calculated, but what the rates are paying for and that their charges will be commensurate with the services they are receivingnothing more, nothing less.
While our presentations provide a highlevel overview of the and the our reports provide greater detail for those who wish to dig deeper.
The Experience You Need
Our proposed team members have varied backgrounds in engineering, accounting, finance management, and public policy. We bring a unique and diverse perspective to our clients and we view our role as a rates consultant from different perspectives:
Our rate designs are presented so
that the bill impacts are easily
understood by staff, elected
officials, and, most importantly,
rate payers. We use tabular and
graphical techniques to clearly
communicate the differences in
alternatives and bills of neighboring
agencies.
Revenue neutral adjustments, for
water and/or sewer passthrough
expenses, without triggering a full
Prop 218 process
To increase revenue stability
during shortages, we developed
water shortage rate factors
(which differ for each customer
class) for the City of Beverly Hills
and the Town of Hillsborough,
among others
City Council Regular Meeting - Page 481 of 1385
Managing Resources Today
Kristan Lloyd
November 29, 2022
From the perspective, we want to be viewed as an independent, objective outside party that is capable of explaining the impact of potential changes in clear, simple, and meaningful terms that laypeople can understand.
From the elected perspective, we want to be viewed as an authoritative expert that can help them craft a solution that not only balances theinterests, but strengthens the community by building consensus.
From the perspective, we want to be viewed as a teammate who can help develop a preferred alternative that optimizes ratemaking objectives.
From a personal perspective, we want all parties involved to feel highly satisfied with our services from start to finish.
* * * * *
We are pleased to receive this opportunity to assist the City and look forward to an opportunity to discuss our qualifications with you. Please feel free to contact me with any questions.
Sincerely,
HF&H CONSULTANTS, LLC
Rick Simonson, CMC
Senior Vice President
City Council Regular Meeting - Page 482 of 1385
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City Council Regular Meeting - Page 483 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
Table of Contents
HF&H Consultants, LLC Page i November 29, 2022
TABLE OF CONTENTS
I. EXECUTIVE SUMMARY ................................................................................ 1 Firm History ...................................................................................................... 1 Professional Services Agreement ......................................................................... 1 Legal Issues ...................................................................................................... 1 Other Disclosures ............................................................................................... 1 II. APPROACH TO THE PROJECT ..................................................................... 2 Understanding ................................................................................................... 2 Approach .......................................................................................................... 2 Project Methodology and Management ................................................................ 2 Workplan .......................................................................................................... 3 Task 1. Project Initiation ...................................................................................... 3 Task 2. Financial Plan Models ............................................................................. 4 Task 3. Cost-of-Service Analysis ......................................................................... 5 Task 4. Rate Design and Bill Impacts ................................................................... 6 Task 5. Miscellaneous Fees Update ..................................................................... 7 Task 6. Documentation and Implementation ........................................................ 8 Task 7. Project Management ................................................................................ 9 rough Adjustment .......................................................... 9 III. RELEVANT WORK EXPERIENCE .............................................................. 10 Project Experience ........................................................................................... 11 r Rate Studies (2015 - Present) ............. 11
rm Sewer Rate Studies (2012 - Present) 12
South Coast Water District - Water and Sewer Rate Studies (2018 - Present) .. 12 Wastewater, and Storm Sewer Rate Studies (2013
- Present) ............................................................................................................ 13 Union Sanitary District - Wastewater Rate Studies (1990 - Present) .................. 14 & Recycled Water Rates Study (2015 -
2018) .................................................................................................................. 14 IV. QUALIFICATIONS .................................................................................... 16 Your HF&H Project Team .................................................................................. 16 Rick Simonson, Senior Vice President - Project Director ................................... 16 Gabe Sasser, PE, Senior Associ er, Sewer ............................ 16 Geoffrey Michalczyk, MBA, Senior Manager, Water .............. 17 Sarah Tam, Assistant Anal Analyst ............................................... 17 V. REFERENCES .............................................................................................. 18 South Coast Water District ................................................................................ 18 City of Beverly Hills .......................................................................................... 18 City Council Regular Meeting - Page 484 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
Table of Contents
HF&H Consultants, LLC Page ii November 29, 2022
City of Daly City ............................................................................................... 18 Town of Hillsborough ....................................................................................... 18 Union Sanitary District ...................................................................................... 19 City of Newport Beach ...................................................................................... 19 VI. PROJECT SCHEDULE ................................................................................ 20 VII. COST PROPOSAL .................................................................................... 22
TABLE OF FIGURES
Figure III-1. Recent Rate Study Projects ...................................................................... 10 Figure VI-1. Proposed Task Schedule .......................................................................... 21
APPENDICES
A. Work Sample
B. Project Team Résumés
C. Addendum #1 - Signed
City Council Regular Meeting - Page 485 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
I. Executive Summary
HF&H Consultants, LLC Page 1 November 29, 2022
I. EXECUTIVE SUMMARY
Firm History
Founded in 1989, HF&H Consultants, LLC, provides consulting services to water, sewer, and solid waste municipal agencies. The synergy resulting from our staff's engineering, accounting, financial management, and public policy backgrounds provide substantial added value to clients, which can rarely be achieved by individual engineering, accounting, or management consulting firms.
Today, HF&H Consultants has grown to a firm of over thirty professionals, which makes us one of the largest ratemaking firms on the West Coast. With offices located in northern and southern California, HF&H Consultants directs its practice to cities, counties, and special districts in the western United States. As such, HF&H Consultants provides clients with the breadth of experience of a national firm, but the responsiveness, accountability, and personal commitment of a local firm. Our consultants are seldom far away and, as a result, our clients always receive a quick, personal response to their needs.
Our focus has primarily been on serving municipal agencies in California, although we have provided consulting services in other states as well. Firm leadership is provided by three partners Rob Hilton, Laith Ezzet, and Rick Simonson.
Over the past 33 years, HF&H has conducted more than 1,000 rate, capacity fee, and other related studies for more than 400 water, sewer, and solid waste clients. This body of work is the basis for the sterling reputation that HF&H enjoys. We are proud that our rates have never been successfully challenged in court.
Professional Services Agreement
We have reviewed thesample Professional Services Agreement (included as Attachment A in the RFP) and we have the ability and willingness to execute the agreement, as provided.
Legal Issues
HF&H does not have any past or pending litigation, or claims filed, against our firm, principals of the firm, or any of our key consultants, related to services performed for public agencies, or actions that may affect our performance under a contract with the City.
Other Disclosures
Neither our firm, nor any principal of the firm, has been, or currently is, the subject of any investigation by the County, State, and/or Federal agencies within the past five years.
City Council Regular Meeting - Page 486 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 2 November 29, 2022
II. APPROACH TO THE PROJECT
Understanding
Our understanding is based on material available in theRFP. From this source, we understand that the scope of services includes water, trash, and sewer rates. Each utility will be studied and analyzed separately so that they can be acted on and defended independently from the others. The City needs assistance in establishing new rates for a fiveyear period beginning in FY 202324. The analysis for each utility will be over a period of at least five years, longer if significant capital expenditures are anticipated. Specific approaches, methodologies, and our scope of work are discussed below.
Approach
Our approach reflects innovations that we have introduced in an everchanging, litigious rate making environment. We are quick to adapt to emerging legal complications. We are also well grounded in longstanding industry standards. As a result, neitherour rate studies, nor our Prop 218 procedural requirement process, have ever been challenged in court.
Based on this understanding of therequirements, we have developed the following workplan. The tasks are designed to address the objectives listed in theRFP, while meeting all governing legal requirements and conforming with best industry practices.
We develop fair, equitable, and sensible rates that ensure revenue stability, play a key role in adequately funding utility operations and maintenance, while encouraging conservation.
Our ratemaking approach is to balance equity among rate payers and revenue stability for the jurisdiction, while meeting the requirements of Proposition 218.
Project Methodology and Management
Our methodology is tailored to the case at hand. We evaluate each study on its own merits and develop recommendations in collaboration with staff that will provide the greatest future benefit. Our models are custom made for each study. We design them with staff input so that they provide the required functions for determining rates now, as well as for later use. At the end of the project, our models are provided with no restrictions or additional costs. We are greatly pleased to see our clients use them in the subsequent years, following project completion.
City Council Regular Meeting - Page 487 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 3 November 29, 2022
Based on the information available in theRFP, we
expect that the City requires a comprehensive rate analysis that includes revenue requirement projections, cost of
service analysis, and rate design. Toward that end, we would meet with the City to collect data, develop models, and report results to staff, elected officials, and the public to ensure your success. We would also expect to assist with Proposition 218 requirements.
The scope of this project is of sufficient magnitude to warrant special attention to project management. It is our practice to promote effective project management by establishing agreed upon communication protocols at the outset to manage the schedule and budget. These protocols are established during contract negotiations and maintained thereafter. During contract negotiations, our work plan, schedule, and budget will be reviewed and changed, if warranted. For example, we may find areas where use of the staff resources will enable us to reduce our level of effort. There may also be other areas where we have overor underestimated the level of effort or the duration required to complete individual tasks. Our work plan will be modified as required and the revised schedule will serve as the goals for monitoring progress.
Workplan
The following workplan will provide the City with tenyear financial planning and rate models for its water and sewer enterprises. The rate models will include longterm revenue requirement models that will be used for setting rates now and for future sensitivity analyses and rate increases. The workplan will achieve therequested scope of service in Section B of the RFP.
Task 1. Project Initiation
The purpose of this task is to lay the foundation for the study. Thisimmediate objective is to gain an understanding of how theutilities operate with regard to finances, staffing, billing, and relationships with other agencies or contractors.
We will conduct a project initiation meeting with the City to engage all key staff in the project.
We will familiarize all City staff with the scope of services and schedule, evaluate relevant fiscal policies and community interests, identify current issues and concerns (financial and operational), identify potential rate structure alternatives, and request and compile all data that will be required. HF&H will provide an agenda and data request ahead of this meeting for purposes of discussion during the kickoff meeting.
City Council Regular Meeting - Page 488 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 4 November 29, 2022
Task 2. Financial Plan Models
For each utility, we will prepare a tenyear financial planning model projecting O&M and capital expenses, operating and nonoperating revenue, and reserve fund balances. Expenses are based on the budget and capital
improvement program. The financial plan is an Excel spreadsheet model that will provide the City with a means of updating rates when annual budgets and capital expenditures change each year. The models will be developed with input from City Staff to ensure that they meet the needs. The models will be as simple as possible so that special training is minimal. The models are work products included as part of the deliverables at no additional cost and with no licensing restrictions.
In preparing the financial plans, we approach each element as follows:
Expenses. We rely on the budget and other reports with which it is most familiar as much as possible so that our model is easy for the City to follow. We utilize the chart of accounts, not some predetermined format from other studies. We calculate operating expenses whenever possible, based on the underlying unit costs and purchased commodities (e.g., power, chemicals, imported water, wastewater treatment costs). We tailor expense calculations to reflect variations in staffing levels, salaries, operating expenses, and other City requested inputs.
Revenues. We calculate and project rate revenue based on the current rate structure and projected growth in units of service (e.g., hundred cubic feet, dwelling units, service connection size). This is more accurate than simply extrapolating total revenues (a common, albeit less accurate, practice) and provides a good crosscheck on the numbers.
Reserves. The revenue requirements project expenses and revenues. Reserve funds are the third critical element in the model. Each of the current reserve funds will be
integrated into the model to show inbound and outbound
transfers for each year. Existing policies for current funds will be evaluated, as will the need for adding, deleting, or redefining the funds.
Capital Improvement Projects.We have built longterm financial planning tools that allow agencies to see the effects of alternative approaches to funding capital improvements. For example, projects funded via State Revolving Fund (SRF) or Water Infrastructure Finance and Innovation Act (WIFIA) loan programs require massive cash balances up front because the State reimburses the borrower up to a year after the expense has been incurred. Bonds, on the other hand, do not require a sizeable upfront cash balance. Our easytouse CIP financing tool takes into account the effects that these alternatives have on projected cash balances.
Projecting reserve
balances is an
extremely important
component of rate
analysis.
Our foremost interest in
modeling will be to
present a highly
organized analysis that
will facilitate
understanding and user
friendliness.
City Council Regular Meeting - Page 489 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 5 November 29, 2022
Because it is impossible to accurately predict future water supply conditions, we introduce safeguards to the analysis. To begin, it is important to understand the sensitivity of rates to variances in demand projections. Knowing the impact on revenues and expenses of a range of potential variances in demand is essential in determining how much reserves are needed to buffer the variances. The demand projections will affect the expense of purchasing water, as well as the revenue from water sales. We will perform sensitivity analyses to quantify how much in reserves may be necessary to buffer annual fluctuations related to economic conditions. We will also recommend other rate designs (see below) that can help stabilize rate revenue.
Overall, the intention will be to maintain a simple, intuitive flow of numbers without formulae or macros that are difficult to check or prone to making unintended adjustments. We will avoid introducing unnecessary complexity. During the model expansion, we will work closely with staff in reviewing interim work products to ensure that we provide the functionality that is needed for setting new rates now and for thesubsequent use. Our models are provided as work products in an editable Excelbased format without additional licensing costs or other proprietary restrictions.
Task 3. CostofService Analysis
The costofservice analysis builds on the first year of the revenue requirement projections. We are particularly mindful of the administrative record that is called for inlitigious rate making environment. The City is aware that its rates must be cost based.
The costofservice analysis is dependent on the rate structure for which rates are designed. Prior to preparing the costofservice analysis, we will present alternatives for theconsideration.
In presenting these alternatives, we will determine whether thecustomer billing system has the ability to charge the rates. We do not want to pursue alternative rate structures before we know that they can be implemented by the City.
The costofservice analysis will allocate the revenue requirements by functionalized cost components. These functionalized cost components will be allocated between the fixed and volumetric charges and among the various water and sewer customer classes. We will work closely with City staff to develop allocation factors based on flow and loading for each class. The result will be compared with the revenue from current charges to determine the difference and the transitional strategy that may be needed to align the updated rates with the cost of service without causing rate shock or hardships for any class. The costofservice analysis will be integrated into the revenue requirements for setting rates at this time. Once the rates are set, the costofservice analysis will not be needed in future years unless the rate structures are modified.
Water CostofService
Our water costofservice analyses will adhere to the base/extracapacity methodology promulgated in the American Water WorksM1 Manual. This approach can be used City Council Regular Meeting - Page 490 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 6 November 29, 2022
for allocating revenue requirements to customer classes and for designing tiered rates that are costbased across the full range of the tiers. This approach is highly defensible and appropriate for the City. As stated previously, we expect changes in water consumption since the previous rate study will necessitate changes to the existing tiered rates and rates assigned to customer classes.
Sewer CostofService
The sewer cost of service analysis will rely on both the Water Environment methodology and the Revenue Program Guidelines. A mass balance will be performed in determining the respective loadings from each customer class.
Our sewer model can be developed to evaluate the feasibility of converting existing rates from separate unit charges per category of use to some form of flowbased structure. In our experience with other clients for whom we have made this conversion, it is desirable to have a structure with a fixed and a volumetric component, which is tied to the revenue requirements fixed and variable costs. This approach also provides revenue stability.
Task 4. Rate Design and Bill Impacts
The process of designing rates is one in which thecurrent rates are compared with the proposed alternative that is identified during the costofservice analysis.
Again, our approach is very methodical to ensure that the proposed alternative meets all of theratemaking objectives.
Our rate calculations will incorporate assumed growth rates and, in the case of trash rates, adjust for any account migration to less frequent service if rates rise significantly. We will explain our calculations and recommendations in a written report, supported by the rate model, to which the City will have full access.
Our rate designs are presented so that impacts are easily understood by staff, elected officials, and rate payers. We compare rate structure alternatives with the current rate structure and with comparable rate structures. We also compare the customer bills produced by those rate structures. For both comparisons, we use tabular and graphical techniques to clearly communicate the differences. These techniques allow us to make refinements during meetings to achieve the optimal result.
Revenue Stability
Revenue stability can also be improved by balancing the revenue from fixed service charges and variable rates. We typically try to balance the fixed costs with revenue from fixed charges, which includes not only the revenue from service charges, but also revenue from variable charges associated with nonseasonal water demand. If the combination of revenue from fixed service and variable charges is lower than the fixed costs, revenue instability can occur. Conversely, if City Council Regular Meeting - Page 491 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 7 November 29, 2022
the revenue from fixed charges exceeds the fixed costs, customer bills lose their conservation signal (i.e., bills do not respond to changes in water use).
Our rate structure recommendations will consider current and future operations and maintenance costs, projected customer demand patterns, changes in sewer customer loading, water supply, and capital improvement requirements. Water rate structure recommendations will include assessment of tiered water rates, nonresidential water rates, Inside and Outside City rates, and the existing Water Reliability Charge. Sewer rate structure recommendations will assess revising rates to account for sewer flow and wastewater loading.
Revenue Stabilization/Drought Rate Factors
During prolonged shortages, customers are required to
conserve or even ration their water use. These
shortages can include locally declared water shortages
caused by facility operations, State mandated
reductions, or natural disasters including, but not
limited to, droughts. The magnitude of the water
savings can significantly reduce water sales revenue.
HF&H has developed shortage reduction factors and an
implementation process which eliminates the need for
a Proposition 218 process every time revenueneutral
rate adjustments are needed during shortages.
There may be other issues facing the City, such as
hardship subsidies for lowincome customers. We will assist the City in understanding the legal requirements and current industry standards.
Customer Bill Impacts
The sophistication in rate analysis can be lost on the public, which is typically focused on how they may be affected by any proposed changes. We have tabular and graphical forms of explaining how customers are impacted, which are initially very effective in working with staff to develop alternatives, and later in working with elected officials in selecting the alternative that best meets their ratemaking objectives.
Task 5. Miscellaneous Fees Update
The miscellaneous fees comprise two categories: those that are related to its facility charges (e.g., connection fees) and those that are related to customer service (e.g., water service shutoffs, plan reviews). Unlike its rates for water service, the miscellaneous fees are not subject to Proposition 218. Even so, the miscellaneous fees will be cost based.
The facility charges are a type of development impact fee will be updated in compliance with Government Code Section 66000et seq.As such, they will be derived as a reimbursement to rate payers for the costs they bore in providing capacity for new connections (i.e.,in City Council Regular Meeting - Page 492 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 8 November 29, 2022
The costs will be based on an inventory of the existing infrastructure plus any nearterm capital improvements minus any appropriate adjustments for costs such as outstanding principle of debt, if any. Dividing the value of the infrastructure by the associated capacity will yield the unit cost of capacity, which will serve as the basis for the facility charge.
The installation and other customer fees will be updated by first determining if there are any current fees that are no longer needed and any fees that are currently not being charged that should be added (e.g., deposits, turn on/turn off services). A template will be prepared that will derive the cost of each service by identifying the staff associated with providing the service. With the assistance, the hours required to provide the service will be determined as well as any related materials costs. The labor cost will be calculated by multiplying each staff pehours by the corresponding fullyloaded hourly rate, which will be determined.
Task 6. Documentation and Implementation
The purpose of this task is to present the results of the analyses to City staff, City Council, and the public.
We will begin by documenting the results of the analysis in a draft report, which we will review with City staff and revise accordingly, based on their comments. The documentation will explain how the methodology complies with the substantive provisions of Proposition 218 and relevant court decisions.
The revised draft report(s) will be presented to the City Council for their feedback, as our preliminary results may result in two or three (maximum) rate increase scenarios, for each utility, that the City Council may want to consider.
The draft report will be revised accordingly, based on input from the City Council. We will present a final report to the City Council for their approval and their authorization for City staff to mail notices to rate payers, initiating the Proposition 218 protest process. One Proposition 218 notice can be mailed for both utilities, which will save time and expenses. We will assist1 in preparing the notice to rate payers required under Proposition 218.
We will prepare a presentation and attend up to two public engagement workshops, one prior to issuing the Proposition 218 notice, and one after customers have received the notice. The workshop will review the rate study goals and objectives, summarize the costs and revenues of each utility, and the proposed rate increases and bill impacts.
We will prepare a presentation and attend the protest hearing at the end of the 45day protest period to answer questions.
1We will review, and provide comments/suggestions, on the draft Proposition 218 notice, ordinances, or resolutions prepared by City staff and/or the City Attorney.
City Council Regular Meeting - Page 493 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
II. Approach to the Project
HF&H Consultants, LLC Page 9 November 29, 2022
Task 7. Project Management
An allowance is required for monitoring schedules and budgets, periodic status calls with City staff regarding the progress of the project and other issues, and quality control checks to peer review our analyses and work products. This task includes creation of project progress reports and control reports for invoicing.
Optional TaskPassThrough Adjustment
To help stabilize revenue, in addition to revenue stabilization/drought rate factors already included in the scope, we can develop passthrough adjustments for costs that are outside the control of the City (e.g., purchased cost of water from MWD). The stress that variances ins rate projections can place on thereserves can be relieved by rates to pass through costs. The index allows for revenue neutral rate adjustments that can be made without triggering a full Proposition 218 protest process. The indexing formula is included in the Proposition 218 notice. Once adopted, all that is required when the rates are indexed, is a notice in the bills at least 30 days in advance. Indexing can go a long way in safeguarding rates against assumed cost projections that do not pan out.
Similarly, we can look at the cost of wastewater treatment, if practical.
City Council Regular Meeting - Page 494 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
III. Relevant Work Experience
HF&H Consultants, LLC Page 10 November 29, 2022
III. RELEVANT WORK EXPERIENCE
The following is a link to our firm website, which includes summaries of completed studies http://hfhconsultants.com/services/. In addition,Figure III1summarizes the recent water and sewer rate studies conducted by HF&H over the past 10 years. As requested, a listing of project references with brief descriptions of some of the recent projects we conducted follows this section.
Figure III1. Recent Rate Study Projects
City Council Regular Meeting - Page 495 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
III. Relevant Work Experience
HF&H Consultants, LLC Page 11 November 29, 2022
Project Experience
Brief descriptions of representative recent projects similar to the proposed project are provided below.
None of the projects described below involved the use of subcontractors.
City of Beverly HillsWater and Sewer Rate Studies (2015Present) In 2017, HF&H updated thewater and sewer rates. HF&H is currently conducting costof service studies for the City to update their water and sewer rates for 2023 through 2027.
Using the base/extra capacity cost allocation methodology, HF&H recommended several changes to therate
structure. The analysis resulted in adjusting tier
breakpoints for single family customers, reducing the
number of tiers from four to two for multifamily customers, and maintaining the commercial rate structure. A water
reliability charge was also implemented to provide a steady source of funding during the expansion of thewater
system.
Another issue facing the City was providing justification for its OutsideCity rates, which were
1.25 times Inside City rates. This longstanding rate differential approximated the additional cost to serve Outside City customers and had not been recently evaluated. The cost of service analysis realigned the OutsideCity rates to be the same as InsideCity rates.
Key Results:
Lowered the tier breakpoints for single and multifamily customers, which resulted in customers moving into higher priced tiers sooner. This resulted in bill decreases during months of low water user and bill increases during periods of high water use.
Developed Outside City rates based on their cost of service rather than a uniform 1.25 factor applied to all rate categories.
Developed a water reliability charge to fund local groundwater supply projects to reduce the reliance on purchased water from the Metropolitan Water District of Southern California.
Developed revenue stabilization factors to offset revenue lost during droughts.
Recommended automatic passthrough rate adjustments for changes in the cost of purchased water from MWD without having to conduct another Prop 218 process.
Developed flowbased residential sewer rates.
Experience setting cost-based outside-
city rate differentials
Setting tiered rates in compliance with
decision
Including automatic adjustments for
droughts and other outages
Including automatic adjustments for
increases in the cost of purchased water
Develop flow-based residential sewer
rates
City Council Regular Meeting - Page 496 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
III. Relevant Work Experience
HF&H Consultants, LLC Page 12 November 29, 2022
City of Daly CityWater, Sewer & Storm Sewer Rate Studies (2012Present) HF&H has worked with the City since 2012 on various water, sewer, and solid waste projects.
In 2018, we conducted a water rate study for the fiveyear planning period of FY 201819 through FY 202223. The study, and subsequent rate adjustments, realigned the tiered water rates to the cost of service (the cost of Tier 1 water was less than the wholesale cost of water from theprovider, the SFPUC) and allowed the City to increase capital project spending from less than $1 million per year (which was less than annual depreciation expense) to $1.9 million per year, while increasing reserves to meet the HF&H recommended reserve balances to cover operating and capital cash flow during the year, as well as sufficient reserves for emergency capital repairs and future rate stabilization.
In 2019, we conducted a fiveyear sewer rate study (covering FY 201920 through FY 202324), which found that no sewer rate increase was necessary for FY 201920; therefore, the rates were not adjusted on July 1, 2019, and the project was deferred to 2020. Subsequently, due to COVID 19, the City Council and City staff elected not to adjustment sewer rates during 2020, as many residents and businesses were facing uncertain times. In Q4 2020, we updated the fiveyear sewer study to cover FY 202122 through FY 202526, with rates effective July 1, 2021.
Recommended water rates have been adopted by the City. In June 2021, Council adopted the recommended sewer rates.
South Coast Water DistrictWater and Sewer Rate Studies (2018Present) Beginning in 2018, HF&H has assisted the District in creating and implementing a longterm financial planning model to ensure adequate funding for its capital improvement program. The model allows users to select various sources of funding, interest rates on debt, and duration of debt issuances. The model helped
the District determine that SRF and WIFIA loans combined with bond issuances were necessary to fund over $300
million in capital improvements over the next ten years.
In 2019, the District also hired HF&H to provide financial consulting services when they proposed to annex the City of San Juan water and sewer utilities. HF&H analyzed projections for each financial operations as well as potential savings and increases in costs due to consolidation. This analysis helped the District determine potential utility rates both before and after annexation.
In 2020, HF&H applied its financial model to project the impact on rates of a proposed desalination plant of various capacities. The cost of funding this plant is integrated with the funding sources for its existing capital improvements.
Water and wastewater rate making
Setting tiered rates in compliance with
decision
User friendly water and sewer financial
planning models for capital planning.
Involvement in the development of
desalination
Cost of service rates developed for
sewer and water utilities.
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III. Relevant Work Experience
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After working with the District on budget, capital financing, and various management studies, HF&H was retained to perform a rate study for thewater, sewer, and recycled water enterprises. This was the first rate study since separating its operations into the three enterprises. As a result, some changes were needed to realign the rates to the costofservice.
Key Results:
The baseextra capacity method was used to allocate costs to the various demand categories. HF&H updated the water service charges by realigning the meter ratios using the rated capacities of each meter size. Furthermore, residential tier breakpoints were adjusted to match the demand patterns of District customers.
Sewer rates were adjusted to realign the wastewater strength concentrations for each customer class. The adjustments balanced the flows and masses of BOD and TSS from the customer classes with the estimated loading from the District received by the South Orange County Wastewater Authority for treatment.
Rate increases were derived to meet higher fund reserve targets and to meet thedebt service ratios. Rate increases for FY 202122 through FY 202223 were approved in July 2021. The final report is available as a work sample for reference inAppendix A.
Town of HillsboroughWater, Wastewater, and Storm Sewer Rate Studies (2013Present) Over the past five years, HF&H has assisted the Town of Hillsborough in developing funding for its water,
wastewater, and storm drain services, including:
Setting the tiered water rate structure based on
the cost of service for each tier using the AWWA base/extra capacity cost allocation methodology, which is advisable considering theSan Juan Capistranodecision.
Developing stabilization which allows the Town to automatically adjust its water rates to offset revenue lost during droughts when customers are required to ration water; these adjustments can be made by notifying customers at least 30 days in advance on their bills without triggering the notification and protest process under Proposition 218.
Conducting annual water rate updates to verify the need for the projected rate increases from our original fiveyear study.
Assisting the Town to resolve litigation over the water rates set prior to our involvement.
Assisting the Town to implement significant wastewater rate increases, enabling the acceleration of the capital improvement program in compliance with a regulatory compliance order.
Developing a storm drain funding strategy integrating funding from a portfolio of sources including related services such as water and wastewater revenue, which does not require Water and wastewater rate making.
Tiered rate analysis in compliance with
decision.
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City of Lynwood Proposal: Water and Sewer Rate Study
III. Relevant Work Experience
HF&H Consultants, LLC Page 14 November 29, 2022
voter approval, to sources requiring voter approval such as stormwater fees and assessments.
Most recently, Rick Simonson and Gabe Sasser team updated thewater rates that went into effect January 2021. In addition, they completed a fiveyear update of the sewer rates. Rates were approved in June 2021 and went into effect July 2021.
Union Sanitary DistrictWastewater Rate Studies (1990Present) HF&H has conducted many studies for the District since
1990. Most recently, John Farnkopf and Geoff Michalczyk were retained to conduct a sewer rate study that updated the rates through FY 202425. HF&H updated a
20year financial planning model that they built in previous years for the District to project expenses, revenues, and reserves. Rate increases were set to fund a capital
improvement plan that totaled over $1.1 billion over the course of 20 years. The District used the model to help issue a $60 million bond. Additionally, HF&H updated the rate structure that allocated costs to residential, commercial, and industrial customers.
In 2019, HF&H completed the fiveyear rate study which required 78% annual increases to fund significant capital improvement projects. The need to increase revenue by 8% in FY 202021 applied differently to each of the customer classes because of adjustments in the cost of service. The number of accounts, the flow per class, and the COD and TSS strength concentrations per class were all updated. Certain rates decreased and others increased based on the relative changes from the prior flow and strength data. These differences indicate that since the prior cost of service analysis, there has been a shift in the relative flows, loadings, and accounts among the customer classes.
The District Board adopted the recommended rates for the fiveyear financial planning period.
City of Newport BeachSewer Rates & Recycled Water Rates Study (20152018) We assisted Newport Beach with its sewer rates. Prior to the study, the existing rates included a uniform flowbased, sewer use charge, a surcharge per dwelling unit, and a sewer service charge based on meter size. Our team worked with the City to simplify these rates, creating one monthly service charge while maintaining the sewer use charge. In this case, all customers were charged the same sewer use rate because thefacilities only collect and convey wastewater.
This update included a separate recycled water rate study. The City had previously set its recycled water rates at 80% of the potable water rate, a common practice until the San Juan Capistrano decision. The court found that indexing recycled water rates to potable water rates violated Proposition 218 because that procedure based the cost of recycled water on potable water rather than on the actual cost of providing recycled water.
User friendly wastewater financial
planning model for capital planning.
Creating a single 20-year financial
planning and rate model including cost
of service analysis.
Sewer rate setting for collection-based
system.
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City of Lynwood Proposal: Water and Sewer Rate Study
III. Relevant Work Experience
HF&H Consultants, LLC Page 15 November 29, 2022
We developed a model that determined the fiveyear projected recycled water revenue requirement, which comprised the O&M and capital costs specifically related to providing recycled water. The model also developed fixed service charge rates and volumetric rates for recycled water, which were paid by the irrigators (golf courses and City parks) who used recycled water. We also assisted with the preparation of notices to rate payers and other implementation activities required under Propositionprotest procedure.
Communication with the six golf courses was essential to avoid a majority protest, which would have blocked the new, costbased rates. Although there was no majority protest, the City was required to refund overpayments.
Key Results:
Realigned recycled water rates to cost of service.
Extensive communication with rate payers to facilitate rate adjustments.
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City of Lynwood Proposal: Water and Sewer Rate Study
IV. Qualifications
HF&H Consultants, LLC Page 16 November 29, 2022
IV. QUALIFICATIONS
Your HF&H Project Team
This team of consultants is in our Walnut Creek office and has worked together on numerous other projects of similar nature, including the work that HF&H has done for the City. Copies of their résumés are included inAppendix B. The project director and task managers have all successfully completed the threeday American Water Works Costof Service Rate Making seminar.
Rick Simonson, Senior Vice PresidentProject Director
Over his 22 years at HF&H, Rick has managed numerous water and sewer rate study projects. He brings a depth of knowledge and expertise in Propositions 218 and 26 compliance, rate structure design, and a strong financial modeling background. In addition,experience prior to joining HF&H includes six years of conducting audits.
Rick's previous experience managing studies for both utilities qualifies him to be heavily involved in all aspects of this project. Rick will act as the overall project manager for both the water and sewer portions of this project.
As Project Manager, he will be responsible for the following functions:
Coordinate the project interaction with the City to ensure that all work is completed properly.
Manage the project progress against the schedule and budget.
Lead all project meetings and public presentations.
Perform QA/QC on all deliverables.
Gabe Sasser, PE, Senior AssociateTask Manager, Sewer
experience as a registered civil engineer gives him the technical background to understand the capital infrastructure projects of our clients. With his construction background as a project manager, he is a proven communicator and conscientious ofbudgets and schedules. Gabe joined HF&H in 2019 and focuses on water and sewer rate studies, as well as customer impact analyses. His recent lead analyst experience includes sewer rate studies for the City of Taft, Nevada County, City of Bakersfield, Town of Hillsborough, South Coast Water District, and West Bay Sanitary District and water rates studies for Western Hills Water District, Foresthill Public Utility District, and North Coast County Water District.
Gabe will work closely with Rick in developing sewer models that will allow for onthespot scenarios and sensitivity analyses. He will be responsible for the following assignments:
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City of Lynwood Proposal: Water and Sewer Rate Study
IV. Qualifications
HF&H Consultants, LLC Page 17 November 29, 2022
Develop rate models and analysis.
Assist in preparing the project report.
Attend meetings and assist with presentations, as necessary.
QC water rate model for accuracy and consistency with the sewer model.
Geoffrey Michalczyk, MBA, Senior AssociateTask Manager, Water Geoff provides water and sewer consulting services to cities, counties, and special districts throughout California. He has assisted in creating utility rate structures and connection fees in compliance with state law and industry standards. Additionally, Geoff has developed longterm financial plans for the operations of water and sewer systems. He specializes in municipal finance and is knowledgeable in developing rates and fees that provide adequate funding for the long term needs of his clients. Recent lead analyst experience includes water rate studies for the Mid Peninsula Water District, City of Daly City, South Coast Water District, City of Redwood City, and Oakwood Lake Water District, and sewer rate studies for the Union Sanitary District, City of Monterey Park, and the City of Daly City.
Geoff will work closely with Rick in developing sewer models that will allow for onthespot scenarios and sensitivity analyses. He will be responsible for the following assignments:
Develop rate models and analysis.
Assist in preparing the project report.
Attend meetings and assist with presentations, as necessary.
QC sewer rate model for accuracy and consistency with the sewer model.
Sarah Tam, Assistant AnalystSupport Analyst
Sarah is an Assistant Analyst at HF&H. Since joining the firm in 2022, Sarah has gained experience on a range of projects including water, sewer, and solid waste rate studies. This experience builds on her analytical skills, problem solving skills, and demonstrated mathematical accuracy through her attention to detail.
Sarah will provide support to each lead analyst, as necessary. She has been specifically selected for this project as her focus at the firm is on rate setting and financial analyses. Her resume has been included inAppendix B, along with all key personnel described above.
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City of Lynwood Proposal: Water and Sewer Rate Study
V. References
HF&H Consultants, LLC Page 18 November 29, 2022
V. REFERENCES
Included below are references for similar projects (as described in detail in Section III of this proposal) completed in the past five years.
South Coast Water District
Pam ArendsKing
Chief Financial Officer
31592 West Street
Laguna Niguel, CA 92651
9494994555 ext. 3153
[email protected].
City of Beverly Hills
Shana Epstein
Director of Public Works
345 Foothill Road
Beverly Hills, CA 90210
(310) 2852494
[email protected]
City of Daly City
Tom Piccolotti
Director of Water and Wastewater Resources
153 Lake Merced Blvd.
Daly City, CA 94015
(650) 9918200 ext. 8201
[email protected]
Town of Hillsborough
Jan Cooke
Finance Director
1600 Floribunda Avenue
Hillsborough, CA 94010
(650) 3757408
[email protected]
City Council Regular Meeting - Page 503 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
V. References
HF&H Consultants, LLC Page 19 November 29, 2022
Union Sanitary District
Paul Eldredge
General Manager
5072 Benson Road
Hayward, CA 94587
(510) 4777502
[email protected]
City of Newport Beach
Josh Rosenbaum
Senior Management Analyst
100 Civic Drive
Newport Beach, CA 92660
(949) 6443057
[email protected]
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City of Lynwood Proposal: Water and Sewer Rate Study
VI. Project Schedule
HF&H Consultants, LLC Page 20 November 29, 2022
VI. PROJECT SCHEDULE
The proposed project timeline, including deliverables and meetings, is shown inFigure VI1. The proposed schedule anticipates completion in time for the new rates to become effective July 1, 2023.
The RFP stated thatis the objective to hold a Public Hearing and count protest votes on May 16, We do not recommend completing the project so quickly. Considering the extensive scope of work for two utilities and the Proposition 218 45day noticing requirement, we believe more time is necessary to complete the proposed scope. Holding the Public Hearing to count protest votes on May 16 would require the City Council to approve mailing the Proposition 218 notices at their March 21, 2023. Considering the consultant will not be given the notice to proceed until December 20, 2022, the number of Council and Community workshops requested, our timeline assumes the Public Hearing will be held at the June 20, 2023 Council meeting.
To allow sufficient time to develop thoughtful and costbased water and sewer rates, our timeline assumes developing the connection fee and other miscellaneous fees during the 45day protest period, as connection fees and miscellaneous fees are not subject to the procedural requirements of Proposition 218. We will develop a separate report that can also be presented for adoption at the June 20, 2023 Council meeting, or any Council meeting thereafter.
We will meet and confer with staff to confirm the timeline and/or to brainstorm alternative approaches which may allow holding the Public Hearing to count protest votes on May 16, 2023.
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City of Lynwood Proposal: Water and Sewer Rate Study
VI. Project Schedule
HF&H Consultants, LLC Page 21 November 29, 2022
Figure VI1. Proposed Task Schedule
Task 1Project Initiation
Meet with District Staff/Gather Data
Task 2Financial Plan Models
Develop Revenue Requirement Projections
Review Preliminary Analysis with District Staff
Revise Models
Task 3Cost of Service Analysis
Develop Cost of Service Analysis
Review Preliminary Analysis with District Staff
Revise Models
Task 4Rate Design and Bill Impacts
Develop Alternative Rate Structures
Update Readiness to Serve and Fire Line Fees
Review Preliminary Results with District Staff
Bill Impact Analysis
Revise Alternatives
Task 5Miscellaneous Fees Update
Update Connection Fees
Update Customer Service Fees
Review Preliminary Results with Staff
Revise Alternatives Accordingly
Prepare Draft and Final Report
Task 6Documentation and Implementation
Present Preliminary Results to Council
Prepare Draft ReportWater and Sewer Rates
Review Draft Report with Staff/Attorneys
Prepare Final Report
Present Final Report to Council
Assist with Prep of Prop 218 Notice/Ord/Reso
Community Workshops
Council PresentationIssue Prop 218 Notice
Attend Prop 218 Protest Hearing
Task 7Project Management
Manage schedule/budget, prepare invoices
Weekly checkins with Staff
= Onsite Council Meeting
= Teleconference with staff
Apr 2021 May 2021 Jun 2021Tasks Dec 2020 Jan 2021 Feb 2021 Mar 2021 City Council Regular Meeting - Page 506 of 1385
City of Lynwood Proposal: Water and Sewer Rate Study
VII. Cost Proposal
HF&H Consultants, LLC Page 22 November 29, 2022
VII. COST PROPOSAL
As required by PlanetBids, we have submitted our Cost File as a separate upload on the City of PlanetBids website.
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APPENDIX A:
WORK SAMPLESOUTH COAST WATER DISTRICT
HF&H Consultants, LLC
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June 18, 2021
SOUTH COAST WATER DISTRICT
Water, Recycled Water, and Sewer Rate Study
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SOUTH COAST WATER DISTRICT
31592 West Street
Laguna Beach, CA 92651
WATER, RECYCLED WATER, AND SEWER RATE STUDY
FINAL REPORT
June 18, 2021
HF&H CONSULTANTS, LLC
201 North Civic Drive, Suite 230
Walnut Creek, CA 94596
© HF&H CONSULTANTS, LLC All rights reserved.
City Council Regular Meeting - Page 511 of 1385
HF&H CONSULTANTS, LLC
Managing Tomorrow’s Resources Today
201 North Civic Drive, Suite 230 Robert C. Hilton, CMC
Tel: (925) 977-6950 Laith B. Ezzet, CMC
Fax: (925) 977-6955 Richard J. Simonson, CMC
hfh-consultants.com Marva M. Sheehan, CPA
Robert D. Hilton, CMC, Emeritus
June 18, 2021
Mr. Rick Shintaku, General Manager
Ms. Pam Arends-King, Chief Financial Officer
South Coast Water District
31592 West Street
Laguna Beach, CA 92651
Subject: Water, Recycled Water, and Sewer Rate Study
Dear Sir and Madame:
HF&H is pleased to submit this cost-of-service rate study to the South Coast Water Dis- trict. This study documents our methodology and recommendations. Our primary rec- ommendation concerns the rate adoption period. We recommend adopting rate increases for the next two years, FY 2021-22 and FY 2022-23. During that time, the District will presumably conclude studies (e.g., evaluation of desalination options, compete asset management plan, revise reserve policies) that can be incorporated into the next rate study. Our other recommendations are briefly summarized as follows.
Water revenue increases. Revenue from water rates should be increased in FY 2021- 22 by 6.0% and in FY 2022-23 by 4.0% to improve the Water Fund’s cash reserves, thereby protecting the District’s credit rating, which will maintain lower financing costs. These increases are the minimum needed to prevent the Water Fund’s reserves from declining over the next two years.
Water service charge modifications. Water service charges should be modified to reflect the rated capacities of the meters currently installed.
Water single family variable charge modifications. The size of the three tiers in the single family variable charge have been adjusted to reflect the current demand by these customers.
Recycled water variable charge. Although the recycled water variable rate has in- creased greater than the potable water variable rates, the recycled water rate also in- cludes the peak demand cost. As such, the cost of recycled water is approximately only three-quarters that of the effective potable irrigation rate (i.e., combining the var- iable and peak demand charges paid by the potable irrigation customers).
City Council Regular Meeting - Page 512 of 1385
Mr. Rick Shintaku
Ms. Pam Arends-King
June 18, 2021
Water peak demand charge increase. The increase in the peak demand charge re- flects a shift in some of the cost of service from the variable charge.
Sewer revenue increases. Revenue from sewer rates should be increased in FY 2021- 22 by 6.5% and in FY 2022-23 by 6.5%. These increases are the minimum required to maintain debt service coverage and protect the District’s credit rating.
Pass-through adjustments. The cost of water from MWDOC and the cost of wastewater treatment by SOCWA are a significant portion of the water and sewer revenue requirements, respectively. These costs are outside the control of the District and can vary significantly from projections. As a prudent measure to stabilize re- serves, a provision should be added to the rate adoption process whereby the District can make revenue-neutral adjustments to rates to compensate for unforeseen cost var- iances with prior notice to rate payers.
We greatly appreciate your assistance in developing the cost-of-service analysis.
Very truly yours,
HF&H CONSULTANTS, LLC
John Farnkopf, P.E., Senior Vice President
Rick Simonson, C.M.C., Senior Vice President
Geoffrey Michalczyk, Senior Associate
Gabe Sasser, P.E., Senior Associate
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South Coast Water District Water, Recycled Water, and Sewer Rate Study Table of Contents
HF&H Consultants, LLC Page i June 18, 2021
TABLE OF CONTENTS
I. EXECUTIVE SUMMARY ................................................................................. 1 Water and Recycled Water Rates ................................................................................... 1 Projected Revenue Requirements and Revenue Increases ........................................... 1 Water Rate Structure Modifications ........................................................................... 1 Water Customer Cost Impacts.................................................................................. 3 Sewer Rates................................................................................................................. 4 Projected Revenue Requirements and Revenue Increases........................................... 4 Sewer Rate Structure Modifications ........................................................................... 4 Sewer Customer Cost Impacts .................................................................................. 5 Combined Customer Cost Comparison ............................................................................ 6 II. INTRODUCTION .......................................................................................... 8 Study Purpose .............................................................................................................. 8 Study Process ............................................................................................................... 8 Report Organization ...................................................................................................... 9 III. WATER REVENUE REQUIREMENTS ......................................................... 10 Assumptions and Projections ........................................................................................10 Operating Expenses ................................................................................................11 Debt Service ..........................................................................................................11 Contributions to Reserves .......................................................................................11 Revenue Increases .................................................................................................12 Reserve Fund Balance ..................................................................................................12 IV. WATER COST-OF-SERVICE ANALYSIS ..................................................... 15 Analytical Approach .....................................................................................................15 Allocation Factors ........................................................................................................16 Demand Services....................................................................................................16 Average Day Demand ............................................................................................16 Maximum Day Demand ..........................................................................................16 Maximum Hour Demand .........................................................................................17 Allocation Factors ...................................................................................................18 Cost Allocations ...........................................................................................................19 O&M, Capital, and Composite Allocations ..................................................................19 Allocation Comparison ............................................................................................21 Variable Charge Cost Allocation ...............................................................................22 Summary of Allocations By Customer Class ...............................................................23 V. WATER RATE DESIGN ................................................................................ 25 Current Rate Structure .................................................................................................25 Service Charge Rates ...................................................................................................26 Variable Charge Rates ..................................................................................................29 Tiered Variable Charge Rates ..................................................................................29 Breakpoints Between Tiers .....................................................................................30 City Council Regular Meeting - Page 514 of 1385
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Rates Per Tier ........................................................................................................31 Uniform Variable Charge Rates ................................................................................34 Peak Demand Charge Rates .........................................................................................35 Rate Summary ............................................................................................................35 VI. WATER CUSTOMER COST IMPACTS ......................................................... 37 VII. SEWER REVENUE REQUIREMENTS......................................................... 39 Assumptions and Projections ........................................................................................39 Operating Expenses ................................................................................................39 Debt Service ..........................................................................................................39 Contributions to Reserves .......................................................................................40 Revenue Increases .................................................................................................40 Reserve Fund Balance ..................................................................................................41 VIII. SEWER COST-OF-SERVICE ANALYSIS .................................................. 43 Analytical Approach .....................................................................................................43 Allocation Factors ........................................................................................................44 Cost Allocations ...........................................................................................................44 Units of Service ...........................................................................................................46 Cost of Service By Customer Class ...........................................................................46 IX. SEWER RATE DESIGN .............................................................................. 49 Current Rate Structure .................................................................................................49 Service Charge And Variable Charge Rates .....................................................................50 X. SEWER CUSTOMER COST IMPACTS ........................................................... 53
TABLES AND FIGURES
Table I-1 Projected Water Revenue Increases and Key Financial Parameters .......................... 1 Table I-2. Summary of Proposed Water Rates ..................................................................... 2 Table I-3. Impact on Average Monthly Water Cost............................................................... 3 Table I-4. Projected Sewer Revenue Increases and Key Financial Parameters ........................ 4 Table I-5. Summary of Proposed Sewer Rates ..................................................................... 5 Table I-6. Impact on Average Monthly Sewer Cost ............................................................... 5 Table I-7. Impact on Combined Monthly Water and Sewer Cost - FY 2021-22 ........................ 6 Table I-8. Impact on Combined Monthly Water and Sewer Cost - FY 2022-23 ........................ 7 Table III-1. Projection Assumptions ...................................................................................10 Figure III-1. Revenue Requirement Projections (No Desal) ..................................................11 Table III-2. Projected Water Revenue Increases and Key Financial Parameters .....................12 Figure III-2. Projected Fund Balance (6-Month Minimum Reserve) .......................................13 Figure III-3. Projected Fund Balance (12-Month Minimum Reserve) .....................................14 Figure IV-1. Pipeline Capacity Needed For Demand Service Levels .......................................17 Table IV-1. Service Level Demands, Load Factors, and Allocation Factors .............................18 Table IV-2. Summary of Allocation Factors .........................................................................19 Table IV-3. Direct Allocations - O&M Expenses ...................................................................19 Table IV-4. Direct Allocations - Capital Expenses .................................................................20 City Council Regular Meeting - Page 515 of 1385
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Table IV-5. Composite Allocations and Peak Demand Adjustment.........................................21 Table IV-6. Comparison of Current Revenue With COS Allocations (FY 2020-21)....................21 Table IV-7. Comparison of Current Revenue With COS Allocations (FY 2021-22)....................22 Table IV-8. Variable Charge Cost Allocations By Customer Class ...........................................23 Table IV-9. Customer ClassAllocations for Demand Service Levels ........................................24 Table IV-10. Comparison of the Average Cost Per HCF ........................................................24 Table V-1. Current Water Rates .........................................................................................25 Table V-2. Equivalent Meter Unit Multipliers........................................................................27 Figure V-1. Comparison of EMU Multipliers .........................................................................28 Table V-3. Service Charge Unit Costs .................................................................................28 Table V-4. Proposed Monthly Service Charge Rates .............................................................29 Table V-5. Breakpoint Locations – Single Family Tiers .........................................................30 Figure V-2. Cumulative Bill Distribution - Single Family Residential .......................................31 Table V-6. Variable Charge Rates – Single Family Residential ...............................................33 Figure V-3. Cost-of-Service Increments Per Tier – Residential ..............................................33 Figure V-4. Comparison of Single Family Tier Structure ......................................................34 Table V-7. Calculation of Non-Residential Variable Charge Rates ..........................................35 Table V-8. Peak Demand Charge Rate ...............................................................................35 Table V-9. Summary of Water Rates ..................................................................................36 Table VI-1. Sample Water Cost Impacts .............................................................................38 Table VII-1. Projection Assumptions ..................................................................................39 Figure VII-1. Annual Revenue Requirement Components .....................................................40 Table VII-2. Projected Sewer Revenue Increases and Key Financial Parameters ....................41 Figure VII-2. Fund Balance With and Without Increased Rate Revenue .................................41 Figure VII-3. Projected Fund Balance (12-Month Minimum Reserve) .....................................42 Table VIII-1. Summary of Allocation Factors .......................................................................44 Table VIII-2. Direct Allocations - O&M and Capital Expenses ................................................45 Table VIII-3. Composite Allocations ...................................................................................45 Table VIII-4. Units of Service ............................................................................................46 Table VIII-5. Unit Costs of Service (FY 2020-21) .................................................................47 Table VIII-6. Customer Class Allocations............................................................................48 Table IX-1. Current Sewer Rates .......................................................................................49 Table IX-2. Fixed and Variable Rate Components ................................................................50 Table IX-3. Calculation of Service and Variable Charge Rates - FY 2021-22 ...........................51 Table IX-4. Summary of Proposed Sewer Rates ..................................................................51 Table X-1. Sample Sewer Cost Impacts ..............................................................................53
APPENDIX
Appendix A: Water Rate Model
Appendix B: Sewer Rate Model
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GLOSSARY
AWWA – American Water Works Association.
BOD – Biochemical Oxygen Demand, a measure of wastewater strength Breakpoint – The volume of water per billing period separating tiers in tiered rate struc- tures.
CCF – Hundred cubic feet (see HCF below).
Capacity - Capacity is the maximum demand that a customer can place on the infrastruc- ture. It is contrasted with demand (see below). Capacity is determined by the physical properties of the service connection or lateral.
Charge - A charge is how much a customer is billed and is the product of a rate multiplied times a unit of service (e.g., accounts, HCF).
CIP - Capital Improvement Program.
COS- Cost of Service.
Demand - Demand is the metered or estimated flow that a customer places on the infra- structure. Demand is determined based on metered or estimated flow, which can vary and is limited by the capacity (see above) of the service connection or lateral.
Desal - Desalinated water.
DU – Dwelling Unit
EMU – Equivalent Meter Unit.
FY - Fiscal Year.
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).
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.
O&M - Operating and Maintenance, in reference to the costs of running facilities.
MG/L – Milligrams per liter, units of BOD and TSS concentrations MFR – Multi Family Residential
MWDOC - Municipal Water District of Orange County (pron. “modoc”), the agency from which SCWD purchases potable water.
PAYGo - Pay-As-You-Go, in reference to funding capital improvements from cash rather than from borrowed sources such as bonds or loans.
Rate - A rate is the unit cost of service per account or volume of flow, which, when mul- tiplied times the units of service (i.e., accounts, HCF) yields a charge that customers are billed.
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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, which are charges paid for the cost of a meter.
SCWD - South Coast Water District.
SFR – Single Family Residential
SOCWA - South Orange County Wastewater Authority, the agency that treats SCWD’s wastewater.
TSS - Total Suspended Solids, a measure of wastewater strength Uniform rates - A constant rate per unit of metered water use or wastewater discharge that does not change depending on the volume of flow. Uniform rates are not flat rates (see above).
WQA - Winter Quarter Average metered water use from December through February, used for determining single family sewer charges.
ACKNOWLEDGEMENTS
HF&H acknowledges the valuable contributions of the following District Board mem- bers, staff, and consultants.
Board of Directors
Rick Erkeneff, President
William L. Green, Vice President
Douglas Erdman
Scott Goldman
Wayne Rayfield
District Staff
Rick Shintaku, General Manager
Pamela Arends-King, Chief Financial Officer
Marc Serna, Chief Engineer
Cassandra Garcia, Customer Service Manager
Joe McDivitt, Chief Operations Officer
Greg Pennington, Director of Operations
Chris Newton, Operations Superintendent
Sonja Morgan, Public Information Officer
Taryn Kjolsing, Principal Engineer
Larry Fregin, Reclamation/Conservation Manager
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HF&H Consultants, LLC Page vi June 18, 2021
Legal Counsel
Andrew Gagen, Esq.
Consultants
Megan Yoo Schneider, Seven Management and Consulting, Inc.
Brenda Deeley, Brenda Deeley PR
LIMITATIONS
This document was prepared solely for the South Coast Water District in accordance with the contract between the District 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 District, which we consider accurate and reliable. This study contains reasonable as- sumptions and forecasts regarding future conditions, which cannot be predicted with certainty. If actual conditions vary from these assumptions, there may be a significant difference with the forecasts in this report.
Rounding differences caused by stored values in electronic models may exist.
This document represents our understanding of relevant laws, regulations, and court de- cisions but should not be relied upon as legal advice. Questions concerning the interpre- tation of legal authorities referenced in this document should be referred to a qualified attorney.
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South Coast Water District Water, Recycled Water, and Sewer Rate Study I. Executive Summary
HF&H Consultants, LLC Page 1 June 18, 2021
I. EXECUTIVE SUMMARY
This study documents the process by which the District’s water, recycled water, and sewer rates were updated for adoption for the next two years, FY 2021-22 and FY 2022-
23. The following discussion summarizes our findings and recommendations.
WATER AND RECYCLED WATER RATES
Projected Revenue Requirements and Revenue Increases
The water revenue requirements were updated by preparing a ten-year projection of op- erating and capital expenses. The projected increases needed in rate revenue were deter- mined by comparing the revenue requirement projections with the revenue projected from rates. The projections are shown in Table I-1, which includes other key financial indicators.
Table I-1 Projected Water Revenue Increases and Key Financial Parameters The District was placed on watch status by its rating agency, Fitch, when the District issued bonds in 2020. The primary factor considered in determining the water revenue increases is the need to build the fund balance. Building the cash reserve will strengthen the Water Fund’s financial position, which will presumably maintain, if not improve, the District’s credit rating.
It is recommended that the District adopt water revenue increases for only the next two years. During that time, the District can presumably revise its reserve policy, complete its asset management plan, identify which desalination option to pursue, and evaluate whether to implement water budget rates. The revenue increases shown through the remainder of the projection period are set at inflationary levels, which gradually increases the fund balance. These are minimal revenue increases that will be updated during the next two years.
Water Rate Structure Modifications
The District’s current water rate structure comprises three rate components: service charge rates, variable charge rates, and peak demand charge rates. Major restructuring FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 a b c d e f g h i j
1 Revenue increases 6.00% 4.00% 4.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 2 3 Revenue requirement $22,100,999 $23,009,026 $22,986,305 $23,903,475 $24,771,813 $25,750,611 $26,768,281 $27,838,916 $28,967,162 $30,145,437 4 EOY fund balance $15,153,215 $16,447,082 $18,818,481 $21,611,131 $24,365,170 $26,652,641 $28,855,744 $30,946,705 $32,601,833 $34,088,552 5 Debt coverage ratio 2.65 2.72 2.27 2.27 2.29 2.28 2.27 2.26 1.98 1.95 6 Days of cash 250 261 299 330 359 378 393 406 411 413
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of the rates for each of these charges occurred in the 2016 rate study.1 Additional minor refinements were made to these rates in the present study.
Service charge rates.The current service charge rates are not based on the rated ca- pacity of the meters that are currently installed. As prescribed by the AWWA, adjust- ments were made based on the manufacturers specified rated capacities for the Dis- trict’s disc, compound, and turbine meters.
Variable charge rates.Single family rate payers are charged increasing block rates for their metered water use. Recent water rate litigation provides guidance on de- signing tiered rates whereby the size of each tier should be based on actual customer demands (not on budgets) and that the rate for each tier should reflect the cost of providing the service associated with each tier. Adjustments were made accordingly.
Peak demand charge rate. No modification was made to the structure of this uniform rate. The significant increase in the rate is due to applying the same cost-of-service allocation principles to the current cost structure, the result of which has shifted more cost to this charge.
With these modifications, the resulting rates are summarized in Table I-2. In general, the service charges are collected annually on the tax rolls; however, recycled water customers are billed the same charges but on a monthly basis.
Table I-2. Summary of Proposed Water Rates
Recycled water customers are billed service charges monthly. 1Cost of Service Study. Carollo Engineers. May 2016.
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Water Customer Cost Impacts
The impact on water customer bills due to these modifications in FY 2021-22 will vary depending on the size of their meters, their monthly water use, and their peak demands.
Hence, the overall revenue increase of 6.0% will vary with each bill. Table I-3 summa- rizes monthly costs2 for a variety of customers. The average flow per customer in each class is used and it is assumed that the peak demand charge is based on monthly flow that is 1.5 times the average monthly demand. The percentage increase for an average customer in each class is less than the overall 6.0% revenue increase with the exception of the average recycled water cost. Customers with above-average use (i.e., approxi- mately one-third of the customers have above-average water use) will experience greater than 6.0% increases because of the costs required to provide for their above-average levels of service.
Table I-3. Impact on Average Monthly Water Cost
Row 12 = Row 8/Row 1
Table I-3 includes a calculation of the average cost per HCF (a combination of all three charges), which is derived by dividing row 8 by row 1. Note that the average cost per HCF for recycled water is 68% of the cost for potable irrigation. Hence, although the percentage increase in the monthly cost for recycled water is increasing greater than it is for the other classes, recycled water has the lowest overall average monthly cost per HCF.
2The service and peak demand charges, which are billed annually for most customers, were converted to monthly equivalent charges.
Single Family Single Family Multi Family Commercial Irrigation Recycled a b c d e f g
Assumptions
1 Flow per month (hcf) 9 13 22 60 58 146
2 Flow per day (gpd) 225 324 549 1,497 1,447 3,643 3 Peak Demand (hcf) 15 20 27 82 103 n/a
4 Meter Size 3/4" 1" 1.5" 1" 2" 2"
5 6Monthly Cost
7 Current FY 2020-21 $85.31 $126.43 $212.84 $410.47 $496.52 $754.33 8 Proposed FY 2021-22 $87.92 $132.23 $213.13 $427.26 $510.88 $878.56 9 Proposed minus current $2.60 $5.80 $0.28 $16.79 $14.36 $124.23 10 Percent change 3.1% 4.6% 0.1% 4.1% 2.9% 16.5%
11 12 Average cost per HCF $9.77 $10.17 $9.69 $7.12 $8.81 $6.02 Residential Non Residential
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SEWER RATES
Projected Revenue Requirements and Revenue Increases
The sewer revenue requirements were updated by preparing a ten-year projection of op- erating and capital expenses. The projected increases needed in rate revenue were deter- mined by comparing the revenue requirement projections with the revenue projected from rates. The projections are shown in Table I-4.
Table I-4. Projected Sewer Revenue Increases and Key Financial Parameters
The primary factor considered in determining the sewer revenue increases is the need to maintain debt service coverage consistent with the projections provided in 2020 when the District’s credit rating was reviewed. As previously mentioned, the District was placed on watch status by its rating agency, Fitch, when the District issued its 2020 bonds. Drop- ping below the debt service coverage shown in the official statement to the bonds could adversely affect the District’s credit rating, which could increase the cost of borrowing.
As with the water revenue increases, it is recommended that the District adopt the sewer revenue increases for only the next two years. During that time, the District can presum- ably revise its reserve policy, complete its asset management plan, and refine the alloca- tion of SOCWA costs. These are minimal revenue increases that will be updated during the next two years.
Sewer Rate Structure Modifications
The District’s current sewer rate structure comprises two rate components: service charge rates and variable charge rates. Major restructuring of the rates for each of these charges occurred in the 2016 rate study. No further structural refinements are recommended at this time other than updating the rates based on the cost of service.
The cost-of-service analysis updated the wastewater strength concentrations for each cus- tomer class. The adjustments balanced the flows and masses of BOD and TSS from the customer classes with the estimated loading from the District received by SOCWA for treatment. We recommend maintaining the current set of customer classes and rate struc- ture, updated to provide the required revenue. The resulting rates are summarized in Table I-5, updated for the current cost of service. The cost-of-service analysis also up- dates the flows from each customer class. The combined result of these adjustments FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 a b c d e f g h i j
1 Revenue increases 6.50% 6.50% 4.00% 3.00% 3.00% 3.00% 3.00% 3.00% 4.00% 5.00% 2 3 Revenue requirement $18,100,532 $19,280,922 $20,056,169 $20,661,986 $21,286,102 $21,929,070 $22,591,459 $23,273,857 $24,209,652 $31,191,662 4 EOY fund balance $35,988,878 $36,263,514 $38,217,473 $36,593,844 $35,109,081 $33,268,611 $31,471,061 $29,726,843 $27,829,583 $23,648,557 5 Debt coverage ratio 3.01 3.27 3.24 1.37 1.39 1.28 1.29 1.30 1.26 1.33 6 Days of cash 726 686 696 646 602 554 508 466 420 277
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shifted costs from the multi family and commercial low strength classes to the single fam- ily and other commercial classes in FY 2021-22.
Table I-5. Summary of Proposed Sewer Rates
SFR blocks are based on the annualized winter quarter average water use for the prior fiscal year (December, January, and February metered water use for each customer.)
Sewer Customer Cost Impacts
The impact on sewer customer costs in FY 2021-22 due to an update in the cost of service will vary depending on the estimated wastewater flow and strength. Hence, the overall revenue increase of 6.5% will vary with each bill. Table I-6 summarizes monthly costs3 for a variety of average customers in each class.
Table I-6. Impact on Average Monthly Sewer Cost
3The service charges, which are billed annually for most single family customers, were converted to monthly equivalent charges.
Current Rate
Customer Class FY 2020-21 FY 2021-22$ Change % ChangeFY 2022-23$ Change % Change a b c=b-a d=c/a e f=e-b g=f/b
1Service Charges (annual., per account)
2 Single Family Residential
3 Block 1 (0-5 hcf) $696.00 $774.27 $78.27 11.2% $824.60 $50.33 6.5% 4 Block 2 (6-10 hcf) $758.00 $844.39 $86.39 11.4% $899.28 $54.89 6.5% 5 Block 3 (11+ hcf) $868.00 $987.20 $119.20 13.7% $1,051.37 $64.17 6.5% 6 7 Multi Family Residential $453.25 $424.39 ($28.86) -6.4% $451.98 $27.59 6.5% 8 9Variable Rates (monthly, $/hcf)
10 Multi Family Residential $1.30 $1.39 $0.09 6.9% $1.48 $0.09 6.5% 11 Commercial
12 Low Strength $8.59 $7.99 ($0.60) -7.0% $8.50 $0.52 6.5% 13 Medium Strength $9.74 $10.39 $0.65 6.7% $11.07 $0.68 6.5% 14 High Strength $12.58 $13.88 $1.30 10.3% $14.78 $0.90 6.5% Proposed Rates
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COMBINED CUSTOMER COST COMPARISON
The following two tables compare the monthly cost for water and sewer service for FY 2021-22 and FY 2022-23.
Table I-7. Impact on Combined Monthly Water and Sewer Cost - FY 2021-22 Single Family [1] Single Family [2] Multi Family [3] Commercial [4] Irrigation[5] Recycled [5] a b c d e f g
1 Flow per month (hcf) 9 13 22 60 58 146
2 Flow per day (gpd) 225 324 549 1,497 1,447 3,643
3 Peak Demand (hcf) 15 20 27 82 103 n/a
4 Meter Size 3/4" 1" 1.5" 1" 2" 2"
5 Sewer Monthly Cost $58.00 $63.17 $217.45 $584.40 n/a n/a 6 Water Monthly Cost $85.31 $126.43 $212.84 $410.47 $496.52 $754.33 7 $143.31 $189.59 $430.30 $994.87 $496.52 $754.33
8 Sewer Monthly Cost $64.52 $70.37 $207.39 $623.63 n/a n/a 9 Water Monthly Cost $87.92 $132.23 $213.13 $427.26 $510.88 $878.56 10 $152.44 $202.59 $420.52 $1,050.88 $510.88 $878.56
11 FY 2020-21 Cost $143.31 $189.59 $430.30 $994.87 $496.52 $754.33 12 FY 2021-22 Cost $152.44 $202.59 $420.52 $1,050.88 $510.88 $878.56 13 $ Difference (12-11) $9.13 $13.00 ($9.78) $56.02 $14.36 $124.23 14% Difference (13/11) 6.4% 6.9% -2.3% 5.6% 2.9% 16.5%
15 16 % Difference By Service
17 Sewer Only ((8/5)-1) 11.2% 11.4% -4.6% 6.7%
18 Water Only ((9/6)-1) 3.1% 4.6% 0.1% 4.1% 2.9% 16.5%
[1] 3 HCF winter quarter average per month - Block 2 Sewer Category [2] 7 HCF winter quarter average per month - Block 2 Sewer Category [3] 5 dwelling units per Multi Family connection
[4] Average Commercial water use, medium strength sewer customer [5] Average water use and most common meter size
Assumptions
Residential Non Residential
Current FY 2020-21 Combined Monthly Cost
Difference
Projected FY 2021-22 Combined Monthly Cost
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Table I-8. Impact on Combined Monthly Water and Sewer Cost - FY 2022-23 Single Family [1] Single Family [2] Multi Family [3] Commercial [4] Irrigation[5] Recycled [5] a b c d e f g
1 Flow per month (hcf) 9 13 22 60 58 146
2 Flow per day (gpd) 225 324 549 1,497 1,447 3,643
3 Peak Demand (hcf) 15 20 27 82 103 n/a
4 Meter Size 3/4" 1" 1.5" 1" 2" 2"
5 Sewer Monthly Cost $64.52 $70.37 $207.39 $623.63 n/a n/a 6 Water Monthly Cost $87.92 $132.23 $213.13 $427.26 $510.88 $878.56 7 $152.44 $202.59 $420.52 $1,050.88 $510.88 $878.56
8 Sewer Monthly Cost $68.72 $74.94 $220.87 $664.16 n/a n/a 9 Water Monthly Cost $91.43 $137.52 $221.65 $444.35 $531.32 $913.70 10 $160.15 $212.46 $442.53 $1,108.51 $531.32 $913.70
11 FY 2021-22 Cost $152.44 $202.59 $420.52 $1,050.88 $510.88 $878.56 12 FY 2022-23 Cost $160.15 $212.46 $442.53 $1,108.51 $531.32 $913.70 13 $ Difference (12-11) $7.71 $9.86 $22.01 $57.63 $20.44 $35.14 14% Difference (13/11) 5.1% 4.9% 5.2% 5.5% 4.0% 4.0%
15 16 % Difference By Service
17 Sewer Only ((8/5)-1) 6.5% 6.5% 6.5% 6.5%
18 Water Only ((9/6)-1) 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
[1] 3 HCF winter quarter average per month - Block 2 Sewer Category [2] 7 HCF winter quarter average per month - Block 2 Sewer Category [3] 5 dwelling units per Multi Family connection
[4] Average Commercial water use, medium strength sewer customer [5] Average water use and most common meter size
Residential Non Residential
Assumptions
Projected FY 2021-22 Combined Monthly Cost
Difference
Projected FY 2022-23 Combined Monthly Cost
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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 District’s water, recycled water, and sewer services. Toward that end, the cost-of-service analysis determined how much rev- enue should be generated by each component of the rate structures so that rate payers within each customer class are charged for their proportionate shares of the cost of providing service. The cost-of-service analysis is tailored specifically to the District’s cus- tomer classes and the rate structures.
STUDY PROCESS
The rate study was conducted following industry
standards and practices promulgated by the
American Water Works Association4and the Wa-
ter Environment Federation.5 A comprehensive
rate study involves the four steps shown in the ad-
jacent diagram.
Revenue requirements were projected for a ten-
year planning period based on operations,
maintenance, capital expenses, and contributions
to reserves. The cost-of-service analysis allocates
the projected expenses among the customer clas-
ses in proportion to their use of the systems. Rates
are then designed so that rate payers are charged
equitably. The impact on customers is then deter-
mined by comparing bills under the proposed
rates with bills under the current rates.
During the course of the study, interim work
products were presented at several public meet-
ings and workshops:
4Principles of Water Rates, Fees, and Charges. American Water Works Association Manual M1. 2012. 5Financing and Charges for Wastewater Systems. Water Environment Federation Manual of Practice 27. 2018.
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January 18 – Administration & Finance Committee meeting: policy input.
February 11 – Board meeting: water and sewer revenue requirements.
March 30 – Board workshop: sewer cost of service, rate design, bill impacts.
April 8 – Board workshop: water and recycled water cost of service, rates, bills.
April 19 – Board workshop: follow-up discussion.
April 27 – Board workshop: conclude discussion, authorize mailing ratepayer notices.
The input received from the Board is reflected in the recommended rates documented in this report.
REPORT ORGANIZATION
This report describes each of the four rate-making steps for the Water Fund followed by the Sewer Fund. A glossary of technical terms and acronyms is provided following the Table of Contents. An appendix contains a copy of portions of the rate model that are not included in the body of the report text as tables and figures.6
6 The full rate model contains projections that extend well beyond the ten-year period considered for this report and were therefore impractical to include in the appendix.
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III. WATER REVENUE REQUIREMENTS
The revenue requirement analysis began with the FY 2021-22 budgeted O&M and capital expenditures. Revenue require- ments for each fiscal year were then projected over a ten-year planning period. Revenue increases needed to cover the pro- jected revenue requirements were then determined. Over a ten- year period it is possible to derive a relatively smooth series of annual revenue increases that minimize annual fluctuations.
ASSUMPTIONS AND PROJECTIONS
Expense projections combined with contributions to reserves constitute the revenue requirements. The assumptions shown in Table III-1 were used to project expenses through FY 2030-31.
Table III-1. Projection Assumptions
Source: Model Tab 1. Assumptions & Policies
The resulting revenue requirement projections are shown in Figure III-1as stacked bars.
In addition, the revenue from current rates is shown as a solid black line and the revenue with rate increases as a dashed brown line. Note that these projections represent the “No Desal” scenario. The District has been in the process of studying two desalinated water projects. If the decision were made to construct one of the desalination projects, it would likely come on-line sometime in the middle of this ten-year projection. It is expected that a decision will be made during the next two years as to which desalinated water project will be selected, if any. Until that decision is made, however, it would be premature to include desalination projects in the revenue requirement projections.
Budget
FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Growth in accounts 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% General Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% Salaries & Wages 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Benefits (non PERS) 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Construction Cost Inflation 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Interest on Fund Balance 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% Bad debt as % of rate revenue 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Utilities 9.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Recycled Water Account Growth 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% Water Costs 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PERS % of Labor 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% Projected
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Figure III-1. Revenue Requirement Projections (No Desal) Source: Model Table 2. Revenue Requirement; data from District’s FY 2020-21 Budget.
Operating Expenses
The projected operating expenses include the cost of purchased water from MWDOC, services and supplies, and personnel, all of which are projected to gradually increase based on the escalation factors in Table III-1. (The expense detail is in the model in the Appendix.)
Debt Service
The District has an extensive capital improvement program of which a portion is funded from debt. (A complete list of the capital improvement plan can be found in the Appen- dix.) Debt service is projected to increase in FY 2023-24 when debt is issued for a variety of both water and sewer capital improvements. For the remainder of the ten-year period, no further debt is currently planned.
Contributions to Reserves
Because PAYGo projects fluctuate from year to year, they are funded from capital re- serves, which buffers the annual fluctuations so that revenue requirements are relatively stable. To modulate these fluctuations, contributions from the revenue requirements are made to the capital reserve based on the five-year rolling average of annual PAYGo City Council Regular Meeting - Page 532 of 1385
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capital expenses. The amount of these contributions is based on meeting target balances, which are discussed further below. These annual contributions gradually increase over the ten-year planning period.
Revenue Increases
In addition to showing the major components of the revenue requirements, Figure III-1 also shows the revenue from current rates and from rate increases. The annual revenue increases are summarized in Table III-2 along with other key financial indicators. The revenue increases prevent a decline in the fund balance, after which the fund balance gradually grows.
Table III-2. Projected Water Revenue Increases and Key Financial Parameters It is noted that since the 2016 rate study, the Water Fund has been separated from the Sewer Fund, each of which was apportioned its share of the reserves. In the Water Fund’s case, its reserves provide much lower days of cash than the Sewer Fund and compared to industry practices.7 As a result of the Water Fund’s low cash reserve, the District was placed on negative watch by its rating agency, Fitch, when the District issued bonds in 2020. It is critical for the District to set its water rates so that its days of cash increase, which presumably will be viewed favorably by Fitch.
With the recommended revenue increases, debt coverage will continue to be adequate based on the current capital improvement program. These revenue increases are re- garded as the minimum that are needed at this time. It is recommended that the District adopt water revenue increases for only the next two years. During that time, the District can presumably revise its reserve policy, complete its asset management plan, identify which desalination project to pursue, and evaluate whether to implement water budget based rates.
RESERVE FUND BALANCE
Rates are set to generate sufficient revenue to cover annual expenses and to maintain adequate reserves. The difference between annual revenue requirements and revenue from rates and other sources results in a surplus or deficit that either adds to or subtracts
7Fitch reported in 2020 Water and Sewer Medians that the median days of cash for agencies serving popu- lations up to 100,000 is 600 days. This many days of cash represents the practices of the agencies included in Fitch’s report and is not a legal requirement or regulatory standard.
FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 a b c d e f g h i j
1 Revenue increases 6.00% 4.00% 4.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 2 3 Revenue requirement $22,100,999 $23,009,026 $22,986,305 $23,903,475 $24,771,813 $25,750,611 $26,768,281 $27,838,916 $28,967,162 $30,145,437 4 EOY fund balance $15,153,215 $16,447,082 $18,818,481 $21,611,131 $24,365,170 $26,652,641 $28,855,744 $30,946,705 $32,601,833 $34,088,552 5 Debt coverage ratio 2.65 2.72 2.27 2.27 2.29 2.28 2.27 2.26 1.98 1.95 6 Days of cash 250 261 299 330 359 378 393 406 411 413
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from the unrestricted fund balance. The fluctuations in the fund balance over the ten-year planning period are graphed in Figure III-2.
The solid green line represents the fund balance with the proposed annual revenue in- creases. Figure III-2also contains two target lines (red and blue), both of which represent minimum requirements. The District’s reserve policy states that the minimum Operating Reserve target balance (red line) should equal six months (50%) of annual O&M expenses.
The District’s reserve policy also requires a Capital Reserve equal to the five-year annual rolling average of PAYGo projects, which, when added to the Operating Reserve target balance, equals the blue line.
Figure III-2. Projected Fund Balance (6-Month Minimum Reserve) Source: Model Tab 4. Reserves
Operating Fund Target: 6 months O&M costs
Total Target Reserve: 6 months O&M costs plus 1-year average CIP PAYGo It can be seen in Figure III-2that the projected fund balance withoutthe proposed revenue increases (dashed green line) declines and drops below the target balance (blue line) dur- ing the projection period.Withthe revenue increases, the fund balance (solid green line) does not drop and gradually climbs above the target balance such that, by the tenth year, the fund balance is significantly higher than the target balance.
This increase in the projected fund balance is deliberate and should not be regarded as excessive. The revenue increases have been proposed that would increase the Water Fund’s unrestricted cash to help bolster its credit rating. Even with these increases, the days of cash in FY 2030-31 is 407, which is less than the current median reported by Fitch.
The projected fund balance in Figure III-2 gives the appearance that it is excessively high because of how much the balance exceeds the target. The target of six months of O&M City Council Regular Meeting - Page 534 of 1385
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expenses should be evaluated. Based on cash flow needs, six months of O&M is very low because the District bills the majority of water revenue on the tax rolls rather than monthly. The Operating Reserve target balance should be correlated with the billing fre- quency. As a minimal guideline, 1.5 times the billing frequency is recommended. Given that the majority of the revenue is billed on the tax roll and the minority on monthly bills, a target balance of 12 months should provide a prudent margin of safety for cash flow.
Figure III-3replaces the six-month target in Figure III-2with a twelve-month target; the fund balances are the same in both figures. With the twelve-month Operating Reserve target, the proposed revenue increases gradually increase the fund balance to the target over several years. It has been recommended that the District revise its reserve policy during the next two years. For present purposes, the proposed revenue increases get the fund balance headed in the general direction that is advisable.
Figure III-3. Projected Fund Balance (12-Month Minimum Reserve) Source: Model Tab 4. Reserves
Operating Fund Target: 12 months O&M costs
Total Target Reserve: 12 months O&M costs plus 1-year average CIP PAYGo City Council Regular Meeting - Page 535 of 1385
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IV. WATER COST-OF-SERVICE ANALYSIS
The revenue requirement analysis establishes how much reve- nue is required from rates. The next step in the analysis is de- termining the cost of the services provided by the District to its customers. Cost-of-service analysis is used to derive rates that proportionally allocate the cost of service among customers based on the services required by each customer.
ANALYTICAL APPROACH
The District provides demand services and customer services to water customers. Demand services include the costs related to meeting average and peak levels of demand. Customer ser- vices include the costs related to customer accounts and the capacity that customers require. The cost-of-service analysis performed in this study follows a procedure that has been long established by the American Water Works Association
(AWWA),8 which is referred to as the “base/extra capacity method.”
The analytical procedure contains the following steps:
1. Cost classification - Costs in the FY 2020-21 revenue requirement are classified into the service categories related to providing for customer demands and for cus- tomer service. FY 2020-21 costs are used for the cost-of-service analysis because they are the most recent budget year.
2. Cost allocation - The classified costs are allocated to the functions associated with each service. For demand services, the functions are levels of service that comprise average day, maximum day, and maximum hour demands. For customer services, the functions are customer accounts and customer capacity.
The classifications of major costs are summarized as follows:
Demand services
Average day – average daily demand: base supply (MWDOC).
Maximum day – peaking on the maximum day: peak supply (groundwater), transmission mains to distribution storage, booster pumps.
Maximum hour – peak hour on the maximum day: a portion of distribution stor- age, distribution mains to customers, hydrants, conservation programs. 8Principles of Water Rates, Fees, and Charges. Manual M1. American Water Works Association. 2017.
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Customer services
Accounts: meter reading, billing, accounting, customer service.
Capacity: a portion of distribution storage, distribution mains to customers, hy- drants, conservation programs.
Composite services
Indirect allocations for costs that are not directly related to either the demand or customer service functions: personnel, overhead, non-operating revenue.
Working with District staff, the individual line items in the revenue requirements were classified into either the demand or customer service categories. Certain costs, however, are not directly related to either demand or customer services. Such costs are considered to be composite in function and are allocated based on a composite of the direct alloca- tions to the demand and customer service categories.
ALLOCATION FACTORS
Within the demand service function, allocations are made to varying levels of service ranging from average day demand to the highest level of peak demand for outdoor water use and irrigation during the peak hour of the peak day. With these allocations, rates can be designed to proportionately charge customers based on their demands.
Demand Services
Average Day Demand
Average day demand represents demand that includes only an average level of peaking.
The average day demand was derived for each customer class from the District’s cus- tomer billing data for FY 2018-19, which is the most recent year after the prior drought but before the pandemic distorted demand in FY 2019-20.
Maximum Day Demand
Maximum day demand includes aAverage day demand plus peak day demand in the irrigation season. The District does not directly meter maximum day demand, which is typically the case for most water systems. Hence, estimates were required based on in- dustry guidelines9 and customer billing data. The system-wide maximum day demand was estimated by multiplying the average day demand by 1.75. This factor is slightly higher than Manual M31’s rule of thumb due to the District’s arid climate, which
9“Where specific data on past consumption are not available, a good rule of thumb is that maximum daily demand is 1.5 times the average daily demand, while the peak hourly rate may vary from two to four times the average daily rate. In small water systems peaking factors may vary significantly higher than this.” Distribution System Requirements for Fire Protection. American Water Works Association Man- ual M31. 1989. P. 16.
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accentuates seasonal peaks. Customer billing data for each customer class in the maxi- mum month was used to apportion the system-wide maximum day demand among the customer classes.
Maximum Hour Demand
Maximum hour demand represents the maximum hour demand on the maximum day.
The District does not maintain data on its maximum hour demand, which is not unusual.
An estimate was made by which the maximum demand was assumed to be 1.50 times the maximum day demand, which resulted in a maximum demand that is 2.63 times the average day demand. This value is consistent with industry guidelines. It is noted that sizing maximum hour facilities often 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.
Figure IV-1is a graphical depiction of the capacities of pipelines that correspond to each demand service levels. This depiction is intended to exemplify the impact that peak lev- els of demand have on the design of facilities. The concentric circles are pipeline diame- ters proportionate to the levels of demand beginning with base demand, which is average winter demand when peaking is minimal. Average peaking during average day de- mands increases the capacity of the pipeline by 1.69 times. Maximum day demand re- quires a pipeline that is 2.96 times the capacity of base, non-peaking demand. Finally, to meet the highest level of service required by maximum hour demand, the pipeline capac- ity must be 4.46 times greater than the base demand. The larger capacities that are re- quired to meet the higher levels of service require expenditures that cost-of-service anal- ysis allocates proportionately to those who require the service.
Figure IV-1. Pipeline Capacity Needed For Demand Service Levels Note: Pipeline diameters drawn to scale
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Allocation Factors
The flows associated with the demand service levels for each customer class are shown in Table IV-1. In addition, the system-wide allocation percentages corresponding to those flows are shown. Note that costs that are classified as maximum day are allocated across average day and maximum day and not allocated only to maximum day. This is done because the capacity provided by maximum day facilities also provides capacity to meet average day demands. Similarly, maximum hour costs are spread across average day and maximum hour demands.
Table IV-1. Service Level Demands, Load Factors, and Allocation Factors Source: Data source as described in text.
The allocation factors for costs classified as Customer Service are either 100% customer account or capacity allocations. Table IV-2 summarizes the allocation factors for the de- mand and customer service costs. In addition, it shows the composite allocations. The O&M and Capital composite allocations are based on subtotals of the O&M and Capital costs that were directly allocated to either the demand or customer service categories.
The expense composite is based on the combined subtotal of all directly classified costs.
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Table IV-2. Summary of Allocation Factors
Source: Data source as described in the text
COST ALLOCATIONS
O&M, Capital, and Composite Allocations
Tables IV-3, IV-4, and IV-5 show the FY 2020-21 revenue requirement allocated into the demand and customer services. Each line item was classified with the assistance of Dis- trict staff according to the associated function. The allocation factors that are summarized in Table IV-2 allocate the costs across the services based on the cost classification in col- umn b. Table IV-3 also shows the O&M composite allocation percentages that are used in Table IV-5.
Table IV-3. Direct Allocations - O&M Expenses
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Table IV-4shows the allocation of the capital expenses. The allocation of debt service is based on a composite of the projects funded by debt. Table IV-4 also includes the calcu- lation of the capital composite and expense composite allocation percentages that are used in Table IV-5.
Table IV-4. Direct Allocations - Capital Expenses
Table IV-5shows the allocation of the composite expenses and non-operating revenues using the composite allocation factors from Tables IV-3and IV-4. Table IV-5also shows the distribution of the revenue requirement among the variable charge, peak demand charge, and the customer service charge.
It has been the District’s practice to split the revenue requirement that is allocated to de- mand services1050% to the variable charge and 50% to the peak demand charge. This practice has proven successful in reducing peaking on the system. That split is shown as the peak demand adjustment.
The customer accounts and capacity costs are combined for determining the customer service charges.
10Excluding the portion allocated to recycled water.
FY 2020-21 Allocation Average Maximum Maximum
Rev Req't Factor Day Day Hour Recycled Accounts Capacity a b c d e f g h
1Capital Expenses
2 Water Supply $34,000 Average Day $34,000 $0 $0 $0 $0 $0 3 Water Supply Imports $0 Average Day $0 $0 $0 $0 $0 $0 4 Water Supply Ground Water $15,000 Max Day $8,571 $6,429 $0 $0 $0 $0 5 Water Supply Desal $394,600 Max Hour $150,324 $112,743 $131,533 $0 $0 $0 6 Water Supply Recycled $0 Recycled $0 $0 $0 $0 $0 $0
7 Transmission Potable $712,718 Capacity $0 $0 $0 $0 $0 $712,718 8 Pumping Potable $115,000 Capacity $0 $0 $0 $0 $0 $115,000 9 Pumping Recycled $0 Recycled $0 $0 $0 $0 $0 $0
10 Storage Potable $68,000 Capacity $0 $0 $0 $0 $0 $68,000 11 Storage Recycled $0 Recycled $0 $0 $0 $0 $0 $0
12 Distribution Potable $246,750 Capacity $0 $0 $0 $0 $0 $246,750 13 Distribution Recycled $0 Recycled $0 $0 $0 $0 $0 $0
14 Customer Accounts $0 Accounts $0 $0 $0 $0 $0 $0
15 Customer Capacity $280,000 Capacity $0 $0 $0 $0 $0 $280,000 16 Current Debt Service $2,002,894 Capacity $0 $0 $0 $0 $0 $2,002,894 17 Future Debt Service $0 Capacity $0 $0 $0 $0 $0 $0
18 Subtotal $3,868,962 $192,895 $119,171 $131,533 $0 $0 $3,425,362 19 Capital Composite 100.0% 5.0% 3.1% 3.4% 0.0% 0.0% 88.5% 20 Subtotal - O&M and Capital $17,493,001 $9,084,226 $1,607,375 $131,533 $1,392,383 $759,384 $4,518,099 21 Expense Composite 100.0% 51.9% 9.2% 0.8% 8.0% 4.3% 25.8% Customer ServicesDemand Services
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Table IV-5. Composite Allocations and Peak Demand Adjustment Allocation Comparison
The results of the cost-of-service allocations are shown in Tables IV-6 and IV-7. Table IV-6 compares the revenue produced by the current rates for each of the three charges with the cost-of-service allocations, which do not include the proposed revenue increase.
The allocations shift costs from the variable and service charges to the peak demand charge.
Table IV-7compares the current revenue from each of the charges with the cost-of-ser- vice allocations including the proposed 6.0% revenue increase in FY 2021-22, which shows the combined impact. The net effect is a slight decrease in the variable charge FY 2020-21 Allocation Average Maximum Maximum
Rev Req't Factor Day Day Hour Recycled Accounts Capacity a b c d e f g h
1Composite Expenses
2 Planned O&M Cutback $0 O&M Composite $0 $0 $0 $0 $0 $0 3 O&M Composite Expenses $1,293,397 O&M Composite $844,098 $141,283 $0 $132,186 $72,092 $103,739 4 Budget Reconciliation $107,457 O&M Composite $70,128 $11,738 $0 $10,982 $5,989 $8,619 5 Transfers to Reserves $2,026,099 O&M Composite $1,322,274 $221,318 $0 $207,068 $112,932 $162,506 6 CIP Capital Composite Expenses $477,425 Capital Composite $23,803 $14,706 $16,231 $0 $0 $422,685 7 Other O&M Composite Expenses $4,737,313 Exp Composite $2,460,116 $435,296 $35,621 $377,074 $205,650 $1,223,555 8 Other CIP Composite Expenses $301,055 Exp Composite $156,340 $27,663 $2,264 $23,963 $13,069 $77,757 9 Subtotal $8,942,745 $4,876,760 $852,004 $54,116 $751,273 $409,732 $1,998,861 10 11Non-Operating Revenue
12 Property Tax ($2,990,111)Exp Composite ($1,552,784) ($274,752) ($22,483) ($238,003) ($129,803) ($772,287) 13 Rental Income ($1,094,000)Exp Composite ($568,121) ($100,524) ($8,226) ($87,079) ($47,491) ($282,559) 14 Recreation Facilities ($197,200)Exp Composite ($102,407) ($18,120) ($1,483) ($15,696) ($8,561) ($50,933) 15 Other Revenues ($705,500)Exp Composite ($366,371) ($64,826) ($5,305) ($56,155) ($30,626) ($182,217) 16 Subtotal ($4,986,811) ($2,589,683) ($458,222) ($37,497) ($396,933) ($216,481) ($1,287,995) 17 Subtotal - Composite $3,955,934 $2,287,077 $393,782 $16,619 $354,340 $193,251 $710,865 18 Subtotal - O&M $13,624,039 $8,891,331 $1,488,204 $0 $1,392,383 $759,384 $1,092,737 19 Subtotal - Capital $3,868,962 $192,895 $119,171 $131,533 $0 $0 $3,425,362 20Total Revenue Requirement $21,448,935 $11,371,303 $2,001,157 $148,152 $1,746,723 $952,635 $5,228,964 21 22Peak Demand Adjustment
23 Peak Demand Allocation $6,760,306 50% $5,685,652 $1,000,579 $74,076 24 Net Allocations $14,688,629 $5,685,652 $1,000,579 $74,076 $1,746,723 $952,635 $5,228,964 25 26Recap $6,760,306 $6,760,306 $1,746,723 $6,181,600
27 100.0% 31.5% 31.5% 8.1% 0.0% 28.8%
Customer ServicesDemand Services
a b c d e=c-a f=e/a
1 Variable Charge Revenue $9,069,449 42.4% $8,479,731 39.6% ($589,718)-6.5% 2 Service Charge Revenue $6,195,939 29.0% $6,173,918 28.9% ($22,021) -0.4% 3 Peak Demand Charge $6,127,044 28.6% $6,738,783 31.5% $611,739 10.0% 4 $21,392,432 100.0% $21,392,432 100.0% $0 0.0%
Current Rate Revenue COS (No Revenue Increase) Difference FY 2020-21 FY 2020-21 COS Minus Current
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revenue, a moderate increase in the service charge revenue, and a significant increase in the peak demand charge revenue.
Table IV-7. Comparison of Current Revenue With COS Allocations (FY 2021-22) Variable Charge Cost Allocation
As previously mentioned, the customer service function is independent of the customer category. 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 deriving rates. Table IV-8derives the cost of service for each of the District’s customer classes. The allocation for the potable water classes encompasses each class’ proportionate share of the three demand service levels (i.e., av- erage day, maximum day, and maximum hour) because they share common facilities.
Moveover, the allocation of costs to the single family customers needs to be tracked by demand service level for purposes of calculating the single family tiered rates.
Recycled water facilities are separate from the potable water facilities and can be treated as a lump sum for purposes of calculating the recycled water variable rate, which is uni- form rather than tiered.
a b c d e=c-a f=e/a
1 Variable Charge Revenue $9,069,449 42.4% $8,988,515 39.6% ($80,934) -0.9% 2 Service Charge Revenue $6,195,939 29.0% $6,544,353 28.9% $348,415 5.6% 3 Peak Demand Charge $6,127,044 28.6% $7,143,110 31.5% $1,016,066 16.6% 4 $21,392,432 100.0% $22,675,978 100.0% $1,283,546 6.00% Current Rate Revenue COS (With Revenue Increase) Difference FY 2020-21 FY 2021-22 COS Minus Current
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Table IV-8. Variable Charge Cost Allocations By Customer Class Summary of Allocations By Customer Class
The allocations by customer class are summarized in Table IV- 9. The commercial cus- tomer class is projected to have the lowest increase in allocated costs compared with the current revenue. The 3.0% increase for this class is half the overall proposed 6.0% revenue increase. The other classes with the exception of recycled water are projected to see a cost increase slightly less than the overall 6.0% revenue increase. Recycled water is projected to have the highest cost increase.
Comparing the unit cost of water across the customer classes is difficult because of dif- ferences in the rate structures and the fact that recycled water customers do not pay peak Average Maximum Maximum
Day Day Hour Recycled Total
a b c d e
1Total Variable Charge COS FY 2020-21$5,667,214 $997,493 $74,076 $1,740,948 $8,479,731 2Total Variable Charge COS FY 2021-22$6,007,247 $1,057,342 $78,521 $1,845,405 $8,988,515 3 4Units of Service (hcf)
5 Single Family 3,197 5,197 7,795 - 6 Multi Family 1,103 1,565 2,348 - 7 Commercial 1,108 1,777 2,666 - 8 Potable Irrigation 645 1,386 2,079 - 9 Recycled - - - 6,733 10 6,053 9,925 14,888 6,733 11 12Proportional Allocation Factors
13 Single Family 52.82% 52.36% 52.36% 0.00%
14 Multi Family 18.22% 15.77% 15.77% 0.00%
15 Commercial 18.30% 17.91% 17.91% 0.00%
16 Potable Irrigation 10.65% 13.97% 13.97% 0.00%
17 Recycled 0.00% 0.00% 0.00% 100.00%
18 100.00% 100.00% 100.00% 100.00%
19 20COS by Customer Class
21 Single Family $3,173,174 $553,624 $41,113 $0 $3,767,911 22 Multi Family $1,094,695 $166,720 $12,381 $0 $1,273,797 23 Commercial $1,099,562 $189,337 $14,061 $0 $1,302,960 24 Potable Irrigation $639,815 $147,661 $10,966 $0 $798,441 25 Recycled $0 $0 $0 $1,845,405 $1,845,405
26 $6,007,247 $1,057,342 $78,521 $1,845,405 $8,988,515
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demand charge rates. Table IV-10 provides a comparison of the average cost11of water allocated to the variable and peak demand charges for each customer class. Recycled water has the lowest average cost per HCF even with its comparatively high cost increase.
Recycled water’s average cost is almost $2.00/HCF lower than or 74% of potable irriga- tion’s average cost.
Table IV-9. Customer ClassAllocations for Demand Service Levels Source: Model Tab 8. Allocations.
11The average cost in Table IV-10 is based on the variable and peak demand charges only, whereas the average cost calculated in Table I-3 includes the service charge as well.
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V. WATER RATE DESIGN
The District charges water customers the sum of a variable charge, a service charge, and a peak demand charge. This chapter explains the derivation of the rates that determine each customer’s charges. These rates are based on the results of the cost-of-service anal- ysis in the preceding chapter.
CURRENT RATE STRUCTURE
Table V-1 summarizes the District’s current rates for its three charges. This structure, including the customer classes has been in place since the previous rate study in 2016.
Generally speaking, service charges and the peak demand charge are billed annually on the tax rolls and variable charges are billed monthly by the District based on metered water use.
Table V-1. Current Water Rates
Recycled water customers’ service charges are billed monthly and are not billed peak demand charges. In the present study, no changes to this structure are recommended with the exception of the size of the tiered variable charge rates for single family custom- ers.
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SERVICE CHARGE RATES
Service charge rates are fixed rates charged per account that recover the cost of the cus- tomer service function. Service charge rates are graduated in proportion to the capacity of the service (i.e., size of the 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 is connected to the water system. In other words, a one-inch meter provides the same capacity to any customer who is connected.
The cost-of-service analysis determined how much of the revenue requirement is attribut- able to the customer service function. The function has two components – customer ac- counts and customer capacity – each of which is itemized in the cost-of-service analysis.
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.
Capacity costs associated with the distribution system are apportioned among the con- nections 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. The capacity multipliers are based on the manufacturer’s nominal capacity of the District’s current meters, which are of three types: disc, turbine, and compound.
The inventory of these meters is shown in Table V-2, which also shows the rated capacity in gallons per minute (GPM). Using the rated capacities, it is possible to calculate the EMUs for each size meter of each type. For example, a 1-inch disc meter provides 2.00 times as much capacity as a ¾-inch disc meter. The 3,155 1-inch disc meters equal 6,310 EMUs. The number of EMUs was calculated for each meter type, summed up, and di- vided by total EMUs to determine the weighted average EMU multipliers, which serve as the basis for graduating the capacity portion of the service charge rates. This deriva- tion of EMU multipliers is consistent with AWWA’s Manual M1.
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Table V-2. Equivalent Meter Unit Multipliers
The resulting EMU multipliers in Table V-2differ from the current EMU multipliers adopted in the 2016 rate study. The reason for the difference is the EMU multipliers were based on only one meter type rather than the weighted average of the three meter types, as is proposed. The proposed EMU multipliers are similar to those that were used prior to the 2016 rate study. A comparison is shown in Figure V-1.
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Figure V-1. Comparison of EMU Multipliers
Table V-3 derives the unit costs for the customer accounts and customer capacity cost components. Each account is allocated $6.77 for the customer account cost component.
That amount represents the costs the District incurs to maintain an account regardless of the capacity of the service. Each account is also allocated $21.57 per EMU. That amount represents a portion of the cost of providing distribution system capacity for each ac- count, and increases in proportion to the capacity of the meter.
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Table V-4combines the customer service and capacity components into a single service charge for each size service. These amounts are monthly equivalent values for FY 2020-
21. They are compared with the current monthly equivalents.
Table V-4. Proposed Monthly Service Charge Rates
VARIABLE CHARGE RATES
The District’s single family customers pay variable charge rates that are tiered, increasing block rates. The other customer classes pay separate uniform variable charge rates.
Tiered Variable Charge Rates
12 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 sequen- tially by block up to the highest block. It is not the case that all of the water is billed at only 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.
Increasing block rates have become more common as the need has grown to set rates that more precisely recover the cost of service. Increasing block rates continue to be well suited for the District’s single family 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 for each tier cannot exceed the proportional cost of service for each tier. In the District’s case, a three-tier structure aligns well with the three demand 12For 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 either up or down, it is ambiguous in this context and therefore is not used in this study.
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service levels where Tier 1, Tier 2, and Tier 3 correspond with average day, maximum day, and maximum demands. Given a three-tier structure, the following describes how the size of the tiers and rate per tier were derived.
Breakpoints Between Tiers
The base/extra capacity cost-of-service analysis leads to three distinct levels of demand that are defined by the functions performed by facilities that are designed to provide the service levels. Each service has an average flow that can be used as the divider (i.e., “breakpoint”) between each service level. Based on single family billing data and esti- mates for peak demand, the breakpoints were calculated as shown in Table V-5.
Table V-5. Breakpoint Locations – Single Family Tiers
The breakpoints create the following tiers, which apply to monthly water use:
Tier 1 – 0 to 10 HCF per month (up to 125 GPD).
Tier 2 – 11 to 16 HCF per month (up to 396 GPD).
Tier 3 - Over 16 HCF per month (greater than 396 GPD).
The current breakpoints are compared with the updated breakpoints in Figure V-2.The green curved line represents the cumulative bill distribution based on a cumulation of single family bills from smallest to largest. The curve shows that bills up to 30 HCF per month amount to 97% of the total bills; 3% of the bills are greater than 30 HCF. The median bill is approximately 7 HCF. In other words 50% of the bills are 7 HCF or less and 50% of the bills are greater than 7 HCF.
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Figure V-2. Cumulative Bill Distribution - Single Family Residential Source: Model tab Bill Distribution.
Based on the analysis of current customer billing data, 10 HCF is the Tier 1 breakpoint; 68% of the bills are 10 HCF or less. 10 HCF is average daily demand, which corresponds with the costs allocated to the average day demand level. Because 10 HCF aligns with the corresponding average day cost allocation, a rate for this tier can be calculated that corresponds with the cost of providing service up to average daily demand.
The current Tier 2 breakpoint at 18 HCF includes 90% of the bills. 18 HCF exceeds the maximum day demand of 16 HCF based on up-to-date customer billing data. Again, this 18 HCF breakpoint is incongruent with actual customer demands. 16 HCF corresponds with the costs allocated to the maximum day service level. 85% of the bills are 16 HCF or less, which means that the highest 15% of customer bills require facilities that provide the highest level of service for maximum hour demands.
Rates Per Tier
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demand in each tier. The resulting rates represent the unit costof service for each tier.13 Table V-6 shows the calculations of the incremental cost per tier.
Average day costs apply to all tiers. Usage up to the 10 HCF Tier 1 breakpoint is charged the average day rate only. 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 addi- tional peaking costs are both the initial capital cost, the subsequent 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.
Maximum day costs apply to all water use greater than Tier 1, namely, to Tier 2 and Tier
3. Usage between 11 and 16 HCF is charged the Tier 2 rate, which is the sum of the aver- age day and maximum day incremental costs. Usage greater than 16 HCF pays the Tier 3 rate, which is the sum of the average day, maximum day, and maximum hour incre- mental costs. Clearly, as demand progresses through the tiers, the additional costs of higher levels of service associated with peaking are allocated to the higher tiers to recover the costs from those who require the higher levels of service.
Figure V-3 plots the cost increments per tier. We note that the cost increases from Tier 1 to Tier 3 are relatively flat (see also Figure V-4). In particular, the increment from Tier 2 to Tier 3 is so slight that the tier structure is mostly a two-tier structure. The flatness of the tiers is due to the fact that the variable rate only recovers 50% of the costs allocated to demand services. Moreover, only 1% of the cost is allocated to maximum hour peak ser- vice; some of the maximum hour costs are recovered by the service charges. As such, the tier structure does not have as strong a conservation signal as it would if it recovered 100% of the demand service costs. However, the other 50% is recovered by the peak demand charge rate, which provides an incentive to conserve.
We further note that Table V-6 also shows that the average unit cost ($3,993,986 divided by 1,168,163) is $3.42 per HCF. It can be seen that the Tier 1 rate is less than the average cost and the Tier 2 and Tier 3 rates are greater than the average cost.
13In this report, “rates” and “unit costs” are synonymous.
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Table V-6. Variable Charge Rates – Single Family Residential Source: Incremental cost components by Tier are calculated on Model Table. 8 Allocations.
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In effect, the average rate represents the non-
tiered, uniform rate, which makes no distinc-
tion between different levels of service. The av-
erage 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-ser-
vice analysis derives the average rate for each
level of service. In effect, tiered rates are a se-
quence of the average rates corresponding to
discrete levels of service.
Figure V-4 graphically compares the tier structures for the current structure with the pro- posed structure and with the average unit cost. Note that approximately two-thirds of the bills are within the first tier for the proposed rate structure, which is lower than the average cost. Note also that the proposed rates reflect the cost-of-service adjustments, which lowered the revenue generated by single family variable rates even when the 6.0% revenue increase is added (see Table IV-9); the proposed rates generate 5.5% less revenue than the current rates.
Figure V-4. Comparison of Single Family Tier Structure Source: Model tab Rate Structure
Uniform Variable Charge Rates
The variable charge rates for multi family, commercial, potable irrigation, and recycled water are uniform rates that apply to all usage, which is an appropriate structure for clas- ses consisting of a wide variety customers with dissimilar peaking requirements. Because $0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 $/HCF
HCF per monthly billing
Current Structure Proposed Structure Average Cost
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 de-
termines the size of facilities. Low-use cus-
tomers also contribute to the peak. Hence,
all customers share in the cost in proportion
to how much they peak.
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of their heterogeneous demand patterns, it is difficult to identify applicable breakpoints.
For example some non-residential customers (e.g., retail businesses) may have very con- stant demands with very little peaking, while other classes (e.g., irrigation) may have significant seasonal fluctuations. Designing a common tiered structure for such a variety customers may cause inequity.
The uniform rate is derived by dividing each class’ costs allocated to demand services by its total demand as shown in Table V-7.
Table V-7. Calculation of Non-Residential Variable Charge Rates Projected demand from Figure IV-10.
Again, although the recycled water variable charge rate is increasing significantly, recy- cled water customers do not also pay peak demand charges.
PEAK DEMAND CHARGE RATES
The peak demand charge rates are calculated in Table V-8.
Table V-8. Peak Demand Charge Rate
RATE SUMMARY
The proposed rates for service charges, variable charges, and the peak demand charge are summarized for FY 2021-22 and FY 2022-23.
Current COS COS
FY 2020-21 FY 2020-21 FY 2021-22
a b c d=c-a e=d/a
1 Revenue $6,127,044 $6,760,306 $7,165,925 $1,038,881 17.0% 2 Consumption (hcf) 265,240 265,240 265,240
3 Peak Demand Charge $23.10 $25.49 $27.02 $3.92 17.0%
Difference
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Table V-9. Summary of Water Rates
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VI. WATER CUSTOMER COST IMPACTS
A further understanding of the differences between the current and proposed rate structures is gained by comparing bills based on both rate structures. The bill comparison is compli- cated by the fact that some of the charges are billed monthly by the District and some are billed annually on the tax rolls. For purposes of this “bill” comparison, the annual charges have been converted to monthly equivalents and added to the
charges that are billed monthly. The sum is indicated of the av- erage monthly cost for these customers, who do not actually re- ceive monthly bills in these amounts.
The monthly cost comparison is based on “typical” customers or customers that are most representative of a group of custom- ers. The typical customer is based on the most common meter sizes for the class and the average water use for customers of that type.
The monthly cost for the proposed rates for FY 2021-22 and FY 2022-23 are compared in Table VI-1 with what the monthly cost would be under the current rates (i.e., without rate increases).
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Table VI-1. Sample Water Cost Impacts
Single Family Single Family Multi Family Commercial Irrigation Recycled a b c d e f g
1 Flow per month (hcf) 9 13 22 60 58 146
2 Flow per day (gpd) 225 324 549 1,497 1,447 3,643
3 Peak Demand (hcf) 15 20 27 82 103 n/a
4 Meter Size 3/4" 1" 1.5" 1" 2" 2"
5 FY 2020-21 Monthly Cost $85.31 $126.43 $212.84 $410.47 $496.52 $754.33 6 FY 2021-22 Monthly Cost $87.92 $132.23 $213.13 $427.26 $510.88 $878.56 7 FY 2022-23 Monthly Cost $91.43 $137.52 $221.65 $444.35 $531.32 $913.70 8 $ Difference (row 6-row 5) $2.60 $5.80 $0.28 $16.79 $14.36 $124.23 9 $ Difference (row 7-row 6) $3.52 $5.29 $8.53 $17.09 $20.44 $35.14 10 % Difference (row 6/row 5) 3.1% 4.6% 0.1% 4.1% 2.9% 16.5% 11 % Difference (row 7/row 6) 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Difference
Residential Non Residential
Assumptions
Projected Combined Monthly Cost
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VII. SEWER REVENUE REQUIREMENTS
Revenue requirement projections were prepared for the Sewer Fund following the same procedure that was used for the Water Fund.
ASSUMPTIONS AND PROJECTIONS
The assumptions shown in Table VII-1were used to project ex- penses through FY 2030-31. The resulting revenue requirement projections are shown in Figure VII-1as stacked bars. In addi- tion, the revenue from current rates is shown as a solid black line and the revenue with rate increases as a dashed brown line.
Table VII-1. Projection Assumptions
Source: Model Tab 1 Assumptions
Operating Expenses
Debt Service
The District has an extensive capital improvement programof which a portion is funded from debt. (A complete list of the capital improvement plan can be found in the Appen- dix.) Debt service is projected to increase in FY 2023-24 when debt is issued for a variety FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Growth in accounts 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% General Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% Salaries & Wages 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% Benefits (non PERS) 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Construction Cost Inflation 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% Interest on Fund Balance 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% SOCWA O&M increases budget budget 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% Utilities 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Recycled Water Account Grow0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% Water Costs 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PERS % of Labor 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% City Council Regular Meeting - Page 560 of 1385
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of both water and sewer capital improvements. For the remainder of the ten-year period, no further debt is currently planned.
Contributions to Reserves
The Sewer Fund’s reserves are much greater than the Water Fund’s reserves. Because of Water Fund’s low fund balance, annual revenue increases are needed to increase its fund balance. In the Sewer Fund’s case, it is able to draw down its reserves to reduce the amount of annual revenue increases.
Figure VII-1. Annual Revenue Requirement Components
Model Table 2
Revenue Increases
The revenue increases that are recommended to cover the projected revenue require- ments are summarized in Table VII-2. The revenue increases represent how much more revenue is needed compared to existing rates. By comparison with the Water Fund, where the revenue increases are driven by the need to increase the fund balance, the rev- enue increases for the Sewer Fund are driven by the need to maintain a coverage ratio of at least 1.25. The recommended revenue increases are sufficient to keep the debt coverage rate above 1.25 during the ten-year planning period; the low point is 1.26 in FY 2029-30.
These revenue increases are regarded as the minimum that are needed at this time. It is recommended that the District also adopt sewer revenue increases for only the next two City Council Regular Meeting - Page 561 of 1385
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years. During that time, the District can presumably revise its reserve policy and com- plete its asset management plan.
Table VII-2. Projected Sewer Revenue Increases and Key Financial Parameters
RESERVE FUND BALANCE
The discussion of how the Water Fund’s projected unrestricted fund balance compares with the target balance applies to the Sewer Fund as well. The projected Sewer Fund balance with a 6-month Operating Reserve target is shown in Figure VII-2. During the ten-year planning period, the fund balance gradually declines without dropping below the target balance.
Figure VII-2. Fund Balance With and Without Increased Rate Revenue
Operating Fund Target: 6 months O&M costs
Total Target Reserves: 6 months O&M costs plus 1-year average CIP PAYGo Figure VII-3 shows the same projected fund balance with a 12-month Operating Reserve target, which shows that the fund balance stays above the higher target balance until near the end of the ten-year planning period. It has been recommended that the District revise FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 a b c d e f g h i j
1 Revenue increases 6.50% 6.50% 4.00% 3.00% 3.00% 3.00% 3.00% 3.00% 4.00% 5.00% 2 3 Revenue requirement $18,100,532 $19,280,922 $20,056,169 $20,661,986 $21,286,102 $21,929,070 $22,591,459 $23,273,857 $24,209,652 $31,191,662 4 EOY fund balance $35,988,878 $36,263,514 $38,217,473 $36,593,844 $35,109,081 $33,268,611 $31,471,061 $29,726,843 $27,829,583 $23,648,557 5 Debt coverage ratio 3.01 3.27 3.24 1.37 1.39 1.28 1.29 1.30 1.26 1.33 6 Days of cash 726 686 696 646 602 554 508 466 420 277
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its reserve policy during the next two years. For present purposes, the proposed revenue increases get the fund balance headed in the general direction that is warranted. The proposed revenue increases will be able to accommodate a higher reserve target. How- ever, the proposed revenue increases for the Sewer Fund are essential for maintaining adequate coverage. By doing so, the fund balance remains strong.
Figure VII-3. Projected Fund Balance (12-Month Minimum Reserve) Model Table 4 Reserves
Operating Fund Target: 12 months O&M costs
Total Target Reserves: 12 months O&M costs plus 1-year average CIP PAYGo City Council Regular Meeting - Page 563 of 1385
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VIII. SEWER COST-OF-SERVICE ANALYSIS
The cost-of-service analysis for the Sewer Fund has the same general analytical steps that are found in the cost-of-service analysis for the Water Fund.
ANALYTICAL APPROACH
The sewer cost-of-service analysis differs from the water cost- of-service analysis because providing wastewater collection, treatment, and disposal services needs to account for the strength of wastewater, which is different from providing wa- ter service where peak demands and capacity are a primary consideration. The cost-of-service analysis in this report fol- lows wastewater rate-making techniques promulgated by the Water Environment Federation , which is the wastewater in- dustry’s equivalent to the American Water Works Association.
The analytical procedure contains the following steps:
1. Cost classification - Costs in the FY 2020-21 revenue requirement are classified into the service categories related to providing for customer wastewater loadings (i.e., hydraulic and strength) and for customer accounts. FY 2020-21 costs are used for the cost-of-service analysis because they are the most recent budget year.
2. Cost allocation - The classified costs are allocated to the functions associated with each service. For loading services, the volume of flow and the strength concentra- tions of BOD and TSS are the basis for allocating costs among customer classes.
Costs related to customer service functions are allocated to customer accounts.
The classifications of major costs are summarized as follows:
Loading services
Flow: collection system O&M and capital costs including lift stations and a portion of the cost of treatment by SOCWA.
BOD: a portion of the cost of treatment by SOCWA.
TSS: a portion of the cost of treatment by SOCWA.
Customer accounts
Customer service: billing, accounting, customer service.
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Composite services
Indirect allocations for costs that are not directly related to specific service func- tions: personnel, overhead, non-operating revenue.
Working with District staff, the individual line items in the operating and capital budgets were classified into either the loading, customer accounts, and composite categories. The composite costs, which are not directly related to either the loading or customer accounts categories, are reallocated to those two categories based on a composite of their costs.
ALLOCATION FACTORS
The allocation factors that apply to the six different cost categories are summarized in Table VIII-1. Treatment costs by SOCWA are allocated across the Flow, BOD, and TSS categories based on estimates in the absence of allocations provided by SOCWA. The allocations are the same as were used in the 2016 rate study, which HF&H believes are reasonable. The same allocation percentages occur in SOCWA’s documentation. All col- lection system costs referred to as “Conveyance” are allocated entirely to Flow. All cus- tomer accounts costs are allocated entirely to Accounts. With those direct allocations, the subtotals of O&M and capital expenses are used to derive composite allocation factors whose combined subtotal is used to derive the overall expense composite.
Table VIII-1. Summary of Allocation Factors
COST ALLOCATIONS
Tables VIII-2 and VIII-3 show the FY 2020-21 revenue requirement allocated into the loading and customer services. Each line item was classified with the assistance of Dis- trict staff according to the associated function. The allocation factors that are summa- rized in Table VIII-1allocate the costs across the services based on the cost classifica-tion in column b in Tables VIII-2 and VIII-3. Table VIII-2 also shows the O&M and Capital composite allocation percentages that are used in Table VIII-3.
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Table VIII-2. Direct Allocations - O&M and Capital Expenses Table VIII-3. Composite Allocations
Rev. Req't Allocation
REVENUE REQUIREMENT ALLOCATION 2020-21 Type Accounts Flow BOD TSS a b c d e f
1Operating Costs
2 SOCWA Treatment $4,288,737 Treatment $0 $2,144,369 $1,072,184 $1,072,184 3 Sewer Conveyance $3,007,751 Conveyance $0 $3,007,751 $0 $0 4 Customer Accounts $485,158 Accounts $485,158 $0 $0 $0 5 Subtotal $7,781,646 $485,158 $5,152,120 $1,072,184 $1,072,184 6 O&M Composite 100% 6.2% 66.2% 13.8% 13.8%
7Capital Costs
8 Existing Debt
9 Sewer Conveyance $2,332,978 Conveyance $0 $2,332,978 $0 $0 10 Customer Accounts $29,777 Accounts $29,777 $0 $0 $0
11 $2,362,755 $29,777 $2,332,978 $0 $0
12 Future Debt
13 Sewer Conveyance $0 Conveyance $0 $0 $0 $0
14 Customer Accounts $0 Accounts $0 $0 $0 $0
15 $0 $0 $0 $0 $0
16 PAYGo
17 SOCWA Treatment $4,598,816 Treatment $0 $2,299,408 $1,149,704 $1,149,704 18 Sewer Conveyance $608,226 Conveyance $0 $608,226 $0 $0 19 Customer Accounts $489,275 Accounts $489,275 $0 $0 $0 20 $5,696,317 $489,275 $2,907,634 $1,149,704 $1,149,704 21 Subtotal $8,059,072 $519,052 $5,240,612 $1,149,704 $1,149,704 22 Capital Composite 100% 6.4% 65.0% 14.3% 14.3%
23 O&M and Capital Subtotal $15,840,718 $1,004,210 $10,392,732 $2,221,888 $2,221,888 24 Expense Composite 100% 6.3% 65.6% 14.0% 14.0%
Cost Allocation
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Unit costs of service will be calculated for each of the four cost categories. These unit costs will then be applied to the units of service associated with each class, as explained below.
UNITS OF SERVICE
The units of service for each customer class are required in order to calculate the unit costs of service, which are used to calculate each customer class’ share of the revenue requirement. The units of service for the Customer Accounts costs are accounts or dwell- ing units. For the loading services, the units of service are HCF and pounds of BOD and TSS. A mass balance was performed to improve the accuracy of some of the estimates that are required for lack of direct data for each class.
The mass balance is based on the total loading from the District received by SOCWA for treatment. The average of loadings at the Coastal and JB Latham treatment plants was used to determine the values on line 12 of Table VIII-4. Based on guidelines from the State Water Resources Control Board’s Revenue Program Guidelines, the commercial con- centrations in column d were estimated. With the known flows from the customer clas- ses, the residential BOD concentration was derived. The TSS concentrations were deter- mined based on the total proportion of BOD and TSS on line 12 (TSS by class = BOD by class times 439/300)
Table VIII-4. Units of Service
Cost of Service By Customer Class
In cost-of-service analysis, all customer classes are treated equally through the applica- tion of the same unit costs to all customers, which is the fundamental purpose of cost-of- service analysis. In this way, cost-of-service analysis proportionately distributes the City Council Regular Meeting - Page 567 of 1385
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revenue requirement to customers without discrimination, after which rates can be de- signed to generate the revenue required to provide the necessary level of service to each class.
The cost of service corresponding to each of the four functions is calculated by dividing the functional costs in Table VIII-3by the units of service in Table VIII-4. The result is shown in Table VIII-5. The unit costs of service on row 7 are applied to the units of service for each customer class on rows 10 through 16 to determine each class’ respective share of the revenue requirement for FY 2020-21.
Table VIII-5. Unit Costs of Service (FY 2020-21)
Model Table 11.
The results of the updated cost-of-service analysis for FY 2020-21 shown in Table VIII-5 (column e, rows 20 through 26) are compared with the revenue from current rates in Ta- ble VIII-6. Updating the loadings for each customer class shifts cost from the multi fam- ily and commercial classes to the single family class.
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Table VIII-6. Customer Class Allocations
FY 2020-21 FY 2020-21
Revenue COS $ Change % Change
a b c=b-a d=c/a
1Single Family $8,990,496 $9,458,925 $468,429 5.2%
2 3Multi Family $3,909,812 $3,502,500($407,313) -10.4%
4 5Commercial
6 Low Strength $714,611 $623,750 ($90,861) -12.7%
7 Medium Strength $2,701,350 $2,706,733 $5,383 0.2%
8 High Strength $676,137 $700,499 $24,362 3.6%
9 Subtotal $4,092,098 $4,030,982 ($61,116) -1.5%
10 Total $16,992,406 $16,992,406 $0 0.0%
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IX. SEWER RATE DESIGN
This rate analysis recommends adjustments to the rates without making any changes to the rate structure, per se.This structure, including the customer classes, has been in place since the previous rate study in 2016. Residential rates are charged flat rates per dwelling unit, which is a common industry practice. The variable rates for multi family and com- mercial customers is also a common industry practice that should be continued at the District.
CURRENT RATE STRUCTURE
Table IX-1 summarizes the District’s current rates for its three charges. Generally speak- ing, service charge rates are billed annually on the tax rolls. The single family blocks are based on each customer’s winter quarter (i.e., December through February) average (WQA) metered water use. A single family customers’ WQA determines in which block the customer will be billed.14 Variable charge rates for multi family and commercial cus- tomers are billed monthly by the District based on each customer’s metered water use.
Table IX-1. Current Sewer Rates
14This block structure is not a tiered structure like the District’s water rates.
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SERVICE CHARGE AND VARIABLE CHARGE RATES
It has been the District’s practice to derive single and multi family residential rates so that the majority of the cost is covered by a fixed component, which is consistent with the fact that the majority of a sewer system’s collection system cost is fixed. In the District’s case, 85% of the costs are covered by the fixed component and 15% by the variable component.
For single family customers, the variable component differentiates between the annual charges for each of the three blocks, which represent average annual flows per block. For multi family customers, the variable component varies by individual customer from month to month. Commercial customers do not have separate fixed and variable rate components. Instead, all of the cost is covered by the variable component, which varies by commercial class depending on the strength of the flow for the class.
Table IX-2shows how the costs allocated to each class are apportioned between their respective fixed and variable rate components.
Table IX-2. Fixed and Variable Rate Components
Based on the apportionment in Table IX-2, the rates for each charge for the customer classes are derived in Table IX-3. These FY 2021-22 rates reflect the cost-of-service ad- justments and the 6.5% revenue increase. The rates for FY 2021-22 and FY 2022-23 are summarized in Table IX-4, which also shows the year-over-year change. The changes vary by customer class for FY 2021-22 because of the cost-of-service adjustments, which shifted cost away from multi family and low strength commercial customers to the other classes.
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Table IX-3. Calculation of Service and Variable Charge Rates - FY 2021-22 Table IX-4. Summary of Proposed Sewer Rates
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South Coast Water District Water, Recycled Water, and Sewer Rate Study X. Sewer Customer Cost Impacts
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X. SEWER CUSTOMER COST IMPACTS
As with the comparison of monthly water “bills,” the compar- ison of monthly sewer “bills” requires the conversion of an- nual charges to monthly equivalents. As a result, the monthly comparison is better called a costcomparison than a billcom- parison. The comparison is made for the typical sewer cus- tomers in the single family, multi family and commercial clas- ses. No comparison is made for potable irrigation and recy- cled water customers because these two classes do not receive sewer service.
The monthly costs for the proposed rates for FY 2021-22 and FY 2022-23 are compared in Table X-1 with what the monthly cost would be under the current rates (i.e., without rate in- creases).
Table X-1. Sample Sewer Cost Impacts
Non Residential
Single Family [1] Single Family [2] Multi Family [3] Commercial [4] a b c d e
1 FY 2020-21 Monthly Cost $58.00 $63.17 $217.45 $584.40 2 FY 2021-22 Monthly Cost $64.52 $70.37 $207.39 $623.63 3 FY 2022-23 Monthly Cost $68.72 $74.94 $220.87 $664.16 4 $ Difference (row 2-row 1) $6.52 $7.20 ($10.06) $39.23 5 $ Difference (row 3-row 2) $4.19 $4.57 $13.48 $40.54
6 % Difference (row 2/row 1) 11.2% 11.4% -4.6% 6.7%
7 % Difference (row 3/row 2) 6.5% 6.5% 6.5% 6.5%
[1] 3 HCF winter quarter average per month - Block 2 Sewer Category [2] 7 HCF winter quarter average per month - Block 2 Sewer Category [3] 5 dwelling units per Multi Family connection
[4] Average Commercial water use, medium strength sewer customer Residential
Projected Combined Monthly Cost
Difference
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WATER, RECYCLED WATER,AND SEWER RATE STUDY
APPENDIX
A. WATER RATE MODEL
B. SEWER RATE MODEL
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Appendix A
Water Rate Model
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3 4
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24 25
26 27
28 29
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34 35
36 37
38 39
A B D E F G H I J
South Coast Water District
Financial Planning Tool - Water
Table 1A - Summary
FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Eff. Date 7/1/2021 7/1/2022 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 7/1/2028 Annual Rate Revenue Increases
Rate Revenue Increase 6.00% 4.00% 4.00% 3.00% 3.00% 3.00% 3.00% Debt Coverage Ratio 2.65 2.72 2.27 2.27 2.29 2.28 2.27
Days of Cash 261.54 244.59 255.25 280.81 313.07 342.66 363.90 Projected
$0
$5
$10
$15
$20
$25
$30
$35
$40
FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30FY 2030-31 Rate Adj. +/- 6.00% 4.00% 4.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Reserves Balances (Millions)
Projected Year-End Unrestricted Cash Balance - Water Enterprise Balance with Rate Increases
Operating Fund Target
Total Target Reserves
Balance w/o Rate Increases
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Table 1B - Assumptions
Inflation Factor Assumptions used for projections:
Budget
FY 2020-21FY 2021-22FY 2022-23FY 2023-24FY 2024-25FY 2025-26FY 2026-27FY 2027-28 a Growth in accounts 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% b General Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% c Salaries & Wages 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% d Benefits (non PERS) 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% e Construction Cost Inflation 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% f Interest on Fund Balance 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% g Bad debt as % of rate revenue 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% j Utilities 9.8% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
k Recycled Water Account Growth 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% l Water Costs 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
m PERS % of Labor 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% Projected
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Table 2 - Revenue Requirements
Inflation Budgeted
Factor FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Operating Expenses
Salaries c $5,331,974 $5,598,573 $5,878,501 $6,172,426 $6,481,048 $6,805,100 $7,145,355 $7,502,623 $7,877,754 $8,271,642 $8,685,224 Part Time Salaries c $193,132 $202,789 $212,928 $223,574 $234,753 $246,491 $258,815 $271,756 $285,344 $299,611 $314,592 Overtime Salary c $283,347 $297,514 $312,390 $328,010 $344,410 $361,631 $379,712 $398,698 $418,633 $439,564 $461,542 PERS Employer Contribution d $499,173 $664,777 $698,016 $732,917 $769,563 $808,041 $848,443 $890,865 $935,409 $982,179 $1,031,288 Medicare d $79,244 $83,206 $87,367 $91,735 $96,322 $101,138 $106,195 $111,504 $117,079 $122,933 $129,080 Social Security c $15,056 $15,809 $16,599 $17,429 $18,301 $19,216 $20,176 $21,185 $22,245 $23,357 $24,525 Medical Dental Vision d $769,398 $807,868 $848,261 $890,674 $935,208 $981,968 $1,031,067 $1,082,620 $1,136,751 $1,193,589 $1,253,268 Life Disability Insurance d $20,251 $21,264 $22,327 $23,443 $24,615 $25,846 $27,138 $28,495 $29,920 $31,416 $32,987 Workers Compensation d $154,846 $162,588 $170,718 $179,254 $188,216 $197,627 $207,508 $217,884 $228,778 $240,217 $252,228 Unemployment Insurance d $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 457 Plan Matching d $55,908 $58,703 $61,639 $64,720 $67,957 $71,354 $74,922 $78,668 $82,602 $86,732 $91,068 PERS UAL Contribution b $370,103 $429,210 $461,623 $498,029 $514,202 $527,567 $541,296 $555,405 $569,901 $584,797 $600,102 OPEB Contribution b $71,250 $262,500 $262,500 $262,500 $262,500 $262,500 $262,500 $262,500 $262,500 $262,500 $262,500 Materials b $406,243 $417,617 $429,311 $441,331 $453,689 $466,392 $479,451 $492,875 $506,676 $520,863 $535,447 Chemicals b $120,000 $123,360 $126,814 $130,365 $134,015 $137,768 $141,625 $145,591 $149,667 $153,858 $158,166 Lubricants b $5,632 $5,790 $5,952 $6,118 $6,290 $6,466 $6,647 $6,833 $7,024 $7,221 $7,423 Laboratory Tests b $121,000 $124,388 $127,871 $131,451 $135,132 $138,916 $142,805 $146,804 $150,914 $155,140 $159,484 Electric Power j $534,375 $550,406 $566,918 $583,926 $601,444 $619,487 $638,072 $657,214 $676,930 $697,238 $718,155 Water b $33,158 $34,086 $35,041 $36,022 $37,031 $38,067 $39,133 $40,229 $41,355 $42,513 $43,704 Telephone b $185,608 $190,805 $196,148 $201,640 $207,286 $213,090 $219,056 $225,190 $231,495 $237,977 $244,640 Permits and Fees b $75,713 $77,832 $80,012 $82,252 $84,555 $86,923 $89,357 $91,859 $94,431 $97,075 $99,793 Outside Services b $611,370 $628,488 $646,086 $664,176 $682,773 $701,891 $721,544 $741,747 $762,516 $783,867 $805,815 SCADA Maintenance b $21,258 $21,853 $22,465 $23,094 $23,741 $24,406 $25,089 $25,791 $26,514 $27,256 $28,019 Small Tools and Equipment b $75,719 $77,839 $80,019 $82,259 $84,562 $86,930 $89,364 $91,866 $94,439 $97,083 $99,801 Equipment Rental b $5,000 $5,140 $5,284 $5,432 $5,584 $5,740 $5,901 $6,066 $6,236 $6,411 $6,590 Office Supplies b $16,635 $17,101 $17,580 $18,072 $18,578 $19,098 $19,633 $20,183 $20,748 $21,329 $21,926 Uniforms/Safety Boots b $42,884 $44,084 $45,319 $46,588 $47,892 $49,233 $50,611 $52,029 $53,485 $54,983 $56,523 Printing and Reproduction b $58,181 $59,810 $61,485 $63,206 $64,976 $66,795 $68,666 $70,588 $72,565 $74,597 $76,685 Office Furniture/Equipment b $19,573 $20,121 $20,684 $21,263 $21,858 $22,470 $23,100 $23,746 $24,411 $25,095 $25,797 Repairs and Maintenance b $1,026,366 $1,055,104 $1,084,647 $1,115,017 $1,146,238 $1,178,332 $1,211,326 $1,245,243 $1,280,110 $1,315,953 $1,352,799 Refuse and Waste Hauling b $13,925 $14,315 $14,716 $15,128 $15,551 $15,987 $16,434 $16,895 $17,368 $17,854 $18,354 Natural Gas b $900 $925 $951 $978 $1,005 $1,033 $1,062 $1,092 $1,123 $1,154 $1,186 Cathodic Protect Inspecti Svc b $6,000 $6,168 $6,341 $6,518 $6,701 $6,888 $7,081 $7,280 $7,483 $7,693 $7,908 Temporary Services b $14,013 $14,405 $14,808 $15,223 $15,649 $16,087 $16,538 $17,001 $17,477 $17,966 $18,469 Emergency Repairs/Response b $202,613 $208,286 $214,118 $220,113 $226,276 $232,612 $239,125 $245,820 $252,703 $259,779 $267,053 Water Conservation Program b $70,000 $71,960 $73,975 $76,046 $78,175 $80,364 $82,615 $84,928 $87,306 $89,750 $92,263 Membership dues and fees b $41,828 $42,999 $44,203 $45,441 $46,713 $48,021 $49,366 $50,748 $52,169 $53,630 $55,131 Postage b $13,135 $13,503 $13,881 $14,270 $14,669 $15,080 $15,502 $15,936 $16,382 $16,841 $17,313 Subscritptions/Publications b $7,917 $8,138 $8,366 $8,601 $8,841 $9,089 $9,343 $9,605 $9,874 $10,150 $10,435 Training b $83,496 $85,834 $88,238 $90,708 $93,248 $95,859 $98,543 $101,302 $104,139 $107,055 $110,052 Mileage Reimbursements b $3,219 $3,309 $3,402 $3,497 $3,595 $3,696 $3,799 $3,906 $4,015 $4,128 $4,243 Undergound Utility Location b $10,750 $11,051 $11,360 $11,679 $12,006 $12,342 $12,687 $13,042 $13,408 $13,783 $14,169 Leak Detection Svcs b $12,000 $12,336 $12,681 $13,036 $13,402 $13,777 $14,163 $14,559 $14,967 $15,386 $15,817 Corrosion Inspection and Repai b $15,000 $15,420 $15,852 $16,296 $16,752 $17,221 $17,703 $18,199 $18,708 $19,232 $19,771 Laguna Canyon Line - SOS b $80,000 $82,240 $84,543 $86,910 $89,343 $91,845 $94,417 $97,060 $99,778 $102,572 $105,444 Laguna Sur Reservoir SOS b $3,500 $3,598 $3,699 $3,802 $3,909 $4,018 $4,131 $4,246 $4,365 $4,488 $4,613 City of San Clemente b $15,000 $15,420 $15,852 $16,296 $16,752 $17,221 $17,703 $18,199 $18,708 $19,232 $19,771 Worker Incentive Awards b $25,000 $25,700 $26,420 $27,159 $27,920 $28,702 $29,505 $30,331 $31,181 $32,054 $32,951 Computer Supplies/Equipment b $69,600 $71,549 $73,552 $75,612 $77,729 $79,905 $82,143 $84,442 $86,807 $89,237 $91,736 Software Maint Agreements b $411,674 $423,201 $435,050 $447,232 $459,754 $472,628 $485,861 $499,465 $513,450 $527,827 $542,606 Parts and Supplies b $14,250 $14,649 $15,059 $15,481 $15,914 $16,360 $16,818 $17,289 $17,773 $18,271 $18,782 Employee Relations/Events b $10,925 $11,231 $11,545 $11,869 $12,201 $12,543 $12,894 $13,255 $13,626 $14,007 $14,400 Consulting and Professional Sv b $424,743 $436,635 $448,861 $461,429 $474,349 $487,631 $501,285 $515,321 $529,750 $544,583 $559,831 Recruiting and Advertising b $2,375 $2,442 $2,510 $2,580 $2,652 $2,727 $2,803 $2,881 $2,962 $3,045 $3,130 Certifications b $7,078 $7,276 $7,479 $7,689 $7,904 $8,125 $8,353 $8,587 $8,827 $9,074 $9,328 Elections b $19,000 $19,532 $20,079 $20,641 $21,219 $21,813 $22,424 $23,052 $23,697 $24,361 $25,043 City of Dana Point Rent b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 South Laguna Representation b $7,125 $7,325 $7,530 $7,740 $7,957 $8,180 $8,409 $8,644 $8,886 $9,135 $9,391 Sponsorhips b $11,875 $12,208 $12,549 $12,901 $13,262 $13,633 $14,015 $14,407 $14,811 $15,226 $15,652 Grant Writing b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
MWDOC Choice Program b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Legal Services b $315,875 $324,720 $333,812 $343,158 $352,767 $362,644 $372,798 $383,237 $393,967 $404,998 $416,338 Agency Contributions b $13,538 $13,917 $14,307 $14,707 $15,119 $15,542 $15,978 $16,425 $16,885 $17,358 $17,844 Social Media b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Promotion b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Air Quality Compliance b $7,838 $8,057 $8,283 $8,514 $8,753 $8,998 $9,250 $9,509 $9,775 $10,049 $10,330 Safety and Regulartory compl b $29,118 $29,933 $30,771 $31,632 $32,518 $33,429 $34,365 $35,327 $36,316 $37,333 $38,378 AMI Cellular b $15,892 $16,337 $16,794 $17,264 $17,748 $18,245 $18,756 $19,281 $19,821 $20,376 $20,946 Property Tax Collection Chrgs b $16,800 $17,270 $17,754 $18,251 $18,762 $19,287 $19,828 $20,383 $20,953 $21,540 $22,143 Bad Debt Expense b $2,640 $2,714 $2,790 $2,868 $2,948 $3,031 $3,116 $3,203 $3,293 $3,385 $3,480 Auditing and Accounting Svcs b $19,000 $19,532 $20,079 $20,641 $21,219 $21,813 $22,424 $23,052 $23,697 $24,361 $25,043 Banking Fees b $67,125 $69,005 $70,937 $72,923 $74,965 $77,064 $79,221 $81,440 $83,720 $86,064 $88,474 Fiscal Agent Fees b $5,225 $5,371 $5,522 $5,676 $5,835 $5,999 $6,167 $6,339 $6,517 $6,699 $6,887 Arc Safety Upgrades Implementa b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 General Liability Insurance b $118,750 $122,075 $125,493 $129,007 $132,619 $136,332 $140,150 $144,074 $148,108 $152,255 $156,518 Tennis Tournaments b $3,000 $3,084 $3,170 $3,259 $3,350 $3,444 $3,541 $3,640 $3,742 $3,846 $3,954 Security Patrol Svcs b $25,000 $25,700 $26,420 $27,159 $27,920 $28,702 $29,505 $30,331 $31,181 $32,054 $32,951 Landscape Maintenance b $82,727 $85,043 $87,425 $89,872 $92,389 $94,976 $97,635 $100,369 $103,179 $106,068 $109,038 Liability Claims b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Tuition Reimbursement b $9,500 $9,766 $10,039 $10,321 $10,610 $10,907 $11,212 $11,526 $11,849 $12,180 $12,521 Depreciation Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Interest Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Miscellaneous Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Amotization Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Transfer Out b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Fuel b $57,000 $58,596 $60,237 $61,923 $63,657 $65,440 $67,272 $69,155 $71,092 $73,082 $75,129 Underground Tanks b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Tree Trimming b $19,000 $19,532 $20,079 $20,641 $21,219 $21,813 $22,424 $23,052 $23,697 $24,361 $25,043 Janitorial Services b $19,000 $19,532 $20,079 $20,641 $21,219 $21,813 $22,424 $23,052 $23,697 $24,361 $25,043 JRWSS Tri Cities Interconnect b $308,594 $317,235 $326,117 $335,248 $344,635 $354,285 $364,205 $374,403 $384,886 $395,663 $406,742 Upper Chiquita Reservoir b $48,000 $49,344 $50,726 $52,146 $53,606 $55,107 $56,650 $58,236 $59,867 $61,543 $63,266 IRWD Intercon Projects b $500 $514 $528 $543 $558 $574 $590 $607 $624 $641 $659 San Juan Basin b $218,000 $224,104 $230,379 $236,830 $243,461 $250,278 $257,285 $264,489 $271,895 $279,508 $287,334 Control Vlt Stnhll/Del OBSP b $800 $822 $845 $869 $893 $918 $944 $971 $998 $1,026 $1,054 Desal Permitting/Engineering $0 $840,000 $840,000 $0 $0 $0 $0 $0 $0 $0 $0 Water Purchase Fixed Charges $355,000
Water Purchase SC5BSO $395,000
Water Purchase CM12SO $4,459,950
Projected
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Water Purchase CM10SO $0
Water Purchase Mndtd Fees $350,000
Water Purchase SDCW $0
Future Water Supply $0 $6,368,516 $6,664,320 $6,840,410 $7,110,517 $7,307,303 $7,585,643 $7,872,630 $8,180,984 $8,513,906 $8,862,307 Planned O&M Cutback $0 ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) Total O&M $19,762,205$22,100,999$23,009,026$22,986,305$23,903,475$24,771,813$25,750,611$26,768,281$27,838,916$28,967,162$30,145,437 Total Operating Costs $19,762,205$22,100,999$23,009,026$22,986,305$23,903,475$24,771,813$25,750,611$26,768,281$27,838,916$28,967,162$30,145,437 Non-Rate Revenues
Property Tax b ($2,990,111)($3,073,834)($3,159,901)($3,248,379)($3,339,333)($3,432,835)($3,528,954)($3,627,765)($3,729,342)($3,833,764)($3,941,109) Rental Income b ($1,094,000)($1,124,632)($1,156,122)($1,188,493)($1,221,771)($1,255,980)($1,291,148)($1,327,300)($1,364,464)($1,402,670)($1,441,944) Recreation Facilities b ($197,200) ($202,722) ($208,398) ($214,233) ($220,231) ($226,398) ($232,737) ($239,254) ($245,953) ($252,840) ($259,919) Other Revenues b ($705,500) ($725,254) ($745,561) ($766,437) ($787,897) ($809,958) ($832,637) ($855,951) ($879,917) ($904,555) ($929,883) Non-Operating Expenses/(Revenues) ($4,986,811)($5,126,442)($5,269,982)($5,417,542)($5,569,233)($5,725,171)($5,885,476)($6,050,269)($6,219,677)($6,393,828)($6,572,855) Subtotal 14,775,394 $16,974,557$17,739,044$17,568,764 18,334,243 $19,046,642$19,865,135$20,718,011$21,619,239$22,573,334$23,572,582 Debt Service
Total Water Debt Service $2,002,894 $2,189,790 $2,189,736 $3,118,681 $3,118,523 $3,119,366 $3,119,931 $3,119,176 $3,119,276 $3,510,560 $3,510,038 Total Debt Service $2,002,894 $2,189,790 $2,189,736 $3,118,681 $3,118,523 $3,119,366 $3,119,931 $3,119,176 $3,119,276 $3,510,560 $3,510,038 Transfers to/(from):
Operating Reserves $1,969,596 $1,067,913 $1,622,770 $1,945,464 $1,867,744 $1,785,799 $1,628,718 $1,540,400 $1,427,273 $895,276 $715,919 Capital Reserves $2,644,548 $2,380,391 $1,966,973 $1,827,777 $1,875,461 $2,001,552 $2,119,729 $2,159,532 $2,199,094 $2,238,358 $2,297,266 Total Transfers $4,614,144 $3,448,304 $3,589,743 $3,773,241 $3,743,205 $3,787,351 $3,748,447 $3,699,932 $3,626,367 $3,133,634 $3,013,185 Total Revenue Requirement 21,392,432 $22,612,651$23,518,524$24,460,686$25,195,971$25,953,359$26,733,513$27,537,120$28,364,883$29,217,528$30,095,804 Annual Change 5.7% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% HF&H Consultants, LLC
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Table 2 - Water Supply Costs
Budgeted
FY 2020-21FY 2021-22FY 2022-23FY 2023-24FY 2024-25FY 2025-26FY 2026-27 FY 2027-28 Water Demand 5,519 5,520 5,521 5,522 5,523 5,525 5,526 5,527 Water Losses 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Water Production Needed 5,690 5,691 5,692 5,693 5,694 5,695 5,697 5,698 Groundwater (AF) 800 700 700 700 700 700 700 700 Desal Production - - - - - - - - MWDOC Purchases 4,890 4,991 4,992 4,993 4,994 4,995 4,997 4,998 5,690 5,691 5,692 5,693 5,694 5,695 5,697 5,698
TRUE TRUE TRUE TRUE TRUE TRUE TRUE TRUE
$/AF per Source
Met Low $1,220 $1,276 $1,335 $1,370 $1,409 $1,433 $1,469 $1,505 Met Average $1,220 $1,276 $1,335 $1,370 $1,424 $1,463 $1,518 $1,575 Met High $1,220 $1,276 $1,335 $1,370 $1,439 $1,493 $1,567 $1,646 5 MGD Base Case $1,805 $1,859 $1,915 $1,972 $2,032 $2,092 $2,155 $2,220 2 MGD Average $2,610 $2,688 $2,769 $2,852 $2,938 $3,026 $3,116 $3,210 2 MGD Low $1,834 $1,889 $1,946 $2,004 $2,194 $2,194 $2,194 $2,194 2 MGD High $2,032 $2,093 $2,156 $2,220 $2,431 $2,431 $2,431 $2,431 Water Supply Costs
No Desal $0 $0 $0 $0 $0 $0 $0 $0
Met Average $5,965,800$6,368,516$6,664,320$6,840,410$7,110,517$7,307,303$7,585,643 $7,872,630 Total Water Supply Costs$5,965,800$6,368,516$6,664,320$6,840,410$7,110,517$7,307,303$7,585,643 $7,872,630 Projected
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South Coast Water District
Financial Planning Tool - Water
Table 3 - Revenue Increases
Months
Increase
In Effect FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Rate Revenue at Current Rates
Total Rate Revenue $21,392,432 $21,332,690 $21,333,930 $21,335,169 $21,336,409 $21,337,649 $21,338,890 $21,340,130 Increase in Rate Revenue 6.0% 4.0% 4.0% 3.0% 3.0% 3.0% 3.0% Revenue from Current Rates $21,392,432 $21,332,690 $21,333,930 $21,335,169 $21,336,409 $21,337,649 $21,338,890 $21,340,130 Revenue from Rate Increases
FY 2020-21 (eff. Jul 1, 2020)12 $0 $0 $0 $0 $0 $0 $0 $0 FY 2021-22 (eff. Jul 1, 2021)12 $1,279,961 $1,280,036 $1,280,110 $1,280,185 $1,280,259 $1,280,333 $1,280,408 FY 2022-23 (eff. Jul 1, 2022)12 $904,559 $904,611 $904,664 $904,716 $904,769 $904,822 FY 2023-24 (eff. Jul 1, 2023)12 $940,796 $940,850 $940,905 $940,960 $941,014 FY 2024-25 (eff. Jul 1, 2024)12 $733,863 $733,906 $733,949 $733,991 FY 2025-26 (eff. Jul 1, 2025)12 $755,923 $755,967 $756,011 FY 2026-27 (eff. Jul 1, 2026)12 $778,646 $778,691
FY 2027-28 (eff. Jul 1, 2027)12 $802,052
FY 2028-29 (eff. Jul 1. 2028)12
FY 2029-30 (eff. Jul 1. 2029)12
FY 2030-31 (eff. Jul 1. 2030)12
FY 2031-32 (eff. Jul 1. 2031)12
FY 2032-33 (eff. Jul 1. 2032)12
FY 2033-34 (eff. Jul 1. 2033)12
FY 2034-35 (eff. Jul 1. 2034)12
FY 2035-36 (eff. Jul 1. 2035)12
FY 2036-37 (eff. Jul 1. 2036)12
FY 2037-38 (eff. Jul 1. 2037)12
FY 2038-39 (eff. Jul 1. 2038)12
FY 2039-40 (eff. Jul 1. 2039)12
FY 2040-41 (eff. Jul 1. 2040)12
FY 2041-42 (eff. Jul 1. 2041)12
FY 2042-43 (eff. Jul 1. 2042)12
FY 2043-44 (eff. Jul 1. 2043)12
FY 2044-45 (eff. Jul 1. 2044)12
FY 2045-46 (eff. Jul 1. 2045)12
FY 2046-47 (eff. Jul 1. 2046)12
FY 2047-48 (eff. Jul 1. 2047)12
FY 2048-49 (eff. Jul 1. 2048)12
FY 2049-50 (eff. Jul 1. 2049)12
FY 2050-51 (eff. Jul 1. 2050)12
FY 2051-52 (eff. Jul 1. 2051)12
FY 2052-53 (eff. Jul 1. 2052)12
FY 2053-54 (eff. Jul 1. 2053)12
FY 2054-55 (eff. Jul 1. 2054)12
FY 2055-56 (eff. Jul 1. 2055)12
FY 2056-57 (eff. Jul 1. 2056)12
FY 2057-58 (eff. Jul 1. 2057)12
FY 2057-58 (eff. Jul 1. 2058)12
Total Revenue from Rate Increases $0 $1,279,961 $2,184,594 $3,125,517 $3,859,562 $4,615,709 $5,394,624 $6,196,989 Total Current Revenue $21,392,432 $21,332,690 $21,333,930 $21,335,169 $21,336,409 $21,337,649 $21,338,890 $21,340,130 Total Revenue with Rate Increases $21,392,432 $22,612,651 $23,518,524 $24,460,686 $25,195,971 25,953,359 $26,733,513 $27,537,120 Total Revenue Requirement $21,392,432 $22,612,651 $23,518,524 $24,460,686 $25,195,971 $25,953,359 $26,733,513 $27,537,120 Transfer to/(from) Operating Reserve $0 $0 $0 $0 $0 $0 $0 $0 Transfer to/(from) Reserves without Increases $0 ($1,279,961) ($2,184,594) ($3,125,517) ($3,859,562) ($4,615,709) ($5,394,624) ($6,196,989) Projected
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South Coast Water District
Financial Planning Tool - Water
Table 4 - Reserve Funds
Days of Cash 262 245
Debt Cov 2.65 2.65
Rate Adj. +/- 6.00% 4.00% 4.00%
FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24
Operating Fund
With Rate Increases
Increase in Rate Revenue: 2.95% 6.0% 4.0%
Beginning Balance $13,161,012 $15,272,066 $16,498,039 $18,293,904 Net Operating Gain/Loss $0 $0 $0
Transfers (to)/from:
Revenue Requirements $1,969,596 $1,067,913 $1,622,770 $1,945,464 Capital Reserve $0 $0 $0
Fund Subtotal $15,130,608 $16,339,979 $18,120,810 $20,239,368 Estimated Interest Earnings $141,458 $158,060 $173,094 $192,666 Ending Balance with Rate Increase$13,161,012 $15,272,066 $16,498,039 $18,293,904 $20,432,035 Target Balance$19,762,205 $19,762,205 $22,100,999 $23,009,026 $22,986,305 Fund Balance Compared to Minimum 77% 75% 80%
Capital Reserve
Beginning Balance $0 $56,673 ($1,344,825) ($1,846,822)
Connection Fees $325,000 $325,000 $325,000 $325,000
Capital Projects Expenditures (PAYGO) ($2,913,157) ($4,106,889) ($2,793,970) ($1,919,509) Cash Needs for SRF Projects $0 $0 $0
Transfers (to)/from:
Revenue Requirements $2,644,548 $2,380,391 $1,966,973 $1,827,777 Operating Fund $0 $0 $0
Fund Subtotal $56,391 ($1,344,825) ($1,846,822) ($1,613,554) Estimated interest earnings $282 $0 $0
Ending Balance $0 $56,673 ($1,344,825) ($1,846,822) ($1,613,554) Target Balance $2,644,548 $2,644,548 $2,380,391 $1,966,973 $1,827,777 Fund Balance Compared to Target 2% -56% -94%
Operating Fund
Without Rate Increases
Increase in Rate Revenue: 3.0% 6.0% 4.0%
Beginning Balance $13,161,012 $15,272,066 $15,211,678 $14,799,162 Transfer to/(from) Operating Fund $0 ($1,279,961) ($2,184,594) ($3,125,517) Transfers (to)/from:
$1,969,596 $1,067,913 $1,622,770 $1,945,464
Capital Reserve $0 $0 $0
Fund Subtotal $15,130,608 $15,060,018 $14,649,854 $13,619,109 Estimated Interest Earnings $141,458 $151,660 $149,308 $142,091 Ending Balance with Rate Increase$13,161,012 $15,272,066 $15,211,678 $14,799,162 $13,761,201 Target Balance$19,762,205 $19,762,205 $22,100,999 $23,009,026 $22,986,305 Fund Balance Compared to Minimum 77% 69% 64%
Reserve Funds
Balance with Rate Increases $13,161,012 $15,328,739 $15,153,215 $16,447,082 $18,818,481 Balance w/o Rate Increases $13,161,012 $15,328,739 $13,866,853 $12,952,340 $12,147,647 Operating Fund Target $19,762,205 $19,762,205 $22,100,999 $23,009,026 $22,986,305 Capital Reserve Target $2,644,548 $2,644,548 $2,380,391 $1,966,973 $1,827,777 Modified Target $19,762,205 $19,762,205 $22,100,999 $23,009,026 $22,986,305 Total Target Reserves $22,406,753 $22,406,753 $24,481,390 $24,975,999 $24,814,082 Fund Balance Compared to Target 68% 62% 66%
Estimated Interest Earnings $141,740 $158,060 $173,094 $192,666 Net Change in Reserves $2,167,727 ($175,525) $1,293,868 $2,371,399 261.54 244.59 255.25 280.81
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South Coast Water District
Financial Planning Tool - Water
Table 5 - Capital Improvement Program
Functional Cost Include Funding SourceSRF/Bond #% Water% SewerStart YearDuration Total Project Description Water Supply Desal yes PAYGo 100.0% 0.0% 2021 3 $1,973,000Doheny Desalination (Studies/Planning) Storage Potable Yes Issued Bond 100.0% 0.0% 2021 1 $690,000Tank Recoating at 0.6 MG Reservoir 1A; 0.6 MG Reservoir 2C Distribution Potable Yes Issued Bond 100.0% 0.0% 2021 1 $400,000AC Watermain Replacement at Via California Distribution Potable Yes PAYGo 100.0% 0.0% 2021 4 $340,000Equipment Replacement Storage Potable Yes PAYGo 100.0% 0.0% 2021 1 $190,000Reservoir 2B and 3B Replacement Project Storage Potable Yes Issued Bond 100.0% 0.0% 2023 3 $2,400,000Reservoir 2B and 3B Replacement Project Capital Composite Yes PAYGo 100.0% 0.0% 2021 5 $914,500Vehicle Replacement Capital Composite Yes Issued Bond 100.0% 0.0% 2021 2 $400,000Water Operations - Victoria Warehouse Building Water Supply Yes PAYGo 100.0% 0.0% 2021 1 $120,000Integrated Water Resources Plan Storage Potable Yes Issued Bond 100.0% 0.0% 2021 3 $1,975,000Rehabilitate Reservoirs 5A1 and 5B Water Supply Ground WaterYes PAYGo 100.0% 0.0% 2021 1 $75,000GRF Tenant Improvements Pumping Potable Yes Issued Bond 100.0% 0.0% 2021 2 $650,000PS9 Upgrades Water Supply Yes PAYGo 100.0% 0.0% 2021 2 $100,000Urban Water Management Plan (UWMP) Distribution Potable Yes Issued Bond 100.0% 0.0% 2021 2 $225,000Waterline Replacement at Camel Point Pumping Potable Yes PAYGo 100.0% 0.0% 2021 2 $325,000PS1 Fire Hardening Capital Composite Yes PAYGo 100.0% 0.0% 2021 1 $25,000Water Asset Improvements Transmission Potable Yes PAYGo 100.0% 0.0% 2022 2 $900,000Coast Hwy Water Transmission Line Replacement Study Transmission Potable Yes Bond Bond #3 100.0% 0.0% 2024 2 $9,000,000Coast Hwy Water Transmission Line Replacement Study Customer Capacity Yes PAYGo 100.0% 0.0% 2022 3 $1,500,000Annual City Resurfacing Projects - Water Svc Replacements Pumping Potable Yes PAYGo 100.0% 0.0% 2024 1 $100,000PS4 Pump Replacements Water Supply Ground WaterYes Issued Bond 100.0% 0.0% 2022 1 $600,000GRF Emergency Generator Transmission Potable Yes Issued Bond 100.0% 0.0% 2022 2 $100,000Discontinuity Survey Transmission Potable Yes Issued Bond 100.0% 0.0% 2022 2 $1,000,000Stonehill 24-inch Cathodic Protection Upgrades Distribution Potable Yes Issued Bond 100.0% 0.0% 2022 2 $1,138,000Fire Flow Pipeline Upgrades-Laguna Cliffs Marriott Ph 1-2 Distribution Potable Yes Issued Bond 100.0% 0.0% 2022 2 $875,000Sea Cliff Water Main Improvements Distribution Potable Yes Issued Bond 100.0% 0.0% 2022 2 $675,000Via Sacramento Water Main Improvements Pumping Potable Yes PAYGo 100.0% 0.0% 2025 1 $150,000Replace Pumps at PS1 Distribution Potable Yes Issued Bond 100.0% 0.0% 2022 2 $1,100,0002017 Master Plan Projects - Potable Water - Priority 1&2 (including Mission Hospital fire flow Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2024 2 $4,000,0002017 Master Plan Projects - Potable Water - Priority 1&2 (including Mission Hospital fire flow improvement project) Distribution Potable Yes PAYGo 100.0% 0.0% 2024 1 $225,000Reina Water Main Rehabilitation Customer Capacity Yes PAYGo 100.0% 0.0% 2022 8 $800,000Annual meter box relocation, high priority Storage Recycled Yes Bond Bond #3 0.0% 100.0% 2024 2 $650,000New 2.0 MG Recycled Water Reservoir Storage Potable Yes PAYGo 100.0% 0.0% 2023 1 $100,000Dana Hills Tennis Facility - Differential Settlement Improvements Storage Potable Yes PAYGo 100.0% 0.0% 0 $0 Fall Protection Upgrades to 11 Reservoirs Water Supply Ground WaterYes PAYGo 100.0% 0.0% 0 $0 GRF Plant Expansion - Well No. 2 Water Supply Ground WaterYes PAYGo 100.0% 0.0% 2022 0 $0 San Juan Basin Optimization Project Water Supply Desal no SRF SRF #2 Desal 100.0% 0.0% 2022 0 $0 Doheny Desalination (Projected Expenditures) Water Supply Desal no WIFIA WIFIA #1 100.0% 0.0% 2022 0 $0 Doheny Desalination (Projected Expenditures) Distribution Potable Yes PAYGo 100.0% 0.0% 0 $0 Sea Island Drive 920 Zone Meter Installation Storage Potable Yes PAYGo 100.0% 0.0% 2022 3 $250,000Dana Hills Tennis Center Facility Improvements Distribution Potable Yes PAYGo 100.0% 0.0% 2022 1 $75,000Valve Replacement Study Distribution Potable Yes Issued Bond 100.0% 0.0% 2023 4 $1,600,000Valve Replacement Project Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2024 2 $575,000Ascension Road Watermain Upsize Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2024 2 $250,0009th Avenue Watermain Upgrades Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2026 1 $150,000PCH North of Eastline Road Watermain Upgrades Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2026 1 $150,000PCH just north of Vista del Sol Watermain Upgrades Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2026 1 $50,000Mesa Vista Drive Watermain Upsize Distribution Potable Yes PAYGo 100.0% 0.0% 2026 1 $50,000SCWD Site Piping Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2025 2 $900,000Vista San Clemente Watermain Upgrades Distribution Potable Yes Bond Bond #3 100.0% 0.0% 2025 2 $550,000Mesa Vista Drive Watermain Upgrades Yes SRF SRF #1 Tunnel 0.0% 100.0% 2021 4 $40,340,764Tunnel Project Yes Issued Bond 0.0% 100.0% 2021 2 $11,100,000LS2 Station Rehabilitation/Replacement Yes Issued Bond 0.0% 100.0% 2023 1 $9,000,000LS2 Station Rehabilitation/Replacement Yes Issued Bond 0.0% 100.0% 2021 1 $300,000LS6 Improvements & Force Main Replacement Yes PAYGo 0.0% 100.0% 2021 4 $1,000,000Annual Gravity Sewer Lining Yes Issued Bond 0.0% 100.0% 2021 2 $775,000LS11 Replacement Yes PAYGo 0.0% 100.0% 2021 2 $200,000LS10 Dry Well Structural Rehabilitation Yes PAYGo 0.0% 100.0% 2021 1 $100,000Lift Station Assessment Yes PAYGo 0.0% 100.0% 2021 1 $100,000LS12 Site Improvements Yes PAYGo 0.0% 100.0% 2021 1 $100,000Los Monteros Pavement Repairs Yes Bond Bond #3 0.0% 100.0% 2025 2 $3,770,000Golden Lantern/Stonehill RW Bottleneck yes PAYGo 0.0% 100.0% 2021 4 $80,000Golden Lantern/Stonehill RW Bottleneck Yes PAYGo 0.0% 100.0% 2021 1 $75,000Calle Fortuna Manhole Installation Yes PAYGo 0.0% 100.0% 2021 2 $150,000Sewer System Model Updates Water Supply Recycled Yes PAYGo 0.0% 100.0% 2021 1 $50,000ACWRF Roof Replacement - Recycle Distribution Recycled Yes Issued Bond 0.0% 100.0% 2021 6 $1,050,000Recycled Water Extensions/Conversions Yes PAYGo 0.0% 100.0% 2021 1 $40,000Sanitary Operations Building Modifications yes Issued Bond 0.0% 100.0% 2022 1 $330,000Sanitary Operations Building Modifications Yes PAYGo 0.0% 100.0% 2021 1 $25,000Sewer Asset Improvements Capital Composite Yes PAYGo 100.0% 0.0% 2021 1 $25,000Recycled Water Asset Improvements Yes PAYGo 0.0% 100.0% 2021 2 $70,000San Juan Creek Siphon Assessment Yes PAYGo 0.0% 100.0% 2021 2 $100,000LS13 Beach erosion fortification and LS13 relocation study Distribution Recycled Yes Issued Bond 0.0% 100.0% 2021 3 $585,000Los Monteros Recycled Water Main Replacement Yes PAYGo 0.0% 100.0% 0 $0 Sanitation Collection System Easement Cleaner Yes Issued Bond 0.0% 100.0% 2022 5 $2,500,000Capo Beach Sewer Main Replacement Yes Issued Bond 0.0% 100.0% 2023 2 $2,075,000St. Tropez Easement Sewer Main Replacement Yes Issued Bond 0.0% 100.0% 2024 3 $630,000Del Obispo/Stonehill Sewer Upgrade [2016 MP] Yes Bond Bond #3 0.0% 100.0% 2024 3 $2,150,000Del Obispo/Village Sewer Upgrade [2016 MP] Yes Issued Bond 0.0% 100.0% 2022 2 $1,025,000DP Harbor 8" & 10" Sewer Replacements & Relocations Yes PAYGo 0.0% 100.0% 2023 2 $414,0002017 Master Plan Projects - WW - Priority 1&2 (S-103 & S-104) Yes PAYGo 0.0% 100.0% 2022 2 $100,000Lower Lagunita Sewer Discharge Option Study Yes Issued Bond 0.0% 100.0% 0 $0 LS2 Force Main Rehabilitation Expense Composite Yes PAYGo 47.5% 52.5% 2021 2 $540,000SCADA Interface Security Upgrades Expense Composite Yes PAYGo 47.5% 52.5% 2021 2 $409,000IT - Enquesta Upgrade (Includes funds for Capricorn Upgrade - CIS Website Expense Composite Yes PAYGo 47.5% 52.5% 2021 2 $225,000Document Management System Expense Composite Yes PAYGo 47.5% 52.5% 2021 1 $100,000Arc Flash Assessment Study HF&H Consultants, LLC
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A B C D E F G H I J
Capital Composite Yes PAYGo 47.5% 52.5% 2021 2 $300,000West Street Building Improvements Capital Composite Yes PAYGo 47.5% 52.5% 2021 6 $1,550,000Asset Management Plan Expense Composite Yes PAYGo 47.5% 52.5% 2021 2 $115,000IT - Conference Room Audio Refresh Expense Composite Yes PAYGo 47.5% 52.5% 2022 1 $65,000IT - Core / Edge / Wireless Switches Distribution Potable Yes PAYGo 47.5% 52.5% 2022 6 $1,550,000Rehabilitation and Replacement of Water/Sewer Facilities (e.g., System La Capital Composite Yes PAYGo 47.5% 52.5% 2022 3 $550,000Rehabilitate Existing Administrative and Operations Facilities Expense Composite Yes PAYGo 47.5% 52.5% 2024 6 $160,000IT – Equipment Changes To IT – Intrusion Detection / Prevention System / Expense Composite Yes PAYGo 47.5% 52.5% 2022 1 $40,000Fire Alarm Upgrades Expense Composite Yes PAYGo 47.5% 52.5% 2022 2 $50,000IT - Server Room / Inter-Networking Capital Composite Yes PAYGo 47.5% 52.5% 2025 4 $445,000Aliso Creek Wall Expense Composite Yes PAYGo 47.5% 52.5% 2022 6 $180,000IT - Server Replacements Capital Composite Yes PAYGo 47.5% 52.5% 2022 2 $100,000Facilities Assessment Capital Composite Yes PAYGo 47.5% 52.5% 2022 2 $100,000Planning/Design Consolidated Operations Facility Expense Composite Yes PAYGo 47.5% 52.5% 2022 1 $25,000IT - SureCall Cell Phone Booster Expense Composite Yes PAYGo 47.5% 52.5% 2022 2 $50,000Granicus Replacement Project Capital Composite Yes Bond Bond #4 47.5% 52.5% 2030 2 $14,000,000Construct Consolidated Operations Facility Transmission Potable Yes PAYGo 47.5% 52.5% 2022 3 $300,000Vault Fall Protection Upgrades Expense Composite Yes PAYGo 47.5% 52.5% 2022 1 $100,00030-Acres Planning Study Capital Composite Yes Bond Bond #3 47.5% 52.5% 2025 1 $300,000West Street Wall Replacement Expense Composite Yes PAYGo 47.5% 52.5% 2022 1 $150,000Security Study Expense Composite Yes PAYGo 47.5% 52.5% 2022 2 $160,000ARC Safety Upgrades Implementation Expense Composite Yes PAYGo 47.5% 52.5% 2022 1 $200,000Business Continuity & Backup Emergency Operations Center (DHTC) Emergency Generator Expense Composite Yes PAYGo 47.5% 52.5% 2023 1 $40,000IT - Archive / Backup Device Replacement Expense Composite Yes PAYGo 47.5% 52.5% 2023 1 $150,000IT - Disaster Recovery Site - Outside Coastal Region Expense Composite Yes PAYGo 47.5% 52.5% 2024 1 $15,000IT - Replace Firewalls Expense Composite Yes PAYGo 47.5% 52.5% 2023 1 $100,000IT - SAN Storage Array Expense Composite Yes PAYGo 47.5% 52.5% 0 $0 CMMS/GIS Integration Expense Composite Yes PAYGo 47.5% 52.5% 2024 1 $350,000Master Plan Update Yes PAYGo 0.0% 100.0% 2021 39 $173,913,945SOCWA
Transmission Potable Yes PAYGo 100.0% 0.0% 2021 39 $31,386,177JRWSS Capital Composite Yes PAYGo 100.0% 0.0% 2027 33 $71,861,308FUTURE WATER CIP Total Project Costs
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Financial Planning Tool - Water
Table 6 - Debt Service & Coverage
FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 SRF - 2005 #45 % Water
Principal 50% $0 $0 $0 $0 $0
Interest % Sewer $0 $0 $0 $0 $0 $0
Total Payments 50% $0 $0 $0 $0 $0 $0
Revenue Bonds Series 2019A% Water
Principal 29% $0 $0 $0 $0 $0 $0
Interest % Sewer $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 Total Payments 71% $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 2019 Refunding of 2010 BABS% Water
Principal 50% $0 $0 $0 $0 $0 $0
Interest % Sewer $770,625 $770,625 $770,625 $770,625 $770,625 $770,625 Total Payments 50% $770,625 $770,625 $770,625 $770,625 $770,625 $770,625 Series 2016A % Water
Principal 50% $920,000 $955,000 $995,000 $1,030,000 $1,085,000 $1,135,000 Interest % Sewer $426,700 $389,900 $351,700 $311,900 $260,400 $206,150 Total Payments 50% $1,346,700 $1,344,900 $1,346,700 $1,341,900 $1,345,400 $1,341,150 Series 2020A % Water
Principal 53% $925,000 $545,000 $565,000 $590,000 $610,000 $640,000 Interest % Sewer $292,574 $1,026,906 $1,005,106 $982,506 $958,906 $934,506 Total Payments 47% $1,217,574 $1,571,906 $1,570,106 $1,572,506 $1,568,906 $1,574,506 Future Bonds & WIFIA
P&I $0 $0 $0 $930,073 $930,073 $930,073
Total Payments $0 $0 $0 $930,073 $930,073 $930,073
Future SRF Loans
P&I $0 $0 $0 $0 $0 $0
Total Payments $0 $0 $0 $0 $0 $0
Total Water Debt Service $2,002,894 $2,189,790 $2,189,736 $3,118,681 $3,118,523 $3,119,366 D/S Schedule for Desal Project - not included in revenue requirementes since it is already included in water supply costs on tab 2B FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 5 mgd facility (CEC study, not included in Coverage since it will be funded by a JPA per D Moore) $0 $0 $0 $0 $4,098,000 $4,200,000
2 mgd facility (HF&H estimates)
SRF $0 $0 $0 $0 $0 $0
WIFIA $0 $0 $0 $0 $0 $2,126,471
Total $0 $0 $0 $0 $0 $2,126,471
Debt Coverage Calculation - Water
Funds Available for Debt Service
Rate revenue - Service Charge $21,392,432$22,612,651$23,518,524$24,460,686$25,195,971$25,953,359$26,733,513 Non-Operating Income $4,986,811 $5,126,442 $5,269,982 $5,417,542 $5,569,233 $5,725,171 Interest income $141,740 $158,060 $173,094 $192,666 $213,659 $234,063 Total Funds Available $26,520,983$27,897,153$28,961,600$30,070,894$30,978,863$31,912,593$32,872,809 Expenses
O&M $19,762,205$22,100,999$23,009,026$22,986,305$23,903,475$24,771,813$25,750,611 Total Expenses $19,762,205$22,100,999$23,009,026$22,986,305$23,903,475$24,771,813$25,750,611 Net Revenue $6,758,778 $5,796,155 $5,952,574 $7,084,589 $7,075,387 $7,140,780 Debt Service $2,002,894 $2,189,790 $2,189,736 $3,118,681 $3,118,523 $3,119,366 Debt Coverage Ratio (1.10 Min) 3.37 2.65 2.72 2.27 2.27 2.29 Projected
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Appendix B
Sewer Rate Model
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Financial Planning Tool - Sewer
Table 1A - Summary
FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 Eff. Date 7/1/2021 7/1/2022 7/1/2023 7/1/2024 7/1/2025 7/1/2026 7/1/2027 Annual Rate Revenue Increases (Sewer)
Rate Revenue Increase 6.50% 6.50% 4.00% 3.00% 3.00% 3.00% 3.00% Debt Coverage Ratio 3.01 3.27 3.24 1.37 1.39 1.28 1.29
Days of Cash 791 726 686 696 646 602 554
Projected
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28FY 2028-29 Rate Adj. +/- 6.50% 6.50% 4.00% 3.00% 3.00% 3.00% 3.00% 3.00% Debt Cov. 3.01 3.27 3.24 1.37 1.39 1.28 1.29 1.30
Days of Cash 791 726 686 696 646 602 554 508
Reserves Balances (Millions)
Projected Year-End Unrestricted Cash Balance -Sewer Enterprise HF&H Consultants, LLC
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Table 1B - Assumptions
Inflation Factor Assumptions used for projections:
FY 2020-21FY 2021-22FY 2022-23FY 2023-24FY 2024-25FY 2025-26FY 2026-27FY 2027-28 a Growth in accounts 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% b General Inflation 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% 2.80% c Salaries & Wages 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% d Benefits (non PERS) 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% e Construction Cost Inflation 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% 2.38% f Interest on Fund Balance 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% 1.89% g SOCWA O&M increases budget budget 5.3% 5.3% 5.3% 5.3% 5.3% 5.3% j Utilities 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
k Recycled Water Account Growth0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% 0.02% l Water Costs 3.0% 3.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
m PERS % of Labor 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% 10.9% HF&H Consultants, LLC
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South Coast Water District
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Table 2 - Revenue Requirements
Inflation Budgeted
Factor FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 FY 2030-31 Operating Expenses
Salaries c $4,155,944 $4,301,402 $4,451,951 $4,607,769 $4,769,041 $4,935,958 $5,108,716 $5,287,521 $5,472,585 $5,664,125 $5,862,369 Part Time Salaries c $126,149 $130,564 $135,134 $139,864 $144,759 $149,825 $155,069 $160,497 $166,114 $171,928 $177,946 Overtime Salary c $166,704 $172,539 $178,577 $184,828 $191,297 $197,992 $204,922 $212,094 $219,517 $227,200 $235,152 PERS Employer Contribution d $385,609 $501,891 $519,457 $537,638 $556,456 $575,932 $596,089 $616,952 $638,546 $660,895 $684,026 Medicare d $59,334 $61,707 $64,176 $66,743 $69,412 $72,189 $75,076 $78,079 $81,203 $84,451 $87,829 Social Security c $16,521 $17,099 $17,698 $18,317 $18,958 $19,622 $20,309 $21,019 $21,755 $22,516 $23,305 Medical Dental Vision d $564,000 $586,560 $610,022 $634,423 $659,800 $686,192 $713,640 $742,186 $771,873 $802,748 $834,858 Life Disability Insurance d $14,814 $15,407 $16,023 $16,664 $17,330 $18,023 $18,744 $19,494 $20,274 $21,085 $21,928 Workers Compensation d $83,725 $87,074 $90,557 $94,179 $97,946 $101,864 $105,939 $110,176 $114,583 $119,167 $123,933 Unemployment Insurance d $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 457 Plan Matching d $44,834 $46,627 $48,492 $50,432 $52,449 $54,547 $56,729 $58,998 $61,358 $63,813 $66,365 PERS UAL Contribution b $370,103 $429,210 $461,623 $498,029 $514,202 $527,567 $541,296 $555,405 $569,901 $584,797 $600,102 OPEB Contribution b $78,750 $237,500 $237,500 $237,500 $237,500 $237,500 $237,500 $237,500 $237,500 $237,500 $237,500 Materials b $134,808 $138,582 $142,462 $146,451 $150,552 $154,767 $159,101 $163,556 $168,135 $172,843 $177,683 Chemicals b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Laboratory Tests b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Electric Power b $158,625 $163,067 $167,632 $172,326 $177,151 $182,111 $187,211 $192,452 $197,841 $203,381 $209,075 Natural Gas b $500 $514 $528 $543 $558 $574 $590 $607 $624 $641 $659 Water b $21,742 $22,351 $22,977 $23,620 $24,281 $24,961 $25,660 $26,379 $27,117 $27,876 $28,657 Permits and Fees b $4,525 $4,652 $4,782 $4,916 $5,053 $5,195 $5,340 $5,490 $5,644 $5,802 $5,964 Outside Services b $299,476 $307,861 $316,481 $325,343 $334,453 $343,817 $353,444 $363,341 $373,514 $383,972 $394,724 Small Tools and Equipment b $62,567 $64,319 $66,120 $67,971 $69,874 $71,831 $73,842 $75,910 $78,035 $80,220 $82,466 Repairs and Maintenance b $444,460 $456,905 $469,698 $482,850 $496,370 $510,268 $524,555 $539,243 $554,342 $569,863 $585,820 Cathodic Protect Inspecti Svc b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 SCADA Maintenance b $15,208 $15,634 $16,072 $16,522 $16,984 $17,460 $17,949 $18,451 $18,968 $19,499 $20,045 Telephone b $205,926 $211,692 $217,619 $223,713 $229,977 $236,416 $243,036 $249,841 $256,836 $264,028 $271,420 Emergency Repairs/Response b $2,888 $2,968 $3,051 $3,137 $3,225 $3,315 $3,408 $3,503 $3,601 $3,702 $3,806 Office Supplies b $12,712 $13,068 $13,434 $13,810 $14,197 $14,594 $15,003 $15,423 $15,855 $16,299 $16,755 Office Furniture/Equipment b $19,163 $19,699 $20,251 $20,818 $21,401 $22,000 $22,616 $23,249 $23,900 $24,569 $25,257 Computer Supplies/Equipment b $75,400 $77,511 $79,682 $81,913 $84,206 $86,564 $88,988 $91,479 $94,041 $96,674 $99,381 Software Maint Agreements b $443,126 $455,534 $468,288 $481,401 $494,880 $508,736 $522,981 $537,624 $552,678 $568,153 $584,061 Equipment Rental b $5,000 $5,140 $5,284 $5,432 $5,584 $5,740 $5,901 $6,066 $6,236 $6,411 $6,590 Parts and Supplies b $15,750 $16,191 $16,644 $17,110 $17,589 $18,082 $18,588 $19,109 $19,644 $20,194 $20,759 Uniforms/Safety Boots b $45,370 $46,640 $47,946 $49,288 $50,668 $52,087 $53,545 $55,045 $56,586 $58,170 $59,799 Membership dues and fees b $42,369 $43,555 $44,775 $46,029 $47,317 $48,642 $50,004 $51,404 $52,844 $54,323 $55,844 Printing and Reproduction b $74,435 $76,519 $78,662 $80,864 $83,128 $85,456 $87,849 $90,309 $92,837 $95,437 $98,109 Subscritptions/Publications b $8,759 $9,005 $9,257 $9,516 $9,782 $10,056 $10,338 $10,627 $10,925 $11,231 $11,545 Employee Relations/Events b $12,075 $12,413 $12,761 $13,118 $13,485 $13,863 $14,251 $14,650 $15,060 $15,482 $15,915 Mileage Reimbursements b $3,007 $3,091 $3,177 $3,266 $3,358 $3,452 $3,549 $3,648 $3,750 $3,855 $3,963 Temporary Services b $13,863 $14,251 $14,650 $15,060 $15,482 $15,915 $16,361 $16,819 $17,290 $17,774 $18,271 Consulting and Professional Sv b $529,758 $544,591 $559,839 $575,515 $591,629 $608,195 $625,224 $642,731 $660,727 $679,227 $698,246 Recruiting and Advertising b $2,625 $2,699 $2,774 $2,852 $2,932 $3,014 $3,098 $3,185 $3,274 $3,366 $3,460 Postage b $3,208 $3,298 $3,390 $3,485 $3,583 $3,683 $3,786 $3,892 $4,001 $4,113 $4,228 Certifications b $7,823 $8,042 $8,267 $8,498 $8,736 $8,981 $9,232 $9,491 $9,756 $10,030 $10,310 Elections b $21,000 $21,588 $22,192 $22,814 $23,453 $24,109 $24,784 $25,478 $26,192 $26,925 $27,679 City of Dana Point Rent b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 South Laguna Representation b $7,875 $8,096 $8,322 $8,555 $8,795 $9,041 $9,294 $9,554 $9,822 $10,097 $10,380 Sponsorhips b $13,125 $13,493 $13,870 $14,259 $14,658 $15,068 $15,490 $15,924 $16,370 $16,828 $17,299 Grant Writing d $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
MWDOC Choice Program b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Legal Services b $329,650 $338,880 $348,369 $358,123 $368,151 $378,459 $389,056 $399,949 $411,148 $422,660 $434,494 Agency Contributions b $14,962 $15,381 $15,812 $16,254 $16,709 $17,177 $17,658 $18,153 $18,661 $19,183 $19,721 Social Media b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Promotion b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Air Quality Compliance b $8,663 $8,905 $9,154 $9,411 $9,674 $9,945 $10,224 $10,510 $10,804 $11,107 $11,418 Safety and Regulartory compl b $32,183 $33,084 $34,010 $34,962 $35,941 $36,948 $37,982 $39,046 $40,139 $41,263 $42,418 AMI Cellular b $17,216 $17,698 $18,194 $18,703 $19,227 $19,765 $20,319 $20,888 $21,472 $22,074 $22,692 Property Tax Collection Chrgs b $18,200 $18,710 $19,233 $19,772 $20,326 $20,895 $21,480 $22,081 $22,700 $23,335 $23,988 Bad Debt Expense b $2,860 $2,940 $3,022 $3,107 $3,194 $3,283 $3,375 $3,470 $3,567 $3,667 $3,770 Auditing and Accounting Svcs b $21,000 $21,588 $22,192 $22,814 $23,453 $24,109 $24,784 $25,478 $26,192 $26,925 $27,679 Banking Fees b $70,875 $72,860 $74,900 $76,997 $79,153 $81,369 $83,647 $85,989 $88,397 $90,872 $93,417 Fiscal Agent Fees b $5,775 $5,937 $6,103 $6,274 $6,449 $6,630 $6,816 $7,007 $7,203 $7,404 $7,612 General Liability Insurance b $119,300 $122,640 $126,074 $129,604 $133,233 $136,964 $140,799 $144,741 $148,794 $152,960 $157,243 Liability Claims b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Tuition Reimbursement b $10,500 $10,794 $11,096 $11,407 $11,726 $12,055 $12,392 $12,739 $13,096 $13,463 $13,840 Depreciation Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Interest Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Miscellaneous Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Amotization Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Transfer Out b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Lubricants b $5,118 $5,261 $5,409 $5,560 $5,716 $5,876 $6,040 $6,209 $6,383 $6,562 $6,746 Fuel b $63,500 $65,278 $67,106 $68,985 $70,916 $72,902 $74,943 $77,042 $79,199 $81,416 $83,696 Undergound Utility Location b $5,250 $5,397 $5,548 $5,703 $5,863 $6,027 $6,196 $6,370 $6,548 $6,731 $6,920 Underground Tanks b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Landscape Maintenance b $47,223 $48,545 $49,905 $51,302 $52,738 $54,215 $55,733 $57,294 $58,898 $60,547 $62,242 Tree Trimming b $21,000 $21,588 $22,192 $22,814 $23,453 $24,109 $24,784 $25,478 $26,192 $26,925 $27,679 Janitorial Services b $21,000 $21,588 $22,192 $22,814 $23,453 $24,109 $24,784 $25,478 $26,192 $26,925 $27,679 Refuse and Waste Hauling b $7,875 $8,096 $8,322 $8,555 $8,795 $9,041 $9,294 $9,554 $9,822 $10,097 $10,380 Worker Incentive Awards b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Odor Control b $250,000 $257,000 $264,196 $271,593 $279,198 $287,016 $295,052 $303,314 $311,806 $320,537 $329,512 FOG Implementation Program b $60,000 $61,680 $63,407 $65,182 $67,008 $68,884 $70,813 $72,795 $74,834 $76,929 $79,083 Grease Intercpt Program b $15,000 $15,420 $15,852 $16,296 $16,752 $17,221 $17,703 $18,199 $18,708 $19,232 $19,771 Manhole Monitoring b $50,000 $51,400 $52,839 $54,319 $55,840 $57,403 $59,010 $60,663 $62,361 $64,107 $65,902 SOCWA Coastal Treatment PC15 g $1,574,565 $1,618,653 $1,704,441 $1,794,777 $1,889,900 $1,990,065 $2,095,538 $2,206,602 $2,323,552 $2,446,700 $2,576,375 SOCWA JB Lathm PC2 g $1,896,078 $1,949,168 $2,052,474 $2,161,255 $2,275,802 $2,396,419 $2,523,429 $2,657,171 $2,798,001 $2,946,295 $3,102,449 SOCWA Reg Trmnt Plnt PC17 g $474,755 $488,048 $513,915 $541,152 $569,833 $600,034 $631,836 $665,324 $700,586 $737,717 $776,816 SOCWA Ocean Fallout PC5 g $83,965 $86,316 $90,891 $95,708 $100,781 $106,122 $111,746 $117,669 $123,905 $130,472 $137,387 SOCWA Contract Operations g $100,000 $102,800 $108,248 $113,986 $120,027 $126,388 $133,087 $140,140 $147,568 $155,389 $163,625 SOCWA Pretreatment g $37,457 $38,506 $40,547 $42,696 $44,958 $47,341 $49,850 $52,492 $55,274 $58,204 $61,289 SOCWA Discharge Permits g $39,635 $40,745 $42,904 $45,178 $47,573 $50,094 $52,749 $55,545 $58,489 $61,588 $64,853 PC24 Aliso Creek Ocean Outfall b $82,282 $84,586 $86,954 $89,389 $91,892 $94,465 $97,110 $99,829 $102,624 $105,498 $108,452 Arc Safety Upgrades Implementa b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Amortization Expense b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Training b $93,451 $96,067 $98,757 $101,522 $104,365 $107,287 $110,291 $113,380 $116,554 $119,818 $123,173 Planned O&M Cutback $0 ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) ($250,000) Total O&M $14,352,988$14,856,104$15,446,359$16,063,594$16,684,590$17,327,824$17,997,571$18,694,999$19,421,321$20,177,812$20,965,802 Total Operating Costs $14,352,988$14,856,104$15,446,359$16,063,594$16,684,590$17,327,824$17,997,571$18,694,999$19,421,321$20,177,812$20,965,802 Projected
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Non-Rate Revenues
Property Tax b ($3,962,238)($4,073,181)($4,187,230)($4,304,472)($4,424,997)($4,548,897)($4,676,266)($4,807,202)($4,941,804)($5,080,174)($5,222,419) Rental Income b $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Revenues b ($412,750) ($424,307) ($436,188) ($448,401) ($460,956) ($473,863) ($487,131) ($500,771) ($514,792) ($529,206) ($544,024) Non-Operating Expenses/(Revenues) ($4,374,988)($4,497,488)($4,623,417)($4,752,873)($4,885,953)($5,022,760)($5,163,397)($5,307,973)($5,456,596)($5,609,380)($5,766,443) Subtotal 9,978,000 $10,358,616$10,822,941$11,310,721 11,798,637 $12,305,064$12,834,174$13,387,027$13,964,725$14,568,432$15,199,359 Debt Service
Total Water Debt Service $2,362,755 $2,801,050 $2,801,104 $2,927,896 $6,996,734 $6,997,241 $7,627,431 $7,626,886 $7,626,986 $8,067,216 $8,066,738 Total Debt Service $2,362,755 $2,801,050 $2,801,104 $2,927,896 $6,996,734 $6,997,241 $7,627,431 $7,626,886 $7,626,986 $8,067,216 $8,066,738 Transfers to/(from):
Capital Reserves $5,696,317 $5,401,995 $4,919,621 $4,517,293 $4,400,747 $4,356,039 $4,884,526 $5,468,899 $6,066,949 $6,679,003 $7,305,391 Operating Reserve ($1,044,666) ($461,129) $737,256 $1,300,258 ($2,534,132)($2,372,242)($3,417,061)($3,891,352)($4,384,803)($5,104,998)($5,146,270) Total Transfers $4,651,651 $4,940,866 $5,656,877 $5,817,552 $1,866,615 $1,983,797 $1,467,465 $1,577,547 $1,682,146 $1,574,005 $2,159,121 Net Sewer Revenue Requirement 16,992,406 $18,100,532$19,280,922$20,056,169$20,661,986$21,286,102$21,929,070$22,591,459$23,273,857$24,209,652$25,425,219 Annual Change 6.5% 6.5% 4.0% 3.0% 3.0% 3.0% 3.0% 3.0% 4.0% 5.0% HF&H Consultants, LLC
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Financial Planning Tool - Sewer
Table 3 - Revenue Increases
Months
Increase
In Effect FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 Rate Revenue at Current Rates
Total Rate Revenue (after rate increases)$16,992,406 $16,995,805 $16,999,204 $17,002,604 $17,006,004 $17,009,405 $17,012,807 $17,016,210 Increase in Rate Revenue 6.5% 6.5% 4.0% 3.0% 3.0% 3.0% 3.0% Revenue from Current Rates $16,992,406 $16,995,805 $16,999,204 $17,002,604 $17,006,004 $17,009,405 $17,012,807 $17,016,210 Revenue from Rate Increases
FY 2020-21 (eff. Jul 1, 2020)12 $0 $0 $0 $0 $0 $0 $0 $0 FY 2021-22 (eff. Jul 1, 2021)12 $1,104,727 $1,104,948 $1,105,169 $1,105,390 $1,105,611 $1,105,832 $1,106,054 FY 2022-23 (eff. Jul 1, 2022)12 $1,176,770 $1,177,005 $1,177,241 $1,177,476 $1,177,712 $1,177,947 FY 2023-24 (eff. Jul 1, 2023)12 $771,391 $771,545 $771,700 $771,854 $772,008 FY 2024-25 (eff. Jul 1, 2024)12 $601,805 $601,926 $602,046 $602,167 FY 2025-26 (eff. Jul 1, 2025)12 $619,984 $620,108 $620,232 FY 2026-27 (eff. Jul 1, 2026)12 $638,711 $638,839
FY 2027-28 (eff. Jul 1, 2027)12 $658,004
FY 2028-29 (eff. Jul 1. 2028)12
FY 2029-30 (eff. Jul 1. 2029)12
FY 2030-31 (eff. Jul 1. 2030)12
FY 2031-32 (eff. Jul 1. 2031)12
FY 2032-33 (eff. Jul 1. 2032)12
FY 2033-34 (eff. Jul 1. 2033)12
FY 2034-35 (eff. Jul 1. 2034)12
FY 2035-36 (eff. Jul 1. 2035)12
FY 2036-37 (eff. Jul 1. 2036)12
FY 2037-38 (eff. Jul 1. 2037)12
FY 2038-39 (eff. Jul 1. 2038)12
FY 2039-40 (eff. Jul 1. 2039)12
FY 2040-41 (eff. Jul 1. 2040)12
FY 2041-42 (eff. Jul 1. 2041)12
FY 2042-43 (eff. Jul 1. 2042)12
FY 2043-44 (eff. Jul 1. 2043)12
FY 2044-45 (eff. Jul 1. 2044)12
FY 2045-46 (eff. Jul 1. 2045)12
FY 2046-47 (eff. Jul 1. 2046)12
FY 2047-48 (eff. Jul 1. 2047)12
FY 2048-49 (eff. Jul 1. 2048)12
FY 2049-50 (eff. Jul 1. 2049)12
FY 2050-51 (eff. Jul 1. 2050)12
FY 2051-52 (eff. Jul 1. 2051)12
FY 2052-53 (eff. Jul 1. 2052)12
FY 2053-54 (eff. Jul 1. 2053)12
FY 2054-55 (eff. Jul 1. 2054)12
FY 2055-56 (eff. Jul 1. 2055)12
FY 2056-57 (eff. Jul 1. 2056)12
FY 2057-58 (eff. Jul 1. 2057)12
FY 2057-58 (eff. Jul 1. 2058)12
Total Revenue from Rate Increases $0 $1,104,727 $2,281,718 $3,053,566 $3,655,982 $4,276,696 $4,916,263 $5,575,250 Total Current Revenue $16,992,406 $16,995,805 $16,999,204 $17,002,604 $17,006,004 $17,009,405 $17,012,807 $17,016,210 Total Revenue with Rate Increases $16,992,406 $18,100,532 $19,280,922 $20,056,169 $20,661,986 21,286,102 $21,929,070 $22,591,459 Total Revenue Requirement $16,992,406 $18,100,532 $19,280,922 $20,056,169 $20,661,986 $21,286,102 $21,929,070 $22,591,459 Surplus/(deficit) $0 $0 $0 $0 $0 $0 $0 $0
Transfer to/(from) Reserves without Increases $0 ($1,104,727) ($2,281,718) ($3,053,566) ($3,655,982) ($4,276,696) ($4,916,263) ($5,575,250) Projected
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A B C D E F
South Coast Water District
Financial Planning Tool - Sewer
Table 4 - Reserve Funds
Days of Cash 791 726
Debt Cov. 3.01 3.27
Rate Adj. +/- 6.50% 6.50% 4.00%
FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24
Operating Fund
With Rate Increases
Increase in Rate Revenue: 3.1% 6.5% 6.5%
Beginning Balance $37,231,716 $36,880,857 $37,112,419 $38,558,067 Operations Surplus (Deficit) $0 $0 $0
Transfers (to)/from:
Capital Reserve $0 $0 $0
Revenue Requirement ($1,044,666) ($461,129) $737,256 $1,300,258 Fund Subtotal $36,187,050 $36,419,729 $37,849,675 $39,858,325 Estimated Interest Earnings $693,807 $692,691 $708,392 $741,035 Ending Balance with Rate Increase$37,231,716 $36,880,857 $37,112,419 $38,558,067 $40,599,360 Target Balance$14,352,988 $14,352,988 $14,856,104 $15,446,359 $16,063,594 Fund Balance Compared to Minimum 257% 250% 250%
Capital Reserve
Beginning Balance $0 ($45,428) ($1,123,541) ($2,294,553) Connection Fees $325,000 $325,000 $325,000 $325,000
Capital Projects Expenditures (PAYGO) ($5,976,237) ($6,714,600) ($6,325,125) ($4,907,000) Cash Needs for SRF Projects ($90,508) ($90,508) ($90,508) ($22,628) Transfers (to)/from:
Revenue Requirements $5,696,317 $5,401,995 $4,919,621 $4,517,293 Operating Fund $0 $0 $0
Fund Subtotal ($45,428) ($1,123,541) ($2,294,553) ($2,381,887) Estimated interest earnings $0 $0 $0
Ending Balance $0 ($45,428) ($1,123,541) ($2,294,553) ($2,381,887) Target Balance $5,696,317 $5,696,317 $5,401,995 $4,919,621 $4,517,293 Fund Balance Compared to Target -1% -21% -47%
Operating Fund
Without Rate Increases
Increase in Rate Revenue: 3.1% 6.5% 6.5%
Beginning Balance $37,231,716 $36,880,857 $35,997,252 $35,118,543 Transfer to/(from) Operating Fund $0 ($1,104,727) ($2,281,718) ($3,053,566) Transfers (to)/from:
Capital Reserve $0 $0 $0
Revenue Requirement ($1,044,666) ($461,129) $737,256 $1,300,258 Fund Subtotal $36,187,050 $35,315,001 $34,452,790 $33,365,236 Estimated Interest Earnings $693,807 $682,251 $665,753 $647,172 Ending Balance with Rate Increase$37,231,716 $36,880,857 $35,997,252 $35,118,543 $34,012,408 Target Balance$14,352,988 $14,352,988 $14,856,104 $15,446,359 $16,063,594 Fund Balance Compared to Minimum 257% 242% 227%
Reserve Funds
Balance with Rate Increases $37,231,716 $36,835,429 $35,988,878 $36,263,514 $38,217,473 Balance w/o Rate Increases $37,231,716 $36,835,429 $34,873,711 $32,823,990 $31,630,520 Operating Fund Target $14,352,988 $14,352,988 $14,856,104 $15,446,359 $16,063,594 Capital Reserve Target $5,696,317 $5,696,317 $5,401,995 $4,919,621 $4,517,293 Modified Target $14,352,988 $14,352,988 $14,856,104 $15,446,359 $16,063,594 Total Target Reserves $20,049,306 $20,049,306 $20,258,099 $20,365,980 $20,580,888 Fund Balance Compared to Target 184% 178% 178%
Estimated Interest Earnings $693,807 $692,691 $708,392 $741,035 Net Change in Reserves ($396,287) ($846,551) $274,636 $1,953,959 Days Cash 791.23 725.72 686.49 695.52
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South Coast Water District
Financial Planning Tool - Sewer
Table 5 - Capital Improvement Program
Allocation Factor Include Funding SourceSRF/Bond #% Water% SewerStart YearDuration Total Project Description yes PAYGo 100.0% 0.0% 2021 3 $1,973,000Doheny Desalination (Studies/Planning) Yes Issued Bond 100.0% 0.0% 2021 1 $690,000Tank Recoating at 0.6 MG Reservoir 1A; 0.6 MG Reservoir 2C Yes Issued Bond 100.0% 0.0% 2021 1 $400,000AC Watermain Replacement at Via California Yes PAYGo 100.0% 0.0% 2021 4 $340,000Equipment Replacement Yes PAYGo 100.0% 0.0% 2021 1 $190,000Reservoir 2B and 3B Replacement Project Yes Issued Bond 100.0% 0.0% 2023 3 $2,400,000Reservoir 2B and 3B Replacement Project Yes PAYGo 100.0% 0.0% 2021 5 $914,500Vehicle Replacement Yes Issued Bond 100.0% 0.0% 2021 2 $400,000Water Operations - Victoria Warehouse Building Yes PAYGo 100.0% 0.0% 2021 1 $120,000Integrated Water Resources Plan Yes Issued Bond 100.0% 0.0% 2021 3 $1,975,000Rehabilitate Reservoirs 5A1 and 5B Yes PAYGo 100.0% 0.0% 2021 1 $75,000GRF Tenant Improvements Yes Issued Bond 100.0% 0.0% 2021 2 $650,000PS9 Upgrades Yes PAYGo 100.0% 0.0% 2021 2 $100,000Urban Water Management Plan (UWMP) Yes Issued Bond 100.0% 0.0% 2021 2 $225,000Waterline Replacement at Camel Point Yes PAYGo 100.0% 0.0% 2021 2 $325,000PS1 Fire Hardening Yes PAYGo 100.0% 0.0% 2021 1 $25,000Water Asset Improvements Yes PAYGo 100.0% 0.0% 2022 2 $900,000Coast Hwy Water Transmission Line Replacement Study Yes Bond Bond #2 100.0% 0.0% 2024 2 $9,000,000Coast Hwy Water Transmission Line Replacement Study Yes PAYGo 100.0% 0.0% 2022 3 $1,500,000Annual City Resurfacing Projects - Water Svc Replacements Yes PAYGo 100.0% 0.0% 2024 1 $100,000PS4 Pump Replacements Yes Issued Bond 100.0% 0.0% 2022 1 $600,000GRF Emergency Generator Yes Issued Bond 100.0% 0.0% 2022 2 $100,000Discontinuity Survey Yes Issued Bond 100.0% 0.0% 2022 2 $1,000,000Stonehill 24-inch Cathodic Protection Upgrades Yes Issued Bond 100.0% 0.0% 2022 2 $1,138,000Fire Flow Pipeline Upgrades-Laguna Cliffs Marriott Ph 1-2 Yes Issued Bond 100.0% 0.0% 2022 2 $875,000Sea Cliff Water Main Improvements Yes Issued Bond 100.0% 0.0% 2022 2 $675,000Via Sacramento Water Main Improvements Yes PAYGo 100.0% 0.0% 2025 1 $150,000Replace Pumps at PS1 Yes Issued Bond 100.0% 0.0% 2022 2 $1,100,0002017 Master Plan Projects - Potable Water - Priority 1&2 (including Mission Hospital fire flow Yes Bond Bond #2 100.0% 0.0% 2024 2 $4,000,0002017 Master Plan Projects - Potable Water - Priority 1&2 (including Mission Hospital fire flow improvement project) Yes PAYGo 100.0% 0.0% 2024 1 $225,000Reina Water Main Rehabilitation Yes PAYGo 100.0% 0.0% 2022 5 $500,000Annual meter box relocation, high priority Recycled Water Yes Bond Bond #3 0.0% 100.0% 2024 2 $650,000New 2.0 MG Recycled Water Reservoir Yes PAYGo 100.0% 0.0% 2023 1 $100,000Dana Hills Tennis Facility - Differential Settlement Improvements Yes PAYGo 100.0% 0.0% 0 $0 Fall Protection Upgrades to 11 Reservoirs Yes PAYGo 100.0% 0.0% 0 $0 GRF Plant Expansion - Well No. 2 Yes PAYGo 100.0% 0.0% 2022 0 $0 San Juan Basin Optimization Project no SRF SRF #2 Desal 100.0% 0.0% 2022 4 $34,300,000Doheny Desalination (Projected Expenditures) no WIFIA WIFIA #1 100.0% 0.0% 2022 4 $35,700,000Doheny Desalination (Projected Expenditures) Yes PAYGo 100.0% 0.0% 0 $0 Sea Island Drive 920 Zone Meter Installation Yes PAYGo 100.0% 0.0% 2022 3 $250,000Dana Hills Tennis Center Facility Improvements Yes PAYGo 100.0% 0.0% 2022 1 $75,000Valve Replacement Study Yes Issued Bond 100.0% 0.0% 2023 4 $1,600,000Valve Replacement Project Yes Bond Bond #2 100.0% 0.0% 2024 2 $575,000Ascension Road Watermain Upsize Yes Bond Bond #2 100.0% 0.0% 2024 2 $250,0009th Avenue Watermain Upgrades Yes Bond Bond #3 100.0% 0.0% 2026 1 $150,000PCH North of Eastline Road Watermain Upgrades Yes Bond Bond #3 100.0% 0.0% 2026 1 $150,000PCH just north of Vista del Sol Watermain Upgrades Yes Bond Bond #3 100.0% 0.0% 2026 1 $50,000Mesa Vista Drive Watermain Upsize Yes PAYGo 100.0% 0.0% 2026 1 $50,000SCWD Site Piping
Yes Bond Bond #3 100.0% 0.0% 2025 2 $900,000Vista San Clemente Watermain Upgrades Yes Bond Bond #3 100.0% 0.0% 2025 2 $550,000Mesa Vista Drive Watermain Upgrades Sewer Conveyance Yes SRF SRF #1 Tunnel 0.0% 100.0% 2021 4 $40,340,764Tunnel Project Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2021 2 $11,100,000LS2 Station Rehabilitation/Replacement Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2023 1 $9,000,000LS2 Station Rehabilitation/Replacement Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2021 1 $300,000LS6 Improvements & Force Main Replacement Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 4 $1,000,000Annual Gravity Sewer Lining Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2021 2 $775,000LS11 Replacement Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 2 $200,000LS10 Dry Well Structural Rehabilitation Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 1 $100,000Lift Station Assessment Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 1 $100,000LS12 Site Improvements Customer Accounts Yes PAYGo 0.0% 100.0% 2021 1 $100,000Los Monteros Pavement Repairs Sewer Conveyance Yes Bond Bond #3 0.0% 100.0% 2025 2 $3,770,000Golden Lantern/Stonehill RW Bottleneck Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 2 $80,000Golden Lantern/Stonehill RW Bottleneck Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 1 $75,000Calle Fortuna Manhole Installation Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 2 $150,000Sewer System Model Updates Recycled Water Yes PAYGo 0.0% 100.0% 2021 1 $50,000ACWRF Roof Replacement - Recycle Recycled Water Yes Issued Bond 0.0% 100.0% 2021 6 $1,050,000Recycled Water Extensions/Conversions Customer Accounts Yes PAYGo 0.0% 100.0% 2021 1 $40,000Sanitary Operations Building Modifications Customer Accounts Yes Issued Bond 0.0% 100.0% 2022 1 $330,000Sanitary Operations Building Modifications Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 1 $25,000Sewer Asset Improvements Recycled Water Yes PAYGo 0.0% 100.0% 2021 1 $25,000Recycled Water Asset Improvements Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 2 $70,000San Juan Creek Siphon Assessment Sewer Conveyance Yes PAYGo 0.0% 100.0% 2021 2 $100,000LS13 Beach erosion fortification and LS13 relocation study Recycled Water Yes Issued Bond 0.0% 100.0% 2021 3 $585,000Los Monteros Recycled Water Main Replacement Sewer Conveyance Yes PAYGo 0.0% 100.0% 0 $0 Sanitation Collection System Easement Cleaner Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2022 5 $2,500,000Capo Beach Sewer Main Replacement Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2023 2 $2,075,000St. Tropez Easement Sewer Main Replacement Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2024 3 $630,000Del Obispo/Stonehill Sewer Upgrade [2016 MP] Sewer Conveyance Yes Bond Bond #2 0.0% 100.0% 2024 3 $2,150,000Del Obispo/Village Sewer Upgrade [2016 MP] Sewer Conveyance Yes Issued Bond 0.0% 100.0% 2022 2 $1,025,000DP Harbor 8" & 10" Sewer Replacements & Relocations Sewer Conveyance Yes PAYGo 0.0% 100.0% 2023 2 $414,0002017 Master Plan Projects - WW - Priority 1&2 (S-103 & S-104) Sewer Conveyance Yes PAYGo 0.0% 100.0% 2022 2 $100,000Lower Lagunita Sewer Discharge Option Study Sewer Conveyance Yes Issued Bond 0.0% 100.0% 0 $0 LS2 Force Main Rehabilitation Sewer Conveyance Yes PAYGo 47.5% 52.5% 2021 2 $540,000SCADA Interface Security Upgrades Customer Accounts Yes PAYGo 47.5% 52.5% 2021 2 $409,000IT - Enquesta Upgrade (Includes funds for Capricorn Upgrade - CIS Website HF&H Consultants, LLC
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A B C D E F G H I J
Customer Accounts Yes PAYGo 47.5% 52.5% 2021 2 $225,000Document Management System Sewer Conveyance Yes PAYGo 47.5% 52.5% 2021 1 $100,000Arc Flash Assessment Study Customer Accounts Yes PAYGo 47.5% 52.5% 2021 2 $300,000West Street Building Improvements Customer Accounts Yes PAYGo 47.5% 52.5% 2021 6 $1,550,000Asset Management Plan Customer Accounts Yes PAYGo 47.5% 52.5% 2021 2 $115,000IT - Conference Room Audio Refresh Customer Accounts Yes PAYGo 47.5% 52.5% 2022 1 $65,000IT - Core / Edge / Wireless Switches Sewer Conveyance Yes PAYGo 47.5% 52.5% 2022 6 $1,550,000Rehabilitation and Replacement of Water/Sewer Facilities (e.g., System La Customer Accounts Yes PAYGo 47.5% 52.5% 2022 3 $550,000Rehabilitate Existing Administrative and Operations Facilities Customer Accounts Yes PAYGo 47.5% 52.5% 2024 6 $160,000IT – Equipment Changes To IT – Intrusion Detection / Prevention System / Customer Accounts Yes PAYGo 47.5% 52.5% 2022 1 $40,000Fire Alarm Upgrades Customer Accounts Yes PAYGo 47.5% 52.5% 2022 2 $50,000IT - Server Room / Inter-Networking Customer Accounts Yes PAYGo 47.5% 52.5% 2025 4 $445,000Aliso Creek Wall Customer Accounts Yes PAYGo 47.5% 52.5% 2022 6 $180,000IT - Server Replacements Customer Accounts Yes PAYGo 47.5% 52.5% 2022 2 $100,000Facilities Assessment Customer Accounts Yes PAYGo 47.5% 52.5% 2022 2 $100,000Planning/Design Consolidated Operations Facility Customer Accounts Yes PAYGo 47.5% 52.5% 2022 1 $25,000IT - SureCall Cell Phone Booster Sewer Conveyance Yes PAYGo 47.5% 52.5% 2022 2 $50,000Granicus Replacement Project Sewer Conveyance Yes Bond Bond #4 47.5% 52.5% 2030 2 $14,000,000Construct Consolidated Operations Facility Sewer Conveyance Yes PAYGo 47.5% 52.5% 2022 3 $300,000Vault Fall Protection Upgrades Customer Accounts Yes PAYGo 47.5% 52.5% 2022 1 $100,00030-Acres Planning Study Sewer Conveyance Yes Bond Bond #3 47.5% 52.5% 2022 1 $300,000West Street Wall Replacement Customer Accounts Yes PAYGo 47.5% 52.5% 2022 1 $150,000Security Study Customer Accounts Yes PAYGo 47.5% 52.5% 2022 2 $160,000ARC Safety Upgrades Implementation Customer Accounts Yes PAYGo 47.5% 52.5% 2022 1 $200,000Business Continuity & Backup Emergency Operations Center (DHTC) Emergency Generator Customer Accounts Yes PAYGo 47.5% 52.5% 2023 1 $40,000IT - Archive / Backup Device Replacement Customer Accounts Yes PAYGo 47.5% 52.5% 2023 1 $150,000IT - Disaster Recovery Site - Outside Coastal Region Customer Accounts Yes PAYGo 47.5% 52.5% 2024 1 $15,000IT - Replace Firewalls Customer Accounts Yes PAYGo 47.5% 52.5% 2023 1 $100,000IT - SAN Storage Array Customer Accounts Yes PAYGo 47.5% 52.5% 0 $0 CMMS/GIS Integration Sewer Conveyance Yes PAYGo 47.5% 52.5% 2024 1 $350,000Master Plan Update Sewer Treatment Yes PAYGo 0.0% 100.0% 2021 39 $173,913,945SOCWA PAYGo Yes Bond Bond #1 0.0% 100.0% 2021 0 $0 SOCWA Debt Funded Yes PAYGo 100.0% 0.0% 2021 39 $37,159,195JRWSS
Sewer Conveyance Yes PAYGo 0.0% 100.0% 2031 29 $115,112,402FUTURE SEWER CIP Sewer Conveyance Yes Bond Bond #5 0.0% 100.0% 2027 4 $10,568,360FUTURE SEWER CIP Capital Composite Yes PAYGo 0.0% 100.0% 2021 4 $0 Planned Sewer PAYGO Cutback Total Project Costs
HF&H Consultants, LLC
6/8/2021 10:36 AM 8 of 10City Council Regular Meeting - Page 596 of 1385 South Coast Water District
Financial Planning Tool - Sewer
Table 5B. SRF Cash Flow
SRF CASH FLOW 2021 2022 2023 2024
Other SRF Project Costs ($12,412,543) ($12,412,543) ($12,412,543)($3,103,136) Other SRF Disbursements $5,171,893 $12,412,543 $12,412,543 $8,533,623 Line of Credit $7,240,650 $7,240,650 $7,240,650 $1,810,163 Repayment of LOC $0 ($7,240,650) ($7,240,650)($7,240,650) Interest on LOC $90,508 $90,508 $90,508 $22,627
Cash Needs from Capital Reserve $90,508 $90,508 $90,508 $22,628 Total Cash Needs from Capital Reserve $90,508 $90,508 $90,508 $22,628 City Council Regular Meeting - Page 597 of 1385
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South Coast Water District
Financial Planning Tool - Sewer
Table 6 - Debt Service & Coverage
FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 SRF - 2005 #45 % Water
Principal 50% $0 $0 $0 $0 $0 $0
Interest % Sewer $0 $0 $0 $0 $0 $0
Total Payments 50% $0 $0 $0 $0 $0 $0
Revenue Bonds Series 2019A% Water
Principal 29% $0 $0 $0 $0 $0 $0
Interest % Sewer $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 Total Payments 71% $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 $1,030,750 2019 Refunding of 2010 BABS% Water
Principal 50% $0 $0 $0 $0 $0 $0
Interest % Sewer $770,625 $770,625 $770,625 $770,625 $770,625 $770,625 Total Payments 50% $770,625 $770,625 $770,625 $770,625 $770,625 $770,625 Series 2016A % Water
Principal 50% $920,000 $955,000 $995,000 $1,030,000 $1,085,000 $1,135,000 Interest % Sewer $426,700 $389,900 $351,700 $311,900 $260,400 $206,150 Total Payments 50% $1,346,700 $1,344,900 $1,346,700 $1,341,900 $1,345,400 $1,341,150 Series 2020A % Water
Principal 53% $925,000 $545,000 $565,000 $590,000 $610,000 $640,000 Interest % Sewer $292,574 $1,026,906 $1,005,106 $982,506 $958,906 $934,506 Total Payments 47% $1,217,574 $1,571,906 $1,570,106 $1,572,506 $1,568,906 $1,574,506 Future Bonds & WIFIA
P&I $0 $272,659 $272,659 $400,724 $400,724 $400,724
Total Payments $0 $272,659 $272,659 $400,724 $400,724 $400,724 Future SRF Loans
P&I $0 $0 $0 $0 $4,068,780 $4,068,780
Total Payments $0 $0 $0 $0 $4,068,780 $4,068,780
Total Sewer Debt Service $2,362,755 $2,801,050 $2,801,104 $2,927,896 $6,996,734 $6,997,241 Interest from LOC $90,508 $90,508 $90,508 $22,627 $0 $0 D/S for D/S Coverage $2,453,263 $2,891,558 $2,891,612 $2,950,523 $6,996,734 $6,997,241 Debt Coverage Calculation - Sewer
Funds Available for Debt Service
Rate revenue - Service Charge $16,992,406$18,100,532$19,280,922$20,056,169$20,661,986$21,286,102 Non-Operating Income $4,374,988 $4,497,488 $4,623,417 $4,752,873 $4,885,953 $5,022,760 Interest income $693,807 $692,691 $708,392 $741,035 $743,380 $711,065 Total Funds Available $22,061,202$23,290,710$24,612,731$25,550,077$26,291,320$27,019,927 Expenses
O&M $14,352,988$14,856,104$15,446,359$16,063,594$16,684,590$17,327,824 Total Expenses $14,352,988$14,856,104$15,446,359$16,063,594$16,684,590$17,327,824 Net Revenue $7,708,213 $8,434,607 $9,166,373 $9,486,483 $9,606,730 $9,692,103 Debt Service $2,453,263 $2,801,050 $2,801,104 $2,927,896 $6,996,734 $6,997,241 Debt Coverage Ratio (1.10 Min) 3.14 3.01 3.27 3.24 1.37 1.39 Projected
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APPENDIX B:
PROJECT TEAM RÉSUMÉS
HF&H Consultants, LLC
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City Council Regular Meeting - Page 601 of 1385
Range of Experience
Rick has over 21 years of utility rate setting experience with HF&H and has performed over 100 financial planning/rate studies for water, wastewater, and solid waste clients. He brings a depth of knowledge and expertise in Propositions 218 and 26 compliance, rate structure design, and a strong financial modeling background.
Expertise
– Multi-year financial modeling, cost-
of-service analysis, rate structure designs
– Water and wastewater
capacity/connection fee charges
– Public safety,
governmental facilities, right-of-way maintenance,
stormwater permit compliance
Develop cost-of-service
compliant rates and faciliate Prop. 218 process and
procedures
Recent Projects as Project Manager
– Annual sewer service charges
(2015-2022); Connection fee updates (2017, 2022).
– Water rate study (2016, 2022);
annual water rate analyses (2017-2021); Sewer rate study (2021)
–Sewer rate study (2021); water rate study
(2018)
Water rates, water shortage revenue
stabilization factors, and water reliability charges. (2018 2022); Sewer rate study (2022)
Speaking Engagements
SWANA – Western Regional Symposium – Apr. 2019 –
Moderator and Presenter,
, Oct. 2013 (Oakland), Nov. 2013
(Lakewood), and Dec. 2013 (Sacramento)
SWANA – Western Regional Symposium – May 2005 –
SWANA – Western Regional Symposium – May 2004 – “Annual Solid Waste Rate Adjustments – Index Method or Cost-of- Service Method?”
RICK SIMONSON, CMC
Senior Vice President
Education and Certifications
B.S., Business
Administration,
Accountancy, California
State University -
Sacramento
B.A., Communication
Studies, Media
Production, California
State University -
Sacramento
Certified Management
Consultant
Professional History
HF&H Consultants, LLC:
2000 to present
Contra Costa County
Assessor’s Office:
Auditor/Appraiser, 1996
to 2000
Laidlaw Transit: Staff
Accountant, 1995-1997
Professional Memberships
Institute of Manangement
Consultants
American Water Works
Association
Water Environment
Federation
Contact Information
(925) 977-6957
[email protected]
City Council Regular Meeting - Page 602 of 1385
City Council Regular Meeting - Page 603 of 1385
Resume – Geoffrey Michalczyk
HF&H Consultants, LLC
Range of Experience
Geoff is a municipal utilities analyst specializing in the financial management of water and wastewater systems. He joined HF&H in 2016 and focuses on rate studies and long-term financial planning.
Expertise
– multi-year revenue requirement models,
cost-of-service analysis, rate structure design
– capital financing models, reserve fund
management
I F – water and wastewater capacity
charges; stormwater impact fees
General – public safety, governmental
facilities, right-of-way maintenance
Cost Allocations– overhead allocations, analytical review, Prop 218 compliance
Recent Projects
: Long-term Capital Planning Model,
Cost-of-Service Study
:Sewer Rates and Connection Fees
Mid-Peninsula Wataer District: Water Rates
Diablo Water District: Water Rates
Long-term Capital Planning Model;
Water and Wastewater Cost of Service Study
Indio Water Authority: Water Rates
Carlsbad:Cost Allocations
Purissima Hills Water District: Water Rates
Water and Sewer Rates; Water
Connection Fees
City of Daly City: Sewer Rates
GEOFFREY MICHALCZYK
Senior Associate
IndustryExperience
Water, wastewater,
stormwater, and solid
waste utilities
Rate making for
municipal-owned utilities
City-wide overhead cost
allocations
Education
B.S., Economics & Political
Science, University of Utah
M.S., Financial Analysis,
Saint Mary’s College of
California
M.B.A., Saint Mary’s
College of California
Professional History
HF&H Consultants, LLC:
2016 to present
Bartle Wells Associates:
2015 to 2016
Peterson Holding
Company: 2014 to 2015
Contact Information
(925) 977-6951
[email protected]
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HF&H Consultants, LLC
Range of Experience
Gabe is a registered civil engineer and certified project management professional. He has three years of experience setting utility rates and helping municipal clients of HF&H find economic solutions.
Expertise
– Multi-year financial modeling, cost-of-service
analysis, rate structure design
– stormwater funding strategies, reserve fund
management
– Water and wastewater
capacity/connection charges; stormwater impact fees
overhead allocations, analytical review,
Proposition 218 compliance
Recent Projects
Water Cost of Service Study,
Transmission and Storage (Connection) Fee Study (2019, 2022) – 2023 Cost-of-Service Water Rate Study
: Wastewater Cost of Service and Connection Fee
Study
FY 2020-21, FY 2021-22, FY 2022-23
Sewer Rate Studies; 2022 Connection Fee Study
Cost-of-Service Water Rate Study
(2019, 2021); Connection Fee Study (2021)
Water and Wastewater Cost of Service
Study (2021)
Wastewater Cost of Service Study (2020)
Western Hills Water District – Water Rate Study (2019-2021) Nevada County Sanitation District– Wastewater Rate Study 2020, 2021, 2022 Water Rate Updates; 2021
Sewer Cost of Service Study, 2023 Cost-of-Service Water Rates Study
GABE SASSER, PE
Senior Associate
IndustryExperience
Water, wastewater,
stormwater and solid
waste utilities
Rate making for
municipal-owned utilities
Enterprise
reimbursements
Education and Certifications
B.S., Civil Engineering,
California Polytechnic
State University – San
Luis Obispo
Registered Civil Engineer
C88906, California
Project Management
Professional (PMP) -2020
Professional History
HF&H Consultants, LLC:
2019 to present
Gas Transmission
Systems, Inc: Project
Manager, 2016-2019
Ruggeri-Jensen-Azar:
Assistant Engineer, 2014-
2016
Gas Transmission
Systems, Inc: Engineer,
2012-2014
Professional Organizations
Project Management
Institute
Contact Information
(925) 900-6005
[email protected]
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City Council Regular Meeting - Page 607 of 1385
“Supporting clients and customers every step of the way.” Range of Experience
As an Assistant Analyst, Sarah Tam has provided support in our Rates and Audit practice. She gains skills in reporting quarterly contract, preparing rate surveys, reviewing cost forms, providing quality control and assurance.
She is currently assisting Monterey Regional Waste Management District quarterly reporting summary with included compilations of hauler statistics and tonnage information to assess diversion levels and compliance with regulatory requirements. Recently, she assisted in the city of San Ramon with their cost-based rate adjustment by modeling rate relationship scenario for anticipated revenue.
Prior to joining HF&H Consultants, Sarah worked in property management.
She prepared quarterly finance reports, cost analysis, cost surveys, leasing agreements, and purchase agreements for her clients. She earned her B.A. in Economics and minor in Statistics from the University of California, Riverside. At University, Sarah was a research assistant that performed statistical analysis on wide ranges of data. Her background allows her to understand client relations and encompass her attention to detail to better serve the waste management industry.
Expertise
Rate Adjustment Modeling
Rate Survey
Quarterly Reporting
Quality Control
Recent Engagements
San Ramon – Billing and Performance Review
County of Santa Cruz – Rate Review and Quarterly Report Monterey Regional Waste Management District – Ongoing
Contract Management
City of Sacramento – Characterization Reporting and Litigation Support
Marin County Sanitary District No.5 – 10 Year Rate Adjustment Models
Recent Clients
Sarah Tam
Assistant Analyst
Historical Experience
Years of Experience: 1
Clients Served: 15
Past Engagements: 17
Education
B.A., Economics/ Minor in
Statistics, University of
California, Riverside
Certification
CRRA / SWANA Zero Waste
Principle and Practices
Contact Information
(925) 210-2251
[email protected]
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APPENDIX C:
ADDENDUM #1SIGNED
HF&H Consultants, LLC
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HF&H CONSULTANTS, LLC
590 Ygnacio Valley Road, Suite 105
Walnut Creek, CA 94596
City Council Regular Meeting - Page 615 of 1385
Managing Tomorrow’s Resources Today
590 Ygnacio Valley Road, Suite 105 Robert D. Hilton, Emeritus Walnut Creek, California 94596 John W. Farnkopf, PE
Telephone: 925/977‐6950 Laith B. Ezzet, CMC
Fax: 925/977‐6955 Richard J. Simonson, CMC
www.hfh‐consultants.com Marva M. Sheehan, CPA
Robert C. Hilton
November 29, 2022
Kristan Lloyd
Department of Public Works
11750 Alameda Street
Lynwood, CA 90262
Subject: Proposal: Fee Estimate ‐ Water and Sewer Rate Study Dear Kristan Lloyd:
Our cost proposal, provided on the following page, reflects our current understanding of the project at this time. The total not‐to‐exceed fee estimate is $159,770. If the City chooses to pursue the optional task, pass‐through adjustment analysis, the total not‐to‐exceed fee estimate would increase $4,500 to $164,270. The City will be billed on a time and materials basis. Our cost proposal is subject to review with the City to confirm that it meets the City’s needs and does not include unnecessary services. Following this review, we will make adjustments accordingly. The cost proposal indicates the hours by each consultant for each task and the associated cost based on the consultants’ hourly rates. Reimbursable costs are also charged without markup.
HF&H is committed to providing value‐added services as cost‐effectively as possible for our clients. It is our practice to bill only for hours spent on the project. If additional work is required, we notify our clients as soon as possible to receive authorization. Additional work is work over and above the hours estimated for existing tasks or for work on new tasks.
Sincerely,
HF&H CONSULTANTS, LLC
Richard J. Simonson, CMC
Senior Vice President
City Council Regular Meeting - Page 616 of 1385
ATTACHMENT: FEE ESTIMATE
HF&H Consultants, LLC Page A-1 November 29, 2022
Simonson Sasser Michalczyk Tam
Proj ect Sewer Tas k Water T ask A ssist ant
Director Manager Manager Analyst A dmin Total
Hourly rates $320 $240 $240 $150 $130
Task 1 ‐ Project Initiation
Meet wi th City Staff/Gather D a t a 44400 1 2
Tas k h o u r s 44400 1 2
Tas k Fees $1,280 $960 $960 $0 $0 $3,200
Task 2 ‐ Financial Plan Model
Develop Revenue Requirement Projections 6 14 14 12 0 46 Review Pre lim inary Ana l ys i s wi th District S t a f f 23300 8 Revise M o d e l s 13330 1 0
Tas k hours 9 20 20 15 0 64
Tas k Fees $2,880 $4,800 $4,800 $2,250 $0 $14,730
Task 3 ‐ Cost of Service Analysis
Develop Cost of Service A n a l y s i s 82 22 21 6 0 6 8 Review Pre lim inary Ana l ys i s wi th District S t a f f 23300 8 Revise M o d e l 24420 1 2
Tas k h o u r s 1 22 92 91 8 0 8 8
Tas k Fees $3,840 $6,960 $6,960 $2,700 $0 $20,460
Task 4 ‐ Rate Design and Bill Impacts
Develop Al terna ti ve Rate S t r u c t u r e s 51 61 61 0 0 4 7 Update Readiness to Serve and Fire Li ne F e e s 11680 1 6 Review Pre lim inary Results with District S t a f f 44400 1 2 Bill Impact A n a l y s i s 12280 1 3
Revise A l t e r n a t i v e s 44420 1 4
Tas k h o u r s 1 52 73 22 8 0 1 0 2
Tas k Fees $4,800 $6,480 $7,680 $4,200 $0 $23,160
Task 5 ‐ Miscellaneous Fees Update
Update Connection F e e s 61 61 6 8 0 4 6
Update Customer Service F e e s 688 1 20 3 4
Review Pre lim inary Results with S t a f f 22200 6
Revise Al terna ti ves A c c o r d i n g l y 24440 1 4
Prepare Draft and Final R e p o r t 81 21 2 2 4 3 8
Tas k h o u r s 2 44 24 22 6 4 1 3 8
Tas k Fees $7,680 $10,080 $10,080 $3,900 $520 $32,260
Task 6 ‐ Documentation and Implementation
Pres ent Pre lim inary Results to C o u n c i l 86602 2 2 Prepare Draft Report ‐ Water and Sewer R a t e s 1 01 61 6 8 4 5 4 Review Draft Report wi th S t a f f / A t t o r n e y s 22200 6 Prepare Final R e p o r t 68822 2 6
Pres ent Final Report to C o u n c i l 84402 1 8
A ssist with Prep of Prop 218 N o t i c e / O r d / R e s o 22200 6 Communi ty W o r k s h o p s 86602 2 2
Council Pres entati on ‐ Issue Prop 218 N o t i c e 84402 1 8 Attend Prop 218 Protest H e a r i n g 82202 1 4
Tas k h o u r s 6 05 05 01 01 6 1 8 6
Tas k Fees $19,200 $12,000 $12,000 $1,500 $2,080 $46,780 Task 7 ‐ Project Management
Manage schedule/budget, prepare i n v o i c e s 62200 1 0 Weekl y check‐ins wi th S t a f f 1 61 61 6 0 0 4 8
Tas k hours 22 18 18 0 0 58
Tas k Fees $7,040 $4,320 $4,320 $0 $0 $15,680
Total Hours 146 190 195 97 20 648
Total Fees $46,720 $45,600 $46,800 $14,550 $2,600 $156,270 Re im bursable Expenses (e.g., travel ) $3,500
Total $159,770
Estimated Hours and Fees
Tasks
City Council Regular Meeting - Page 617 of 1385
NOVEMBER 29, 2022
www.newgenstrategies.net
WATER AND SEWER
RATE STUDY
RFP
PROPOSAL
Prepared for:
City of Lynwood
11330 Bullis Road
Lynwood, CA 90262
© 2022 NEWGEN STRATEGIES AND SOLUTIONS, LLC
City Council Regular Meeting - Page 618 of 1385
A. COVER LETTER
A. COVER
LETTER
November 29, 2022
Mr. Ernie Hernandez, City Manager
City of Lynwood
11330 Bullis Road
Lynwood, CA 90262
Subject: RFP: Water and Sewer Rate Study
Dear Mr. Hernandez:
The City of Lynwood (City) operates in a complex and ever-evolving landscape to provide public service s that are affordable, reliable, and sustainable. At the same time, the pace of change in the utility market is accelerating, directly impacting your ability to provide quality service to your customers. Navigating the challenges of balancing long-term infrastructure investment, maintaining customer satisfaction, and the sheer amount of data available to drive decision making is overwhel ming. How do you optimize data analysis to identify and inform the best strategic approach to deliver the right services, address stakeholder demands, and ensure public trust?
Understanding your community, your organization, and your data are the three ess ential elements to developing actionable strategies to sustain your service s. NewGen Strategies and Solutions, LLC (NewGen) believes that strategy dictates everything. Our approach incorporates your data, market, and community to provide an integrated view designed to allow you to make long-term decisions with confidence. Our personnel have both intensive and extensive experience in all financial and management facets of municipal utilities. We leverage innovative modelling technology and market expertise t o solve your most complicated issues. We design strategies to ensure they are responsive, transparent, and reliable while paving the way for successful buy-in across all your stakeholders.
We are pleased to submit to you our proposal to provide a Water and Sewer Rate Study for the City. While the enclosure to this letter sets forth our project approach, experience, qualifications and schedule, there are a few key points we would like to stress:
Stakeholder Communication – NewGen simplifies complex concepts by combining visual tools and our training expertise to ensure that clients gain a deep understanding of how the issues and underlying data drive our recommendations and scenarios. This directly impacts the evaluation of the scenarios we present, streamlines decision-making, and successfully obtains buy -in from elected officials, advisory committees, regulatory bodies, utility senior management, and utility customers. We have extensive experience in both preparing Prop 218 materials and in presenting this information in simple terms to both oversight boards and stakeholder groups.
Expert Credentials – NewGen professionals have served as expert witnesses in over 200 regulatory and civil proceedings and the firm employs fo ur Accredited Senior Appraisers (ASA) certified by the American Society of Appraisers, of which three (of the less than 20 nationwide) hold the public utilities designation.
Every project at NewGen integrates nationally recognized experts and their insights into our models, which DocuSign Envelope ID: 45E88538-E97E-4438-A58E-C48684F97CD5 City Council Regular Meeting - Page 619 of 1385
Cover Letter
have been pressure tested through the regulatory and civil process. We guarantee the specific performance of the key personnel identified in this proposal.
Demonstrated Performance – The issues being faced
by the City are like those being faced by NewGen’s
clients throughout the country and in the state of
California. NewGen’s project team members have
successfully completed cost of service and other
projects for the California clients shown in the graphic to the right. Our first work in the Golden State was
more than forty years ago – assisting San Francisco in
developing a revenue plan and rate structure to pay
the capital and operating costs of upgrading its
wastewater system.
Client Endorsements – We understand the key issues
and challenges facing the City. We have included
several references in our proposal and strongly
encourage the City to contact them to learn more
about our firm and specific project team members.
This proposal is signed by Michael Maker, a Partner at NewGen authorized to contractually bind the firm, and Eric Callocchia, Principal and proposed Project Manager. Mr. Callocchia will serve as the City’s primary point of contact related to this project. Contact information for both is provided below:
Authorized Agent Project Manager
Michael Maker
911-A Commerce Rd, Annapolis, MD 21401
443-951-0355 | [email protected]
Eric Callocchia
911-A Commerce Rd, Annapolis, MD 21401
443-951-4207 | [email protected]
I have read, understood, and agree to all statements in this request for proposal and acknowledge receipt of all addendums/amendments as well as to the terms, conditions, and attachments referenced.
We look forward to working with you on this important and interesting study. Please contact me on my direct line at 443.951.4207, or by e -mail [email protected] if you would like to discuss our project team and approach.
Sincerely,
Michael Maker, Partner Eric Callocchia, Principal
DocuSign Envelope ID: 45E88538-E97E-4438-A58E-C48684F97CD5 City Council Regular Meeting - Page 620 of 1385
PROPOSAL
CONTENTS
A. COVER LETTER .................................................................................................................... I B. EXECUTIVE SUMMARY ....................................................................................................... 1 C. APPROACH TO THE PROJECT .............................................................................................. 3 D. EXPERIENCE ..................................................................................................................... 21 E. QUALIFICATIONS .............................................................................................................. 24 F. REFERENCES ..................................................................................................................... 27 G. PROJECT SCHEDULE ......................................................................................................... 32 H. COST PROPOSAL .............................................................................................................. 32 I. COPY OF A RATE STUDY .................................................................................................... 33 APPENDIX A: RESUMES
APPENDIX B: EXAMPLE RATE STUDIES
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1 CITY OF LYNWOOD
B. EXECUTIVE SUMMARY
B. EXECUTIVE
SUMMARY
NewGen Strategies and Solutions, LLC (NewGen) is a management and economic consulting firm specializing in serving the utility industry.
Established as a Limited Liability Corporation (LLC) in August 2012, NewGen serves public sector utilities and provides nationally recog nized expertise in demand forecasting, utility cost of service and rate design studies, financial feasibility studies, municipalization and privatization efforts, depreciation and appraisal studies, litigation support for state and federal regulatory proceedings, utility financial planning, and stakeholder engagement for water, wastewater, solid waste, electric, and natural gas utilities. We are experts in providing management and financial advice related to every aspect of municipal utility services.
NewGen employs more than 50 professional and administrative staff, with 1 2 ownership members and a Board. NewGen has 13 offices located nationwide. The primary office location that will be responsible for the implementation of this contract is NewGen’s Annapoli s office, located at 911- A Commerce Road, Annapolis, Maryland 21401. The contact information for the proposed Project Manager, Mr. Eric Callocchia, is listed in the cover letter accompanying this proposal.
NEWGEN’S CORE COMPETENCIES
NewGen’s core business is providing financial and management advice related to water, wastewater, stormwater, and solid waste infrastructure and operations. The specialized services we offer to our clients include:
Cost of Service/Rate Studies
System Development Charges/Capacity Fee Studies
Operational Reviews/Management Audits
Comparative Analyses/Benchmarking
Appraisal / Valuation / Depreciation
Financial Feasibility Studies
Infrastructure Management/ GASB 34
Conservation Studies
Organizational Effectiveness
NewGen’s personnel have both broad and deep experience in the municipal utility industry; some of our staff have extensive service in the public sector or worked for utilities prior to consulting careers.
Our clients call on us for formal and informal advice in addressing their challenges . Some of our client relationships extend for almost forty years. Clients feel comfortable working with NewGen because clients know that NewGen’s staff understands the day -to-day operations and environment of municipal utilities.
NewGen’s sole focus is on providing objective professional advice and assistance for our clients’ specialized activities. This is our core business.
This is what we do.
City Council Regular Meeting - Page 623 of 1385
Introduction/Information
RFP – WATER & SEWER RATE STUDY 2
PROFESSIONAL SERVICES AGREEMENT
In addition to a detailed read- through of the City’s RFP, NewGen has thoroughly reviewed the City’s Professional Service Agreement (Agreement) to ensure that we can fully meet the City’s expectations for this study. We accept the terms and conditions set forth in the Agreement as written, with no proposed substitute language.
LEGAL ISSUES & DISCLOSURES
NewGen has no past or pending litigation or claims filed against the firm, principals of the firm, or key consultants. NewGen is not and has never been the subject of any investigation by Co unty, State, or Federal agencies.
City Council Regular Meeting - Page 624 of 1385
3 CITY OF LYNWOOD
C. Approach to the Project
C. APPROACH TO
THE PROJECT
GENERAL APPROACH
When undertaking a cost of service, rate, or fee study for a municipal utility (enterprise fund), it is essential that the participants in the study have a shared vision of the objectives of the study. Our standard approach to completing a cost of service/rate/fee study is predicated on a four -step process using industry -standard methodology that is explicit and replicable.
Revenue Requirements - Develop the full cost of providing service, including those costs that may not be explicitly identified in the utility’s budget, such as unfunded repair and replacement costs. Cost of Service - Allocate revenue requirements to customer classes or types of customers and functions based on the cost of providing service.
Financial Plan - Develop a financial plan to fund system revenue requirements reflecting customer and usage demand forecasts.
Utility Pricing - Review and evaluate rate designs based on revenue needs and policy goals.
Rooted in our broad experience and perspectives, NewGen aligns our approach to your organization’s goals and objectives to ensure your success. We listen first, then tailor our approach to each unique situation to make the comp lex clear and defensible.
City Council Regular Meeting - Page 625 of 1385
Scope of Services
RFP – WATER & SEWER RATE STUDY 4
Throughout the study, it is important that NewGen and the City maintain constant communication. NewGen’s approach includes regular recurring meetings with City staff and periodic meetings with other stakeholders to ensure that the study adheres to the goals and values of everyone involved. We have adapted this general study process into a work plan of specific tasks aligned with the City’s Scope of Work. This workplan is detailed below.
UNDERSTANDING OF NEED
The City’s Request for Proposals specifies specific scope of service items for both the water and sewer studies.
We have incorporated all of these required services into our proposed workplan. To ensure that the objectives are addressed, we have developed the exhibit below to reference the tasks that reflect the objectives identified in the RFP. Our proposed tasks are stated as combined water and sewer efforts, and so the following table combines both study scope requirements.
Exhibit 1: Cross Reference of Scope of Services Requirements to NewGen Proposal Tasks ITEM
# REQUIRED SERVICES NEWGEN
TASK #
Required Study Scope of Services
1. Review requirements, bond covenants, and other contractual requirements and operations of the water and sewer systems.
1 2. Review the City’s existing water and sewer rate structure within each classification and develop recommendations for improvements that will ensure the structure promotes realization of various state -wide initiatives, City goals and best meets the City’s operational needs. It is expected that the City’s current rate structure will be modified to reflect a tiered structure that will provide a baseline allocation with additional tiers to provide incentives for conservation, as well as reflect the increased costs of providing each tier of service. 5 3. Review existing customer service fee structure and identify other potential areas for service and system charges (water: shut-down activities, back-flow devices, plan reviews, water service shut-offs, etc., sewer: plan reviews, conveyance, FOG, NPDES, etc. ) and recommend changes, if appropriate. Assessment is to note any resulting increase in liability the City may incur as a result of assessing the fees.
5 4. Review the Readiness to Serve Fee and Fire Line Fee - Many of the capital projects included in the 2020 Water System Master Plan and the 2020 Sewer System Management Plan are growth related. The consultant is requested to review the readiness to serve fee and fire line fee and recommend appropriate fees for water and sewer. At a minimum, the consultant must explain the advantages and disadvantages of the equity method and incremental cost method of calculating water system development charges. Provide recommendations for the appropriate timing of the assessment of the water connection fees.
5 5. Review the existing water and sewer rate structures for conformance with existing statutory regulations and make recommendations for any changes that are necessary to achieve compliance
5 City Council Regular Meeting - Page 626 of 1385
Scope of Services
5 CITY OF LYNWOOD
ITEM
# REQUIRED SERVICES NEWGEN
TASK #
6. Evaluate the existing overhead distribution formulas and develop recommendations that will improve equity in the application of overhead and among the various water classifications in the water and sewer enterprise funds.
2.1 7. Evaluate the City’s water meter service fee structure and make recommendations to better align fixed operating costs with the fixed revenues inherent in the water meter service fee. 5 8. Evaluate the existing water and sewer connection fees and make recommendations for any changes for “buy -in” and new water and sewer capacity and a new water resource development fee to offset potable demand for future new service locations. 6 9. Identify the various direct costs included in the City’s budget including billing and collection and make recommendations for any changes necessary to ensure those direct operational costs are properly aligned with the appropriate enterprise fund or water classification (potable, non-potable surface, recycled water) within the water and sewer enterprise funds. 1 10. Develop an understanding of the cost of serving, and the benefits derived by, various water and sewer classifications and make recommendations as necessary to achieve equity between the various water and sewer classifications.
3 11. Develop an understanding of the existing rate structures and the assumptions underlying the cost distribution to the various rate categories.
3 12. Develop a proposed rate schedule and rate projection that forecasts rates out to 10 years based on expected cost increases over time including increases in the cost of imported water and sewer conveyance . Must have ability to run CIP scenarios and quickly show impact on rates.
5 13. Develop an understanding of the City’s reserve policy and other financial policies and ensure any recommendations for changes in rates meet the cash flow objectives of those policies. 1 14. Develop an understanding of the 2020 Water System Master Plan and 2020 Sewer System Master Plan (SSMP) and 5-year Capital Improvement Plans (CIPs) and the impacts of those plans on future rates.
1 15. Develop an understanding of the costs and both the tangible and intangible benefits realized by operating the existing water and sewer systems and quantify the expected changes that will occur with implementation of the City’s 5-year CIP plans.
2.1 16. Conduct a detailed review of the existing water and sewer rates and status of the water and sewer funds and develop a general familiarity with the City’s billing system. 1 17. Conduct analyses as required to address the scope of services. All Tasks
18. Comment as to the extent to which the projected revenues meet projected operating and capital needs satisfy bond covenants and required and/or recommended reserve levels.
2.9 19. Provide a comparison of current water and sewer system costs (operations, capital improvements, bonded debt) against appropriate industry benchmarks, and comparable municipal entities in Southern California.
4.1 20. Propose a methodology for annual inflationary adjustments in compliance with Proposition 218.
5 City Council Regular Meeting - Page 627 of 1385
Scope of Services
RFP – WATER & SEWER RATE STUDY 6
ITEM
# REQUIRED SERVICES NEWGEN
TASK #
21. Recommend a baseline rate structure required to fund water and sewer system improvements and maintenance and consider annual inflationary, indexed adjustments to rates needed to maintain each utility. Any recommendations made must consider or make provision for the following factors:
5 a. Current and future cost of providing water and sewer services in conformance with established or anticipated changes to standards and regulations.
2.9 b. Changes in projected water demands. 2.6
c. Availability of water supply and changes in projected sewer capacity. 2.9 d. Age and condition of water system and the need to fund long-term capital replacements. 2.2 e. Changes in various systems as proposed in the 2020 Water System Master Plan, 2020 Urban Water Management Plan, and 2020 Sewer System Management Plan.
2.3 f. Cash flow under drought scenarios with allocation cutbacks. 2.7
22. Demonstrate that costs from any proposed modifications are equitably distributed in proportion to the benefit received by the various rate payer classifications. 3 23. Demonstrate that any alternative rate structure is easy to understand and administer and can be accommodated within the existing City’s billing system. 5 24. Demonstrate that any proposed rate structure is in compliance with the rate covenants of the City’s outstanding utility bonds.
5 25. Demonstrate that any proposed modifications to the rates and fees are in conformance with the City’s other policy documents.
5 26. Include a reserve analysis in the financial models. 2.8
27. Modify the existing rate model or deliver a new spreadsheet model that reflects any changes to the rate structure accepted by the Council. Provide training to staff in running “scenarios” that will allow staff to fully understand how the model operates and how the results of various future recommendations that may be proposed can be illustrated.
2.9 28. Provide justifications for any special classes of customers under the recommended rate structure.
3 29. Provide a model that has a user friendly dashboard with interactive graphics that automatically produces a suite of reports and graphs as inputs are changed. The model will be the property of the City and may be used by the City for any purpose.
2.9 Meetings
1. Meet or confer weekly with staff by zoom or similar platform. 1
2. Attend up to two (2) meetings with the City Council at a Council Meeting to present the study result if needed and obtain their input.
9 3. Coordinate up to two (2) community meetings to discuss proposed water and sewer rates.
Consultant shall be prepared to present the study to the residents in a public format. Due to covid-19, the community meetings may need to be conducted via web and/or telecom based. 11 City Council Regular Meeting - Page 628 of 1385
Scope of Services
7 CITY OF LYNWOOD
ITEM
# REQUIRED SERVICES NEWGEN
TASK #
4. Attend up to two (2) public hearings on the proposed water and sewer rates. 11 Deliverables
1. Supply a time schedule for developing the draft reports, draft final reports and final reports.
2. Preliminary Report 8
3. Provide preliminary financial model and proposed 5-Year Rate Structure with three (3) alternative options on the water and sewer rate structures.
2.9 4. Report(s): City shall confer with Consultant on content of the Final Report to meet Prop 218 requirements.
8 5. The consultant shall provide guidance and advice to City staff to assure compliance with the Proposition 218 process as it applies to water and sewer services. Provide the City with a written notice to the recorded Owner on the proposed rate adjustment. Provide the City with public outreach materials that can be released in the City’s newsletter or City’s website.
Adoption of the proposed water and sewer rates is dependent on the result of the Prop 218 ballot results and City Council’s adoption of the rates. 10 6. Provide an easy-to-use electronic rate model for the City to use in future rate setting. 2.9
7. Provide a model to provide meaningful information to the public, City Council, and Staff. 2.9
8. Must deliver Final Draft for Presentation to Council before March 31, 2023. See Schedule There is one item not specifically identified in the CIty’s required scope of services that we believe is essential to a successful and complete study. This task is the forecasting of customer bill impacts of any rate recommendations, including under the current rate structure and any rate structure alternatives. NewGen’s Task 7 speaks directly to the development of customer bill forecasts.
PROPOSED WORKPLAN
Our proposed workplan addresses each item of the City’s required scope of work, with the addition of a task related to customer bill forecasting.
TASK 1 – KICKOFF MEETING AND WEEKLY STATUS MEETINGS
Immediately upon receipt of notice to proceed, NewGen will deliver a detailed request for information to the City, identifying the data that is needed to perform the study. As the City furnishes this data, NewGen will load all files into an online SharePoint site to enable access by project personnel and others authorized by the City. NewGen will then schedule monthl y progress meetings (virtual) to update the City on the study’s progress, outstanding data needs, and key deliverable dates.
NewGen’s rate study Request for Information includes over 30 items, including budgets, financial statements, reserve policies, debt amortization schedules, system asset and operational data, customer account and billing system information. NewGen’s approach links real -world data to the key study issues to empower the City’s decision making.
City Council Regular Meeting - Page 629 of 1385
Scope of Services
RFP – WATER & SEWER RATE STUDY 8
An in-person project kickoff meeting will be held with all key City and consultant personnel. The purpose of this meeting is to review and validate the scope of work, introduce key study personnel, identify any roadblocks to timely completion, agree to key dates, provide City personnel with contact information for all members of the consulting team. A key point of discussion will be policy issues that may need to be addressed during the study. Based on our experience in working with municipal governments, it is vitally important to
identify a nd evaluate the key policy issues early in the study to ensure that consensus is developed regarding the principles that will govern the study.
TASK 1 DELIVERABLES:
Initial Request for Information
In-Person Kickoff Meeting
Kickoff Meeting Minutes
Weekly Study Progress Meetings and Reports
TASK 2 – DEVELOP TEN -YEAR FINANCIAL PLANS
One of the primary tasks for the study is
the identification of the cost of
providing water and sewer service . Our
approach includes a detail ed review of
each of the costs incurred by the
City to ensure a true cost of service is
developed. The cost analysis can be
broken down into four main categories
of costs: operating and maintenance
costs, capital improvements, existing
debt service and an y contributions to
reserves. The following section of our
proposal describes our approach to
reviewing and identifying each of these
costs. The total amount of cash
required on an annual basis for all
purposes and from all sources constitutes the revenue requirement.
The completion of this task will provide a comprehensive 10 -year forecast of the City’s utility revenue requirements and a financial plan to recover the appropriate revenue from the City’s customers .
TASK 2.1 REVIEW O PERATING & MAINTENANCE (O&M) COSTS
Using the City’s most recently adopted operating budget as a starting point, we will review the adequacy of budgeted operating and maintenance costs. O&M expenses will be forecast based on estimated annual inflation rates at the budgetary account line-item level. The forecast of operating expenditures will be based on:
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Any additional information that would increase the accuracy of the estimates (i.e., staffing increases/decreases, new facilities coming on-line, old facilities being retired, regulatory impacts, etc.), Identifying and assessing the impact of the current capital improvement program on operating expenditures.
TASK 2.2 REVIEW CAPITAL IMPROVEMENTS PROGRAM S (CIP)
NewGen will review the City’s most recently adopted capital improvement plans for the water and sewer systems to ensure that they are appropriate and complete. This includes a review and understanding of the 2020 Water System Master Plan , 2020 Urban Water Management Plan, and the 2020 Sewer System Management Plan.
NewGen will also complete an analysis of the age, useful life and replacement cost associ ated with the City’s water and sewer infrastructure to identify if the planned investments result in realistic replacement schedules. A sample output of a buried asset analysis is shown below as Exhibit 2 .
Age and Replacement Analysis
TASK 2.3 EVALUATE POTENTIAL FINANCING SOURCES
The types and levels of various funding sources to pay for the capital and operating costs of the utility systems will be examined, and the impacts of various approaches will be quantified. While it is presumed that all operating and maintenance costs will be funded via user rates , there are various approaches to funding capital expenses. They can be paid from operating reven ues (pay as you go, or “PAYGO" funding, the most conservative financial approach), from grants or developer contributions, from long -term debt, or existing cash reserves. Typically, a utility might use a mix of these financing sources. Based on current City policy and our industry expertise , we will recommend an approach to funding each major capital project or project category within the City’s multi-year capital plan. Projects contained in the CIP that are anticipated to be debt- funded will be identified, and projections of debt service will be developed.
TASK 2.4 ANALYZE CURRENT AND PROJECTED DEBT SERVICE
The annual principal and interest payments for existing debt service related to the utility systems will be documented. Those projects or categories of projects contained in the CIP, and which are anticipated to be debt-funded will be identified, and projections of debt service will be developed. The City’s practices on types of debt will be used to develop projections, as will the City’s typical debt structure and assumed interest rate.
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NewGen will demonstrate that any proposed rate structure is in compliance with the rate covenants of the City’s outstanding utility bonds.
TASK 2.5 DEVELOP REVENUE REQUIREMENTS
The sum of the O&M costs, annualized capita l costs (debt service plus cash purchases of capital assets) and any contributions to reserves constitutes the revenue requirement – the amount of money that must be raised from all revenue sources over a given year. NewGen will develop a ten -year forecast of revenue requirements for both the water and sewer systems.
TASK 2.6 DEMAND FORECASTING
A key step in the cost- of-service study is to gain an understanding of the make -up of the customers served by the City and how and when they use water and generate s ewage throughout the year. NewGen needs a complete understanding of how the City’s customer s use water to determine appropriate cost allocations, develop demand projections, evaluate the appropriateness of the current rate and fee structure, and to evaluate potential alternative rate/fee structures. NewGen will request two years of detailed water consumption for all customer accounts.
NewGen’s demand forecast will be based on historical usage patterns, water facility plans and discussions with City staff as to projected water demand. The projections will be developed for a ten -year period by customer class. One of the key variables that must be developed is the rate of growth in the utility, including the numbers and types of new customers to be added year -by-year as well as increases (or decreases) in water usage over time by existing customers.
TASK 2.7 FORECAST DROUGHT IMPACTS
NewGen will develop forecasts of drought scenarios. It is important to understand the demand profile of the City’s customers when forecasting drought impacts, as not all customers have the ability to restrict demand by the same percentage. NewGen’s approach is to develop forecasts at the customer account level to ensure that system-wide operational and financial impacts are captured. In any case, the revenue generated from each scenario must satisfy the revenue requirement needs of each system.
TASK 2.8 RESERVE ANALYSIS
NewGen will develop an understanding of the City’s reserve policy and other financial policies and ensure any recommendations for changes in rates meet the cash flow objectives of those policies. A sample listing of different types of designated reserves and their basis is as follows:
Operating: 25% of annual operating expenses, less depreciation and capital outlay Rate Stabilization: 10% of annual rate revenues, less depreciation and capital outlay Capital: 25% of the average five-year forward looking annual PAYGO CIP spending Emergency: 1.0% of net book value of assets
Vehicle Replacement: 100% of annual vehicle replacement costs Debt Service: One year of annual debt service
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NewGen will discuss with the City the impact of implementing any additional designated reserve policies for the water and sewer enterprise funds.
TASK 2. 9 DEVELOP TEN -YEAR FINANCIAL PLAN
Based on the revenue requirement, demand analysis and the City’s existing rates, NewGen will develop a financial plan for funding the forecasted costs of each system, including revenue adjustments to ensure the financial health and sustainability of the City’s water and sewer systems.
To facilitate the study, NewGen will develop a dyn amic financial planning model utilizing Microsoft Excel® software. NewGen’s models are comprised of a series of interactive schedules, each of which will address a principal topic such as O&M costs, debt service , demand/usage, or cost of service. Built int o the model Dashboard is a series of summary -level graphics that provide i nsta nt feedba ck on ra tes, revenues a nd performance indicators based on assumptions entered by the user.
NewGen’s models include a scenario manager tool that allows multiple versions of assumptions to be saved and reloaded in real time. The model can save up to ten (10) scenarios locally within the same file, eliminating the need to save multiple versions of the model .
Examples of assumptions that can be saved and reloaded in this mann er include:
Inflation rates Capital plans
O&M cost escalation Water usage by rate class
Customer growth rates by rate class Addition and/or removal of customers Debt issuance terms Rate changes by month and rate class Scenarios can be saved and reloaded at any time. An example of the scenario manager input is shown below:
The financial planning model would also include embedded instructions and guidance that can be accessed within the model’s menus, also known as the Excel ribbon. Custom Excel ribbons provide functionality and instructions in addition to pop -up windows with additional capability to drill down into specific areas for instructions. The model also includes integrated error and data validity checking. This error checking also includes the ability for update notifications, user update logs, and version control. A sample Custom Model Ribbon is shown below:
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This ribbon is embedded in the model and will work with any version saved by the City. The sample functions include:
• Return to TOC: Navigates to the model’s Table of Contents • Return to Previous Sheet: Navigates to the previously viewed sheet in the model • Return to Assumptions: Navigates to the Assumptions tab in the model • Return to Dashboard: Navigates to the model’s visual Dashboard • Model Log Area: Opens a dialog box allowing the user to define areas in which changes to the model require the user to input a comment justifying and logging the change. The user, date and time, old value, and new value resulting from the change are then logged in the model as an audit trail. • Scenario Management: Opens the Scenario Management dialog box (shown previously) • Print Sheet: Sends a task to the default system printer to print the active sheet • PDF Sheet: Saves a PDF of the active sheet to a default system folder • Help Request: Opens a dialog box allowing the user to send NewGen a request for help, including the ability to type a description of the issue:
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• Page Instructions: This opens a dialog box with detailed instructions for each page of the model NewGen’s financial model will provide a comprehensive 10 -year forecast of the City’s sewer system revenue requirements under up to ten scenarios.
TASK 2 DELIVERABLES :
Ten-year projection of water and sewer system Revenue Requirements Key financial performance indicators, such as Debt Service Coverage and Operating Ratios Recommendations regarding fund balance or debt service coverage ratios to ensure utility fund financial health
Ten-year forecast of water and sewer system demands
Forecast of drought impacts on system water demands
Financial plan and specific revenue increases (if necessary) to support the projected revenue requirement
Interactive Excel-based spreadsheet models to enable review/revision of future rates and fees, as well as training of staff in the use of the models
Model Scenario Manager that allows the saving of up to ten (10) scenarios within a single model TASK 3. PREPARE COST OF SERVICE ANALYSIS
ALLOCATE WATER COSTS
The revenue requirements from rates and the detailed usage will be allocated as necessary by class to serve as the basis for rate determination for each class. To complete the cost -of-service analysis, we would follow the methodology described in the American Water Works Association’s Manual M-1, Principles of Water Rates, Fees, and Charges for identifying or allocating water system revenue requirements.
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To the extent that there is no appreciable difference in average unit costs allocated among classes, r ate classes may be combined to reduce the number of rate classes. To the extent that significantly differing usage or demand patterns among customers or customer classes exist, or to the extent required by external agreements, costs will be functionalized or segregated, as necessary. Costs related to consumption of water will be allocated based on base use, maximum day, and peak hour (if data is available). Costs not related to consumption will be allocated to customers based on factors such as meter size and hydrant and/or fire line size.
ALLOCATE SEWER COSTS
The methodology utilized by our project team to develop sewer rates is consistent with and based on the principles provided by the Water Environment Federation’s Manual of Practice 27: Financing and C harges for Wastewater Systems.
The current revenues from each class will be compared with the allocated cost of service to identify discrepancies in the current allocations.
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TASK 3 DELIVERABLES:
Water and Sewer Cost of service analysis including functionalization, allocation, and distribution of system costs to each City customer class
Comparison of cost of service results with current revenues TASK 4. PREPARE A COMAPRITIVE ANALYSIS
TASK 4.1 COST BENCHMARKING
NewGen will provide a comparison of the City’s water and sewer system costs (operations, capital improvements, bonded debt) against appropriate industry benchmarks, and comparable municipal entities in Southern California. The specific Key Performance Indicators (KPIs) will be discussed with City Staff to ensure that the City finds the benchmarking analysis useful. A sample KPI analysis is shown in the chart below.
Sample Key Performance Indicator Evaluation
TASK 4.2 REGIONAL BILL COMPARISON
NewGen will conduct a benchmarking evaluation to facilitate comparison of the City’s current and proposed water and sewer bills for a typical customer of each classification , compared to a similar customer in surrounding utilities of similar size. A sample chart representing th is comparison is shown below.
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Sample Regional Bill Comparison Chart
TASK 4 DELIVERABLE:
Comparison of typical residential bill with a minimum of eight comparable utilities TASK 5. RECOMMEND RATE AND FEE STRUCTURE
Our approach to reviewing and evaluating municipal utility rates is governed by the view that the ideal rate structure must satisfy seven criteria:
1. Legal and Regulatory Compliance is a prime
consideration because rate structures must
incorporate applicable local, state, and federal
statutes, particularly Proposition 218.
2. Equity requires that rates and charges result in no
undue discrimination among customers.
3. Efficiency refers to the ability of the rate schedule to encourage wise use of the resources.
4. Revenue Adequacy recognizes that rates and fees are
cost-driven.
5. Affordability means the recommended rates must
result in bills that are realistically within the ability of customers to pay.
6. Sustainability means the objective of the rate
methodology is to keep rates low over time, not merely
keep them low for the short term by omitting or deferring needed expenses.
7. Administrative Simplicity recognizes that limits must be placed on the number of customer classes, complexity of the rate schedule, and frequency of billing.
Some of these criteria are in competition with others, and not all can be achieved to a maximum extent simultaneously. Rate structures must be tailored to community perceptions, realities, and values.
The City’s water fees are as follows:
$25
$26
$42
$44
$24
$15
$26
$41
$28
$20
$26
$38
$32
$23
$50
$72
Average, $66
$- $10 $20 $30 $40 $50 $60 $70 $80 $90 $100
Authority A
District A
District C
District D
Client (Current)
Client (Proposed)
Authority B
District B
SewerWater
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Base rate or fixed component (readiness
to serve) service charge.
Usage charge or variable component
charges based upon billing units used by
the customer. A billing unit equals one
hundred (100) cubic feet or seven
hundred forty-eight (748) gallons of water.
Service charges other than the base rate.
Late fees.
Return-check fees.
Development water impact fees.
Water connection fees.
Reconnection fees during regular
business hours after water shutoff.
Fire hydrant water use fees from
construction or roving meters.
Fire line fee.
Fee for water used by contractors in new
construction.
Meter tampering fee.
Missed appointment fee after second
missed appointment.
Penalty fee for unauthorized water
connections and use of city water by the
use of “cheater pipes,” “straight lines,”
“hoses” or other means.
NewGen will develop at least three (3) alternative rate structures that balance revenue sufficiency, stability, and resiliency with customer c lass equitability. NewGen will also develop adjustment schedule using an inflationary formula that does not exceed the cost of providing the service, in compliance with Proposition 218.
There are many rate designs that comply with industry practice and will withstand legal challenge. The policy determinations/preferences of the City are the most important factors in determining the preferred rate design. Based on the results of the evaluation of alternative rate designs and relying on discussions with City staff, a recommended rate and fee schedule will be developed in detail, including an analysis of its impact on typical customers and customer classes. The rate designs will be developed to project annual rates and fees for a ten-year projection period.
FIRE PROTECTION FEE CALCULATION
NewGen will calculate public and private fire protection fees using the industry standard approach detailed in the American Water Works Association (AWWA) Manual M1 – Principles of Water Rates, Fees and Charges (M1).
Chapter IV.8 of M1 is titled Rates for Fire Protection Service. The methodology utilizes the Maine Curve, developed for the Maine Public Utilities Commission, which considers the number of customers, population density and size of the service area in determining the percentage of revenue requirements allocable to fire protection.
To determine the proper dollar amount to allocate to private fire protection customers, it is necessary to determine the total fire protection costs of the utility system using system pumping data in gallons per minute (gpm). These costs are then allocated to public and private fire protection costs based on the customer base of each class of service. Then, rates can be developed to fully collect the costs of providing both public and private fire protection. The data points needed to determine the total cost of providing fire protection are:
Total System Fire Protection Meter Equivalents (based on AWWA Flow Factors) Average System Water Pumped (in gpm)
Peak System Water Pumped (in gpm)
Population Served (in thousands)
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The above data points allow for the calculation of the Required Fire Flow (RFF) of the system based on the fire flow requirement formula determined by the National Board of Fire Underwriters (NBFU), now known as Insurance Services Office (ISO):
Where P is the population served by the utility in thousands. This value is then compared the system’s peak hourly flow based on actual pumping data. This ratio is plotted on an industry standard curve (i.e., The Maine Curve), with the result being a cost allocation between public and private fire protection services, which can then be distributed to the appropriate rates based on the number of public fire hydrants, the number and size of private fire lines, or another relevant allocation requested by the City.
TASK 5 DELIVERABLE:
Documentation of rate alternatives considered and recommended rate structure TASK 6. REVIEW DEVELOPMENT IMPACT FEES
The fees in the utility industry that are charged to new customers of a utility system to pay for the investments made into the “backbone” of a system are called system development charges. There three methods that may be used to calculate cost-based system development charges.
1. The historical buy-in method is based on the value of the existing system’s capacity. This method is typically used when the existing system has sufficient capacity to serve new development now and into the future.
2. The incremental cost method is based on the cost to expand the existi ng system’s capacity. This method is typically used when the existing system has limited or no capacity to serve new development and new facilities are needed to serve the next increment of new development.
3. The combined approach is based on a blended value of both the existing and expanded system’s capacity. This method is typically used where some capacity is available in parts of the existing system, but new or incremental capacity will need to be built in other parts to serve new development in the near future.
Using the City’s asset data, NewGen will calculate, using industry standards, the system development charges for the City’s new developments under all three methods and recommend the most appropriate method to fully recover the City’s incremental costs of building and maintaining its water and sewer treatment capacity.
TASK 6 DELIVERABLE:
Documentation of impact of new development and development impact fees TASK 7. PREPARE SAMPLE BILLS
Included in NewGen’s final report will be a sample bill table for each rate structure developed as a part of the study. The impact of the recommended financial plan and each rate structure will be shown for various classes of City customers. The impacts on small, median, and large customers may be different under alternative rate scenarios. Exhibit 5 shows a sample bill projection under a rate structure scenario that has varying impacts on customer classes.
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Example Sample Bill Table
In the above example, the impact on small customers is a decrease in monthly costs, whereas the impact on large customers is quite a large increase in the first year of rate adjustments.
TASK 7 DELIVERABLES:
Detailed projection of sample bills for all city customer classes illustrating recommended rate increases, which may show varying impacts to the customers TASK 8. PEPARE A DRAFT AND FINAL REPORT
NewGen will document all work performed during the rate study in a concise narrative report. The report will include an executive summary that will be written in easy-to-understand terms so that it is public-friendly. All data sources relied upon in the study will be identified and documented, and all assumptions clearly set forth.
NewGen’s report will include tables and graphics to communicate in a simple way the detailed analysis performed during the study. The draft report will be delivered to the City with a request for comments.
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After the receipt of comments on the draft report, NewGen will deliver a final report to the City in anticipation of City Council workshops and community outreach meetings. NewGen will also deliver to the City a final study financial model that is consistent with the results described in the final report.
TASK 8 DELIVERAB LES:
Hard and electronic copies of draft and final reports in MS Word® Final copy of Excel® financial model for use by City staff TASK 9. COUNCIL MEETINGS
NewGen will attend five rate workshops to communicate to the Council the interim, draft, and final results of the study. Our study approach assumes two in-person rate workshops with City Council. NewGen will develop public friendly material to communicate the study’s results to the public and will assist the City in responding to questions that may arise during the public outreach sessions.
TASK 9 DELIVERABLES:
Two In-Person rate workshops with City Council
Public outreach material to communicate study results TASK 10. DEVELOP PROPOSITION 218 NOTICES
NewGen will develop Proposition 218 notices for both the water and sewer recommended rate adjustments.
Depending on City policy, the notices may be separate or combined for the two utilities.
TASK 10 DELIVERAB LES:
Proposition 218 notices for the water and sewer recommended rates TASK 11. COMMUNITY MEETINGS AND PUBLIC HEARINGS
NewGen will attend two in-person community meetings during the Proposition 218 notice period to address any questions or concerns from the City’s rate payers.
TASK 11 DELIVERABLES:
Two In -Person community meetings to discuss the impacts of the study’s results and recommendations
Up to two (2) Public Hearings at which NewGen will present the study’s results and recommendations
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D. Experience
D.
EXPERIENCE
NewGen evaluates the needs of each project and responds by assembling a project team of knowledgeable professionals who are uniquely qualified to provide the services needed.
The project team assembled for this project, shown in the organization chart below, are widely recognized cost of service, rate -making and financial forecasting experts that possess unique knowledge of water resources and industry trends as well as best practices in the ar eas of water and wastewater. We guarantee the specific performance of the key personnel who are identified in this proposal. We would be comfortable with the inclusion of a key personnel clause in any contract resulting from this procurement.
The following are brief bio graphies of our proposed project team. Detailed resumes are included as an Appendix A to this proposal.
ERIC CALLOCCHIA | PROJECT MANAGER LOCATION: Annapolis, MD EDUCATION: BA, Economics/Mathematics, Johns Hopkins University AFFILIATIONS: AWWA, WEF, CWEA, GFOA
AWWA Rates and Charges Committee - Cost of Service Subcommittee PUBLICATIONS: Contributing author, WEF Manual of Practice (MOP) 27 – Financing and Charges for Wastewater Systems; AWWA Manual M1 – Principles of Water Rates, Fees and Charges Mr. Eric Callocchia has over eleven years of utility cost of service and financial consulting experience. His expertise involves a broad range of industry issues, including revenue stability, customer affordability, operational sustainability, and public education. He has experience with establishing new stormwater utilities through the analysis of impervious area modeling and the implementation of best management practices. He is a contributing author to the most recent edition of the Water Environment Federation’s Manual of Practice 27 – Financing and
Charges for Wastewater Systems. He is an active member of the American Water Works Association (AWWA) Rates and Charges Committee, and a contributing author to the upcoming eighth edition of AWWA’s Manual M1 – Principles of Water Rates, Fees and Charges. He has been accredited as an expert witness concerning utility rate setting matters by the Maryland Tax Court and has provided expert advice in California related to one of the State’s major ongoing rate litigation disputes.
Mr. Callocchia has worked with over 100 water, wastewater, and stormwater utilities throughout the United States. Through his efforts, clients have realized new stormwater utilities, justified revenue increases, adopted rate structure changes, enhanced reserve policies, funded capital financing plans, and applied other industry best practices. Mr. Callocchia regularly presents at industry conferences to keep peers informed of the cutting-edge methodologies developed as a part of his projects.
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MICHAEL MAKER | PROJECT PARTNER AND QA/QC LOCATION: Annapolis, MD EDUCATION: MBA, Finance, Loyola University (Beta Gamma Sigma Honor Society) BA, Economics, University of Rochester, Minor: Electrical Engineering AFFILIATIONS: AWWA, WEF, GFOA | Serves on AWWA Workforce Strategies Committee and AWWA Finance, Accounting & Management Controls Committee | Serves on Chesapeake AWWA Utility Conference Planning Committee
Bringing 19 years of experience, Mr. Mike Maker is Deputy Director of NewGen’s Water Practice and a Partner applying management, financial, and technical experience. He has served as either Project Manager or Lead Analyst for over 100 management and financial studies. Day - to-day responsibilities include managing client projects, developing analytical financial models, and compiling comprehensive reports and presentations.
He is a current member of AWWA's Finance, Accounting & Management Controls Committee and Workforce Strategies Committee. He is helping to rewrite the latest editions of AWWA's Manual M29 - Capital Financing and Manual M5 - Water Utility Management.
ZAK WRIGHT | ASSET REPLACEMENT ANALYST LOCATION: Nashville, TN EDUCATION: Master of Business Administration, Belmont University; Bachelor of Business Administration in Finance, University of Tennessee Knoxville REGISTRATIONS AND CERTIFICATIONS: Accredited Senior Appraiser (ASA) by the American Society of Appraisers
AFFILIATIONS: Tennessee GFOA; American Society of Appraisers - Middle Tennessee Chapter Treasurer/Secretary; Society of Depreciation Professionals Mr. Zak Wright performs appraisals, assists with financial planning and rate analysis.
Prior to joining NewGen, he worked as a Commercial Credit Analyst and has experience in corporate finance, pro forma financial analysis, financial modeling, underwriting, banking, and strategic and capital planning. He attained his Master of Business Administration from the Massey Sc hool of Business at Belmont University. Mr. Wright serves as the Treasurer/Secretary for the American Society of Appraisers Middle Tennessee Chapter.
TIA CARNES | FINANCIAL MODELING LOCATION: Nashville, TN EDUCATION: Master of Business Administration, Belmont University; Bachelor of Science in Biblical Studies, Cairn University Ms. Tia Carnes joined the firm as a Consultant in February 2020. During her tenure, she has provided financial modeling, appraisal/valuation s upport, cost of service and rate design analyses, and most notably, support to the organizational review and workshop development projects. Her experience includes leadership training and development, team assessment, and financial analysis. Ms. Carnes cam e to NewGen with a strong background in customer service, logistics, and high -volume task management.
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AIDAN OATES | DATA ANALYST LOCATION: Annapolis, MD
EDUCATION: Master of Energy Management, Tulane University Bachelor of Arts in English Literature and Finance, The College of William and Mary Mr. Aidan Oates joined NewGen in 2021. He provides financial modeling, cost of service and rate design for water, wastewater, solid waste and energy projects. His experience includes valuation, trading, economics and investment banking specific to the Energy industry. He earned his BA in English Literature and Finance from William and Mary and a Masters in Energy Management from Tulane University.
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E. Qualifications
E.
QUALIFICATIONS
In July of 2019, NewGen merged with the nationally recognized Municipal and Financial Services Group (MFSG) in Annapolis, Maryland. NewGen has an established client base in Calif ornia, both as NewGen and MFSG. NewGen has completed work in the California utility market for over 4 0 years. Relevant projects are listed in the References section of this proposal.
PROJECT EXPERIENCE
More than 90% of NewGen’s work is in the municipal utility market; we have worked for hundreds of public agencies, from Alaska to the Florida Keys, from Maine to southern California. With a professional staff of more than fifty, we have worked for clients in more than thirty states. A sample listing of recent projects ongoing or completed in the past five years is included in the exhibit below (those in California are bolded).
Sample of Recent Rate Study Experience
LAST
STUDY CLIENT STATE WATER SEWER
Ongoing Anne Arundel County MD
Brea, City of CA
Bristol County Water Authority RI
Camden, City of NJ
Hammond Sanitary District IN
Orland Park, Village of IL
Clermont County OH
Coachella Valley Water District CA
Fredericksburg, City of VA
Springfield, City of MO
Hampton, City of VA
Perrysburg, City of OH
Plainview Water District NY
San Diego County Water Authority, CA CA
Watertown, Town of CT
Wise County Public Service Authority VA
Westlake, Town of TX
2020 Addison, Village of IL
Albertson Water District NY
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LAST
STUDY CLIENT STATE WATER SEWER
Dover, City of DE
Dublin, City of OH
East Brunswick, Township of NJ
Elkton, Town of MD
Falls Church, City of VA
Fairfax County VA
Geneva, City of IL
Herndon, Town of VA
Hicksville Water District NY
Libertyville, Village of IL
Mechanicsburg, Borough of PA
Monroe Township PA
Portsmouth, City of VA
Port Washington Water District NY
Rivanna Water and Sewer Authority VA
Wallingford, Town of CT
2019 Barnstable, Town of MA
Bloomington-Normal WRD IL
Canton, City of OH
Cumberland, City of MD
Fairfield, Town of CT
Frederick, City of MD
Great Neck North, Water Authority of NY
Jericho Water District NY
North Kingstown, Town of RI
North Middleton, Township of PA
San Diego County Water Authority CA
Tallmadge, City of OH
2018 Albemarle County Service Authority VA
Charlottesville, City of VA
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RFP – WATER & SEWER RATE STUDY 26
LAST
STUDY CLIENT STATE WATER SEWER
Fishers Island Utility Company NY
Franklin, City of VA
Frederick County MD
Hagerstown, City of MD
Lindenhurst, Village of IL
Lovettsville, Town of VA
Milpitas, City of CA
Richmond, City of VA
Southampton County VA
Transportation Research Board
Vienna, Town of VA
Washington Suburban Sanitary Commission MD
Westminster, City of MD
2017 Colonial Beach, Town of VA
Fox Lake, Village of IL
Lombard, Village of IL
Naperville, City of IL
Park Ridge, City of IL
Pennsylvania American Water PA
Prospect Heights, City of IL
Somerset County Sanitary District MD
Stratford, Town of CT
Tivoli, Village of NY
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F. REFERENCES
F.
REFERENCES
NewGen has an established client base in California and encourages the City to contact any of the representative professional references listed below. These clients can speak to our ability to provide quality work.
We have built our reputation by providing clients with solutions that are based on sound principles, economic feasibility, and innovative thinking without losing sight of budget and schedule considerations and constraints.
We are proud of the long-standing relationships that we have developed with our clients.
SAN DIEGO COUNTY WATER AUTHORITY, CA – WATER COST OF SERVICE EXPERT
WITNESS ANALYSIS AND TESTIMONY (ONGOING)
REFERENCE: Amy Chen | Director of MWD Program | 213.628.1244 | [email protected] Over a multi -year period, NewGen has provided various financial and technical analyses to this large wholesale water agency in a significant dispute with the Metropolitan Water District of Southern California (MWD) over the pricing of potable water and the pricing of wheeling services for SWP water moved through MWD’s system on behalf of the San Diego County Water Authority (SDCWA). Among the key analysis / investigation topics for NewGen include:
Compliance of MWD with water industry standards set forth in AWWA’s Manual M1 for developing revenue requirements and allocating costs to functions / services MWD’s derivation of its various rates and fees – tracing adopted rates to source documents and through cost of service allocations
Reverse engineering of MWD’s financial model
Documentation of MWD’s cost of service methodology
Compliance with Prop 26 as to inclusion of certain categories of costs or programs in MWD’s rates / taxes Review and analysis of various reports and documents on behalf of SDCWA Preparation of interrogatories, and support for depositions Our work on this series of related legal actions is ongoing.
City Council Regular Meeting - Page 649 of 1385
Project Experiences and References
RFP – WATER & SEWER RATE STUDY 28
CITY OF BREA, CA – WATER AND SEWER RATE AND IMPACT FEE STUDY (2022) REFERENCE: Faith Madrazo. | Financial Services Manager | 714.671.4486 | [email protected] 1 Civic Center Circle, 3rd Floor, Brea, CA 92821
Brea imports 100% of its water from two major water suppliers, Metropolitan Water District and Cal Domestic. Both suppliers have increased their rates consistently over that past several years. In addition, the city is required to expend capital for essential maintenance and improvements to the Brea water system. Water rates must be car efully established to cover actual costs to purchase supplies and to operate the distribution system. As the value of water as a commodity has steadily increased over recent years of drought and shortages, the cost per acre foot keeps rising. Even with con servation, consumer water bills can reflect an increase because of this.
Additionally, as fixed operational costs are closely analysed, it becomes evident that energy to pump the water and system infrastructure maintenance also carry increasing expenses fo r the water utility over time.
The City of Brea selected NewGen after a competitive procurement to perform a water and sewer rate and impact fee study with the following objectives:
Develop a five-year rate forecast for the water and sewer enterprise funds. Develop cost-based impact fees for the water and sewer systems. Calculate drought rates based on historical demand impacts of various drought restrictions. Determine an appropriate fixed cost recovery mechanism related to multi -family and master-meter customers.
Evaluate the costs incurred by the water and sewer enterprises on the City itself, and the services required by the City of the water and sewer enterprises. Incorporate these additional expenses and revenues into the City’s water and sewer rates.
Conduct Council work sessions and public outreach meetings throughout the study to solicit input from City stakeholders.
Develop a Proposition 218 notice for the recommended water and sewer rate increases.
The City’s public hearing was cond ucted on November 15, 2022, at which time the City resolved to adopt NewGen’s recommendations for water and sewer rates.
City Council Regular Meeting - Page 650 of 1385
Scope of Services
29 CITY OF LYNWOOD
COACHELLA VALLEY WATER DISTRICT, CA – SANITATION FUND COST OF SERVICE STUDY (2022), DOMESTIC WATER, CANAL WATER, AND REPLENISHMENT
ASSESSMENT CHARGE COST OF SERVICE STUDY (ONGOING)
REFERENCE: David Lacy | Finance Manager | 760.398.2661 x 2304 | [email protected] 51-501 Tyler Street, Coachella, CA 92235
Coachella Valley Water District (CVWD) is a special district established by the state legislature. CVWD was formed in 1918 to protect and conserve local water sources. Since then, the District has grown into a multifaceted agency that delivers irrigation a nd domestic (drinking) water, collects , and recycles wastewater, provides regional storm water protection, replenishes the groundwater basin, and promotes water conservation.
CVWD has engaged NewGen to conduct cost of service studies for several of its funds:
Domestic Water
The District uses a budget-based increasing tier rate structure for its consumption charges. Each customer has an individualized “water budget.” While some agencies may characterize water budgets as centered conservation or efficiency, the true purpose of a water budget is to align individual customer water demands with the District’s total cost to develop incremental water supply and distribution over long timespans.
The overall goals of the Domestic Water Study were focused on developi ng a financial plan and proposed rate structure that: meet the District’s financial, operational, and capital needs in a manner that equitably distributes costs and maintains the affordability of potable water service. Specific goals include:
Develop a rate structure in line with California Proposition 218. Set rates such that operating cash flows would remain positive for all fiscal years. This goal intends to avoid the creation of a structural operating deficit within the utility. Set rates such that the Domestic fund reserves can be maintained at the targeted level while providing funding for necessary capital projects
Utilize unrestricted reserves above the reserve policy target to fund capital projects in order to minimize rate increases.
Calculate rates that follow industry best practices and cost of service principles
Canal (Irrigation) Water
The District’s Canal water system provides water to approximately 1,200 customers including agricultural, golf course, lakes, and groundwater replenishment users . The water supplied to Canal customers is imported from the Colorado River via the Coachella Canal, a branch of the All -American Canal. Based on the Colorado River Quantification Settlement Agreement, the District receives an annual base allocation of 330,000-acre ft and is able to secure additional water through a transfer agreement with the Imperial Irrigation District. Set rates such that operating cash flows would remain positive for all fiscal years. This goal intends to avoid the creation of a structural operating deficit within the utility. Set rates such that the Canal fund reserves can be maintained at the targeted level while providing funding for necessary capital projects.
Utilize unrestricted reserves (the amount above the reserve policy target) to fund capital projects in order to minimize rate increases.
City Council Regular Meeting - Page 651 of 1385
Project Experiences and References
RFP – WATER & SEWER RATE STUDY 30
Analyze the cost base, customer information, rate classes, and rate structure to ensure that costs are being appropriately recovered from the Districts customer base and that rates are defensible
Replenishment Assessment Charges (East Basin, West Basin, Mission Springs) CVWD has served as a steward of Coachella Valley’s groundwater resources for more than 100 years.
Ensuring that a reliable supply of water is available for the Coachella Valley’s future families and businesses is a cornerstone of CVWD’s mission. The RAC is a key component of the Coachella Valley Water Management Plan, a blueprint for ensuring there is a reliable and sustainable long -term supply of high -quality water for Coachella Valley. The RAC generates revenue from those groundwater producers that the District is authorized to charge, such as water agencies, golf courses, HOAs and agriculture to fund the replenishment of groundwater with imported water and the expansion of water delivery systems for supplying Colorado River water and recycled water for non -potable uses to assist in reducing or eliminating groundwater pumping.
The District’s basins are replenished using a combination of source substitution projects and p rojects using natural run-off and imported water from the SWP, water purchased from Metropolitan Water District (MWD), Rosedale-Rio Bravo Water Storage District, and other available water purchase opportunities. Other water purchases include the MWD Quantification Settlement Agreement (QSA) 35,000 Acre-foot transfer. Beginning in early 2019, Colorado River water pumped from the Coachella Canal to the Palm Desert Groundwater Replenishment Facility, through the Mid -Valley pipeline, is also used to replenish t he West Whitewater River Subbasin AOB. Specific project goals included:
Recover a share of allocable SWP costs via RACs to recognize the benefit that replenishment AOBs receive by utilizing SWP water for replenishment and to relieve financial pressure on the SWP Fund. Utilize reserves to fund capital projects and ongoing costs throughout the study period to mitigate and smooth rate increases.
Set rates such that the West Whitewater Replenishment Fund reserves will adequately meet the target level within five years of initially falling below the target.
Sanitation (Wastewater, including water re-use)
The Sanitation fund accounts for wastewater and non- potable (recycled) water. CVWD recycles more than two billion gallons of wastewater each year, subjecting it to an advanced multi -step process that filters out solids, organic materials, chemicals, and germs. Nearly 6.3 billion gallons of wastewater are treated by CVWD yearly.
NewGen’s study focused on key issues regarding capital financing – the District had historically used a PAYGO approach, but due to cost increases, was considering a blend of PAYGO and debt financed capital. NewGen’s study focused on developing rate impacts of CVWD’s Sanitation Fund CIP. Another issue that NewGen focused on is CVWD’s wastewater rate structure basis of Equivalent Sewerage Units (ESU) and whether any alternative rate structure meets CVWD’s pricing goals and objectives.
City Council Regular Meeting - Page 652 of 1385
Scope of Services
31 CITY OF LYNWOOD
CITY OF MILPITAS, CA - WASTEWATER COST OF SERVICE STUDY (2019) REFERENCE: Tony Ndah, P.E. | Public Works Director | 408.586.2602 | [email protected] 455 East Calderas Boulevard, Milpitas, CA 95035
It had been more than three years since a formal cost
of service / rate study has been performed for the City of Milpitas’ sewer system, and major capital
improvements had been made and will continue to
be made. The City engaged NewGen to perform an
independent review of the sewer system’s finances,
with a focus on long -term sustainability, equitable
treatment of the City’s’ customers and compliance
with legal and regulatory requirements, especially the
evolving case law related to Proposition 218. NewGen
developed a spreadsheet financial model for the City to facilitate scenarios involving capital financing, customer growth assumptions, and fund balance forecasts. The focus areas of the study were:
A comprehensive review of sewer system’s finances.
A comprehensive review of financial obligations related to O&M and CIP for the City’s commitment to pay for a regional water pollution control plant (San José-Santa Clara Regional Wastewater Facility). Assessment of the City’s current rate structure as baseline for considering alternative rate designs . Assessment of rate design equity among the various customer classes. Preparation of a comprehensive final report.
The recommended cost allocations and projected rates were adopted unanimously by the City Council in early 2019.
City Council Regular Meeting - Page 653 of 1385
32 CITY OF LYNWOOD
G. Project Schedule
G. PROJECT
SCHEDULE
Assuming notice to proceed in December of 2022 and the timely provision of the information requested during Task 1, NewGen commits to delivering a final draft for presentation to City Council no later than March 31, 2022. Community outreach meetings and Public Hearings are anticipated to occur before the end of May 2023. Our proposed schedule appears below.
P roject Schedule
H. C OST PROPOSAL
H. COST
PROPOSAL
NewGen will provide services on a time and materials based on actual hours of services furnished multiplied by our billing rates as of the date of its monthly invoice plus all reasonable expenses directly related to the City Council Regular Meeting - Page 654 of 1385
Scope of Services
33 CITY OF LYNWOOD
services provided. We estimate our c osts for the study specified by the City to be $ 98,950. A detailed breakdown by the tasks within our workplan is shown below.
Cost Proposal
I. COPY OF A RATE STUDY
I. COPY OF A
RATE STUDY
Several examples of completed rate studies are included as Appendix B to this proposal. These studies include:
1. Water Rate Study (City of Brea, CA)
2. Sewer Rate Study (City of Milpitas, CA)
3. Water and Sewer Impact Fee Study (City of Brea, CA)
Callocchia Maker Wright Carnes Oates Admin
$235 $250 $210 $155 $150 $110
Task 1 In-Person Kickoff Meeting and Weekly Status Meetings 12 8 8 8 12 8 56 $ 10,420 Task 2 Develop Water and Sewer Ten-Year Financial Plan 8 2 8 8 24 50 $ 8,900 Task 3 Prepare a Cost of Service Analysis 8 2 8 8 12 38 $ 7,100 Task 4 Provide a Comparitive Analysis 8 2 8 8 12 38 $ 7,100 Task 5 Recommend Rate and Fee Structure 8 2 8 8 24 50 $ 8,900 Task 6 Review Development Impact Fees 8 2 8 8 12 38 $ 7,100 Task 7 Prepare Sample Bills 8 8 12 28 $ 4,920
Task 8 Prepare a Draft and Final Report 8 8 8 8 12 8 52 $ 9,480 Task 9 Council Meetings (2) 24 8 8 4 44 $ 8,520 Task 10 Develop Proposition 218 Notices 8 2 2 8 20 $ 3,370 Task 11 Community Meetings (2) and Public Hearings (2) 24 24 $ 5,640 Labor Hours 124 26 56 74 130 28 438
Labor Cost $29,140 $6, 500 $11,760 $11,470 $19,500 $3,080 81,450$
17,500$
98,950$
* Task 1 assumes an in-person kickoff meeting with the Project Manager * Task 9 assumes 2 in-person meetings with the Project Manager * Task 10 assumes 4 in-person meetings with the Project Manager Water and Wastewater Rate Study
Out-of-Pocket Expenses
Labor Subtotal
Total Proposed Budget
Total
Hours
City Council Regular Meeting - Page 655 of 1385
APPENDIX A:
RESUMES
WATER AND SEWER RATE STUDY
RFP
City Council Regular Meeting - Page 656 of 1385
Mr. Eric Callocchia has over eleven years of utility cost of service and financial consulting experience. His expertise involves a broad range of industry issues, including revenue stability, customer affordability, cost of service rate making, and public engagement and education. His expertise in utility cost of service is rooted in his exceptional analytic skills and broad experience, which ensure that the recommendations he develops are understandable and withstand legal scrutiny.
Mr. Callocchia is a contributing author to the most recent edition of the Water Environment Federation’s Manual of Practice 27 – Financing and Charges for Wastewater Systems. He is an active member of the American Water Works Association (AWWA) Rates and Charges Committee and a contributing author to the upcoming eighth edition of AWWA’s Manual M1 – Principles of Water Rates, Fees, and Charges.
Eric
CALLOCCHIA
PRINCIP AL
CONTACT
911-A Commerce Rd
Annapolis, MD 21401
[email protected]
www.newgenstrategies.net
EDUCATION
Bachelor of Arts in Economics and
Mathematics, Johns Hopkins University
PROFESSIONAL REGISTRATIONS/
CERTIFICATIONS/ AWARDS
American Water Works Association –
Active member of the AWWA Rates and
Charges Committee and Cost of Service
Subcommittee
Government Finance Officers Association
Water Environment Federation
KEY EXPERTISE
Cash Flow Sensitivity Analysis
Econometrics
Economic Impact Analysis
Financial Modeling
Public Finance
Utility Management
Utility Rate and Fee Design
Water and Wastewater Cost of Service
Analyses
NEWGEN STRATEGIES AND SOLUTIONS, LLC 1
RELEVANT EXPERIENCE
Water/Sewer/Stormwater Rate Studies
Mr. Callocchia provides water, wastewater, and stormwater industry expertise and policy guidance to NewGen’s clients. His rate study approach involves the development of customized financial models that focus on the policy issues, cash needs, revenue requirements, and key performance indicators of each client. His models equip clients with the necessary information to make critical capital financing decisions and rate adjustments to fully finance their system’s operation, asset maintenance, and replacement needs while maintaining fund balance policies based on industry best practices. The models also have the capability of scenario analysis and can be incorporated with operating and capital expense and revenue projects. Mr. Callocchia develops and recommends alternative rate structures and assists with implementing phased-in rate plans that address client issues and maintain the financial health of utility funds. Mr. Callocchia also provides expert guidance on managing water, sewer, and stormwater utilities, including developing policies and procedures related to customer service, organizational communication, and public outreach.
Clients that Mr. Callocchia has provided these services to include:
• Albemarle County, VA
• Anne Arundel County, MD
• Bloomington and Normal Water
Reclamation District, IL
• City of Annapolis, MD
• City of Brea, CA
• City of Charlottesville, VA
• City of Concord, CA
• City of Dover, DE
• City of Falls Church, VA
• City of Frederick, MD
• City of Fredericksburg, VA
• City of Hagerstown, MD
• City of Hampton, VA
• City of Naperville, IL
• City of North Kingstown, RI
• City of Park Ridge, IL
• City of Portsmouth, VA
• City of Prospect Heights, IL
• City of Richmond, VA
• City of Rockville, MD
City Council Regular Meeting - Page 657 of 1385
Eric
CALLOCCHIA
PRINCIP AL
2 NEWGEN STRATEGIES AND SOLUTIONS, LLC
• City of Salisbury, MD
• City of Westminster, MD
• Coachella Valley Water District, CA
• Delaware County Regional
Water Quality Control Authority
(DELCROA), PA
• Frederick County, MD
• Jericho Water District, NY
• Jurupa Community Services
District, CA
• King George County Service
Authority, VA
• Loudoun Water, VA
• Rivanna Water and Sewer
Authority, VA
• Somerset County Sanitary
District, MD
• Town of Barnstable, MA
• Town of Colonial Beach, VA
• Township of East Brunswick, NJ
• Town of Elkton, MD
• Town of Fairfield WPCA, CT
• Town of Herndon, VA
• Town of Lovettsville, VA
• Town of Middleburg, VA
• Town of Pound, VA
• Town of Purcellville, VA
• Town of Wallingford, CT
• Town of Vienna, VA
• Village of Addison, IL
• Village of Fox Lake, IL
• Village of Libertyville, IL
• Village of Lindenhurst, IL
• Village of Lombard, IL
• Village of Orland Park, IL
• Village of Westchester, IL
• Washington Suburban Sanitary
Commission, MD
• Wise County Public Service
Authority, VA
Libertyville, IL
In 2019, the Village engaged NewGen to complete a feasibility study to project the costs of implementing a Master Stormwater Management Plan (MSM) and to determine the appropriate methodology to charge Village citizens the fees for the MSM planned projects. The Village also tasked NewGen with developing credit policies and manuals, appeal procedures, and an appropriate Stormwater Ordinance. Mr. Callocchia developed a financial model that projected the twenty-year cost of the Village’s MSM and the various impervious area-based cost allocation methods the Village could adopt as a funding mechanism. Mr. Callocchia’s feasibility study allowed Village staff and elected officials to evaluate the various stormwater funding alternatives and implement industry best practices for the administration of its stormwater management program. Mr. Callocchia finalized the impervious area and utility billing databases and coordinated with Village staff to develop an interactive online fee lookup tool that allowed Village citizens to see their potential stormwater fee before it became effective. Mr. Callocchia also worked with Village staff to conduct two Town Hall style public information sessions before the fee became effective.
Stormwater Feasibility and Fee Studies
Westminster, MD
The City of Westminster serves as the County Seat. It is in the center of Carroll County, conveniently located near Maryland’s largest cities, two state capitals, Annapolis and Harrisburg, and the nation’s Capital. The City had historically faced challenges when funding stormwater operating and capital costs. In the past, the City had not accounted in a detailed fashion for the actual stormwater management costs, with most of the costs absorbed by the City’s streets and road maintenance accounted for in the General Fund. The City engaged NewGen in 2019 to complete a feasibility study with several tasks:
• Identify and isolate the actual cost of stormwater maintenance. • Develop and recommend a ten-year stormwater CIP given the City’s asset listing and future stormwater needs. • Recommend policies regarding stormwater fees and credits. • Engage in a public information campaign to educate the City’s citizens on the need for additional resources for stormwater management.
• Assist in implementing a Stormwater Utility that properly accounts for the City’s stormwater costs.
Mr. Callocchia developed a financial model detailing the City’s stormwater costs and helped the City implement a stormwater fee tied to the account information of City sewer users.
City Council Regular Meeting - Page 658 of 1385
Eric
CALLOCCHIA
PRINCIP AL
Frederick County, MD
Frederick County, Maryland, was anticipating the issuance of a Municipal Separate Storm Sewer System (MS4) Permit from the Maryland Department of the Environment (MDE) that would place a particular cost burden on the County’s 48,000 stormwater fee payers. Mr. Callocchia developed a financial model that determined the Maximum Extent Practicable (MEP) level the County could reasonably fund given current funding levels, median household income, and the County’s procurement limitations. Mr.
Callocchia’s financial model allowed for a sensitivity analysis to determine the increase in funding that would be possible given several factors. The County used Mr. Callocchia’s analysis to appeal the permit requirements and reduce the financial impact on the County’s customers by reducing the mandated spending related to the permit and lengthening the required implementation timeframe.
Geneva, IL
The City of Geneva was actively involved in developing the Kane county Stormwater Management Ordinance dating back to 1998.
Geneva became a “certified community” in 2001 with the adoption of the final version of the City’s stormwater ordinance. The Lake County Stormwater Management Commission provided a template that was the basis of the City’s Stormwater Management Program Plan (SMPP). The plan’s purpose was to meet the minimum standards required by the U.S. Environmental Protection Agency (EPA) under the National Pollutant Discharge Elimination System (NPDES) Phase II program.
Mr. Callocchia led a team that conducted a financial analysis as a part of a Citywide Watershed Study. The City supported the drainage and stormwater-related costs through its General Fund. His role in the Watershed Study was to support and participate in the initial City staff meeting to establish a City Vision document. Mr. Callcocchia also identified current grants and funding sources and developed funding strategies to facilitate the City’s Public Works Department’s capital and operational needs related to their drainage infrastructure responsibilities. He recommended funding gap strategies associated with an annual program and budget and participated in and supported a City Council strategic planning workshop topic related to the Citywide Stormwater Report and financial perspectives.
Mr. Callocchia developed a water and sewer rate model for the City of Annapolis, Maryland, that projected various debt scenarios, including bond coverage calculations and cash-on-hand target projections. The City was able to generate ratings of AA-, Aa3, and AA- from the three major rating agencies and issue the revenue bonds in the amount of $30,755,000 on schedule, thanks to the feasibility report generated by Mr. Callocchia’s team.
Water and Sewer Revenue Bond Feasibility Study
Utility Billing Dispute
Silgan Plastics is the leading manufacturer of metal containers in North America and Europe and the largest manufacturer of metal food containers in North America, with a volume of approximately half the market share in the United States of America. They are also a leading worldwide manufacturer of metal, composite and plastic closures for food and beverage products. Mr. Callocchia led a team to evaluate the utility rates charges to a selection of Silgan’s manufacturing plants and assist Silgan in settling rate disputes with local utility providers. Mr. Callocchia’s detailed evaluations and expert analysis resulted in a settlement agreement for more than $500,000 above the amount previously offered to Silgan before Mr. Callocchia’s involvement.
Litigation Support
NEWGEN STRATEGIES AND SOLUTIONS, LLC 3City Council Regular Meeting - Page 659 of 1385 Eric
CALLOCCHIA
PRINCIP AL
4 NEWGEN STRATEGIES AND SOLUTIONS, LLC
Benefit Assessment Dispute
The City of Westminster, Maryland, was sued by a new customer who alleged that the methodology used by the City to calculate its water and sewer benefit assessments, commonly known in the utility industry as System Development Charges, was unlawful. Mr.
Callocchia served as an expert witness detailing the industry standard methodologies used to calculate these fees and provided the Court with the rationale and basis for the City’s fees. The Court ultimately found that the City’s fees were not illegally calculated based on the City’s testimony, which included Mr. Callocchia’s expert witness statements.
Water Rate Litigation
The San Diego County Water Authority (SDCWA) and The Metropolitan Water District of California (MWD) were engaged in litigation regarding the water rates charged to SDCWA by MWD. Mr. Callocchia developed a report on MWD’s rate setting methodology and how it relates to the principles and industry standard practices detailed in the American Water Works Association (AWWA) Manual M1 - Principles of Water Rates, Fees, and Charges. Mr. Callocchia’s evaluation assisted SDCWA in its efforts to show the illegality of MWD’s rates based on their non-conformity to both AWWA standards and California Law (Proposition 26). Mr. Callocchia’s work involved cost-of-service analysis and knowledgeable explanation of industry standards to the Superior Courts of California. After Mr. Callocchia’s report, a judge ruled in favor of the Water Authority, saying MWD’s rates for 2011-2014 were illegal, and awarded SDCWA $235 million. Upon appeal, the appellate court ruled in favor of MWD on one of twelve issues. The California Supreme Court denied a petition by SDCWA to review the appellate court ruling. The results of the dispute in which Mr. Callocchia was involved as an expert were:
• MWD must pay the Water Authority approximately $51 million for the so-called “Water Stewardship” charges that MWD added to the transportation rates it charged the Water Authority from 2011-2014. The decision prevents MWD from imposing more than $20 million in illegal charges annually in the future. By 2047, those unlawful charges would have amounted to approximately $1.1 billion.
• MWD unlawfully under-calculated the Water Authority’s statutory water right to MWD’s water supply. • A contract clause MWD used to disqualify local water supply projects in San Diego County from receiving funding from MWD was unconstitutional.
• Engage in a public information campaign to educate the City’s citizens on the need for additional resources for stormwater management.
• Assist in implementing a Stormwater Utility that properly accounts for the City’s stormwater costs.
PRESENTATIONS AND PUBLICATIONS
WEF Manual 27, Financing and Charges for Wastewater Systems, Contributing Author Setting Water and Sewer Rates in New York State While Addressing the Challenges of 2020 New York State GFOA 2020 Northeast Holiday Seminar, 2020 Setting Water and Sewer Rates
New York State GFOA 38th Annual Conference, 2017
A World without Crystal Balls: Attempting to Forecast Operating Expenses Tri-Association Conference, 2016
Enhanced General Fund Reimbursement by Enterprise Funds Brown Edwards Conference, 2014
City Council Regular Meeting - Page 660 of 1385
1 NEWGEN STRATEGIES AND SOLUTIONS, LLC
Bringing 19 years of experience, Mr. Maker is Deputy Director of NewGen’s Water Practice and a Partner applying management, financial and technical experience. Day- to-day responsibilities include managing client projects, developing analytical financial models, and compiling comprehensive reports and presentations.
Michael
MAKER
P ARTNER
CONTACT
911-A Commerce Road
Annapolis, MD 21401
Email:
Website:
[email protected]
www.newgenstrategies.net
EDUCATION
Master of Business Administration in Finance,
Loyola University
Bachelor of Arts in Economics, University of
Rochester, Minor: Electrical Engineering
PROFESSIONAL MEMBERSHIPS
American Water Works Association (AWWA) -
Active member of the following:
- Workforce Strategies Committee
- Finance, Accounting &
Management Controls Committee
- Chesapeake AWWA Utilities
Committee
- Virginia AWWA Utility Management
Committee
Water Environment Federation (WEF)
Government Finance Officers Association
(GFOA)
RELEVANT EXPERIENCE
Mr. Maker prepares cost of service and rate studies for water, wastewater, stormwater, and solid waste utilities. His responsibilities included the development of cost of service cash flow model, rate design, fee design, and customer impact analysis. Models developed by Mr. Maker have provided clients with the necessary information to make critical capital financing decisions and rate adjustments to fully finance replacement needs while maintaining a healthy cash balance.
He has also provided policy direction based on industry standards regarding reserve levels and line replacement funding. The models developed can assess the impacts of sensitivity analysis of inflation and growth assumptions and various what-if scenarios. Mr. Maker has recommended alternative rate structures and assisted in implementing phased-in rate plans that address each client’s specific issues and maintain the financial health of utility funds. Mr. Maker completed cost of service and rate studies for the following clients (sorted alphabetically by state abbreviation and utility):
Cost of Service and Rate Design
• Branford, CT
• Cheshire, CT
• Manchester, CT
• Montville, CT
• Stratford, CT
• Watertown, CT
• Milton, DE
• Glenview, IL
• Morton Grove, IL
• Orland Park, IL
• Auburn, MA
• Barnstable, MA
• Anne Arundel County,
MD
• Baltimore, MD
• Baltimore County, MD
• Calvert County, MD
• Cecil County, MD
• Elkton, MD
• Emmitsburg, MD
• Frederick, MD
• Frederick County, MD
• Frostburg, MD
• Garrett County, MD
• Hagerstown, MD
• Harford County, MD
• Kent County, MD
• Rockville, MD
• Washington Sub. San.
Comm., MD
• Westminster, MD
• Cape Fear Public
Utilities Auth., NC
• Holly Springs, NC
• Claremont, NH
• Exeter, NH
• Camden, NJ
• Evesham Municipal
Utilities Auth., NJ
• Albertson Water
District, NY
• Beacon, NY
KEY EXPERTISE
• Rate and Fee Design
• Financial Modeling
• Cost of Service Analyses
• Operational Audits
• Management Studies
• Efficiency and Effectiveness Studies
• Demand/Usage Projections
• Benchmarking/Comparative Analyses
• Research and Data Analyses
• Process/Workflow Mapping
City Council Regular Meeting - Page 661 of 1385
2 NEWGEN STRATEGIES AND SOLUTIONS, LLC
Michael
MAKER
P ARTNER
• Bethpage Water District, NY
• Carle Place Water District, NY
• Fishers Island, NY
• Fishkill (Town), NY
• Fishkill (Village), NY
• Hicksville Water District, NY
• Jericho Water District, NY
• Mohawk Valley Water Authority, NY
• Plainview Water District, NY
• Port Washington Water District, NY
• Rochester, NY
• Suffolk County Water Authority, NY
• Tivoli, NY
• Water Auth. of Great Neck North,
NY
• West Hempstead Water District, NY
• Canton, OH
• Clermont County, OH
• Cleveland, OH
• Dublin, OH
• Niles, OH
• Perrysburg, OH
• Summit County, OH
• Tallmadge, OH
• North Middleton Township, PA
• Pittsburgh Water/Sewer Auth., PA
• Bristol County Water Authority, RI
• North Kingstown, RI
• Highland Park, TX
• Sharyland Water Supply Corporation,
TX
• Tyler, TX
• Westlake, TX
• Albemarle County, VA
• Charlottesville, VA
• Chincoteague, VA
• Fauquier County, VA
• Franklin, VA
• Hampton, VA
• Henrico County, VA
• Herndon, VA
• James City Service Authority, VA
• Leesburg, VA
• Lexington, VA
• Lovettsville, VA
• Newport News, VA
• Norfolk, VA
• Portsmouth, VA
• Purcellville, VA
• Richmond, VA
• Rivanna Water & Sewer Authority, VA
• Southampton County, VA
• Stafford County, VA
• Warrenton, VA
Mr. Maker has given numerous presentations and participated in training and workshops.
Presentations and Publications
• “Harnessing the Power of Data - Using Key
Performance Indicators and Benchmarks to
Optimize Operations”; 2022 CSAWWA Tri-
Association Conference
• “Utility Best Management Practices: Strong Adopted
Financial Management Policies”; Reviewer, Journal
AWWA, April 2022
• “System Development Charges: Funding Growth in
Maryland”; 2021 Chesapeake AWWA Tri-Association
Conference
• “Setting Water and Sewer Rates in New York State”;
New York GFOA Northeast Holiday Seminar (2020)
• “Vision Beyond 2020: Preparing and Paying for
Growth in the Commonwealth”; 2020 Virginia AWWA
WaterJAM
• “Setting Water Rates: State of the Industry”; Long
Island Water Conference (2019)
• “EPA’s Definition of Affordability”; 2017 Tri-
Association Conference (CSAWWA, CWEA, WWOA)
• “Setting Water and Sewer Rates”; 2017 New York State GFOA 38th Annual Conference
• “Defining Affordability”; 2016 AWWA Annual Conference & Exposition (ACE)
• “A World without Crystal Balls: Attempting to Forecast Operating Expenses”; 2015 Water Asset Management
Conference
• “Stormwater Utility Financial Analysis: A Case Study of the City of Hampton”; Virginia Lakes and Watersheds Association 2013 Virginia Water Conference
• “LEED Certified Water Efficient Buildings and Water and Sewer Capacity Fees”; 2012 CSAWWA Tri-Association Conference
• “Stormwater Utilities in Virginia”; 2013 Brown Edwards Conference
• “Creating Sustainable Infrastructure”; Maryland GFOA 2009 Spring Conference
•
City Council Regular Meeting - Page 662 of 1385
Mr. Zak Wright performs appraisals, financial analyses, cost of service studies, and rate design studies for electric, water, and wastewater utilities. Before joining NewGen, he worked as a Commercial Credit Analyst and has experience in corporate finance, pro forma financial analysis, financial modeling, underwriting, banking, and strategic and capital planning. He attained his Master of Business Administration from the Massey School of Business at Belmont University. Mr. Wright is an Accredited Senior Appraiser (ASA), Machinery and Technical Specialties by the American Society of Appraisers.
Zak C.
WRIGHT
MANAGER
CONTACT
49 Music Square West, Suite 505
Nashville, TN 37203
Email: [email protected]
Website: www.newgenstrategies.net
EDUCATION
Master of Business Administration, Belmont
University
Bachelor of Business Administration in
Finance, University of Tennessee Knoxville
PROFESSIONAL REGISTRATIONS/
CERTIFICATIONS/ AWARDS
Accredited Senior Appraiser (ASA) by the
American Society of Appraisers
KEY EXPERTISE
Appraisals and Valuation
Contract and Formula Rate Review
Cost on Equity/Rate of Return Filings
Cost of Service and Rate Design
Depreciation Useful Life Analyses
Financial Feasibility Analysis
Financial Planning & Budgeting Models
Municipalization Feasibility Analysis
Power Supply Planning
Rate Benchmarking & Analysis
RELEVANT EXPERIENCE
Cost of Service and Rate Design
• City of Bonham, TX
• City of Gatesville, TX
• City of Justin, TX
• City of Lewisville, TX
• City of Mansfield, TX
• City of Marshall, TX
• City of Mt. Pleasant, TX
• City of Paris, KY
• Coachella Valley Water District, CA
• Corbin Utilities Commission, KY
• Princeton Electric Plant Board, KY
Mr. Wright assists in conducting wholesale and retail cost of service and rate design studies for electric distribution, natural gas distribution, and water and wastewater utilities to help them understand the operational and financial impacts of their residential and commercial services. These studies include creating wholesale and retail rate models in Microsoft Excel that are customized to meet the needs of each client. Many of these studies also included the creation of complex databases from Advanced Metering Infrastructure (AMI) datasets to support the wholesale and retail models. His clients include:
NEWGEN STRATEGIES AND SOLUTIONS, LLC 1 Financial Planning & Budgeting Models
• City of Charlottesville, VA
• City of Denton, TX
• City of Fayetteville, NC
• City of Georgetown, KY
• Cleveland Public Power, OH
• Fairbanks Natural Gas / Interior Gas
Utility, AK
• Kentucky Municipal Energy Agency,
KY
• Neel-Schaffer, Inc. (City of Biloxi), MS
Mr. Wright develops comprehensive financial models to streamline utility rate design studies and determine the optimal level of funded debt and capital investment within various budget, usage, and customer base scenarios. His clients include:
City Council Regular Meeting - Page 663 of 1385
Zak C.
WRIGHT
MANAGER
Mr. Wright benchmarks competitors’ rates against the client’s rates to determine costs based on several factors, including specific usage patterns and customer classes. He developed recommendations on the potential rate design. His benchmarking clients include:
Mr. Wright analyzed the impact of fluctuating natural gas and funded debt prices on the economic viability of constructing a natural gas distribution system and utility in Alaska. He assessed the customer conversion rate and its impact on the utility’s ability to deliver gas at a lower price. Mr. Wright also conducted a rate review on behalf of Cumberland River Southeastern Power Administration (SEPA) end-use customers. The assessment helped illustrate to the power administration that building a 50-year rate that included the cost of all potential capital improvement projects during that period would make the power unmarketable to these customers. This analysis helped encourage the power authority to incorporate a compromise true-up approach into their rate design.
• CPS Energy, TX
• City of Bardstown, KY
• Mayfield Electric and Water
Systems, KY
• City of Nicholasville, KY
2 NEWGEN STRATEGIES AND SOLUTIONS, LLC
Rate Analysis
• Cumberland River Southeastern
Power Administration (SEPA)
customers
• Stantec (Interior Gas Utility), AK
Rate Benchmarking
Mr. Wright compiled demographic information from comparable municipal electric districts to approximate customer base, usage, and revenue information to support the client’s investigation into forming a municipal electric system. He utilized the compiled data and the most recent incumbent utility’s cost of service data to develop a financial model assessing the financial feasibility of this undertaking and its economic impact on the city and its residents. Mr. Wright’s municipalization projects include:
Municipalization Feasibility Analysis
• City of Spearfish, SD
Mr. Wright reviews annual rate formulas to ensure they comply with settlement agreements between a group of municipal utilities and an investor-owned utility (IOU). He also verifies that settlement formulas and calculations that the IOU filed with the Federal Energy Regulatory Commission (FERC) accurately determined the monies due to the cities. Mr. Wright’s clients include:
• City of Bardwell, KY
• City of Nicholasville, KY
• City of Paris, KY
• Kentucky Municipal Energy
Agency, KY
• Kentucky Municipal Group, KY
Contract and Formula Rate Review
Mr. Wright reviews requests for proposal responses and develops a common-size expense model to determine the all-in cost of each respondent’s proposal. He also supports the development of the project award recommendation. His projects include:
• City of Bardwell, KY
• City of Paris, KY
• Kentucky Municipal Energy
Agency, KY
• Kentucky Municipal Group, KY
Power Supply Planning
City Council Regular Meeting - Page 664 of 1385
Water and Wastewater Systems
Zak C.
WRIGHT
MANAGER
NEWGEN STRATEGIES AND SOLUTIONS, LLC 3 Mr. Wright developed a database to test the accuracy of franchise fee payments to a group of cities in Texas. He manipulated approximately 40GB flat file of raw data from discovery into models that tested for under-recovery for cities and provided defensible results.
• Lloyd Gosselink
Franchise Fee Analysis
Mr. Wright has conducted valuations and fair market value appraisals to determine an indication of value for acquisitions/ dispositions or to evaluate municipalization or privatization of utilities. His experience also includes service area valuations to assess compensation for decertification of areas covered by certificates of convenience and necessity.
Appraisals and Valuation
• Aqua Texas
• Bickerstaff heath Delgado Acosta
LLP
• Canyon Lake Water Service
Company
• Central States Water Resources
• City of Lawrenceville, GA
• Clifford, Ross, Raudenbush &
Cooper, LLC, AZ
• Conrad Consulting & Training
LLC, IN
• Dentons Bingham Greenebaum
LLP
• Gregg Law PC
• King George County Service
Authority, VA
• Public Utility Commission of
Texas
• Sands Anderson, PC
• Scurry County, TX
• SouthWest Water, Inc.
• Town of Lexington, SC
• York Water Company
Power Generation Assets
• CPS Energy, TX
• Greer, Herz & Adams, LLP, TX
• MWH America, Inc.
• Robbins Schwartz
• Somervell County Appraisal
District, TX
• Williams Mullen
Hydro-electric Generation Assets
• City of Hamilton, OH • Dentons Bingham Greenebaum
LLP
• Walden Environmental
Engineering
Coal Generation Assets
• Rusk County Appraisal District,
TX
• Shawnee Community Unit
School District 84
• Tri-State G&T Association, CO
Power Distribution Assets
• City of Harrisonburg, VA • Middle Tennessee Electric Membership Corp.
• MWH Corporation, TN
Oil Refining Facilities
• Greer, Herz & Adams, LLP, TX
City Council Regular Meeting - Page 665 of 1385
Zak C.
WRIGHT
MANAGER
4 NEWGEN STRATEGIES AND SOLUTIONS, LLC
Gas Assets
• City of Rockport, TX
Waste-to-Energy Facilities
• City of Lisbon, CT
• Onandaga County Resource Recovery Agency, NY
Power Supply Contracts
• Basic Management, Inc., NV
Solar Assets
• Parker Gentry & Parker, Inc.
CCN Decertification
• Bickerstaff Heath Delgado
Acosta LLP, TX
• Gregg Law PC, TX
• Mustang/Marilee SUD, TX
• Public Utility Commission of
Texas
Mr. Wright performs actuarial life analyses to determine the estimated useful life span of generation, transmission, and distribution plants for depreciation studies. These studies include:
• City Light & Power, WA
• Kauai Island Utility Cooperative,
HI
• Los Angeles Department of
Water and Power, CA
• Tri-State G&T Association, CO
Depreciation Useful Life Analyses
City Council Regular Meeting - Page 666 of 1385
Ms. Tia Carnes joined the firm as a Consultant in February 2020. During her tenure, she has provided financial modeling, appraisal/valuation support, cost of service and rate design analyses, and most notably, support to the organizational review and workshop development projects. Her experience includes leadership training and development, team assessment, and financial analysis. Ms. Carnes came to NewGen with a strong background in customer service, logistics, and high-volume task management.
Tia
CARNES
SENIOR CONSUL TANT
CONTACT
49 Music Square West, Suite 505
Nashville, TN 37203
Email: [email protected]
Website: www.newgenstrategies.net
EDUCATION
Master of Business Administration, Belmont
University
Bachelor of Science in Bible/Biblical Studies,
Cairn University
KEY EXPERTISE
Appraisals and Valuation
Cost of Service and Rate Design
Financial Planning & Budgeting Model
Organizational Effectiveness
Rate Benchmarking & Analysis
RELEVANT EXPERIENCE
Organizational Effectiveness
• City of Denton, TX • CPS Energy, TX • DEMCO, LA
Ms. Carnes conducts a high-level review of an organization to determine best practices, areas for improvement, and recommend solutions. Her contributions include analysis of survey results determining the organizational health of the client and facilitating workshops to build team skills and organizational effectiveness. Her clients include:
NEWGEN STRATEGIES AND SOLUTIONS, LLC 1 Cost of Service and Rate Design
• City of Brea, CA
• City of Charlottesville, VA
• City of Coachella Valley, CA
• City of Lewisville, TX
• City of Maryville, MO
• City of Orland Park, IL
• City of Springfield, MO
• City of Waco, TX
Ms. Carnes performs cost of service and rate design studies for electric, wholesale and retail water, reclaimed water, wastewater, drainage, and natural gas utilities.
She assists clients in understanding their service offerings’ financial and operational impacts and develops rates intended to fully recover operating costs. Her clients include:
Appraisals and Valuation
Ms. Carnes performs appraisals analyses to develop value indicators using the income, cost, and market valuation approaches. Her appraisal projects include:
Power Generation Assets
• Somervell County Appraisal District, TX • Robbins Schwartz Power Distribution Assets
• City of Harrisonburg, VA
Water and Wastewater Systems
• Town of Lexington, SC
Power Supply Contracts
• Basic Management, Inc., NV
City Council Regular Meeting - Page 667 of 1385
NEWGEN STRATEGIES AND SOLUTIONS, LLC 1 Mr. Aidan Oates joined NewGen in 2021, providing financial modeling, cost of service, and rate design assistance. His experience includes valuation, trading, economics, and investment banking specific to the Energy industry.
Aidan
OATES
CONSUL TANT
CONTACT
911-A Commerce Road
Annapolis, Maryland 21401
Email: [email protected]
Website: www.newgenstrategies.net
EDUCATION
Master of Energy Management, Tulane
University
Bachelor of Arts in English Literature and
Finance, The College of William and Mary
KEY EXPERTISE
Cost of Service and Rate Design
Financial Planning & Budgeting Model
Renewable Energy Equity
RELEVANT EXPERIENCE
Heikkinen Energy Advisors
• Began the renewable energy equity research division by initiating coverage on several renewable companies operating in different industry subsectors. • Built financial models to determine the inherent value of businesses operating in various renewable segments, including biomass production, sustainable utility generation, solar inverter manufacturing, battery distribution, and solar installation.
• Updated the models for mergers, acquisitions, debt and equity offerings, and general industry developments.
• Performed market research, valuation alterations, and quarterly report updates for publication.
• Created a system of comparing reporting across solar installation companies.
Cost of Service and Rate Design
• Albemarle County
Service Authority, VA
• Bloomington and
Normal Water
Reclamation District, IL
• City of Brea, CA
• City of Frederick, MD
• Coachella Valley Water
District, CA
• Town of Barnstable, MD
• Township of Hamilton, NJ
• Town of Middleburg,
VA
• Village of Orland
Park, IL
Mr. Oates works with NewGen project managers to build financial models for utility clients. These models utilize industry-standard cost allocation methodologies and allow clients to project their systems’ operating, capital, debt service, and reserve requirements on both a short and long-term basis. Mr. Oates provides expert utility billing analysis to project utility revenues properly. Clients that Mr. Oates has provided these services to include:
EXPERIENCE PRIOR TO JOINING NEWGEN
Equity Research Associate
Thompson Financial Group
• Balanced, designed, and reconstructed individual portfolios based on weighted risk tolerance considerations, market factors, and investment horizon. • Led a team of new representatives to analyze modern sales trends and the effect of keyword marketing on specific territories within several archetypal Maryland markets.
Financial Advisory Associate
City Council Regular Meeting - Page 668 of 1385
Mr. Short is a Consultant at NewGen, applying financial modeling skills to a broad range of rate design projects for clients. Mr. Short has extensive experience analyzing utility billing data to project cash flow and financing scenarios as a part of utility rate studies.
Nick
SHORT
CONSUL TANT
CONTACT
911-A Commerce Road
Annapolis, Maryland 21401
Email
www.newgenstrategies.net
EDUCATION
Bachelor of Arts in Economics, Towson
University
KEY EXPERTISE
Cost of Service Analyses
Economics
Financial Modeling
Operational Benchmarking
Performance Metrics
Rates and Fee Design
RELEVANT EXPERIENCE
Water and Sewer Rate Studies
• Albemarle County, VA
• Albertson Water
District, NY
• Anne Arundel County,
MD
• Bristol County Water
Authority, RI
• Calvert County, MD
• Carle Place Hamlet, NY
• City of Baltimore, MD
• City of Camden, NJ
• City of Canton, OH
• City of Charlottesville,
VA
• City of Dover, DE
• City of Dublin, OH
• City of Frederick, MD
• City of Fredericksburg,
VA
• City of Hagerstown, MD
• Town of Highland Park,
TX
• Town of Holly Springs,
NC
• Town of Middleburg, VA
• Town of Wallingford, CT
• Town of Warrenton, VA
• City of Hampton, VA
• City of Hazelton, PA
• City of Niles, OH
• City of Perrysburg, OH
• City of Portsmouth, VA
• City of Richmond, VA
• City of Tallmadge, OH
Town of Tyler, TX
• City of Vienna, VA
• City of Waco, TX
• City of Watertown, MA
• Clermont County, OH
• Coachella Valley Water
District, CA
• County of Baltimore,
MD
• Town of Westlake, TX
• Township of East
Brunswick, NJ
• Village of Addison, IL
• Village of Libertyville, IL
• Delaware County
Regional Water Quality
Control Authority, PA
• Fairfax County, VA
• Fisher’s island, NY
• Frederick County, MD
• Hicksville Water
Authority, NY
• Jericho Water District,
NY
• North Middleton
Township, PA
• Ocean City, MD
• Plainview Hamlet, NY
• Port Washington
Water District, NY
• Rivanna Water and
Sewer Authority, VA
• Town of Barnstable,
MA
• Town of Herndon, VA
• Water Authority of
Great Neck North, NY
• WCPSA & Town of
Pound, VA
• West Hempstead
Hamlet, NY
Mr. Short works with NewGen project managers to build financial models for utility clients. These models utilize industry standard cost allocation methodologies and allow clients to project the operating, capital, debt service and reserve requirements of their systems on both a short and long-term basis. Mr. Short provides expert utility billing analysis in order to properly project utility revenues. Clients that Mr. Short has provided these services to include:
NEWGEN STRATEGIES AND SOLUTIONS, LLC 1City Council Regular Meeting - Page 669 of 1385 APPENDIX B:
EXAMPLE RATE STUDIES
WATER AND SEWER RATE STUDY
RFP
City Council Regular Meeting - Page 670 of 1385
NOVEMBER 2022
www.newgenstrategies.net
Prepared for:
City of Brea
1 Civic Center Circle, 3rd Floor
Brea, California 92821
© 2022 NewGen Strategies and Solutions, LLC
WATER COST OF
SERVICE & RATE STUDY
FINAL REPORT
City Council Regular Meeting - Page 671 of 1385
Economics | Strategy | Stakeholders | Sustainability
www.newgenstrategies.net
911-A Commerce Road
Annapolis, MD 21401
Phone: (410) 266-9101
November 8, 2022
Kristin Griffith
Administrative Services Director
City of Brea
1 Civic Center Circle
Brea, CA 92821
Subject: Water Cost of Service and Rate Study Final Report Dear Ms. Griffith:
NewGen Strategies and Solutions, LLC (NewGen) is pleased to submit to the City of Brea this final report detailing our completed Water Cost of Service and Rate Study. This report details the results of our analysis of the forecasted costs of providing water service to the City’s customers and our recommendations for recovering these costs over the next five years.
We appreciate the opportunity to provide our professional services to the City and would like to express our sincere appreciation to City staff. The dedication and assistance provided by City staff was essential to the completion of this study. It has been a distinct pleasure to work with the City of Brea.
Very truly yours,
Eric Callocchia Tianna Carnes
Principal Senior Consultant
NewGen Strategies and Solutions, LLC NewGen Strategies and Solutions, LLC DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 672 of 1385
Table of Contents
Economics | Strategy | Stakeholders | Sustainability
Table of Contents
Executive Summary ................................ ................................ ................................ ............................ 1 Section 1 Project Background and Scope ................................ ................................ ............................. 4 Study Background ............................................................................................................................... 4 Study Objectives and Guiding Principles ............................................................................................ 4 Study Approach .................................................................................................................................. 5 Fiscal Year ........................................................................................................................................... 5 Section 2 Water System Revenue Requirements ................................ ................................ ................. 6 Major Study Assumptions .................................................................................................................. 6 Operating and Maintenance Cost Escalation Factors .............................................................. 6 Minimum Required Water Fund Cash Balance ........................................................................ 6 Operating and Maintenance Expenses ............................................................................................... 7 Additional Full Time Employees ............................................................................................... 7 Purchased Water ...................................................................................................................... 8 City Costs .................................................................................................................................. 8 Existing Debt Obligations .................................................................................................................... 9 Capital Improvement Plan .................................................................................................................. 9 New Debt Service Projections ................................................................................................ 11 Miscellaneous Non-Rate Revenues ........................................................................................ 12 Revenue Requirement Projection .................................................................................................... 13 Section 3 Customers and Consumption ................................ ................................ ............................. 14 Water System Customers and Consumption ................................................................................... 14 Single-Family Residential Tiers ......................................................................................................... 15 Customer Growth Forecast .............................................................................................................. 15 Section 4 Cost of Service Analysis ................................ ................................ ................................ ..... 17 California Constitution - Article XIII D, Section 6 (Proposition 218) ................................................. 17 Cost of Service Process ..................................................................................................................... 17 Test Year Revenue Requirement ...................................................................................................... 17 Basis for System Wide Cost Allocation ................................................................................... 18 Fixed Charge Cost Allocation.................................................................................................. 20 Volumetric Charge Cost Allocation ........................................................................................ 21 Section 5 Financial Plan and Recommended Rates ................................ ................................ ............ 26 Financial Projections Under Current Rates ...................................................................................... 26 FY 2022 Water Rates .............................................................................................................. 26 Cash Flow and Fund Balance Projections Under Current Rates ............................................ 27 Recommended Rate Changes ........................................................................................................... 29 Recommended Rates ............................................................................................................. 29 Cash Flow Under Recommended Revenue Increases ...................................................................... 31 Section 6 Bill Comparisons ................................ ................................ ................................ ............... 32 Regional Bill Comparison .................................................................................................................. 32 DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 673 of 1385
Table of Contents
ii Thoughtful Decision Making for Uncertain Times
Section 7 Conservation Rates ................................ ................................ ................................ ........... 33 Conservation Rates - Ten Percent Use Restriction ........................................................................... 33 Conservation Rates – Twenty Percent Use Restriction .................................................................... 34 Conservation Rates – Thirty Percent Use Restriction ....................................................................... 35
DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 674 of 1385
List of Tables and Exhibits
Thoughtful Decision Making for Uncertain Times iii
List of Tables and Exhibits
Table E-1 Water Fund Net Revenue Requirement Forecast ......................................................................... 1 Exhibit E-2 Water Fund Expenses vs. Revenues Under Current FY 2022 Rates ............................................ 2 Exhibit E-3 Projected Water Fund Balance Under Current FY 2022 Rates ................................................... 2 Table E-4 Recommended Water Rate Changes ............................................................................................ 3 Table E-5 Projected Monthly Customer Bills – Median Residential Customer ............................................. 3 Table 2-1 O&M Cost Escalation Factors ........................................................................................................ 6 Table 2-2 Minimum Water Fund Reserve Requirement Forecast ................................................................ 7 Table 2-3 Operating and Maintenance Expenses Forecast .......................................................................... 9 Table 2-4 Current Debt Service Obligations by Issue .................................................................................... 9 Table 2-5 FY 2022 – FY 2027 Capital Projects as provided in the City’s Master Plan ................................. 10 Exhibit 2-6 Five-Year Capital Plan Summary by Funding Source ................................................................ 11 Table 2-7 Forecasted Debt Service Coverage Ratio – Current and Recommended Rates ......................... 12 Table 2-8 Water Fund Non-Rate Revenues Forecast .................................................................................. 12 Table 2-9 Water Fund Net Revenue Requirement Forecast ....................................................................... 13 Table 3-1 FY 2021 Water Customers .......................................................................................................... 14 Table 3-2 FY 2021 Water Consumption in HCF by Customer Type ............................................................. 15 Table 3-3 Single-Family Residential Tiered Consumption ........................................................................... 15 Table 3-4 Water Customer Meter Forecast ................................................................................................ 16 Table 3-5 Water Demand Forecast ............................................................................................................. 16 Table 4-1 System Wide Peaking Factors ..................................................................................................... 18 Table 4-2 Demand Allocation to System Flow Components....................................................................... 18 Table 4-3 Revenue Requirement Allocation to Cost Causative Components ............................................. 19 Table 4-4 FY 2023 Test Year Revenue Requirement ................................................................................... 19 Table 4-5 FY 2023 Equivalent Meter Calculation ........................................................................................ 20 Table 4-6 Fixed Charge Units Calculation ................................................................................................... 20 Table 4-7 FY 2023 Monthly Fixed Charge Calculation ................................................................................ 21 Table 4-8 Blended Supply Unit Cost Calculation ......................................................................................... 21 Table 4-9 Base Delivery Unit Cost Calculation ............................................................................................ 22 Table 4-10 Customer Type Peaking Factor Calculation .............................................................................. 22 Table 4-11 Residential Tier Peaking Factor Calculation .............................................................................. 23 Table 4-12 Customer Type Peaking Cost Calculation .................................................................................. 23 Table 4-13 Residential Maximum Day Peaking Cost Calculation ................................................................ 23 Table 4-14 Single-Family Residential Maximum Hour Peaking Cost Calculation ........................................ 24 Table 4-15 Single-Family Residential Peaking Cost Totals .......................................................................... 24 Table 4-16 Proposed Volumetric Rates for Non-SFR Types ........................................................................ 24 Table 4-17 Proposed Volumetric Rates – Single-Family Residential ........................................................... 25 Table 5-1 FY 2022 Fixed Customer Charges ................................................................................................ 26 Table 5-2 FY 2022 Volumetric Charges per HCF ......................................................................................... 27 Exhibit 5-3 Expenses vs. Revenues Under Current FY 2022 Rates .............................................................. 27 Exhibit 5-4 Projected Water Fund Cash Balance Projection Under Current FY 2022 Rates ....................... 28 Table 5-5 Recommended Rate Changes ..................................................................................................... 29 Table 5-6 Recommended Fixed Customer Charges .................................................................................... 29 Table 5-7 Recommended Volumetric Charges per HCF .............................................................................. 30 Table 5-8 Forecasted Monthly Customer Bills – Median Customers.......................................................... 30 Exhibit 5-9 Water Fund Expenses vs. Revenues Under Recommended Rates ........................................... 31 Exhibit 5-10 Projected Water Fund Balance Under Recommended Rates ................................................. 31 DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 675 of 1385
List of Tables and Exhibits
iv Thoughtful Decision Making for Uncertain Times
Exhibit 6-1 Sample Customer Bill, 1” Meter, 13 HCF Monthly Usage ......................................................... 32 Table 7-1 Single-Family Residential Demand Impact – Ten Percent Use Reduction .................................. 33 Table 7-2 Volumetric Charges per HCF – Ten Percent Use Restriction ...................................................... 34 Table 7-3 Single-Family Residential Demand Impact – Twenty Percent Use Reduction ............................ 34 Table 7-4 Volumetric Charges per HCF – Twenty Percent Use Restriction ................................................ 34 Table 7-5 Single-Family Residential Demand Impact – Thirty Percent Use Reduction............................... 35 Table 7-6 Volumetric Charges per HCF – Thirty Percent Use Restriction ................................................... 35
DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 676 of 1385
1 Economics | Strategy | Stakeholders | Sustainability
EXECUTIVE SUMMARY
The City of Brea operates a water distribution system with over 13,000 customer connections, over 200 miles of pipes, and various pumps and reservoirs. The City’s Water Division, part of the Department of Public Works, is responsible for the City’s water system, with duties including backflow prevention and maintaining water quality. Brea imports 100% of its water from two major water suppliers, Metropolitan Water District of Orange County and California Domestic Water Company. Both suppliers have increased their rates consistently over that past several years. In addition, the City is required to expend capital for essential maintenance and improvements to the water system. The current water rates went into effect on July 1, 2017. The City recently completed a Water System Master Plan that defines over $18.8 million in projects to meet existing deficiencies, over $2.6 million in projects to improve system reliability, and over $103.8 million in projects to meet build-out demand.
The City engaged NewGen Strategies and Solutions, LLC (NewGen) to conduct a Water Cost of Service and Rate Study. The goal of the study is to ensure that revenues cover the cost of service, meet the Water Fund’s debt coverage and reserve requirements, and provide for future capital improvement projects as defined by the Water System Master Plan.
Projected Water System Revenue Requirement
The revenue requirement of the City’s water system is the total of the projected costs related to Operating and Maintenance (O&M) , Pay-as-you-go (PAYG O, i.e., cash funded) Capital Improvements, and Debt Service (both existing and future) assuming escalation of the FY 202 2 budget and financing of the City’s Capital improvement plan. The projected revenue requirement assumes that the City will spend an average of $ 5.7 million on PAYGO capital spending each year and issue no new debt . Miscellaneous non-rate revenues assume that revenue collected from Water Connection Charges increase slightly over the projection period and interest income remains 1.5% of Water Fund Balance.
Table E-1
Water Fund Net Revenue Requirement Forecast
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Operating Expenses $13,879,933 $15,923,873 $16,350,329 $16,820,202 $17,267,652 $17,720,284 Existing Debt Service $2,423,579 $2,433,698 $2,447,812 $2,928,522 $2,941,370 $2,958,481 New Debt Service $ - $ - $ - $ - $ - $ -
PAYGO Capital $3,887,250 $10,955,971 $8,834,314 $4,111,385 $3,142,943 $3,237,411 Total Rev. Req. $20,190,761 $29,313,542 $27,632,456 $23,860,108 $23,351,965 $23,916,176 Less: Misc. Revenues ($1,184,376) ($1,236,658) ($1,285,240) ($1,336,051) ($1,388,186) ($1,442,276) Net Rev. Req. $19,006,385 $28,076,884 $26,347,215 $22,524,058 $21,963,779 $22,473,899 Recommended Rate Changes
Given the revenue requirement projection detailed above and assuming the City does not increase any water rates or fees from their FY 2022 level, the following exhibits show that revenues would not be able to cover system projected (including capital) expenses in the FY 2023 and FY 2024; however, the City’s DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 677 of 1385
Executive Summary
2 Thoughtful Decision Making for Uncertain Times
existing Water Fund reserves can sustain the Fund above the minimum recommended reserve target, as shown in the following exhibits.
Exhibit E-2 Water Fund Expenses vs. Revenues Under FY 2022 Rates
Exhibit E-3 Projected Water Fund Balance Under FY 2022 Rates
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2022 2023 2024 2025 2026 2027
Million ($)
Fiscal Year
Cash Funded Capital Projects
New Debt Service
Existing Debt Service
Operating Expenses
Total Revenues (FY 2022 Rates)
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2022 2023 2024 2025 2026 2027
Millions ($)
Fiscal Year
Water Fund Balance (FY 2022
Rates)
Minimum Reserve Policy (90 Days
O&M + Annual PAYGO CIP)
DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 678 of 1385
Executive Summary
Thoughtful Decision Making for Uncertain Times 3
The revenue generated by the City’s current water rates is sufficient to sustain the City’s water system O&M and capital costs over the five-year projection period. Therefore, NewGen is not recommending any increases in water rate revenues. However, to create a more sustainable and stable revenue source for the Water Fund and align with water industry best practices , NewGen is recommending that the City adopt rates that increase the proportio n of fixed revenues from the current 17% to 25% . NewGen’s recommended rate adjustments for the City’s fixed and variable water rates is shown in the following table.
Table E-4
Recommended Water Rate Changes
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Fixed Customer Charge 48.0% 0.0% 0.0% 0.0% 0.0%
Volumetric Charge per HCF (11.0%) 0.0% 0.0% 0.0% 0.0%
Annual Cash Flow $4,441,422 ($3,724,631) ($2,115,345) $1,630,598 $2,024,415 Ending Fund Balance $16,069,833 $12,345,202 $10,229,858 $11,860,456 $13,884,871 Minimum Recommended Reserve $8,289,117 $8,795,597 $8,904,231 $9,138,621 $9,252,119 Over / (Under) Recommended Reserve $7,780,717 $3,549,605 $1,325,627 $2,721,835 $4,632,751 The minimum recommended reserve in the table above is equal to 90 days of O&M expenses plus one year of average PAYGO capital spending.
Rate Projections and Customer Impacts
The impact on the City’s median residential , lifeline, and commercial customer of NewGen’s recommended rates is as follows:
Table E-5
Projected Monthly Customer Bills – Median Residential Customer Sample Customer FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Median Inside City $65.90 $68.05 $68.05 $68.05 $68.05 $68.05 5/8" Meter $ Change $2.15 $0.00 $0.00 $0.00 $0.00
13 HCF % Change 3.3% 0.0% 0.0% 0.0% 0.0%
Median Lifeline $49.88 $51.91 $51.91 $51.91 $51.91 $51.91 5/8" Meter $ Change $2.03 $0.00 $0.00 $0.00 $0.00
12 HCF % Change 4.1% 0.0% 0.0% 0.0% 0.0%
Commercial $467.03 $469.81 $469.81 $469.81 $469.81 $469.81 2" Meter $ Change $2.78 $0.00 $0.00 $0.00 $0.00
79 HCF % Change 0.6% 0.0% 0.0% 0.0% 0.0%
The study found that the City’s water utility is well managed both operationally and financially.
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4 Economics | Strategy | Stakeholders | Sustainability
Section 1
PROJECT BACKGROUND AND SCOPE
Study Background
The City of Brea (City) operates a water distribution system with over 13,000 customer connections, over 200 miles of pipes, and various pumps and reservoirs. The City’s Water Division, part of the Department of Public Works, is responsible for the City’s water system, including backflow prevention and water quality issues. Brea imports 100% of its water from two major water suppliers, Metropolitan Water District of Orange County (MWDOC) and California Domestic Water Company (Cal Domestic). Both suppliers have increased their rates consistently over that past several years. In addition, the city is required to expend capital for essential maintenance and improvements to the water system. The current water rates went into effect on July 1, 2017 . The City recently completed a Water System Master Plan that defines over $18.8 million in projects to meet existing def iciencies, over $2.6 million in projects to improve system reliability, and over $103.8 million in projects to meet build-out demand.
The City engaged NewGen Strategies and Solutions, LLC (NewGen) to conduct a Water Cost of Service and Rate Study. The goal of the study is to ensure that revenues cover the cost of service, meet the Water Fund’s debt coverage and reserve requirements, and provide for future capital improvement projects as defined by the Water System Master Plan.
Study Objectives and Guiding Principles
The following principles were used to guide the rate study and were developed with input from City staff:
The City’s water utility must be financially self-supporting. It is assumed that the cost of operating and maintaining the water system will be supported by the fees and charges collected from water customers with no support or subsidy from other City revenues. The City’s water rates shall be sufficient to ensure the funding of an appropriate level of system rehabilitation and replacement. It is assumed that the City will continually reinvest in the water system to replace assets as they reach the end of their useful lives. The City shall maintain appropriate reserves to provide for contingencies and unplanned expenses. The City’s water rates shall be kept as low as possible over time. While it is possible to keep rates low for a period of time by not investing sufficiently in the maintenance of the water system, eventually the system will deteriorate and require substantial investments leading to the need for significant and immediate rate increases.
NewGen’s recommendations as a result of this study endeavor to maintain a balance between the increasing costs to own and operate the City’s water infrastructure and the need to maintain affordable service for City customers.
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Study Approach
NewGen’s approach to developing sustainable water rates is governed by the view that the ideal rate structure must satisfy six criteria:
Equity requires that rates and charges result in no undue discrimination among customers or customer types. Although equity is normally related to the cost of service, it should be realized that customer acceptance will center on preconceived notions of equity and fairness. Efficiency refers to the ability of the rate schedule to encourage wise use of the resources devoted to the services that the utility provides. Efficiency considerations require that:
Rates should reflect the cost of providing service.
Rates should be similar for customers or customer types served under similar conditions. Customers should be able to understand the rate schedules so that they can make rational decisions regarding their purchase of water service.
Revenue Adequacy is the most fundamental of all considerations. Revenue Adequacy recognizes that it is necessary that rates produce revenues sufficient to operate the system even if there are changes in demand for service.
Sustainability means that the objective of the rate methodology i s to keep rates low over time, not to merely keep them low for the short -term by omitting or deferring needed expenses such as maintenance and funding of necessary cash reserves.
Administrative Simplicity recognizes that limits must be placed on the comple xity of the rate schedules to keep them easy to administer and understandable to the public. Legal and Regulatory Compliance is a prime consideration because rate structures must incorporate applicable local, state, and federal statutes, as well and any in terjurisdictional agreements.
The application of these criteria should recognize that a rate schedule is a form of public policy statement, setting forth those values that the City considers important. Rate structures must be tailored to community perceptions, realities, and values, while also adhering to industry standard approaches to cost allocation and rate design.
Fiscal Year
The City operates on a fiscal year beginning July 1st and ending on June 30st each year. All years shown in this report refer to the fiscal year ending that year. For example, 2022 refers to the fiscal year beginning July 1, 2021 and ending June 30, 2022.
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6 Economics | Strategy | Stakeholders | Sustainability
Section 2
WATER SYSTEM REVENUE REQUIREMENTS
The first step of the rate study is to compile the costs of owning and operating the City’s water utility system. The three cost components of the City’s Water system are: Operating and Maintenance (O&M); Capital Improvements; and Debt Service (both existing and future). These three cost components total to the amount needed each year to run the water system. While the study is based on the latest available data, there are several major assumptions that are included in the study’s cost projections.
Major Study Assumptions
In order to project the operating, capital improvement, and debt service expenses of the City’s water system, several major assumptions must be made . NewGen’s assumptions ensure that the study’s recommendations reflect a reasonable projection of the costs of the City’s system.
Operating and Maintenance Cost Escalation Factors
NewGen’s cost projections are based on the latest available actual and budgeted data. To reasonably project future costs, escalation and inflation factors must be applied to the City’s budget line items .
NewGen’s financial model includes the following operating and maintenance budget line item inflation factors in Table 2-1. NewGen estimated a historically higher than average rate of increase for the City’s water O&M costs.
Table 2-1
O&M Cost Escalation Factors
Change Per Year
General Inflation 4.0%
Salaries 4.0%
Benefits 4.0%
Although FY 2022 budgeted O&M expenses are forecasted to increase at a rate of 4.0% per year, o n average, NewGen projects that the Water utility operating budget will increase 5.1% per year over the five-year projection period. This is due to the inclusion of additional Full Time Employees (FTEs) to support the water system.
Minimum Required Water Fund Cash Balance
Maintaining a minimum Water Fund cash balance is an essential component of the proper financial management of the City’s Water system. The wise management of resources and maintenance of a reasonable cash balance allows the City to be resp onsive to emergencies and to plan for long term sustainability. As a part of the study, NewGen used the City’s existing policy regarding the minimum fund balance reserves for the City’s Water Fund. The City’s current fiscal policies state: “The City will maintain adequate reserves in each of the enterprise funds to protect these essential City programs. Urban Runoff Fund reserves, Water Fund reserves and Sewer Fund reserves shall have a minimum operating reserve equal to three months of operating expenditures and a capital reserve equal to one -year of capital DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 682 of 1385
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Thoughtful Decision Making for Uncertain Times 7
expenditures”. Therefore, there are two compon ents to the City’s minimum cash balance policy in the study:
Operating Reserve – 90 days of each year’s annual O&M expenses. Capital Reserve – 365 days of average annual PAYGO (i.e., cash funded) capital spending.1 The minimum reserve forecast is shown below in Table 2-2.
Table 2-2
Minimum Water Fund Reserve Requirement Forecast
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
O&M Reserve $4,020,044 $4,526,524 $4,635,158 $4,869,548 $4,983,047 $5,098,874 Capital Reserve $4,269,073 $4,269,073 $4,269,073 $4,269,073 $4,269,073 $4,269,073
Reserve Recommendation $8,289,117 $8,795,597 $8,904,231 $9,138,621 $9,252,119 $9,367,946 For the FY 2022-23 Budget, the City has reserved approximately $4 .45 million in operating reserves and $5.0 million in capital reserves. These projected reserves are noted as being slightly higher than the reserves determined by this study. The amounts are contingent upon actual revenues received and expenditures spent for the year.
The City’s minimum fund balance policy is a key driver of the financial plan detailed in this report. Rates and fees are set in order to cover the operating, debt service, and capital needs of the system, as well as to maintain the minimum cash balance shown above. If at any time the projected rates in a given year would not sustain the minimum cash balance in the next fiscal year, it is assumed that rates must be increased to achieve the minimum required balance.
Operating and Maintenance Expenses
The operating and maintenance expenses of the City’s Water system are organized into several categories:
Purchased Water
Employee Costs
Overhead Costs
Operating Costs
City Costs
Employee costs are related to salaries, benefits, training, and other employee related expenses. Overhead costs are allocations of City costs to the Water Fund for City -wide costs such as vehicles, technology, retiree benefits, and insurance. Operating cos ts are related to supplies and equipment necessary to maintain, rehabilitate, and repair the sewer system. City costs are costs developed as a part of this study that are assumed to begin in FY 2023 related to the Water Fund’s use of City property and righ t-of-way.
Further detail is provided later in this section.
Additional Full Time Employees
NewGen’s study includes the addition of two (2) full time employees (FTEs) to the Water Fund budget beginning in FY 2023 at a total cost of $191,704. This cost is escalated in future years based on NewGen’s overall study assumptions.
1 NewGen used a ten-year period to determine the City’s average PAYGO capital spending.
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Section 2
8 Thoughtful Decision Making for Uncertain Times
Purchased Water
The City purchases 100% of its water supply from two wholesale providers: Metropolitan Water District of Orange County (MWDOC) and California Domestic Water Company (Cal Domestic). A vast majority of the City’s water comes from Cal Domestic, as the City owns 5,149.85 Acre Feet (AF) of entitlements with Cal Domestic. Entitlement water comes at a cost less than half of non -Entitlement water. The estimated FY 2023 amount of purchased water is 10,020 AF at a cost of about $8.5 million. The study includes a cost escalation factor of 3.0% per year for purchased water, as well as estimated of additional water purchases as the City’s customer base grows. The City will pass through any increases in wholesale water costs that exceed this assumed increase, and therefore the City’s water rates may be materially higher than those forecasted by NewGen under the study’s assumptions.
City Costs
As a part of the study, NewGen was tasked with developing appropriate cost allocations to the Water Fund for the use of City property and right -of-way (ROW) beginning in FY 2023 . NewGen’s O&M cost forecast includes three costs related to the Water Fund’s use of City property and ROW. Office Space – NewGen determined a reasonable cost per square foot of office space comparable to the utility billing counter in the commercial market in Brea based on a survey o f fifteen commercial properties. The average cost per square foot is $2.21, and the City’s utility billing counter and related office space is 720 square feet. The Water Fund splits this cost with other City services such as sewer, refuse, urban runoff, an d street sweeping. The Water Fund allocation of the monthly cost is 78.0%, resulting in an annual office space cost of $1,721 (FY 2022). This cost is escalated at 4 .0% per year thereafter.
City Property – The water system includes facilities that occupy Ci ty owned land. Most Water Fund facilities are on land that was purchased with Water Fund money, and therefore are not included in this calculation. The City’s Berry Street reservoir, however, occupies land purchased using City General Fund dollars. To dete rmine an appropriate cost for the use of City land, NewGen calculated a reasonable lease rate for the acreage occupied by the Berry Reservoir. Based on recent land transactions in Orange County where undeveloped land was purchased, NewGen determined the value of an acre of undeveloped land in Brea to be $18,427 ($15.92 per square foot). Assuming a 3.0% lease rate, the annual cost of the land occupied by the Berry Street Reservoir is $190,718 (FY 2022).
This cost is escalated at 4.0% per year in future years. City Right-of-Way (ROW) – The City’s water utility occupies about 192 miles of the City’s underground ROW. NewGen determined that a reasonable cost of this ROW is 50% of the total ROW cost, with the other 50% being the above-ground ROW unoccupied by the City’s water utility pipes. Assuming a 12 inch clearance on both sides of City water pipe and given the various diameters of pipe, the City’s buried water infrastructure occupies approximately 2.9 million square feet of City ROW. NewGen calculated the market value of the City’s total ROW to be $7.96. At a 3.0% annual lease rate, the Water Fund’s use of City ROW was determined to be $ 694,824 (FY 2022). This cost is escalated at 4.0% per year in future years.
The latest available O&M budget at the time of the study was the FY 2022 requested budget. The FY 2022 requested operating budget plus the allocations for City office space, land, and ROW is shown in Table 2-3 below.
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Table 2-3
Operating and Maintenance Expenses Forecast
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Employee Costs $2,593,844 $2,889,302 $3,004,874 $3,125,069 $3,250,072 $3,380,075 Overhead Costs $1,217,397 $1,266,093 $1,316,737 $1,369,406 $1,424,182 $1,481,150 Operating Costs $1,852,783 $1,933,068 $1,999,234 $2,068,722 $2,138,725 $2,210,971 Purchased Water $8,215,909 $8,898,934 $9,055,550 $9,244,112 $9,401,265 $9,552,545 City Costs $ - $936,476 $973,935 $1,012,892 $1,053,408 $1,095,544 Total O&M Expenses $13,879,933 $15,923,873 $16,350,329 $16,820,202 $17,267,652 $17,720,284 % Change 14.73% 2.68% 2.87% 2.66% 2.62%
The rates and fees developed in this study are sufficient to cover the increasing operating and maintenance costs of the water utility.
Existing Debt Obligations
From time to time, t he City issues debt to fund water system capital projects. As of FY 2022, the City is obligated to pay two outstanding debt issues – Series 2019 and Series 2020. Table 2-4 shows the projected loan payments related to these debt obligations over the five-year study planning period.
Table 2-4
Current Debt Service Obligations by Issue
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Series 2019 $1,763,100 $1,774,300 $1,789,800 $1,802,300 $1,816,800 $1,833,050 Series 2020 $660,479 $659,398 $658,012 $1,126,222 $1,124,570 $1,125,431 Total Annual Debt Service $2,423,579 $2,433,698 $2,447,812 $2,928,522 $2,941,370 $2,958,481 The Series 2019 loan will be paid off in FY 2039. The Series 2020 loan will be paid off in FY 2044. The rates and fees developed in this report are sufficient to fund the above stated debt obligations now and through their maturities.
Capital Improvement Plan
A major component of owning a sustainable water utility is the planning for the rehabilitation a nd replacement of the City’s assets. The City’s Capital Improvement Program (CIP) is a detailed list of projects including when they are planned to be completed and how much they are estimated to cost. NewGen’s study includes funding for all CIP projects. The City can either pay cash for projects as they are completed (referred to as PAYGO funding) , or the City may issue new debt to finance projects over a long term, typically 20 to 30 years. Table 2-5 details the projects included in the City’s Master Plan. All projects are assumed to be PAYGO funded – that is, the City will outlay cash for those projects in the year in which they are planned without taking on any additional debt.
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10 Thoughtful Decision Making for Uncertain Times
Table 2-5
FY 2022 – FY 2027 Capital Projects (as provided in the City’s Master Plan) Project FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Walnut/Orange/Juniper Lines $2,473,239
S. Brea Water Mains $784,011
Rehabilitate Ring Road $200,000
New Vehicle $51,346
New High Pressure Water Line $80,000 $1,318,400
Berry Street Pump $360,500
Replace Generator $515,000
Valencia Avenue Transmission $1,712,375
Candlewood Tract Water Mains $1,359,600
Buttonwood Drive Tract Main $2,214,500
M-Line Replacement Project $1,750,000 $1,750,000
Enterprise Tract Waterline $1,313,250 $1,352,648
Berry Street Low Pressure Pump $530,450
Pepper Tree Tract Water Main $1,442,824
Oleander St-Catalpa Ave. $1,357,952
Valencia Pipeline Replacement $2,028,441 $2,089,294
AMI Implementation $1,639,091
Puente, Site, and State College $2,748,943 $2,831,411 Misc. Water Improvements $350,000 $361,000 $372,000 $383,000 $394,000 $406,000 Total $3,887,250 $10,955,971 $8,834,314 $4,111,385 $3,142,943 $3,237,411 The City’s FY 2022 through FY 2032 CIP is included in the rate study model at the estimated costs shown above. Any increases in costs related to these projects will have a material effect on the rate forecasts developed during the study.
A key project is the implementation of Advanced Metering Infrastructure (AMI) in FY 2025. AMI includes the use of water meters that allow customers (and the City) to track individual account water on an hourly, daily, and monthly basis, typically through an online portal. Replacing traditional water meters with AMI meters can provide customers with round -the-clock readings and alert them to anomalies that may indicate a leak. With access to data in real-time, users can see changes in water usage as they happen and also monitor long-term patterns. Also, the City will have access to hourly usage data to develop a deeper understanding of how its customers use water, potentially leading to more refined cost allocations.
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Exhibit 2-6 shows the City’s planned annual CIP spending included in the study.
Exhibit 2-6 Five-Year Capital Plan Summary by Funding Source
The financial plan and rates developed during the study are projected to fully recover the cost of the above stated capital plan.
New Debt Service Projections
The City does not plan on issuing any new debt to finance water system capital projects.
Debt Service Coverage Ratio
An important metric that should be evaluated when determining the financial prudence of issuing new debt is a system’s Debt Service Coverage Ratio (DSCR). A system’s DSCR is the ratio of the system’s annual debt service payment to its annual revenues net of operating expenses. The City’s policy is to maintain a DSCR of 1.25, however utilities with the highest credit ratings often maintain debt service coverage ratios above 2.702.
2 Barnes, Glenn. “Key Financial Indicators for Water and Water Systems: Debt Service Coverage Ratio.” UNC Environmental Science Center - The Environmental Finance Blog [Chapel Hill, NC], 23 Apr. 2015, efc.web.unc.edu/2015/04/23/debt-service-coverage-ratio. $0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 FY 2032 Millions
PAYGO Average Capital Spending: $4.27 Million
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12 Thoughtful Decision Making for Uncertain Times
The City’s DSCR projections given the capital financing assumptions included in the study are shown in Table 2-7 below.
Table 2-7
Forecasted Debt Service Coverage Ratio – Current and Recommended Rates FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Existing Debt Service $2,423,579 $2,433,698 $2,447,812 $2,928,522 $2,941,370 $2,958,481 New Debt Service - - - - - -
Total Projected Debt Service $2,423,579 $2,433,698 $2,447,812 $2,928,522 $2,941,370 $2,958,481 DSCR at FY 2022 Rates 4.44 4.00 3.77 2.98 2.77 2.55
DSCR at Recommended Rates 4.44 3.97 3.74 2.96 2.76 2.55 Because the revenue generated by the recommended rates is approximately equal to the revenues generated by current rates, the forecasted DSCR is equal in both scenarios.
Miscellaneous Non-Rate Revenues
The City accounts for certain Water Fund revenues that are unrelated to the various retail rates and fees charged to customers. These non-rate revenues may be highly volatile from year to year, and the City only budgets for a conservative amount each year. To determine the annual revenue needs of the water system, these non-rate revenues need to be taken into account. There are three non-rate revenues that NewGen included in the study – Water Connection Charges, Interest Income, and Other Income . Other income includes charges such as late fees, penalties, turn on fees, and other miscellaneous fees.
Projected Miscellaneous Non-Rate Revenues
The following Table 2-8 shows the revenues that are credited to the Water Fund but are not dependent on the rates charged to the systems users.
Table 2-8
Water Fund Non-Rate Revenues Forecast
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Water Connection Fees $122,770 $132,588 $137,007 $141,888 $146,257 $150,670 Interest Income $431,145 $448,391 $466,326 $484,979 $504,379 $524,554 Other Income $630,461 $655,679 $681,907 $709,183 $737,550 $767,052 Total Misc. Revenue $1,184,376 $1,236,658 $1,285,240 $1,336,051 $1,388,186 $1,442,276 In accordance with NewGen’s approach to developing future projections, water connection charges are projected to increase in line with growth in new water connections.
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Revenue Requirement Projection
Based on the latest available operating, debt service, and capital expense data and the methodologies and assumptions detailed above, NewGen developed a net revenue requirement forecast for the City’s Water system, shown in Table 2-9.
Table 2-9
Water Fund Net Revenue Requirement Forecast
FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Operating Expenses $13,879,933 $15,923,873 $16,350,329 $16,820,202 $17,267,652 $17,720,284 Existing Debt Service $2,423,579 $2,433,698 $2,447,812 $2,928,522 $2,941,370 $2,958,481 New Debt Service $ - $ - $ - $ - $ - $ -
Cash Capital $3,887,250 $10,955,971 $8,834,314 $4,111,385 $3,142,943 $3,237,411 Total Rev. Req. $20,190,761 $29,313,542 $27,632,456 $23,860,108 $23,351,965 $23,916,176 Less: Non-Rate Rev. ($1,184,376) ($1,236,658) ($1,285,240) ($1,336,051) ($1,388,186) ($1,442,276) Net Rev. Req. $19,006,385 $28,076,884 $26,347,215 $22,524,058 $21,963,779 $22,473,899 The net revenue requirement is the basis upon which all rates and fees are calculated for the City’s system.
Although the net revenue requirement varies from year to year, the financial plan developed during the study takes a long-term perspective in order to maintain stable rates and sufficient reserves.
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14 Economics | Strategy | Stakeholders | Sustainability
Section 3
CUSTOMERS AND CONSUMPTION
The City has several types of water customers:
Single-Family Residential
Multi-Family Residential
Irrigation
Commercial
Outside Brea
Lifeline
Brea Golf Course
Fireline
The latest full year of customer and consumption data available for the study was FY 20 21. Each subsection in Section 3 details the FY 2021 data used to develop the revenue and rate projections during NewGen’s study.
Water System Customers and Consumption
The City serves about 13,250 water customers, both inside and outside the City. For most customers, the City’s current rate structure includes a monthly fixed fee based on meter size and a volumetric rate per metered Hundred Cubic Feet (HCF, equal to 748 gallons). Therefore, the City tracks customers by the size of their meter and how much water they use monthly.
Inside City Single-Family Residential customers make up most of the City’s water users. The number of City water customers by meter size is shown in Table 3-1 below.
Table 3-1
FY 2021 Water Customers
Meter
Size
Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Irrigation Brea Golf
Course Firelines
5/8" 2,980 10 50 7
3/4" 124 1
1" 7,998 55 429 105
1 1/2" 1 8 80 12
2" 15 96 5 394 284 2
3" 1 11 39 3
4" 14 19 1 1 120
6" 9 2 9 1 188
8" 2 1 152
10" 38
12" 2 0
Total 11,119 207 7 1,021 414 1 500
The total under Single-Family Residential includes customers that qualify for the City’s Lifeline Rate, which includes a reduction in the monthly fixed charge and volumetric rate per HCF. The subsidy required to reduce the water rate from these customers i s transferred into the Water Fund from the General Fund, and therefore the cost allocations in NewGen’s study do not differentiate between these customer types.
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Table 3-2 shows the billable water consumption by customer type in FY 2021.
Table 3-2
FY 2021 Water Consumption in HCF by Customer Type
Meter
Size
Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
Total HCF 1,737,676 512,303 264,620 1,033,838 60,337 596,932 54,538 Fireline customers are not charged a volumetric rate per HCF, and therefore data related to Fireline demand is not included in the study’s cost allocations.
Single-Family Residential Tiers
Brea’s Single-Family Residential customers are charged an inclining block volumetric charge structure. As a Single-Family Residential customer’s consumption increases, the cost of each unit of water increases as defined by specific tiers of monthly volume. Table 3-3 shows the breakdown of Single-Family Residential demand in FY 2021.
Table 3-3
Single-Family Residential Tiered Consumption
Monthly Tier Consumption (HCF) % of Consumption
1 - 10 HCF 1,053,433 61%
11 - 20 HCF 454,726 26%
21 - 30 HCF 145,520 8%
30+ HCF 83,997 5%
Total 1,737,676 100%
The distribution of Single-Family Residential consumption within the tiered rate structure is consistent with the City’s policy goals of incentivizing the wise use of water. NewGen does not recommend altering the City’s tier cutoffs for Single-Family Residential customers.
Customer Growth Forecast
The City has several development projects planned over the study period. NewGen included conservative estimates of customer growth that may be realized as the City’s customer base grows. These include a multi-family development Avalon Brea Place Apartments and Brea 265, a 1,100 home development planned, although Brea 265 is not estimated to come online until 2029, beyond this report’s projections.
Also included are various commercial developments within t he City’s service area. Table 3 -4 shows the assumed growth in the total number of customer meters when considering the City’s currently planned development.
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Section 3
16 Thoughtful Decision Making for Uncertain Times
Table 3-4
Water Customer Meter Forecast
Meter
Size FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
5/8" 3,047 3,048 3,048 3,048 3,048 3,048
3/4" 125 127 127 127 127 127
1" 8,587 8,664 8,669 8,672 8,672 8,672
1 1/2" 101 106 106 106 106 106
2" 796 870 870 871 871 871
3" 54 57 57 57 57 57
4" 155 158 158 158 158 158
6" 209 210 210 210 210 210
8" 155 155 155 155 155 155
10" 38 38 38 38 38 38
12" 2 2 2 2 2 2
Total 13,269 13,435 13,439 13,443 13,443 13,443
% Increase 1.3% 0.0% 0.0% 0.0% 0.0%
The growth in FY 2023 is due to the assumption that the City’s meters will now be charged for water service.
Table 3-5
Water Demand Forecast
Type FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Single Family Residential 1,737,676 1,721,067 1,703,966 1,686,926 1,670,057 1,653,356 Multi-Family Residential 512,303 538,524 537,602 541,641 537,565 532,189 Outside Brea 264,620 261,974 259,354 256,761 254,193 251,651 Commercial 1,044,511 1,077,067 1,076,522 1,081,159 1,072,472 1,062,524 Lifeline 60,337 59,734 59,136 58,545 57,959 57,380
Irrigation 596,932 729,317 722,024 714,803 707,655 700,579 Brea Gold Course 54,538 53,993 53,453 52,918 52,389 51,865 Total 4,270,917 4,441,675 4,412,056 4,392,753 4,352,290 4,309,544 % Increase 4.0% (0.7%) (0.4%) (0.9%) (1.0%)
Similarly to the results in Table 3-4, the growth in FY 2023 is due to the assumption that the City’s meters will now be charged for water service. However, NewGen assumed a per capita decline in water demand of 1.0% per year throughout all customer types. Therefore, the City’s water demand does not increase at the same rate as the increase in customers, but rather decreases in future years.
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17 Economics | Strategy | Stakeholders | Sustainability
Section 4
COST OF SERVICE ANALYSIS
California Constitution - Article XIII D, Section 6 (Proposition 218) Proposition 218, the applicable portion of which is set ou t in the California Constitution as Article XIII D, was enacted in 1996 to ensure that public agency utility service rates, fees, and charges are reasonable and proportional to the cost of providing the applicable service(s). The principal requirements for application of such rates, fees, and charges, as they relate to public water service, are as follows:
1. A property-related rate/fee/charge imposed by a public agency on a parcel shall not exceed the costs required to provide the property-related service.
2. Revenues derived by the rate/fee/charge shall not be used for any purpose other than that for which it was imposed.
3. The amount of the rate/fee/charge imposed upon any parcel shall not exceed the proportional cost of service attributable to the parcel.
The American Water Works Association’s (AWWA) M1 Manual, Principles of Water Rates, Fees, and Charges, 7th edition (M1 Manual) states that water rates and charges should be recovered from types of customers in proportion to the cost of serving those customers. Proposition 218 requires that water rates/fees/charges cannot be “arbitrary and capricious,” meaning that the rate-setting methodology must be sound and that there must be a nexus between the costs and the rates charged. NewGen’s cost of service process follows industry standard rate -setting methodologies set forth by the M1 Manual, adhering to Proposition 218 requirements by developing rates that do not exceed the proportionate cost of providing the corresponding services.
Cost of Service Process
NewGen’s approach distributes t he annual cost of providing water service is among customer types commensurate with their service characteristics. A cost-of-service analysis involves the following tasks:
1. Functionalize costs. Examples of functions are supply (i.e., purchased water), distribution, storage, meter servicing, and customer billing and collection.
2. Allocate functionalized costs to cost causation components. Cost causation components include base, maximum day, maximum hour, public fire protection, and customer service and billing costs.
3. Distribute cost causation components, using unit costs, to customer types in proportion to their use of the water system, including fixed capacity and variable demand.
In this manner, NewGen’s study develops rates that reflect the proportional demand on the City’s system by similar types of customers.
Test Year Revenue Requirement
The City’s forecasted FY 2023 net revenue requirement is the basis for the cost of service rate calculations detailed in this section. The total net revenue requirement in FY 2023 is $24,350,179, which is the total revenue requirement less miscellaneous revenues and drawdown on reserves to fund PAYGO capital.
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Section 4
18 Thoughtful Decision Making for Uncertain Times
Basis for System Wide Cost Allocation
To properly assign costs to the system’s customer types, it is necessary to determine the cost of each of the systems cost causative components. For this analysis, those components are:
Base (Average) Demand
Maximum Day Demand
Maximum Hour Demand
Customer Costs
MWDOC Water Purchases
Cal Domestic Water Purchases
Capital
Distribution
Fire Protection
The cost causative components are related to the various demands put on the system, as well as the fixed costs that do not vary with demand. To determine the distribution of demand based cost component allocations, the system’s FY 2021 demand profile was the latest available. Table 4 -1 shows the average, maximum day, and maximum hour system demand flows in cubic feet per minute (CFM) as well as the system wide peaking factors. The pe aking factor for Maximum Day and Maximum Hour demand is the ratio of those demands in CFM to the system average.
Table 4-1
System Wide Peaking Factors
Demand CFM Peaking Factor
Average 833 1.00
Maximum Day 1,325 1.59
Maximum Hour3 3,974 4.77
Certain demand related costs of the City’s system are assigned one of the demand factors above to determine the system wide costs of each component. Table 4 -2 shows the percent allocation of costs under each assignment of demand related costs.
Table 4-2
Demand Allocation to System Flow Components
Cost Component
Allocation Basis
System Wide
Peaking Factor Base Maximum Day Maximum Hour Total
Base (Average) 1.00 100% 100%
Maximum Day 1.59 63% 37% 100%
Maximum Hour 4.77 21% 12% 67% 100%
Costs of the City’s system are assigned an allocation to the following cost causative components shown in Table 4-3. Maximum Day and Maximum hour allocations have been adjusted to include 5% to Public Fire Protection.
3 The City’s latest Water Master Plan determined that the system’s maximum hour production rate is three times the maximum daily production rate.
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Cost of Service Analysis
Thoughtful Decision Making for Uncertain Times 19
Table 4-3
Revenue Requirement Allocation to Cost Causative Components Base Max
Day
Max
Hour Customer MWDOC CDWC Capital Distribution Fire
Base 100%
Max Day 60% 35% 5%
Max Hour 20% 12% 63% 5%
Customer 100%
Administrative 50% 50%
MWDOC 100%
CDWC 100%
Capital 100%
Distribution 100%
Fire 100%
Customer costs are related to customer billing and customer service. Administrative costs are related to overall cost of the City’s water system finances, administration, and management. Direct allocations exist for MWDOC, Cal Domestic (CDWC), Capital, Distribution, and Fire Protection costs.
When applied to the various line items and revenue requirement components of the City’s forecasted FY 2023 costs, the result is the cost allocation shown in Table 4-4.
Table 4-4
FY 2023 Test Year Revenue Requirement
Cost Category FY 2023 Net Revenue Requirement
Base $3,342,632
Max Day $1,972,153
Max Hour $361,095
Customer $2,583,426
MWDOC $914,400
CDWC $7,984,534
Capital $2,626,751
Distribution $4,220,546
Fire $346,714
Total $24,352,253
Note that system Capital costs reflected in Table 4 -4 does not reflect all system debt service and PAYGO capital ($13.4 million). This is due to a portion of capital costs being assigned to demand based components of Base, Maximum Day, and Maximum Hour where appropriate. Therefore, not all capital costs are assigned to the system’s fixed rate component. This allocation choice was made as to not increase the amount of fixed revenue generated from water rates above 25% (currently 17%).
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Section 4
20 Thoughtful Decision Making for Uncertain Times
Fixed Charge Cost Allocation
To properly assign fixed and variable costs of the system to customer types, NewGen developed a calculation of system wide equivalent meters based on AWWA flow capacity standards . Table 4 -5 demonstrates the calculation of system equivalent meters, which is defined as statin g the total flow capacity of all system meters in terms of 1” meters.
Table 4-5
FY 2023 Equivalent Meter Calculation
Meter Size Meters AWWA Capacity (gpm)4 AWWA Capacity Ratio FY 2023 Equivalent Meters 5/8" 3,048 20 1.0 3,048
3/4" 127 30 1.0 127
1" 8,664 50 1.0 8,664
1 1/2" 106 100 5.0 530
2" 870 160 8.0 6,957
3" 57 350 17.5 998
4" 158 630 31.5 4,977
6" 210 1,300 65.0 13,650
8" 155 2,800 140.0 21,700
10" 38 4,200 210.0 7,980
12" 2 5,300 265.0 530
Total 13,435 69,161
Table 4-6 demonstrates that the City’s system currently must maintain flow capacity to support 69,161 1” meters. Fixed costs related to system capacity are assigned based on equivalent meter units (EMUs).
Table 4-6
Fixed Charge Units Calculation
Fixed Capital Distribution Customer Service and Billing Total Cost $2,047,116 $4,220,546 $2,583,426
Annual Units 829,930 829,930 161,219
Unit of measure (EMUs) (EMUs) (Meters)
Monthly Cost per Unit $2.47 $5.09 $16.02
4 C713-15 Fluidic-Oscillator (5/8” – 2”) C701-12 Turbine Type, Class I and II (3” – 12”), AWWA Manual M1 (Seventh Edition), Table B-2, p. 386
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Cost of Service Analysis
Thoughtful Decision Making for Uncertain Times 21
Fixed Capital costs are assigned to meters in order to maintain total cost assignments as nearly in line with AWWA meter rations as is reasonable given the Distribution and Customer Service and Billing cost allocations. Table 4-7 shows the assignment of fixed costs to develop the FY 2023 water rates.
Table 4-7
FY 2023 Monthly Fixed Charge Calculation
Meter
Size
Meter Capacity
Ratio Fixed Capital Distribution Customer Service Total 5/8" 1.0 $2.47 $5.09 $16.02 $23.58
3/4" 1.0 $2.47 $5.09 $16.02 $23.58
1" 1.0 $2.47 $5.09 $16.02 $23.58
1 1/2" 5.0 $46.28 $25.43 $16.02 $87.73
2" 8.0 $79.13 $40.68 $16.02 $135.83
3" 17.5 $183.17 $88.99 $16.02 $288.19
4" 31.5 $336.50 $160.19 $16.02 $512.72
6" 65.0 $703.41 $330.55 $16.02 $1,049.99
8" 140.0 $1,524.83 $711.96 $16.02 $2,252.81
10" 210.0 $2,291.47 $1,067.94 $16.02 $3,375.44
12" 265.0 $2,893.74 $1,347.64 $16.02 $4,257.40
Volumetric Charge Cost Allocation
The remaining costs of the system are assigned to variable rate components. Therefore, cost assignment is based on customer type demand characteristics.
First, because most supply costs apply equally to all customers, a blended cost of each unit of supply must be developed. These costs are averaged for every customer type except Outside Brea customers and the Brea Creek Golf Course . This is due to the fact that the City issued debt to purchase stocks in CDWC to reduce total cost, and therefore the benefit of this lower cost should not apply to customers who bear none of the City’s debt risk. The City decided that in the interest of fairness, the remaining customer types would pay the blended rate. The Brea Creek Golf Course pays the average cost of CDWC water, and the Outside City customers pay the average cost of MWDOC water.
Table 4-8 shows the calculation of a blended cost of purchased water per HCF.
Table 4-8
Blended Supply Unit Cost Calculation
Total Supply Purchases (AF) Total Cost Sales In HCF Cost per HCF CDWC (net BCGC) 9,382 $7,880,425 4,140,915 $1.90
MWDOC (net Outside) 601 $687,412 348,480 $1.97
CDWC % MWDOC % Blended Supply Rate
Blended Cost Calculation 10,306 92.2% 7.8% $1.91
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22 Thoughtful Decision Making for Uncertain Times
Base demand costs are assigned according to the average demand of each customer type. Table 4 -9 demonstrates the cost allocation of Base (average) water delivery costs to customer type.
Table 4-9
Base Delivery Unit Cost Calculation
FY 2023 Usage Percentage of Usage Base Delivery Costs Unit Rate Single-Family Residential 1,780,801 40.1% $1,340,162 $0.75 Multi-Family Residential 538,524 12.1% $405,272 $0.75
Outside Brea 261,974 5.9% $197,151 $0.75
Non-Residential 1,077,067 24.2% $810,559 $0.75
Brea Creek Golf Course 53,993 1.2% $40,633 $0.75
Irrigation 729,317 16.4% $548,855 $0.75
Total $3,342,632
Because Base Delivery costs are assigned according to system -wide averages, the same unit rate applies to all customer types.
System peaking costs are assigned to customer types based on the peaking characteristics of each customer type. The City does not have daily or hourly peak demand data, and therefore NewGen utilized appropriate proxies to develop Maximum Day and Maximum Hour peaking factors for each customer type. As stated previously, the implementation of AMI meters throughout the City’s system will allow the City to collect data about hourly peaking for each customer, and therefore each customer type. The data gathered from AMI technology will allow the City to refine the estimated peaking factors used in this study.
Table 4 -10 shows the calculatio n of type peaking factors based on the ratio of average monthly consumption to maximum monthly consumption. The Brea Golf Course peaks off of a well on its property that is separate from the City’s system and is therefore assigned no peak demand, resulting in a peaking factor of 1.00.
Table 4-10
Customer Type Peaking Factor Calculation
Customer Type Average Monthly Consumption Max Month Consumption Peaking Factor Single-Family Residential 149,834 182,426 1.22
Multi-Family Residential 42,692 46,752 1.10
Outside Brea 22,052 25,466 1.15
Non-Residential 87,041 108,985 1.25
Brea Creek Golf Course 4,545 - 1.00
Irrigation 61,275 83,213 1.36
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Cost of Service Analysis
Thoughtful Decision Making for Uncertain Times 23
For all customer types except Single-Family Residential, variable costs are assigned based on the peaking factors above. However, the Single-Family Residential customer type requires allocations of costs to the various HCF tiers of its variable rate structure. Table 4-11 demonstrates the calculation of peaking factor for each Single -Family Residential rate tier based on a comparison of average monthly consumption to maximum daily consumption.5
Table 4-11
Residential Tier Peaking Factor Calculation
Residential Tiers Average Monthly Consumption Max Day Consumption Peaking Factor Tier 1 87,786 91,821 1.05
Tier 2 37,894 50,582 1.33
Tier 3 12,127 20,399 1.68
Tier 4 7,000 13,585 1.94
Maximum Day and Maximum Hour system costs are assigned to customer types based on the peaking factors developed in Table 4 -10. Table 4-12 shows the assignment of peaking costs to system customer types.
Table 4-12
Customer Type Peaking Cost Calculation
Customer Types Annual Usage
(HCF)
Peaking
Factor
Peak
Usage
% of
Peak
Allocated
Peak Costs Unit Rate
Single-Family Residential 1,780,801 1.22 182,426 40.8% $952,563 Allocated to Tiers Multi-Family Residential 538,524 1.10 46,752 10.5% $244,122 $0.45 Outside Brea 261,974 1.15 25,466 5.7% $132,974 $0.51
Non-Residential 1,077,067 1.25 108,985 24.4% $569,080 $0.53 Brea Creek Golf Course 53,993 1.00 - - $ - $ -
Irrigation 729,317 1.36 83,213 18.6% $434,508 $0.60
Tables 4-13 demonstrates the further allocation of Maximum costs to the Single-Family Residential tiers.
Table 4-13
Residential Maximum Day Peaking Cost Calculation
Residential Tiers Annual Usage Peaking
Factor
Max Day
Increment % of Peak Allocated
Peak Cost Unit Rate
Tier 1 1,053,433 1.05 48,419 12.8% $102,870 $0.10
Tier 2 454,726 1.33 152,258 40.2% $323,483 $0.71
Tier 3 145,520 1.68 99,268 26.2% $210,902 $1.45
Tier 4 83,997 1.94 79,023 20.9% $167,890 $2.00
5 Due to the absence of daily demand data, the average day on the maximum month is used as a proxy for maximum day consumption.
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Section 4
24 Thoughtful Decision Making for Uncertain Times
Due to the absence of Maximum Hour data for Single -Family Residential customers, NewGen assigned a factor of 1.5 times to the Maximum Day peaking factors to develop a Maximum Hour factor for each Single-Family Residential tier. Table 4 -14 shows the assignment of Maximum Hour costs to the Single - Family Residential tier structure.
Table 4-14
Single-Family Residential Maximum Hour Peaking Cost Calculation Residential Tiers Annual Usage Peaking
Factor
Max Hour
Increment % of Peak Allocated
Peak Cost Unit Rate
Tier 1 1,053,433 1.57 599,345 41.7% $61,473 $0.06
Tier 2 454,726 2.00 455,750 31.7% $46,745 $0.10
Tier 3 145,520 2.52 221,662 15.4% $22,735 $0.16
Tier 4 83,997 2.91 160,533 11.2% $16,465 $0.20
Table 4-15 shows the sum of peaking costs assigned to Single-Family Residential volumetric rate tiers.
Table 4-15
Single-Family Residential Peaking Cost Totals
Residential Tiers Maximum Day Unit Rate Maximum Hour Unit Rate Total Peak Tier 1 $0.10 $0.06 $0.16
Tier 2 $0.71 $0.10 $0.81
Tier 3 $1.45 $0.16 $1.61
Tier 4 $2.00 $0.20 $2.19
Volumetric rates for all other customer types consist of the sum of Delivery Costs, Peaking Costs, Variable Capital Costs, and Supply costs. Variable Capital Costs are the costs remaining after Fixed Capital Cost assignment to the rate structure’s fixed charge. Capital Cost assignments are based on an allocation of base, maximum day, and maximum hour al locations. Table 4 -16 demonstrates the total cost of service (COS) variable rate for customer types other than Single-Family Residential.
Table 4-16
Proposed Volumetric Rates for Non-SFR Types
Customer Types Delivery Peaking Capital Blended
Supply COS Rate
Multi-Family Residential $0.75 $0.45 $0.79 $1.91 $3.91
Outside Brea $0.75 $0.51 $1.86 $1.97 $5.09
Non-Residential $0.75 $0.53 $1.04 $1.91 $4.23
Brea Creek Golf Course $0.75 $0.00 $0.00 $1.90 $2.66
Irrigation $0.75 $0.60 $1.37 $1.91 $4.63
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Cost of Service Analysis
Thoughtful Decision Making for Uncertain Times 25
The Single-Family Residential tiered volumetric rates are shown in Table 4-17, which are again the sum of Delivery Costs, Peaking Costs, Capital Costs, and Supply costs.
Table 4-17
Proposed Volumetric Rates – Single-Family Residential
SFR Monthly Tiers Delivery Peaking Capital Blended
Supply COS Rate
1 - 10 Units $0.75 $0.16 $0.38 $1.91 $3.20
11 - 20 Units $0.75 $0.81 $0.70 $1.91 $4.17
21 - 30 Units $0.75 $1.61 $1.23 $1.91 $5.50
30+ Units $0.75 $2.19 $1.59 $1.91 $6.44
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26 Economics | Strategy | Stakeholders | Sustainability
Section 5
FINANCIAL PLAN AND RECOMMENDED RATES
Financial Projections Under Current Rates
NewGen developed cash flow and cash balance projections assuming the revenue requirements detailed in Section 2 of this report and that the City does not change any water rates or fees. This establishes a baseline projection to which the recommended rate alternative can be compared . In order to project revenues under the current water rates and fees, NewGen compiled each rate and fee charged by the City in FY 2022. The City’s FY 2022 rates are summarized below.
FY 2022 Water Rates
The City’s current (FY 2022) water rates have two components. The first component is a Fixed Customer Charge that is charged on a monthly basis and based on the meter size of each retail customer. If a customer does not use any water in a given month, then their bill would consist only of the Fixed Customer Charge. Table 5-1 details the FY 2022 Fixed Customer Charges for the City’s customers.
Table 5-1
FY 2022 Fixed Customer Charges
Meter
Size
Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
5/8" $15.93 $15.93 $19.91 $15.93 $12.74 $15.93 $15.93
3/4" $15.93 $15.93 $19.91 $15.93 $12.74 $15.93 $15.93
1" $15.93 $15.93 $19.91 $15.93 $12.74 $15.93 $15.93
1 1/2" $59.28 $59.28 $74.10 $59.28 $47.42 $59.28 $59.28 2" $91.78 $91.78 $114.73 $91.78 $73.42 $91.78 $91.78
3" $194.72 $194.72 $243.40 $194.72 $155.78 $194.72 $194.72 4" $346.43 $346.43 $433.04 $346.43 $277.14 $346.43 $346.43 6" $709.45 $709.45 $886.81 $709.45 $567.56 $709.45 $709.45 8" $1,522.17 $1,522.17 $1,902.71 $1,522.17 $1,217.74 $1,522.17 $1,522.17 10" $2,280.70 $2,280.70 $2,850.88 $2,280.70 $1,824.56 $2,280.70 $2,280.70 12" $2,876.62 $2,876.62 $3,595.78 $2,876.62 $2,301.30 $2,876.62 $2,876.62 Outside Brea customers are charged 1.25 the inside City rate. The financial support for the Lifeline Rate is provided by funds transferred into the Water Fund from the General Fund. Although the Brea Golf Course pays a discounted volum etric rate that does not include peaking costs , it is assigned Fixed Charges the same as other customer types.
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Financial Plan and Recommended Rates
Thoughtful Decision Making for Uncertain Times 27
The second component of the City’s current water rates is a volumetric charge per hundred cubic feet, or HCF (748 gallons) that is charged to e ach unit of metered consumption for all retail customers . The FY 2022 HCF rate structure of the City’s system is shown in Table 5-2.
Table 5-2
FY 2022 Volumetric Charges per HCF
Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
All Usage $4.39 $5.72 $4.75 $5.20 $0.43
0 – 10 HCF $3.59 $2.87
11 – 20 HCF $4.69 $4.22
21 – 30 HCF $6.18 $5.87
31+ HCF $7.24 $7.24
Again, o utside Brea customers are charged 1.25 the inside City rate and t he financial support for the Lifeline Rate is provided by funds transferred into the Water Fund from the General Fund.
Cash Flow and Fund Balance Projections Under Current Rates The revenue generated by the FY 2022 rates alone cannot sustain the City Water Fund’s annual revenue requirements in FY 2023 and FY 2024, however, the Water Fund consists of sufficient reserves to maintain compliance with the recommended minimum reserve policy. The expenses shown in the following charts include the projected operating, existing debt, new debt, and cash funded capital projects discussed in Section 2 of this report. The projected revenues assume that the City does not increase any water rates or fees in any fiscal year. The projected revenues and expenses are shown in Exhibit 5-3.
Exhibit 5-3 Expenses vs. Revenues Under Current FY 2022 Rates
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2022 2023 2024 2025 2026 2027
Million ($)
Fiscal Year
Cash Funded Capital Projects
New Debt Service
Existing Debt Service
Operating Expenses
Total Revenues (FY 2022 Rates)
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Section 5
28 Thoughtful Decision Making for Uncertain Times
Exhibit 5-4 shows the forecasted Water Fund balance assuming that the City does not change any water rates or fees.
Exhibit 5-4 Projected Water Fund Cash Balance Projection Under Current FY 2022 Rates
Based on the expenses projected in Section 2 of this report, the City’s Water customers and usage detailed in Section 3, and the City’s FY 202 2 Water rates detailed previously in this section, NewG en’s rate study has determined that revenue increases are not necessary to sustain the City’s Water system. However, NewGen recommends that the City increase the proportion of revenues from Fixed Charges consistent with the Cost of Service analysis detailed previously in this report. $0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
2022 2023 2024 2025 2026 2027
Millions ($)
Fiscal Year
Water Fund Balance (FY 2022
Rates)
Minimum Reserve Policy (90 Days
O&M + Annual PAYGO CIP)
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Financial Plan and Recommended Rates
Thoughtful Decision Making for Uncertain Times 29
Recommended Rate Changes
In order to increase fixed revenues that will sustain the water system and to remain consistent with NewGen’s Cost of Service analysis , NewGen recommends the following revenue changes for the City’s water rates.
Table 5-5
Recommended Rate Changes
FY 2023 FY 2024 FY 2025 FY 2026 FY 2027
Fixed Customer Charge 48.0% 0.0% 0.0% 0.0% 0.0%
Volumetric Charge per HCF (11.0%) 0.0% 0.0% 0.0% 0.0%
Annual Cash Flow $4,441,422 ($3,724,631) ($2,115,345) $1,630,598 $2,024,415 Ending Fund Balance $16,069,833 $12,345,202 $10,229,858 $11,860,456 $13,884,871 Minimum Recommended Reserve $8,289,117 $8,795,597 $8,904,231 $9,138,621 $9,252,119 Over / (Under) Recommended Reserve $7,780,717 $3,549,605 $1,325,627 $2,721,835 $4,632,751 Recommended Rates
Based on the Cost of Service analysis detailed in this report and the recommendation to increase fixed water rate revenue from 17% to 25%, NewGen recommends that the City adopt the following water rates.
Recommended Fixed Customer Charges
If the City adopts the recommended rate increases in FY 202 4, then the City’s Fixed Customer Charges would be as shown in Table 5-6.
Table 5-6
Recommended Fixed Customer Charges
Meter
Size
Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
5/8" $23.58 $23.58 $29.47 $23.58 $18.86 $23.58 $23.58
3/4" $23.58 $23.58 $29.47 $23.58 $18.86 $23.58 $23.58
1" $23.58 $23.58 $29.47 $23.58 $18.86 $23.58 $23.58
1 1/2" $87.73 $87.73 $109.67 $87.73 $70.18 $87.73 $87.73 2" $135.83 $135.83 $169.80 $135.83 $108.66 $135.83 $135.83 3" $288.19 $288.19 $360.23 $288.19 $230.55 $288.19 $288.19 4" $512.72 $512.72 $640.90 $512.72 $410.17 $512.72 $512.72 6" $1,049.99 $1,049.99 $1,312.48 $1,049.99 $839.99 $1,049.99 $1,049.99 8" $2,252.81 $2,252.81 $2,816.01 $2,252.81 $1,802.26 $2,252.81 $2,252.81 10" $3,375.44 $3,375.44 $4,219.30 $3,375.44 $2,700.35 $3,375.44 $3,375.44 12" $4,257.40 $4,257.40 $5,321.75 $4,257.40 $3,405.92 $4,257.40 $4,257.40 DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 705 of 1385
Section 5
30 Thoughtful Decision Making for Uncertain Times
Recommended Volumetric Charges per HCF
The following rates shown in Table 5-7 are projected to fully support the future operating, capital, debt service, and reserve requirements of the system.
Table 5-7
Recommended Volumetric Charges per HCF
Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
All Usage $3.91 $5.09 $4.23 $4.63 $2.66
0 – 10 HCF $3.20 $2.55
11 – 20 HCF $4.17 $3.76
21 – 30 HCF $5.50 $5.22
31+ HCF $6.44 $6.44
Note that the volumetric rates shown in the table above reflect a decrease from the current FY 2022 fees, except for the Brea Creek Golf Course. This reflects a decrease in the City’s reliance on revenues generated by volumetric charges.
Customer Bill Impact of Recommended Rates
The customer bill impact for several different types of customers if the City were to adopt the revenue increases shown in Table 5-8 but were not to alter any of the rate structures of its various fees is shown below.
Table 5-8
Forecasted Monthly Customer Bills – Median Customers
Sample Customer FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Median Inside City $65.90 $68.05 $68.05 $68.05 $68.05 $68.05 1" Meter $ Change $2.15 $0.00 $0.00 $0.00 $0.00
13 HCF per month % Change 3.3% 0.0% 0.0% 0.0% 0.0%
Lifeline $49.88 $51.91 $51.91 $51.91 $51.91 $51.91
1" Meter $ Change $2.03 $0.00 $0.00 $0.00 $0.00
12 HCF per month % Change 4.1% 0.0% 0.0% 0.0% 0.0%
Commercial $467.03 $469.81 $469.81 $469.81 $469.81 $469.81 2" Meter $ Change $2.78 $0.00 $0.00 $0.00 $0.00
79 HCF per month % Change 0.6% 0.0% 0.0% 0.0% 0.0%
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Financial Plan and Recommended Rates
Thoughtful Decision Making for Uncertain Times 31
Cash Flow Under Recommended Revenue Increases
Exhibit 5-9 shows the forecasted expenses and revenues assuming the City adopts the recommended Fixed Customer and Volumetric Charges per HCF calculated in this report.
Exhibit 5-9 Water Fund Expenses vs. Revenues Under Recommended Rates
Exhibit 5-10 shows the forecasted Water Fund balance assuming the City adopts the recommended Fixed Customer and Volumetric Charges per HCF calculated in this report.
Exhibit 5-10 Projected Water Fund Balance Under Recommended Rates
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
2022 2023 2024 2025 2026 2027
Million ($)
Fiscal Year
Cash Funded Capital Projects
New Debt Service
Existing Debt Service
Operating Expenses
Total Revenues (FY 2022 Rates)
Total Revenues (Recommended
Rates)
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
$16.0
$18.0
2022 2023 2024 2025 2026 2027
Millions ($)
Fiscal Year
Water Fund Balance
(Recommended Rates)
Minimum Reserve Policy (90 Days
O&M + Annual PAYGO CIP)
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32 Economics | Strategy | Stakeholders | Sustainability
Section 6
REGIONAL BILL COMPARISON
A major consideration when developing any utility financial plan is the impact on the system’s customer bills. The recommendations detailed in this report will result in changes to customer bills, and therefore cost increases to some of the system’s customers.
Regional Bill Comparison
The following exhibit shows a comparative monthly water bill for a median Inside City Single-Family customer (1” meter, 13 HCF monthly usage) in surrounding water service areas.
Exhibit 6-1 Sample Customer Bill, 1” Meter, 13 HCF Monthly Usage
While regional comparisons may provide some context, the ranking of individual customer bills is not a consideration when developing a financial plan and rate structure. The City’s cash needs are independent of the rates in the surrounding jurisdictions, and this comparison is provided for information only.
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33 Economics | Strategy | Stakeholders | Sustainability
Section 7
CONSERVATION RATES
At times, pursuant to Executive Order, the State Water Board may direct urban water suppliers to develop rate structures and other pricing mechanisms to maximize water conservation consistent with statewide water use restrictions. The specific form of that direction is left to the discretion of the State Water Board.
As a part of the study, NewGen calculated conservation rates at the 10%, 20%, and 30% reduction l evels that reflect the need for the City to continue to fund the fixed costs of the system given the reduction in demand. Specifically, NewGen calculated volumetric rates per HCF under the City’s existing rate structure that ensure the City generates revenue consistent with the financial plan described in this report.’ NewGen’s methodology includes adjustments for variable costs (i.e., purchased water) as well as reduction is system wide demand by customer type. This, combined with the assumption that the C ity must fund fixed system costs and maintain its minimum reserves according to its policy, determines the level of volumetric rate per HCF for all customer types.
Conservation Rates - Ten Percent Use Restriction
Table 7 -1 demonstrates the demand reduction for Single -Family Residential tiers under a restriction where each Single-Family Residential customer reduces use by ten percent. The impact is not consistent across tiers, as customers are billed in different tiers each month, and some reductions span across two usage tiers.
Table 7-1
Single-Family Residential Demand Impact – Ten Percent Use Reduction FY 2021 Demand Demand Reduction 10% Use Restriction Demand 0 – 10 HCF 1,053,433 (3.5%) 1,016,859
11 – 20 HCF 454,726 (15.6%) 383,760
21 – 30 HCF 145,520 (26.5%) 106,979
31+ HCF 83,997 (33.0%) 56,310
All other customer types are assumed to reduce demand by ten percent, as their volumetric charge per HCF applies to all usage. Table 7-2 shows the calculated rates under a ten percent use restriction scenario.
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Section 7
34 Thoughtful Decision Making for Uncertain Times
Table 7-2
Volumetric Charges per HCF – Ten Percent Use Restriction Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
All Usage $4.50 $5.87 $4.87 $5.33 $3.06
0 – 10 HCF $3.68 $2.94
11 – 20 HCF $4.81 $4.33
21 – 30 HCF $6.34 $6.02
31+ HCF $7.42 $7.42
Conservation Rates – Twenty Percent Use Restriction
Table 7 -3 demonstrates the demand reduction for Single -Family Residential tiers under a restriction where each Single -Family Residential customer reduces use by twenty percent. The impact is not consistent across tiers, as customers are billed in different tiers each month, and some reductions span across two usage tiers.
Table 7-3
Single-Family Residential Demand Impact – Twenty Percent Use Reduction FY 2021 Demand Demand Reduction 20% Use Restriction Demand 0 – 10 HCF 1,053,433 (7.8%) 971,519
11 – 20 HCF 454,726 (31.9%) 309,703
21 – 30 HCF 145,520 (49.6%) 73,328
31+ HCF 83,997 (57.6%) 35,590
All other customer types are assumed to reduce demand by twenty percent, as their volumetric charge per HCF applies to all usage. Table 7-4 shows the calculated rates under a twenty percent use restriction scenario.
Table 7-4
Volumetric Charges per HCF – Twenty Percent Use Restriction Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
All Usage $5.15 $6.72 $5.58 $6.11 $3.50
0 – 10 HCF $4.21 $3.37
11 – 20 HCF $5.51 $4.95
21 – 30 HCF $7.26 $6.89
31+ HCF $8.50 $8.50
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Conservation Rates
Thoughtful Decision Making for Uncertain Times 35
Conservation Rates – Thirty Percent Use Restriction
Table 7 -5 demonstrates the demand reduction for Single -Family Residential tiers under a restriction where each Single-Family Residential customer reduces use by thirty percent. The impact is not consistent across tiers, as customers are billed in different tiers each month, and some reductions span across two usage tiers.
Table 7-5
Single-Family Residential Demand Impact – Thirty Percent Use Reduction FY 2021 Demand Demand Reduction 30% Use Restriction Demand 0 – 10 HCF 1,053,433 (13.1%) 915,224
11 – 20 HCF 454,726 (48.6%) 233,850
21 – 30 HCF 145,520 (68.1%) 46,447
31+ HCF 83,997 (75.2%) 20,852
All other customer types are assumed to reduce demand by thirty percent, as their volumetric charge per HCF applies to all usage. Table 7 -6 shows the calculated rates under a thirty percent use restriction scenario.
Table 7-6
Volumetric Charges per HCF – Thirty Percent Use Restriction Single-Family
Residential
Multi-Family
Residential
Outside
Brea Commercial Lifeline Irrigation Brea Golf
Course
All Usage $5.95 $7.75 $6.44 $7.05 $4.04
0 – 10 HCF $4.86 $3.89
11 – 20 HCF $6.35 $5.72
21 – 30 HCF $8.37 $7.95
31+ HCF $9.81 $9.81
DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 711 of 1385
THANK YOU!
911-A Commerce Road, Annapolis, MD 21401
Phone: 443-951-4207
Email: [email protected]
www.newgenstrategies.net
City Council Regular Meeting - Page 712 of 1385
NOVEMBER 2022
www.newgenstrategies.net
WATER AND SEWER
IMPACT FEE REPORT
DRAFT REPORT
Prepared for:
City of Brea
1 Civic Center Circle
Brea, CA 92821
© 2022 NEWGEN STRATEGIES AND SOLUTIONS, LLC
City Council Regular Meeting - Page 713 of 1385
Economics | Strategy | Stakeholders | Sustainability
www.newgenstrategies.net
911-A Commerce Road
Annapolis, MD 21401
Phone: (410) 266-9101
November 8, 2022
Kristin Griffith
Administrative Services Director
City of Brea
1 Civic Center Circle
Brea, CA 92821
Subject: Water and Sewer Impact Fee Study Draft Report
Dear Ms. Griffith:
NewGen Strategies and Solutions, LLC (NewGen) is pleased to submit to the City of Brea this draft report detailing our completed Water and Sewer Impact Fee Study . This report details the results of our calculation of cost based Impact Fees for the City’s water and sewer systems.
We appreciate the opportunity to provide our professional services to the City and would like to express our sincere appreciation to City staff. The dedication and assistance provided by City staff was essential to the completion of this study. It has been a distinct pleasure to work with the City of Brea.
Very truly yours,
Eric Callocchia Tianna Carnes
Principal Senior Consultant
NewGen Strategies and Solutions, LLC NewGen Strategies and Solutions, LLC DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 714 of 1385
Table of Contents
Economics | Strategy | Stakeholders | Sustainability
Table of Contents
Section 1 Project Background and Scope ................................ ................................ ............................. 3 Study Background ............................................................................................................................... 3 Impact Fee Definition ......................................................................................................................... 3 California Government Code .............................................................................................................. 3 Study Methodology ............................................................................................................................ 4 Section 2 Water Impact Fees ................................ ................................ ................................ .............. 6 Application .......................................................................................................................................... 6 Current Pressure Zones and Fee Districts .......................................................................................... 6 Water Master Plan Recommended Capital ........................................................................................ 7 Water Master Plan Estimated Build-Out Demand ............................................................................. 9 Water Impact Fee Calculation .......................................................................................................... 11 Section 3 Sewer Impact Fees ................................ ................................ ................................ ............ 12 Sewer Connection Fees .................................................................................................................... 12 Sewer Impact Fees ............................................................................................................................ 14
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Economics | Strategy | Stakeholders | Sustainability
List of Tables and Figures
Figure 1-1 Representation of the System Buy-In Cost Approach ................................................................. 4 Figure 1-2 – Representation of the Incremental Cost Approach .................................................................. 5 Figure 2-1 – Brea Water Impact Fee District Map ........................................................................................ 7 Table 2-1 WMP Projects to Meet Existing Deficiencies ................................................................................ 8 Table 2-2 WMP Projects to Improve System Reliability ............................................................................... 8 Table 2-3 WMP Projects to Meet Build-Out Demand ................................................................................... 9 Table 2-4 Future Increased Water Demand of System Build-Out .............................................................. 10 Table 2-5 Updated Water Impact Fee Calculation ...................................................................................... 11 Table 3-1 Current Sewer Connection Fees ................................................................................................. 13 Table 3-2 Recommended Sewer Connection Fees ..................................................................................... 14 Table 3-3 Calculated Sewer Impact Fee – System Buy-In Approach .......................................................... 15 Table 3-4 Recommended Sewer Impact Fees - System Buy-In Approach .................................................. 15
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Economics | Strategy | Stakeholders | Sustainability
Section 1
PROJECT BACKGROUND AND SCOPE
Study Background
The City of Brea (City) operates a water distribution system with over 13,000 customer connections, over 100 miles of pipes, and various pumps and reservoirs. Due to the lack of potable groundwater in the City, the City’s main water supply comes from two wholesale water producers, the California Domestic Water Company (CDWC or CalDomestic) and Municipal Water District of Orange County (MWDOC).
The City’s Sewer System is made up of a network of gravity sewers, pump stations, and force mains . The sewer collection system generally ties into Orange County Sanitation District (OCSD). Most of the gravity system is 8 -inch diameter vitrified clay pipe. Some of the collection system was constructed as early as 1925.
The City of Brea recently completed both a Water System Master Plan (May 2021) a nd Sewer System Master Plan (November 2021). These plans detail the infrastructure improvements necessary to meet current system deficiencies, enhance system reliability, and increase capacity to provide service to the City’s customers as the water and sew er systems grow into the future. Therefore, the City desired to update its water Impact Fees given the new cost and demand information provided by the 202 1 Water Master Plan. Also, the City wanted to evaluate the possibility of implementing a sewer Impact Fee to fund sewer projects recommended by the 2020 Sewer Master Plan.
The City engaged NewGen Strategies and Solutions, LLC (NewGen) to conduct a Water and Sewer Impact Fee Study.
Impact Fee Definition
In general, a development impact fee is a fee other than a tax or special assessment that is charged by a local governmental agency to an applicant in connection with approval of a development project for the purpose of defraying all or a portion of the cost of public facilities related to the development pro ject. A development impact fee is not a tax or special assessment; by its definition, a fee is voluntary and must be reasonably related to the cost of the service provided by the local agency.
California Government Code
The legal requirements for enactmen t of development impact fee program are set forth in California Government Code §§ 66000-66025 (the "Mitigation Fee Act"), the bulk of which were adopted as 1987’s AB 1600 and thus are commonly referred to as “AB 1600 requirements.” The Code refers to wate r and sewer impact fees as capacity charges since their purpose is to recover an equitable share of costs for capacity in infrastructure.
Section 66013 of the Code specifically governs water and sewer capacity charges and states that the fee “shall not ex ceed the estimated reasonable cost of providing the service for which the fee or charge is imposed”. If a development impact fee does not relate to the impact created by development or exceeds the reasonable cost of providing the public service, then the f ee may be declared a special tax and must then be subject to a two-thirds voter approval. (Cal. Const., Art. XIII A, § 4.) DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 717 of 1385
Section 1
4 Thoughtful Decision Making for Uncertain Times
The Code also states that " Capacity charge means a charge for public facilities in existence at the time a charge is imposed or charges for new public facilities to be acquired or constructed in the future that are of proportional benefit to the person or property being charged. ” The Code does not detail any specific method for determining an appropriate fee, however the refence to exis ting facilities or new facilities is consistent with industry standard approaches.
The City’s Water Impact Fees are designed to ensure that the City’s ongoing ratepayers are not required to subsidize the costs of facilities benefiting new development and t hat both ratepayers and new connections each pay their proportionate share of costs for water system infrastructure and assets. This approach complies with the Government Code and Article XIII, D, Section 6 of the California Constitution, commonly referred to as Proposition 218. If adopted, the City’s sewer Impact fee would be designed similarly.
Study Methodology
The calculation process for development impact fees for water and sewer systems is outlined in the two industry manuals: the American Water Work Association (AWWA) Manual M1 – Principles of Water Rates, Fees, and Charges and the Water Environment Federation ( WEF) Manual of Practice 27 – Financing and Charges for Wastewater Systems.
There are three methods that may be used to calculate cost-based Development Impact Fees:
1. The system buy-in method is based on the value of the existing system’s capacity , calculated either on an Original Cost Less Depreciation (OCLD) or Replacement Cost New Less Depreciation (RCNLD) basis. This method is typically used when the existing system has sufficient capacity to serve new development now and into the future.
Figure 1-1 Representation of the System Buy-In Cost Approach
2. The incremental cost method is based on the cost to expand the existing system’s capacity, usually defined by a specific list of capital projects or a system master plan. This method is typically used when the existing system has limited or no capacity to serve new development and new facilities are needed to serve the next increment of new development.
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Project Background and Scope
Thoughtful Decision Making for Uncertain Times 5
Figure 1-2 – Representation of the Incremental Cost Approach
3. The combined or hybrid approach is based on a blended value of both the existing and expanded system’s capacity. This method is typically used where some capacity is available in p arts of the existing system, but new or incremental capacity will need to be built in other parts to serve new development.
The City’s current Water Impact Fees are based on the incremental method, with the cost basis being defined as the results of the 20 02 Water Master Plan, indexed to future costs based on increases in the Engineering News Record (ENR) 20 City average Construction Cost Index (CCI).
Based on discussions with the City regarding the intent of the Sewer Impact Fee, NewGen calcu lated a cost based sewer Impact Fee using the system buy -in method using OCLD, which is the lowest cost approach.
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Economics | Strategy | Stakeholders | Sustainability
Section 2
WATER IMPACT FEES
In July 1995, the Brea City Council adopted Ordinance 967, establishing Water Impact Fees for certain new development projects in Brea and its sphere -of-influence. In March 2003, the Brea City Council adopted an updated Water Master Plan, and at that time Water Impact Fees were modified according to the updated plan. Since 2003, the City’s water Impact fees ha ve increased based on increases in the Engineering News Record (ENR) 20 City average Construction Cost Index (CCI).
The City updated its 2003 Water Master Plan in 2009. The City’s 2009 Water Master Plan Update (WMPU) was limited to the existing City water distribution system, its Sphere of Influence (SOI), and existing water demands.
The City’s 2021 Water Master Plan (WMP) addressed planned developments and associated demands defined by zoning, the General Plan, and Traffic Analysis Zone (TAZ) areas. The 20 21 WMP completed a supply analysis, demand analysis, and updated the City’s hydraulic model. The impact fees calculated as a part of this study are based on the recommendations resulting from the 2021 WMP.
Application
All new development projects are subject to the Water Impact Fees, except:
Alterations to an existing building;
Reconstruction (within two years), when a building has been destroyed by fire, wind, earthquakes, vandalism, or other natural or man-made disasters; and
Additions to a single-family or multiple-family residence and construction of public schools.
Current Pressure Zones and Fee Districts
The fee per 1” meter equivalent varies depending upon a project’s geographical location and elevation.
In some instances, the exact fee amount will only be able to be determined when the actual elevation or pressure service zone is precisely defined by the proposed development improvement plans. Figure 2-1 shows the City’s current water Impact Fee Districts and pressure zones.
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Water Impact Fees
Thoughtful Decision Making for Uncertain Times 7
Figure 2-1 – Brea Water Impact Fee District Map
Based on the pressure zone information in the 2021 WMP, NewGen is not recommending changes to the City’s fee districts.
Water Master Plan Recommended Capital
There are three categories of capital improvements to the City’s water system recommended by the 2021 WMP. The three categories are projects to:
Meet Existing Deficiencies
Improve System Reliability
Meet Build-out Demand
Each project is also identified by district and pressure zone. The district designation is based on the City’s current water Impact Fee districts. The following tables detail the projects recommended by the 2021 WMP.
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Section 2
8 Thoughtful Decision Making for Uncertain Times
Table 2-1
WMP Projects to Meet Existing Deficiencies
District Recommended Improvement Project # Cost
1 Berry Street High Pressure Pump 1 $350,000
1 Valencia Ave Transmission Improvement 2 $2,162,000
1 Puente Street, Site Drive, and State College Boulevard Replacements 3 $4,738,000 1 Valencia Pipeline Replacement 4 $4,111,000
1 Decommission Puente Pump Station 5 $200,000
1 Lotus Place Pipe Improvements 6 $2,947,000
1 Roscoe St Pipe Improvements 7 $416,000
1 Brea Corsica Villas Improvement 8 $2,867,000
1 Olinda Village Pipe Improvements 9 $1,027,000
Total Cost $18,818,000
Recommended Projects to meet existing deficiencies are projects that address current issues in the system and are recommended to be completed when funding is available.
Table 2-2
WMP Projects to Improve System Reliability
District Recommended Improvement Project # Cost
1 Carbon Canyon Reservoir Disinfection System SR #1 $350,000 1 Replace Generator at Berry Street Booster Pump Station SR #2 $300,000 1 Berry Street Low Pressure Pump SR #3 $350,000
1 790 Zone Loop Completion SR #4 $1,688,000
Total Cost $2,688,000
Recommended projects to improve system reliability are optional projects that do not address a deficiency, but will improve the system, reduce operations costs, or provide other system benefits.
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Water Impact Fees
Thoughtful Decision Making for Uncertain Times 9
Table 2-3
WMP Projects to Meet Build-Out Demand
District Recommended Improvement Project # Cost
2 Expand 790 Zone Transmission/Distribution Piping
1A $15,114,000
2 1B $200,000
2 1C $1,700,000
2 Eastside 900 Zone Transmission Pipelines
2A $18,804,000
2 2B $1,300,000
2 2C $1,300,000
2 2D $6,000,000
2 2E $6,750,000
2 2F $400,000
2 1050 Zone Improvements 3A $1,383,000
2 3B $5,100,000
3 Expansion of CC 1000 Zone System
4A $7,312,000
3 4B $2,550,000
3 4C $11,250,000
3 CC 1200 Zone Improvements 5A $825,000
3 5B $1,500,000
3 CC 1400 Zone Improvements
6A $8,895,000
3 6B $450,000
3 6C $1,500,000
3 6D $10,700,000
3 6E $800,000
Total Cost $103,833,000
Recommended projects to meet build -out demand of potential development are projects that will be necessary to provide water to undeveloped areas of the City and its SOI. These projects should be implemented as the areas are developed.
Water Master Plan Estimated Build-Out Demand
To determine the appropriate cost allocation to the various districts and pressure zones, the future increased demand for each zone and pressure zone must be determined. Table 2-4 shows the estimated future demand in gallons per day that would result from the build -out development of each district and zone.
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Section 2
10 Thoughtful Decision Making for Uncertain Times
Table 2-4
Future Increased Water Demand of
System Build-Out
District Zone
Future Increased
Demand (gpd)
1 All 1,275,708
2 790 3,169,859
900 1,143,605
1,050 41,008
3 790 -
1,000 637,853
1,200 -
1,400 1,386,401
Water Impact Fees are levied based on the number of equivalent one -inch meters added to the system by a new connection or group of connections. The City’s most recent fee calculation assumed a one-inch meter would demand 1,000 gallons per day (gpd) from th e system. Based on historical demand trends and the overall reduction in per capita water use since the previous study in 2002, NewGen recommends that the City assume 500 gallons per day (gpd) of demand per one-inch equivalent connection. This increases the number of connections able to be served by the estimated future capacity, and reduces the cost allocated to each one-inch connection.
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Water Impact Fees
Thoughtful Decision Making for Uncertain Times 11
Water Impact Fee Calculation
Based on the total cost of recommended WMP projects by district and pressure zone and the assumption that a one-inch meter flow requirement is 500 gpd, Table 2-5 shows the calculation of cost-based water Impact Fees for the City’s system.
Table 2-5
Updated Water Impact Fee Calculation
District Zone
Future
Increased
Demand
(gpd)
# of
Equivalent
1" Meters
in Zone
# of
Equivalent
1" Meters
for Cost
Spreading
Cost of
Improvements
Sub-
Area
Fee (1"
Meter)
Calculated
Fee (1"
Meter)
Current
Fee (1"
Meter)
1 All 1,275,708 2,551 15,309 $21,156,000 1,382 $1,382 $551 2 790 3,169,859 6,340 8,709 $17,014,000 1,954 $3,336 $4,237 900 1,143,605 2,287 2,369 $34,554,000 14,585 $17,920 $31,520 1,050 41,008 82 82 $6,483,000 79,045 $96,965 $111,644 3 790 - - 4,049 - - $1,382 $551
1,000 637,853 1,276 4,049 $21,112,000 5,215 $6,597 $23,061 1,200 - - 2,773 $2,675,000 965 $7,561 $25,015
1,400 1,386,401 2,773 2,773 $22,345,000 8,059 $15,620 $25,015 The fee for each pressure zone is based on the cumulative number of one -inch equivalent meters in the zone and all zones of higher elevation. Therefore, because District 1 is comprised entirely of pressure zone 790 and below, the District 1 fee is based on District 1 costs divided by the total estimated build-out demand stated in one -inch meter equivalents. The fee for District 3, pressure zone 1,400 is based on project costs in that zone divided by only the meter equivalents in that zone, as it is the high er pressure zone. Accordingly, the fee for each zone is the sum of the fees for that zone and all lower pressure zones.
The difference between the calculated fees and existing fees varies due the differences in project costs and the number o f equivalent one -inch meters in each zone when compared to the previous fee calculation.
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Economics | Strategy | Stakeholders | Sustainability
Section 3
SEWER IMPACT FEES
The City’s previous Sewer Master Plan was completed in 2005. The intent of the 2020 Sewer Master Plan, which was completed in November 2021, was to update the City’s sewer model, hydraulic analysis, condition assessment, and capital improvement project recommendations based on the latest available information.
Sewer Connection Fees
It is important to make a distinction between the City’s current “Sewe r Connection Fees” and NewGen’s calculated “Sewer Impact Fees”. City Ordinance No. 578, titled AN ORDINANCE OF THE CITY COUNCIL OF
THE CITY OF BREA AMENDING THE BREA CITY CODE AS HERETOFORE AMENDED, BY ADDING ARTICLE V TO CHAPTER 19 THEREOF, TO BE ENTITLED “SEWER CONNECTION FEES" was adopted in 1975, and defines the purpose of the sewer Connection Fees as:
“The development of buildings and other facilities for human habitation in the City of Brea has created a need for the expansion of City sewer facilities and has increased the cost of maintaining said city's sewerage system. Accordingly, it is the intent of tis Council that any person constructing a new building, or such facility shall pay the fees prescribed in this Article prior to connecting the same to said City's sewerage system. The payment of the fees prescribed in this Article V is required and assessed pursuant to the taxing power of the City of Brea in order to produce revenues to be utilized solely for the maintenance and repair of the sewerage s ystem of the City of Brea and to provide new facilities of, general benefit to that system and those persons utilizing it such as, but not limited to, trunk lines.” (emphasis added)
The City currently allocates revenue generated by Sewer Connection Fees to the Sewer Operating Fund in support of the maintenance and repair of the City’s sewerage system, consistent with Ordinance No. 578.
The City’s current Sewer Connection Fees are levied based on the type of fixture being connected to the sewer system, as shown in Table 3-1.
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Sewer Impact Fees
Thoughtful Decision Making for Uncertain Times 13
Table 3-1
Current Sewer Connection Fees
Fixture Type Fee per Fixture
Bathtub $10.00
Laundry, tub or washer $10.00
Shower $10.00
Sink-kitchen $10.00
Sink-bar $5.00
Wash basin (lavatory) $5.00
Wash basin (set) (double lavatory) $10.00
Water closet (toilet) $20.00
Bidet $5.00
Dental units $5.00
Drinking fountain $5.00
Floor drain $10.00
Interceptors for grease, oil and solids $15.00
Interceptors for sand, auto wash, and the like $15.00 Laundry tub or washer (self service) $15.00
Receptors $15.00
Showers gang-per head $5.00
Sink, bar commercial $10.00
Sinks, commercial or industrial $15.00
Sinks, floor $5.00
Sinks, flushing rim $15.00
Sinks, service $10.00
Swimming pool $15.00
Urinal, pedestal $10.00
Urinal, stall $10.00
Urinal, wall trough $20.00
The Sewer Connection Fees for the City have not increased since 1975. NewGen recommends that the City update its Sewer Connection Fees to current dollars based on the indexed increases of the Handy - Whitman Index of Public Utility Construction costs, which has been published continuously since 1914.
The Handy-Whitman (H-W) index tracks costs by region and asset type. NewGen used the increase in the Pacific Coast Region for Mains – All Types published in H -W Bulletin No. 195 in January 2022 as an appropriate escalation in sewer capital costs recovered by the Sewer Connection Fee. This index indicated a compou nd annual growth rate (CAGR) of 4.1% per year from 1975 to 2022 for utility mains , which comprise a majority of the City’s sewer infrastructure. Table 3 -2 shows the recommended Sewer Connection Fees resulting from escalating the 1975 fees by a CAGR of 4.1% per year to 2022 dollars.
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Section 3
14 Thoughtful Decision Making for Uncertain Times
Table 3-2
Recommended Sewer Connection Fees
Fixture Type Current Fee
per Fixture
Recommended
Fee per Fixture
Bathtub $10.00 $66.00
Laundry, tub or washer $10.00 $66.00
Shower $10.00 $66.00
Sink-kitchen $10.00 $66.00
Sink-bar $5.00 $33.00
Wash basin (lavatory) $5.00 $33.00
Wash basin (set) (double lavatory) $10.00 $66.00
Water closet (toilet) $20.00 $131.50
Bidet $5.00 $33.00
Dental units $5.00 $33.00
Drinking fountain $5.00 $33.00
Floor drain $10.00 $66.00
Interceptors for grease, oil and solids $15.00 $98.50 Interceptors for sand, auto wash, and the like $15.00 $98.50 Laundry tub or washer (self service) $15.00 $98.50
Receptors $15.00 $98.50
Showers gang-per head $5.00 $33.00
Sink, bar commercial $10.00 $66.00
Sinks, commercial or industrial $15.00 $98.50
Sinks, floor $5.00 $33.00
Sinks, flushing rim $15.00 $98.50
Sinks, service $10.00 $66.00
Swimming pool $15.00 $98.50
Urinal, pedestal $10.00 $66.00
Urinal, stall $10.00 $66.00
Urinal, wall trough $20.00 $131.50
Sewer Impact Fees
Based on discussions with City staff, NewGen was tasked with calculating a cost-based sewer Impact Fee that the City could charge to recover historical investments in sewer system assets from new customers that connect to the system. Based on the policy direction of the City, NewGen determined that the most appropriate approach would be to calculate a s ystem buy-in fee based on the depreciated cost of the City’s sewer system assets. Therefore, NewGen calculated the Original Cost Less Depreciation (OCLD), which is sometimes referred to as the system’s Net Book Value (NBV). Then, NewGen translated this cost to a fee per one-inch equivalent meter using the same flow assumption of 500 gpd used to calculate Water Impact Fees. Another key assumption is that since the City’s system is not limited in its treatment capacity due to being a wholesale treatment custo mer of the OCSD, NewGen used the daily water production DocuSign Envelope ID: 7DB59A00-BD6D-4D29-A2CB-CC999F18626A City Council Regular Meeting - Page 728 of 1385
Sewer Impact Fees
Thoughtful Decision Making for Uncertain Times 15
capacity of the City’s water system as the basis for the City’s capacity to transmit flow through its sewer system. The City’s current average water production capacity is 12.40 million gallons per day (MGD).
Table 3-3
Calculated Sewer Impact Fee – System Buy-In
Approach
Item Value
NBV of Sewer Assets $17,162,926
Capacity Available (MGD) 12.40
Unit Cost (GPD; in $) $1.38
Impact Fee per 1” Equivalent Meter (500 GPD) $692
Rounded Impact Fee $700
Typically Impact fees are charged based on meter flow factors calculated by the American Water Works Association, as they reflect the capacity demand on utility systems of larger meter sizes. Table 3-4 shows the recommended sewer Impact Fee incremented for larger meter sizes based on AWWA standard meter ratios, with a one-inch meter being the basis for a single equivalent meter.
Table 3-4
Recommended Sewer Impact Fees - System Buy-In Approach
Meter Size Flow Capacity (gpm) Ratio to 1” Meter Calculated Sewer Impact Fee 1" 50 1.00 $700
1 1/2" 100 2.00 $1,400
2" 160 3.20 $2,300
3" 300 6.00 $4,200
4" 500 10.00 $7,000
6" 1,000 20.00 $14,000
8" 1,600 32.00 $22,400
10" 2,300 46.00 $32,200
12" 4,300 86.00 $60,200
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THANK YOU!
911-A Commerce Road, Annapolis, MD 21401
Phone: 443-951-4207
Email: ecallocchianewgenstrategies.net
www.newgenstrategies.net
City Council Regular Meeting - Page 730 of 1385
Draft Report | November 2018
Sewer Rate Study
City of Milpitas
Prepared by:
As:
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Economics | Strategy | Stakeholders | Sustainability www.newgenstrategies.net
911-A Commerce Road
Annapolis, MD 21401
Phone: (410) 266-9101
Fax: (410) 266-5545
November 28, 2018
Tony Ndah, P.E.
Public Works Director
City of Milpitas Public Works Department
1265 N. Milpitas. Blvd
Milpitas, CA 95035
RE: Sewer Rate Study Results
Dear Mr. Ndah,
The Municipal & Financial Service Group is pleased to submit to the City of Milpitas this report summarizing our completed sewer rate study. This document represents the results of our analysis of the forecasted costs of providing sewer service to the City’s customers and our recommendat ions for recovering these costs over the next five years . The study provides recommendations that will enhance the financial health and stability of the City’s sewer operations while equitably charging its customers for the services provided.
It has been a distinct pleasure to work with the City of Milpitas. The dedication and assistance provided by City staff was essential to the completion of this study and should be acknowledged. Thank you for the opportunity to work with the City on this important project.
Very truly yours,
Eric Callocchia
Senior Manager
Municipal & Financial Services Group
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Sewer Rate Study Version: DRAFT
Table of Contents November 2018
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ....................................................................................................................... i
1. BASIS FOR THE STUDY ....................................................................................................................1
1.1 Objective and Scope ............................................................................................................................ 1
1.2 Study Background ............................................................................................................................... 1
1.3 Guiding Principles ................................................................................................................................ 2
1.4 Assumptions ........................................................................................................................................ 2
2. REVENUE REQUIREMENTS ..............................................................................................................4
2.1 Operating Costs ................................................................................................................................... 4
2.2 Capital Costs ........................................................................................................................................ 6
2.3 Sewer Revenue Requirements .......................................................................................................... 10
3. CUSTOMERS AND USAGE .............................................................................................................. 13
3.1 Customer Account and Usage Summary........................................................................................... 13
4. COST OF SERVICE ANALYSIS .......................................................................................................... 15
4.1 General Overview of Cost of Service Principles ................................................................................ 15
4.2 Allocation of Personnel Services to a Flat Fee .................................................................................. 16
4.3 Development of Unit Costs of Service for Non-Personnel Operating and Capital Cost Categories . 17
4.4 Development of Unit Costs of Service by Cost Causative Component ............................................. 18
4.5 Determination of Cost of Service by Customer Class ....................................................................... 20
5. FINANCIAL PLAN AND PROPOSED RATES ....................................................................................... 25
5.1 Total Revenue Projections at Current Rates ..................................................................................... 25
5.2 Recommended Financial Plan and Rates .......................................................................................... 26
5.3 Total Revenue Projections at Proposed Rates .................................................................................. 28
5.4 Sewer Fund Cash Balance Projections at Proposed Rates ................................................................ 28
6. CUSTOMER BILL IMPACTS AND BILL COMPARISON ........................................................................ 31
6.1 Bi-monthly Bill Impact of Recommended Rates ............................................................................... 31
6.2 Consideration of Mobile Home Park General Fund Subsidy ............................................................. 32
6.3 Single Family Bi-Monthly Sewer Bill Comparison ............................................................................. 34
7. FINDINGS, CONCLUSIONS AND RECOMMENDATIONS .................................................................... 36
7.1 Findings ............................................................................................................................................. 36
7.2 Conclusions ....................................................................................................................................... 36
7.3 Recommendations ............................................................................................................................ 36 City Council Regular Meeting - Page 735 of 1385
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TABLE OF EXHIBITS
Exhibit 1.1.1 Recommended Bi-Monthly Sewer Rates ................................................................................................. iv Exhibit 2.1.1 FY 2019 Projected Sewer Operating Expenses ......................................................................................... 5 Exhibit 2.1.2 Projected Sewer Operating Expenses ....................................................................................................... 6 Exhibit 2.2.1 2017 Wastewater Bond Payment Schedule ............................................................................................. 7 Exhibit 2.2.2 Summary of City of Milpitas Sewer Pipes ................................................................................................. 7 Exhibit 2.2.3 Planned Sewer Capital Improvement Projects ......................................................................................... 8 Exhibit 2.2.4 Ten-Year Projection of SJ/SC Regional Waste Water Facility Capital Costs .............................................. 9 Exhibit 2.2.5 Projected New Debt Service Payments .................................................................................................. 10 Exhibit 2.2.6 Sources and Uses of Sewer Capital Funds .............................................................................................. 10 Exhibit 2.3.1 Sewer Net Revenue Requirements Projection ....................................................................................... 11 Exhibit 2.3.2 Sewer Revenue Requirement vs. Revenue at Current Rates .................................................................. 12 Exhibit 3.1.1 FY 2017 Customers and Usage by Class .................................................................................................. 13 Exhibit 4.1.1 General Cost of Service Process .............................................................................................................. 15 Exhibit 4.2.1 FY 2019 Allocation of Personnel Services Costs ...................................................................................... 17 Exhibit 4.2.2 FY 2019 Allocation of Personnel Services Costs to Residential Customers ............................................ 17 Exhibit 4.3.1 FY 2019 Operating Costs by Functional Cost Categories and Cost Causative Components ................... 18 Exhibit 4.3.2 FY 2019 Capital Costs by Functional Cost Categories and Cost Causative Components ........................ 18 Exhibit 4.4.1 Cost Causative Component Data by Customer Class .............................................................................. 19 Exhibit 4.4.2 Blended Unit Rate by Cost Causative Component .................................................................................. 20 Exhibit 4.5.1 FY 2019 Operating Costs by Customer Class and Cost Causative Compo nent ....................................... 21 Exhibit 4.5.2 FY 2019 Capital Costs by Customer Class and Cost Causative Component ............................................ 22 Exhibit 4.5.3 Cost of Service Result by Customer Class ............................................................................................... 23 Exhibit 5.1.1 Sewer Revenue Requirements and Revenue at Current Rates ............................................................... 25 Exhibit 5.1.2 Sewer Fund End of Year Balance at Current Rates (Five-Year Projection).............................................. 26 Exhibit 5.2.1 Recommended Sewer Rates ................................................................................................................... 27 Exhibit 5.3.1 Sewer Revenue vs. Expenses Under Proposed Revenue Increases ........................................................ 28 Exhibit 5.4.1 Sewer Fund Projected Balance under Proposed Rates (Five -Year)......................................................... 29 Exhibit 5.4.2 Sewer Fund Projected Balance under Proposed Rates (Ten- Year) ......................................................... 29 Exhibit 6.1.1 Sample Percentage Change in Bi-Monthly Bills by Customer Class ........................................................ 31 Exhibit 6.2.1 Mobile Home Park Subsidy Calculation .................................................................................................. 33 Exhibit 6.2.2 Percentage Change in Bi-Monthly Bills by Customer Class ..................................................................... 33 Exhibit 6.3.2 Single Family Bi-Monthly Sewer Bill Comparison ................................................................................... 35 Exhibit 7.3.1 Recommended Bi-Monthly Sewer Rates ................................................................................................ 37
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Executive Summary November 2018
i
EXECUTIVE SUMMARY
This document has been prepared to present the work performed by the Municipal & Financial Services Group during the sewer rate study for the City of Milpitas. The study provides a financial plan for funding the operating and capital costs of the City’s sewer system over a five -year planning period ( FY 2019 through FY 2023), as well as a cost of service analysis and rate study. Although this report details rates for five years, the five-year financial plan takes into account the long -term (ten-year) financial needs of the City’s system and prepares the City’s Sewer Fund for those long-term revenue needs.
Objective and Scope
The City identified six generally stated work elements in the Scope of Services in its RFP for the Sewer Rate Study:
• Comprehensive financial review of sewer and wastewater finances • Comprehensive review of financial obligations related to O&M and CIP for the water pollution control plant
• Development of sewer rate structure
• Assessment of the current rate structure as baseline for considering alternative rate designs • Assessment of the rate design equity among the various customer classes • Preparation comprehensive final report
The sewer rate study has been completed based on the above stated scope of services , and MFSG’s recommendations are documented in this report.
Guiding Principles
The following principles were used to guide the rate study and were developed with the assistance of City staff:
• The City’s Sewer Fund must be financially self-supporting. It is assumed that the cost of operating and maintaining the sewer system must be supported by the sewer fees and charges collected from customers with no support from other City funds. If at any time, other City resources must be used to support the sewer system, repayment, with interest, shall be made in an appropriate amount of time.
• The City should maintain reserves to provide for contingencies and unplanned expenses and to ensure that sufficient funds are generated each fiscal year to allow for approp riate system replacement. The two reserves considered in this report are restricted reserves for capital spending and unassigned, unrestricted reserves based on the City’s two reserve policies:
“The City will maintain working capital…of approximately 25% of the annual operating and maintenance expenses for the Sewer Utility Fund.”
“In addition, the City will maintain Infrastructure Replacement funds for both Water and Sewer Utilities. The goal is to accumulate at least $2 million a year from each utility fund to set aside for replacement of infrastructure as the infrastructure reaches the end of its useful life” City Council Regular Meeting - Page 737 of 1385
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• Sewer rates and charges shall be kept as low as possible over time. It is possible to keep rates low for a period by not investing sufficiently in the maintenance of the sewer system, but eventually the system will deteriorate and require substantial investments, leading to the need for significant and immediate rate increases. The assumption that the City will continually reinvest in the sewer system to replace assets as they reach the end of their useful lives is built into the analysis and allows for timely and predictable rate increases.
Assumptions
The following high -level assumptions were used to guide the rate study and were developed with the assistance of City staff:
• Operating and maintenance expenses : 3.0% escalation rate per year for all operating expenses (personnel, planning, facilities, technology, etc.)
• Customer and water usage/sewage generation changes: 0.0% growth per year • Miscellaneous (non-rate) revenues: 0.0% growth per year - These are the Pooled Interest revenues allocated to the Sewer Fund • All City of Milpitas capital projects are funded on a PAYGO (cash) basis with no additional debt issued
• CIP spending related to the S an José/Santa Clara Regional Waste Water Facility is funded on a PAYGO (cash) basis except for three debt issues of:
- $20.0 million in FY 2020
- $15.0 million in FY 2021
- $5.0 million in FY 2025
• Minimum unassigned, unrestricted cash balance requirement: 90 days (25%) of annual operating expenses
• Minimum of $2.0 million in Infrastructure Replacement set aside per year.
Depending on availability of data, actual Fiscal Year (FY) 201 7, estimated FY 2018 or budgeted FY 2019 data was used as the base upon which forecasted figures were developed . All years within this report refer to the City’s fiscal year (June 1 to July 31). While the study identifies needed sewer rates on a year- by-year basis for a 10-year planning period (FY 2019 – FY 2028), the charts and tables within this report provide data for the first five years in which rates and charges have been calculated.
Findings
The following findings were developed during the study:
• The City’s current (FY 2018) sewer rates are not sufficient to fully fund the operating, capital, and cash reserve needs of the City’s sewer system.
• The City’s current planned reinvestment in its buried sewer assets is insufficient to fully fund the cost of rehabilitation and replacement needs of its buried assets and will allow the continuing decline in the physical condition of its sewer collection system. • The City’s rate calculation methodology generally complie s with the Water Environment Federations Manual of Practice 27 - Financing and Charges for Wastewater Systems. • The City currently collects 64% of its Personnel Services costs attributable to the sewer system in its bi-monthly Flat Fee.
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iii
• The City charges its Mobile Home Park customer class based on a per person flow assumption of 51 GPD and 2.24 persons per dwelling unit, resulting in a per dwelling unit flow assumption of 114 GPD.
• The City’s Sewer Fund contains appropriate reserves given the operational and capital expenses of the City’s system and the City’s reserve policies.
Conclusions
Based on our findings, the following conclusions were drawn:
• The City needs to increase sewer rates over the five years of the planning period (FY 2019 to FY 2023) to increase projected revenues to match related expenses. • The City will need to increase investment in its buried sewer infrastructure over the short and long term.
• Given the City’s Sewer Fund balances (restricted for CIP and unassigned, unrestricted) rate increases can be phased-in over a number of years to mitigate the one-time impact on the City’s customers.
Recommendations
Based on our conclusions, MFSG recommends that:
• The City implement rate increases through a multi-year financial plan that utilizes both increased rate revenues and the use of a portion of current cash on hand from the City’s Sewer Fund reserves. This will allow the City to smooth rate increases over the planning period and mitigate customer rate shock while meeting both its funding and cash reserve requirements. • The City collect 100% of its Personnel Services attributable to the sewer system costs in its bi - monthly Flat Fee.
• The City allocate costs to its Mobile Home Park customer class based on the same flow assumption used by the City of San José to allocate operating costs to the City of Milpitas, which is 63 GPD per person and 2.24 persons per dwelling unit, which equals 141 GPD per dwelling unit. • The City adopt the following rates for the next five fiscal years:
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Executive Summary November 2018
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Exhibit 1.1.1 Recommended Bi-Monthly Sewer Rates
Current
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Sewer User Rate Revenue Increase 4.0% 8.0% 8.0% 7.0% 6.0% Month of Implementation February July July July July
Residential (per Dwelling Unit)
Single-Family $90.27 $97.60 $102.52 $111.07 $118.34 $124.14 Mobile Home Parks $56.97 $76.03 $79.86 $86.53 $92.19 $96.71 Multiple-Family $69.32 $74.96 $78.73 $85.30 $90.88 $95.34
Non-Residential Fixed Flat Fee (per bill) $15.27 $24.30 $25.03 $25.78 $26.55 $27.35
Commercial (per HCF)
Motels and Hotels $4.36 $4.36 $4.58 $4.97 $5.37 $5.75
General Office $4.67 $4.67 $5.44 $5.67 $6.14 $6.84
City of Milpitas $4.18 $4.18 $4.61 $4.91 $5.31 $5.80
Service Stations $4.34 $4.34 $4.54 $4.93 $5.32 $5.70
Eat/Drink Establishments $7.49 $7.49 $7.49 $8.11 $8.73 $9.06 Convalescent Hosp/Daycare $4.23 $4.23 $4.46 $4.84 $5.23 $5.60 Personal Services, Laundries $3.95 $3.95 $4.23 $4.56 $4.92 $5.31 Electrical/Electronics $4.59 $4.59 $5.35 $5.58 $6.04 $6.72 Machinery Manufacture $6.08 $6.08 $6.70 $7.12 $7.70 $8.43
Monitored Sites (per HCF)
RockTenn (Jefferson Smurfit) $4.67 $8.35 $8.35 $9.39 $10.11 $10.46 T. Marzetti Co. $8.34 $9.16 $9.63 $10.65 $11.48 $12.09
Prudential Overall Supply $6.70 $6.70 $6.70 $7.08 $7.66 $8.42 Siemens Water Tech $4.91 $4.91 $5.61 $5.87 $6.36 $7.06
Elmwood Rehabilitation $5.49 $5.49 $5.49 $5.89 $6.35 $6.69 Linear Technology $4.59 $4.59 $5.47 $5.71 $6.18 $6.88
DS W $4.59 $4.59 $4.80 $4.92 $5.34 $6.04
Magic Tech & Headway Tech $4.53 $4.62 $5.82 $6.07 $6.57 $7.32
Non-Monitored Sites (per HCF)
Lucky Pure Water $3.94 $3.94 $4.21 $4.54 $4.91 $5.29
Milpitas Materials $3.94 $3.94 $4.21 $4.54 $4.91 $5.29
Union Pacific Railroad $5.11 $5.11 $5.84 $6.12 $6.63 $7.35 Cisco $4.59 $4.59 $5.35 $5.58 $6.04 $6.72
Lifescan $4.59 $4.59 $5.35 $5.58 $6.04 $6.72
Institutional (per HCF)
Schools/Colleges $6.31 $6.31 $7.94 $8.05 $8.73 $9.99
• The City review rates and charges on an annual basis and revise as needed and consider a full cost of service study for all rates and charges every five years.
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1. Basis for the Study November 2018
1 1. BASIS FOR THE STUDY
1.1 Objective and Scope
The objective and scope of services set forth between the City of Milpitas (“The City”) and the Municipal & Financial Services Group (“MFSG”) consisted of several related tasks with the goal of developing sewer rate study that would:
A. Identify and document all current fees and charges levied by the City.
B. Identify the current rate and fee structure used by the City.
C. Identify and analyze the costs (personnel, operating, capital, debt service, etc.) incurred to provide each service.
D. Compile data to develop the total costs associated with each fee area and develop the total costs to include direct plus indirect costs of each service.
E. Develop and justify rate and user fee recommendations, taking the factors identified above into consideration.
F. Project any revenue impact of implementing the rate and fee recommendations, as well as the anticipated impact on various user categories.
G. Provide rate scenarios best suited to meeting the City’s goals of a user-equitable, self-supporting structure that will also encourage conservation.
H. Present at a City Council meeting the completed study methods, results, analyses and recommendations.
The sewer rate study has been completed based on the above stated scope of services , and MFSG’s recommendations are documented in this report.
1.2 Study Background
The City of Milpitas was incorporated in 1954, together with the Milpitas Sanitary District. In 1980, the Sanitary District was dissolved, and the wastewater system moved under the jurisdiction (ownership and operation) of the City government. Since its incorporation, the City has continued to grow, with a current population of about 77, 000. The City’s sewer system is operated as a self- supporting enterprise serving about thirteen square miles within the urban service area. Sewage is collected via about 1 40 miles of sewer collection mains in two service areas – the Valley Floor (mixed use, including residential, commercial and industrial) and the Hillside area, which is residential and located on the east side of the City.
Residential customers are billed bi- monthly on an equivalent dwelling unit (EDU) basis. Non -residential customers are billed monthly based on metered water consumption, with the unit of measurement being one hundred cubic feet (HCF), an amount equal to 748 gallons. Non -residential sewage rates vary based on the use of the property, with rated adjusted to reflect sewage strength (units of pollutants per quantity of sewage).
It has been more than three years since a formal cost of service / rate study has been performed for the City’s sewer system, and major capital improvements have been made and will continue to be made.
Rates were last adjusted in August 2015. The City solicited bids for an independent review of the sewer system’s finances, with a focus on long- term sustainability, equitable treatment of the City’s’ customers City Council Regular Meeting - Page 741 of 1385
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1. Basis for the Study November 2018
2 and compliance with legal and regu latory requirements, especially the evolving case law related to Proposition 218 and (to a lesser extent) Prop 26.
1.3 Guiding Principles
The following principles were used to guide the rate study and were developed with the assistance of City staff:
• The City’s Sewer Fund must be financially self-supporting. It is assumed that the cost of operating and maintaining the sewer system must be supported by the sewer fees and charges collected from customers with no support from other City funds. If at any time, other City resources must be used to support the sewer system, repayment shall be made in an appropriate amount of time.
• The City should maintain reserves to provide for contingencies and unplanned expenses and to ensure that sufficient funds are generated each fiscal year to allow for appropriate system replacement. The two reserves considered in this report are restricted reserves for capital spending and unassigned, unrestricted reserves based on the City’s two reserve policies:
“The City will maintain w orking capital…of approximately 25% of the annual operating and maintenance expenses for the Sewer Utility Fund.”
“In addition, the City will maintain Infrastructure Replacement funds for both Water and Sewer Utilities. The goal is to accumulate at least $2 million a year from each utility fund to set aside for replacement of infrastructure as the infrastructure reaches the end of its useful life”
• Sewer rates and charges shall be kept as low as possible over time. It is possible to keep rates low for a period by not investing sufficiently in the maintenance of the sewer system, but eventually the system will deteriorate and require substantial investments, leading to the need for significant and immediate rate increases. The assumption that the City will continually reinvest in the sewer system to replace assets as they reach the end of their useful lives is built into the analysis and allows for timely and predictable rate increases.
1.4 Assumptions
The following high -level assumptions were used to guide the rate study and were developed with the assistance of City staff:
• Operating and maintenance expenses : 3.0% escalation rate per year for all operating expenses (Finance Operations, Public Works Administration, Utility Engineering, etc.) • Customer accounts and sewage generation changes: 0.0% growth per year • Miscellaneous revenues: 0.0% growth per year
• All City of Milpitas capital projects are funded on a PAYGO (cash) basis with no additional debt service being issued
• CIP spending related to the S an José/Santa Clara Regional Waste Water Facility is funded on a PAYGO (cash) basis except for three debt issues of:
- $20.0 million in FY 2020
- $15.0 million in FY 2021
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3 - $5.0 million in FY 2025
• Minimum unassigned, unrestricted cash balance requirement: 90 days (25%) of annual operating expenses
• Minimum of $2.0 million in Infrastructure Replacement set aside per year.
Depending on availability, actual Fiscal Year (FY) 2017, estimated FY 2018 or budgeted FY 2019 data was used as the base upon which forecasted figures were developed . All years within this report refer to the City’s fiscal year (June 1 to July 31). While the study identifies needed sewer rates on a year-by-year basis for a 10-year planning period (FY 2019 – FY 2028), the charts and tables within this report provide data for the first five years in which rates and charges have been calculated.
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4 2. REVENUE REQUIREMENTS
This section of the report outlines the historical and future costs of operating and maintaining the City ’s sewer system, which constitute the sewer system’s revenue requirements (i.e., the amount of revenue required to be collected from customers). Our approach includes a detailed review of each of the costs incurred by the City attributable to the sewer system. The cost analysis is broken into two main categories of costs: (1) operating costs and (2) capital costs (including debt and cash funding). This section describes each of the categories of costs incurred by the City as it provides sewer service. The costs are based on official documents and data provided by the City.
2.1 Operating Costs
The day-to-day operating and maintenance (O&M) expenses of the sewer system are grouped into the following categories:
• Personnel Services
• Supplies and Contractual Services
• SJ/SC Regional Water Pollution Control Plant (WPCP)
• Transfers Out
• Capital Outlay
The City’s largest operating budget line item is the annual payment to the City of San José for Milpitas’ proportional share of sewage treatment services provided by the treatment facility owned by the City of San José. This single line item accounts for over 65% of the City’s sewer operating budget. Transfers Out of the Sewer Operating Fund include transfers to the City’s General Fund, Street Improvement Fund, Park Improvement Fund, General Government Fund, and Storm Drain Fund.
Projected FY 2019 sewer operating expenses total approximately $12.7 million. This total does not include expenses related to debt service or capital improvemen ts, which are accounted for in our study separately. Exhibit 2.1.1 provides a breakdown of the projected sewer operating expenses by category (with percent of total budget) for FY 2019.
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5 Exhibit 2.1.1 FY 2019 Projected Sewer Operating Expenses1
It should be noted that the Personnel Services shown above are the salary and benefit costs directly attributable to the Sewer Fund from Finance Operations, Public Works Administration, Utility Engineering, and Utility Maintenance.
Transfers Out include c osts that are incurred by other City funds that directly benefit the City’s sewer system, and therefore are properly allocated to be collected via sewer rates within the Sewer Fund. These costs include not only personnel costs, but materials, supplies, an d other costs related to projects that impact the sewer system. These are projects performed by other City departments that impact or are in the vicinity of the sewer utility, therefore it is proper that the sewer budget includes these transfers out to pay back other City departments for doing work on the sewer system. These transfers are assumed to continue at the same level as the FY 2019 budget, with 3.0% inflation per year to account for ongoing increases in costs related to City projects.
To project a ll other operating expenses, FY 201 9 sewer budget line items were escalated using various inflation factors on a line item basis. The inflation assumptions for each line item are based on both the City’s historical cost increases and the overall trend of the increasing cost of operating wastewater utilities nationwide, which has outpaced overall inflation over the past twenty years.
On average, the sewer operating budget is assumed to increase 3.0% per year. Exhibit 2.1.2 shows sewer budgeted O&M expenses for the base year (FY 2019) and projected O&M expenses for the remaining four fiscal years of the planning period (FY 2020 to FY 2023) with percent change from the previous year.
1 Source: CityofMilpitasbudgetFY2018-19.pdf
$6,021,401
47%
$3,497,645
28%
$1,506,276
12%
$1,659,274
13%
$45,000
0.35%
SJ/SC WPCP Treatment
Personnel Services
Supplies & Contractual Services
Transfers Out
Capital Outlay
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6 Exhibit 2.1.2 Projected Sewer Operating Expenses
Increases in years beyond FY 2023 are assumed to contuinue at the pace of 3.0% per year.
2.2 Capital Costs
The annualized capital costs related to providing sewer service are generally comprised of existing debt service and any anticipated capital projects, which may be funded via the issuance of debt (typically bonds, loans or similar financial instruments) or funded from cash (either reserves on hand or cash collected from rates). This section will detail the capital costs that are projected for the City’s sewer system over the next ten years.
2.2.1 Existing Debt Service
On December 1, 2006, the Milpitas Public Financing Authority issued Certificates of Participation, 2006 Series A (Sewer COPs), in the original principal amount of $9,535,000 to finance certain sewer facilities within the City. These sewer facilities included replacement of appurtenances at the Main Sewage Pump Station (February 2007 to November 2008), and the improvements were constructed to provide sewer service for all customers within the City. The Sewer COPs are collateralized by net revenues from the City’s Sewer System Installment Sale Agreement. In FY 2018, the City refinanced the 2006 COPs with new Wastewater Bonds with a principal balance of $4,725,000. A nnual principal and interest pay ments continue through FY 2027.
Exhibit 2.2.1 shows the future debt payments included in this analysis related to the 2 017 Wastewater Bonds.
Annual Change,
3.0% 3.0% 3.0% 3.0%
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Capital Outlay
Transfers Out
Supplies & Contractual
Services
Personnel Services
SJ/SC WPCP Treatment
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7 Exhibit 2.2.1 2017 Wastewater Bond Payment Schedule2
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Principal $480,000 $460,000 $475,000 $495,000 $515,000
Interest $170,273 $187,500 $173,700 $154,700 $134,900
Total Debt Service $650,273 $647,500 $648,700 $649,700 $649,900 % Change (0.4%) 0.2% 0.2% 0.0%
The City’s sewer debt service payments are accounted for in MFSG’s rate projections.
2.2.2 Planned City of Milpitas Sewer Capital Improvement Projects The City’s capital improvement program (CIP) includes two distinct cost centers. The first is a list of projects approved by the City of Milpitas to repair, rehabilitate, or replace the City’s sewer assets. The other capital cost is the portion o f the SJ/SC WPCP capital improvements that the City of Milpitas is obligated to pay towards the repair, rehabilitation and replacement of the WPCP’s assets.
Included in MFSG’s rate pr ojections is an analysis of the City’s buried infrastructure . MFSG used data provided by the City to identify the average useful life and replacement cost of the City’s sewage collection system pipes. The City’s asset database contains information regarding the material, length, and vintage of its sewer pipes, which is summarized below.
Exhibit 2.2.2 Summary of City of Milpitas Sewer Pipes
3 Pipe Material Total
Length (LF)
% of Total
Length
Avg Year
Installed
Avg Year to
Replace
Total
Replacement
Cost
Reinforced Concrete 40,060 5.35% 1984 2009 $36,778,618
Vitrified Clay 665,389 88.83% 1973 2048 $386,045,097
Acrylonitrile-Butadiene-Styrene (ABS) 6,975 0.93% 1978 2035 $4,083,750 Polyvinyl Chloride (PVC) 14,250 1.90% 1984 2044 $8,426,500 Cured in Place 50 0.01% 1975 1980 $32,500
Ductile Iron 280 0.04% 1965 2025 $126,000
Stainless Steel 22,015 2.94% 1980 2060 $14,644,507
Total/Average 749,019 100.0% 1974 2046 $450,136,972
Based on the install year and the assumed useful life of each the City’s sewer pipe segments, about 3.7% of the total length of the City’s pipe has reached the end of its useful life, with a replacement cost of $25,128,616. MFSG’s analysis calculated that on average, an additional $3.38 million is needed each year to properly reinvest in the City’s Sewer System . However, this additional line replacement cost is not included in this analysis because the City is currently planning a detailed condition assessment of its buried assets within the next fiscal year, the results of which will be a much more detailed and accurate sewer line replacement plan that the City plans to implement at the end of that study. It is anticipated that the results of that study will be incorporated into the City ’s next cost of service study, impacting rates beginning in FY 2024.
Exhibit 2.2.3 provides a breakdown of the City of Milpitas’ planned CIP spending included in this analysis.
2 Source: 2017 Wastewater Bond Debt Service Schedule.pdf 3 Source: SW depreciation.xlsx, Tab B-Sewer Pipe Components City Council Regular Meeting - Page 747 of 1385
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8 Exhibit 2.2.3 Planned Sewer Capital Improvement Projects4 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Sewer Condition Assessment (6119) $100,000 $50,000 $50,000 $50,000 $50,000 Sewer Overflow Improvement (6123) $75,000 $75,000 $75,000 $75,000 $75,000 Pump Station Treatment Improv. (6125) $150,000
Minor Sewer Projects (6126) $50,000 $50,000 $50,000 $50,000 $50,000 Supervisory Control and Data Acquisition $1,550,000
System Hydraulic Modeling 17-19 (6129) $50,000 $50,000 Sewer Cathodic Protection Improv (6131) $625,000
Master Plan 2019 (6132) $450,000
Seismic Study 19 - 20 $100,000
System Replacement (6133) $500,000 $500,000 $500,000 $500,000 $500,000 Pump Station Treatment Improv (6125) $100,000 $100,000 $100,000 $100,000 $100,000 Main Lift Station Odor Control (6130) $300,000 $1,950,000 $0 $0 $0 MFSG Model Adjustment $115,000 $184,910 $1,225,000 $1,225,000 $1,225,000 Total City of Milpitas Capital Expenses $2,515,000 $4,609,910 $2,000,000 $2,000,000 $2,000,000
The model adjustment listed above is a placeholder that aligns the model’s project listing with the City’s policy of setting aside at least $2.0 million per year in Infrastructure Replacement . Although the City has not identified specific projects in fiscal years 2021, 2022, and 2023, a s projects are added to the City’s adopted CIP, the adjustment can be removed, and the actual projects entered . The above projectio ns ensure that the rates recommended by MFSG are in compliance with the City’s reserve policy.
The above planned projects are assumed to be 100% funded by the City’s sewer user rates, as opposed to the capacity fees it charges new customers, for several reasons. First, historically the City has used capacity fees collected each year to reduce the cost of treatment capital allocated to the City by S an José, not reduce the spending on City CIP projects. Second, the City’s CIP projects are all rehabilitative in nature and are not increasing the capacity of the system, and therefore should be paid for by the current users of the system. Finally, capacity fees are unpredictable and if the City based its CIP funding on the collection of a certain amount of capacity fees, in cases where the City collects less in capacity fees than planned, user rates would need to be adjusted to make up the shortfall. For these reasons, 100% of the City’s CIP is assumed to be funded with user rates.
All the City of Milpitas CIP costs shown above are assumed to be PAYGO (cash) funded each year. That is, the City will not issue any debt to pay for the sewer asset rehabilitation projects listed above.
2.2.3 SJ/SC Regional Waste Water Facility Capital Expenses and Projected Debt Service One hundred percent of the City of Milpitas’ sewer flow is transported to and processed at the SJ/SC Regional Waste Water Facility. Therefore, the City pays a share of both the operating and capital costs of the facility. For operating costs, the City is billed based on the proportional flow sent to the facility from the City as a percentage of the facility’s total flow each year. For capital costs, the City is billed a fixed percentage of the facility’s capital program based on the City’s buy -in of the facility’s total treatment capacity. Currently, the City’s capacity buy-in is 7.65% of the facility’s total capacity.
Each year, the City of San José gives to the City of Milpitas a ten-year projection of the capital costs related to the SJ/SC Regional Waste Water Facility and the portion of those costs that the City of Milpitas is
4 Source: City of Milpitas 2018 Capital Improvement Plan City Council Regular Meeting - Page 748 of 1385
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2. Revenue Requirements November 2018
9 obligated to pay. These costs have been historically volatile, with large differences in the amount due on a year to year basis. The current projected ten-year SJ/SC Regional Waste Water Facility capital costs that must be recovered by the City of Milpitas , along with the funding source assumed each year, are shown in Exhibit 2.2.4.
Exhibit 2.2.4 Ten-Year Projection of SJ/SC Regional Waste Water Facility Capital Costs5
MFSG’s analysis included the assumption that the City will utilize three debt issues to pay for the SJ/SC Regional Waste Water Facility capital payments during the next ten years:
• $20,000,000 in FY 2020
• $15,000,000 in FY 2021
• $5,000,000 in FY 2025
The use of bond proceeds to fund this major expense will smooth out the rate impact on the City’s customers and allow for the long- term planning of rate increases due to SJ/SC Regional Wa ste Water Facility capital expenses. Over the ten-year projection shown above, the average annual cash spending on SJ/SC Regional Waste Water Facility capital is about $4.38 million dollars. The City’s rates must also support the debt service resulting from the three new bond issues assumed above.
Each of these bond issues is assumed to have issuance costs equal to 1.5% of the principal amount, an interest rate of 5 .5% and a payment term of 30 years. These are conservative assumptions, as the City may qualify for lower interest rate terms. The projected total debt service obligation of the City of Milpitas that is the result of the two debt issues within the five -year planning period is shown below in Exhibit
2.2.5. 5 Source: CIP Allocation for RWF (17MAY2018).pdf $2.00
$24.38
$19.97
$5.93
$8.83
$4.55
$10.01
$3.69 $3.06
$1.45
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Millions
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10 Exhibit 2.2.5 Projected New Debt Service Payments
The impact of these additional debt service payments has been factored into MFSG’s rate projections.
Overall, MFSG’s approach takes into account the annual cash needs of the City’s sewer system, so the capital cash needs vary from the actual spending in years where the City issues debt. To illustrate the impact on rates, Exhibit 2.2.6 shows the sources and uses of capital funds for the five-year projection.
Exhibit 2.2.6 Sources and Uses of Sewer Capital Funds
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Sources of Capital Funds:
City of Milpitas Sewer Rates $4,515,000 $10,386,512 $9,416,007 $10,371,129 $13,271,577 Loan Proceeds $ - $20,000,000 $15,000,000 $ - $ -
Total Sources of Capital Funds: $4,515,000 $30,386,512 $24,416,007 $10,371,129 $13,271,577
Uses of Capital Funds:
City of Milpitas Capital Projects $2,515,000 $4,609,910 $2,000,000 $2,000,000 $2,000,000 SJ/SC Capital Projects $2,000,000 $24,379,853 $19,971,696 $5,926,818 $8,827,266 SJ/SC Debt Service $ - $1,396,749 $2,444,311 $2,444,311 $2,444,311 Total Uses of Capital Funds: $4,515,000 $30,386,512 $24,416,007 $10,371,129 $13,271,577
The sources for the above table are as follows: Loan Proceeds: Exhibit 2.2.4; City of Milpitas Capital Projects: Exhibit 2.2.3; SJ/SC Capital Projects, Exhibit 2.2.4; SJ/SC Debt Service: Exhibit 2.2.5.
The total capital needs each year that must be genera ted from rates is the first line under sources of capital funds, City of Milpitas Sewer Rates. That is the total cash capital spending and debt service that must be supported by rates each year.
2.3 Sewer Revenue Requirements
The total annual cost of operatin g the City ’s sewer system (the gross revenue requirements) includes operating and maintenance expenses and current and future capital costs . The sum of these costs, less any miscellaneous revenues, is the amount that needs to be recovered from user rates (referred to as the net revenue requirement).
$1.40
$2.44 $2.44 $2.44
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Millions
FY 2021 Debt Issue
Payment
FY 2020 Debt Issue
Payment
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11 The term “miscellaneous revenues” refers to two distinct revenue sources of the Sewer Fund. The first is the amount of interest income generated by the Sewer Fund reserves, which is allocated to the Fund each year. These revenues are estimated to be $395,000 in FY 2018 and are estimated to be $446,000 in FY 2019. MFSG’s model projects that these revenues will remain constant throughout the projection period.
The other miscellaneous revenue that is accou nted for within the Sewer Fund is called Development revenue. These are the capacity charges levied by the City to new customers of the sewer system. These charges were estimated to be $1.0 million in FY 2018 and FY 2019. MFSG’s analysis does not include these revenues going forward for two reasons. First, these revenues are unpredictable. The City is reaching buildout, and although some infill development will result in capacity fees being paid to the City’s Sewer Fund in the years to come, MFSG considered the conservative approach of not reducing the revenue needs of the sewer system by any amount of Development revenue. Second, in the case that the City does collect Development revenue, those monies are directed to the City’s capital improvement plan to p ay down projects that have been approved each fiscal year. In the case that those projects are fully funded, the City augments its capital reserves with the Development revenue. In either case, MFSG’s approach does not include Development revenues in order to avoid any case in which the City collects less in Development revenues than projected, resulting in the need to either draw down on capital reserves more than predicted, or raise user rates to compensate for the difference in projected vs. actual revenues.
MFSG’s calculated rates assume that the entire system must be supported by its existing customer base.
This is a conservative approach that will result in rates that will fully fund the projected costs of the system without the use of any Development revenue. Any Development revenue collected in fiscal years 2019 to 2023 will only improve the financial forecasts provided in this study.
Exhibit 2.3.1 shows the revenue requirements (with percent change from the previous year) for the first five years of the planning period for the City’s sewer system.
Exhibit 2.3.1 Sewer Net Revenue Requirements Projection FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
City of Milpitas Operating Expenses $6,708,195 $6,909,441 $7,116,724 $7,330,226 $7,550,133 SJ/SC Facility Operating Expenses $6,021,401 $6,202,043 $6,388,104 $6,579,747 $6,777,140 City of Milpitas Cash Funded CIP $2,515,000 $4,609,910 $2,000,000 $2,000,000 $2,000,000 SJ/SC Facility Cash Funded CIP $2,000,000 $4,379,853 $4,971,696 $5,926,818 $8,827,266 Current Debt Service $650,273 $647,500 $648,700 $649,700 $649,900 New SJ/SC Facility Debt Service $ - $1,396,749 $2,444,311 $2,444,311 $2,444,311 Total Revenue Requirement $17,894,869 $24,145,496 $23,569,536 $24,930,803 $28,248,750 Less Miscellaneous Revenues ($1,446,000) ($446,000) ($446,000) ($446,000) ($446,000) Net Revenue Requirement $16,448,869 $23,699,496 $23,123,536 $24,484,803 $27,802,750 % Change 44.1% (2.4%) 5.9% 13.6%
The revenue requirements of the City’s sewer system fluctuate greatly with the varying levels of capital infrastructure investment. Exhibit 2.3.2 shows how the revenue requirements of the system compare on an annual basis to the City’s revenues at the current (FY 2018) sewer rates.
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12 Exhibit 2.3.2 Sewer Revenue Requirement vs. Revenue at Current Rates
The City’s current rates cannot support the long- term cash needs of the system, specifically the major capital investment needed to fund the SJ/SC Facility capital requirements. MFSG’s rate plan phases in rate increases to account for the overall trend in capital investment, as well as the increases in ongoing operating costs. However, before calculating rates, a detailed customer and consumption analysis must be performed. The next section of this report details this analysis. $0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Millions
New SJ/SC Facility Debt
Service
SJ/SC Facility Cash Funded CIP
City of Milpitas Cash Funded
CIP
Current Debt Service
SJ/SC Facility Operating
Expenses
City of Milpitas Operating
Expenses
Total Revenue at Current
Rates
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3. Customers and Consumption November 2018
13 3. CUSTOMERS AND USAGE
This section provides a summary of sewer customer accounts and sewage generation.
3.1 Customer Account and Usage Summary
The City currently provides sewer service to a population of over 77,000 . Exhibit 3.1.1 provides a breakdown of most recently available (FY 2017) sewer customers by class. The rightmost column shows the percentage of metered water that is considered as billable sewer flow for each customer class. For example, Lucky Pure Water is only billed based on 29.19% of its metered water usage, because it has been determined based on their commercial process that 70.81% of its metered water does not end up as sewer effluent.
Exhibit 3.1.1 FY 2017 Customers and Usage by Class
6 6 Source: FY 18-19_Forms 1-6.xls
Customer Class FY 2017 Accounts FY 2017 Adjusted
Usage (HCF)
% of Billed Water
Used for Sewer
Residential Dwelling Units*
Single-Family 12,427 1,097,580 100.00%
Mobile Home Parks 521 35,847 100.00%
Multiple-Family 10,067 682,820 100.00%
Commercial
Motels and Hotels 25 102,661 100.00%
General Office 355 174,990 100.00%
City of Milpitas 35 12,680 100.00%
Service Stations 38 17,654 100.00%
Eat/Drink Establishments 179 212,372 100.00%
Convalescent Hosp/Daycare 21 16,397 100.00%
Personal Services, Laundries 58 35,194 100.00%
Electrical/Electronics 147 150,403 100.00%
Machinery Manufacture 18 4,349 100.00%
Monitored Sites
RockTenn (Jefferson Smurfit) 1 2,848 29.76%
T. Marzetti Co. 2 13,815 79.84%
Prudential Overall Supply 2 19,742 100.00%
Siemens Water Tech 2 43,450 100.00%
Elmwood Rehabilitation 5 93,018 100.00%
Linear Technology 6 105,018 100.00%
DS W 2 654 100.00%
Magic Tech & Headway Tech 4 43,542 100.00%
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3. Customers and Consumption November 2018
14 Customer Class FY 2017 Accounts FY 2017 Adjusted
Usage (HCF)
% of Billed Water
Used for Sewer
Non-Monitored Sites
Lucky Pure Water 1 352 29.19%
Milpitas Materials 1 16 0.72%
Union Pacific Railroad 1 26 100.00%
Cisco 5 11,752 21.00%
Lifescan 1 221 100.00%
9 12,366
Institutional
Schools/Colleges 64 23,803 100.00%
* Residential Customers are measured in Dwelling Units and billed a bi-monthly fixed fee without measured usage.
The usage shown is an estimate based on per Dwelling Unit values of: 3.54 persons per Single Family, 2.24 persons per Mobile Home, and 2.73 persons per Multiple-Family unit.
Residential customers are measured in Dwelling Units in order to estimate the billable flow from each residential account without the use of measured water consumption.
Each residential account is one Dwelling Unit. However, the number of persons per Dwelling Unit vary for each class. The source of these values in San José’s 2015 Flow Study, Table 2.5 on page 11. The values are based on census track data from the 2012 American Community Survey (ACS) data, estimated to 2015 values:
• 3.54 persons per Single Family
• 2.24 persons per Mobile Home
• 2.73 persons per Multiple-Family.
To estimate the total flow of each residential class, a value of 51 gallons per day (GPD) is assigned to each person. Therefore, each Single Family account is assumed to use 51 GPD times 3.54 persons, equal to 181 GPD per account. Multiple-Family accounts are assumed to use 51 GPD times 2.73 persons, equal to 139 GPD per account. As of FY 2018, Mobile Home Parks are not charged the full allocation for the assumption of 35,847 HCF per year assessed by the SJ/SC facility, based on 63 GPD per person, or 141 GPD per account.
Mobile Home accounts are assumed to use 51 GPD (in line with Single and Multiple Family allocations) times 2.24 persons, equal to 114 GPD per account.
The City currently bills Mobile Home Parks for 114 GPD per unit, resulting in a bi-monthly rate that is lower than the cost incurred by the City to provide sewer service to such Mobile Home Park . MFSG’s study assumes that the Mobile Home Park rate is immediately brought to an allocation of 141 GPD per dwelling unit, in line with the flow parameters used by the City of San José when allocating operational treatment costs to the City of Milpitas. Section 6.2 of this report contains a more thorough discussion of this issue.
Several of the City’s sewer customers receive sewer bills based on adjusted usage. MFSG’s analysis assumes that these usage adjustments will remain constant for the entire projection period. The usage values above represent the adjusted usage that is used to calculate each customer’s sewer bill.
The number of customer accounts and dwelling units was held at its current level for MFSG’s analysis , with zero growth in the number of customers each year. This is a conservative projection, as the City will experience some development, and therefore increase in customers, over the five-year planning period.
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4. Cost of Service Analysis November 2018
15 4. COST OF SERVICE ANALYSIS
4.1 General Overview of Cost of Service Principles
The general industry standard practice of allocating sewer costs among a system’s customer is outlined in the Water Environment Federation’s Manual of Practice 27: Financing and Charges for Wastewater Systems.
Exhibit 4.1.1 General Cost of Service Process
The first step of the cost of service analysis is to determine the revenue requirement, which was outlined in Section 2 of this report. Once the operating and capital costs are determined, they each must be separated into functional cost categories. Then, each functional cost category must be allocated to one of four cost causative components: Flow, Biochemical Oxygen Demand (BOD), Total Suspended Solids (TSS) and Total Nitrogen (NH
3). A brief description of each of these components is as follows:
• Flow is simply the volume of effluent that must be treated by a treatment process.
• Biochemical Oxygen Demand (BOD) is the amount of dissolved oxygen needed (i.e. demanded) by aerobic biological organisms to break down organic material present in a given water sample.
• Total suspended solids (TSS) is the dry-weight of suspended particles, that are not dissolved, in a sample of water that can be trapped by a filter that is analyzed using a filtration apparatus.
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4. Cost of Service Analysis November 2018
16 • Ammonia Nitrogen (NH3) must undergo nitrific ation, the microbial process by which reduced nitrogen compounds (primarily ammonia) are sequentially oxidized to nitrite and nitrate.
Because each customer class produces different levels of flow and concentration of pollutants, it is important to proper ly allocate the costs of the sewer system to these cost causative components to properly charge each customer class based on the costs that it incurs.
In general, the City’s current rates adhere to the industry standard outlined above. The cost of service exercise performed for the City of Milpitas includes two separate allocations:
1. Allocation of Personnel Services costs to a “Flat Fee” based on Dwelling Units per customer class; and
2. Allocation of all other O&M and Capital costs based on the four cost causative components of Flow, BOD, TSS and NH
3. The resulting rates represent the equitable distribution of the City’s sewer costs among each of its customer classes. MFSG’s cost of service allocations utilize the same framework as the City’s current rate calculations, however MFSG’s analysis assumes a greater allocation of costs to the City’s Flat Fee, as detailed in the next section.
4.2 Allocation of Personnel Services to a Flat Fee
The City’s FY 2019 Sewer Fund Personnel Services cost is equal to $3,497,645, as set forth in the City’s budget. These costs are all related to the direct administration and customer service functions of the City’s Sewer Fund. Currently, the City allocates a portion of its Personnel Services costs to a “Flat Fee” that is allocated between Residential and Non -Residential customers based on Dwelling Units (residential customers) and accounts (non-residential customers). In FY 2018, the City allocated about $2.2 million to this fee. MFSG’s recommendation is to include the full cost of Personnel Services in the Flat fee and continue to allocate those costs between Residential and Non-Residential customers based on Dwelling Units and accounts.
The City’s Personnel Services costs are the salaries and benefits directly associ ated with providing sewer service to the City’s customers through the functions of Finance Operations, Public Works Administration, Utility Engineering and Utility Maintenance. The most equitable method of distributing these costs between Residential and Non-Residential customers is doing so based on Dwelling Units (for residential) and accounts (for non-residential). The costs are distributed to residential and non-residential customers based on the total number of dwelling units or accounts in each class, as shown in 0.
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17 Exhibit 4.2.1 FY 2019 Allocation of Personnel Services Costs DU / Accounts % Allocation FY 2019 Costs
Personnel Services $3,497,645
Flat Fee Cost Allocation
Residential 23,015 95.9% $3,355,774
Non-Residential 973 4.1% $141,871
Flat Fee per Month per Account (Non-Residential) $12.15 Additional Cost per HCF for Residential $1.85
The $3,355,774 (Source: Exhibit 2.1.1) then must be allocated to the three residential customer classes .
MFSG recommends that the City continue to allocate these costs to the three residential classes based on each class’ assumed flow (HCF per year, Source: Exhibit 3.1.1), as shown in Exhibit 4.2.2.
Exhibit 4.2.2 FY 2019 Allocation of Personnel Services Costs to Residential Customers Residential Flat Fee Allocation HCF per Year % Allocation Residential Flat Fee Costs Single-Family (70) 1,097,580 60.4% $2,027,935
Mobile Home Parks (72) 35,847 2.0% $66,232
Multiple-Family (71) 682,820 37.6% $1,261,607
Total Residential Flat Fee Revenue $3,355,774
The above costs are included in the proposed FY 2019 bi-monthly fee charged to all Residential customer accounts. Added to these costs are the other operational and capital costs described in the next section.
For Non-Residential customers, the proposed FY 2019 Flat Fee revenue is $141,871. There are 973 non - residential accounts, so this revenue is collected as a $24.30 fee per bi -monthly bill for each Non - Residential customer account.
4.3 Development of Unit Costs of Service for Non-Personnel Operating and Capital Cost Categories
The first step of the remaining cost of service exercise is to isolate the operating costs the City incurs between collection costs (allocated 100% based on Flow) and treatment costs (allocated to Flow, BOD, TSS and NH
3). This is simple for the City of Milpitas, because the only operating cost related to treatment is the line item in the City’s budget that is the operating payment to the SJ/SC Regional Waste Water Facility. The other costs of the city can be split between Supplies and Contractual Services, Capital Outlay, and Transfers Out to other funds, which are purely related to the City’s operation and maintenance of its collection system. Supplies and Contractual Services include the cost the City pays for the material it needs to complete its work , such as minor tools, chemicals, and small equipment. The City also uses contractual services to support staff with repair and maintenance work. The City budgets for Services and supplies each year to the annual budget process and the budgeted amounts are based on the projected work-plan for the upcoming fiscal year.
The second step in the City’s cost of service process is also very straightforward. Because 100% of the City’s costs are not related to treatment, those cost categories can be allocated 100% to the cost causative component of flow. The allocation percentages for treatment costs related to the SJ/SC Facility are given to the City of Milpitas by the City of San José on an annual basis.
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18 The third step in the cost of service process is to simply multiply each cost category’s total by the percentage allocation for each cost causative component, resulting in the total operating cost by cost causative component Source: Exhibit 2.1.1) . The first three steps of the cost of service process for the system’s operating costs are shown in Exhibit 4.3.1.
Exhibit 4.3.1 FY 2019 Operating Costs by Functional Cost Categories and Cost Causative Components Functional Cost Categories FY 2019
Costs Flow BOD TSS NH3
Supplies & Contractual Services $1,506,276 100.0% 0.0% 0.0% 0.0% Capital Outlay $45,000 100.0% 0.0% 0.0% 0.0%
Transfers Out $1,659,274 100.0% 0.0% 0.0% 0.0%
SJ/SC WPCP Treatment $6,021,401 33.8% 24.9% 21.6% 19.6% Total $9,231,951 $5,248,734 $1,501,978 $1,300,803 $1,180,435
The system’s capital costs (Sources: Exhibits 2.2.1, 2.2.3 and 2.2.4) must also be allocated to the four cost causative components in the same manner. The functional cost categories for capital expenses are the City’s existing debt, the City’s CIP and the CIP payment the City of Milpitas must pay for the treatment services provided at the SJ/SC Regional Waste Water Facility. The first three steps of the cost of service allocation is shown in Exhibit 4.3.2.
Exhibit 4.3.2 FY 2019 Capital Costs by Functional Cost Categories and Cost Causative Components Functional Cost Categories FY 2019
Costs Flow BOD TSS NH3
Existing Debt Service $650,273 69.7% 13.5% 7.3% 9.5%
City of Milpitas Capital Projects $2,515,000 81.7% 9.0% 5.8% 3.4% SJ/SC Facility Capital Projects $2,000,000 81.7% 9.0% 5.8% 3.4% Total $5,165,273 $4,143,347 $495,564 $309,455 $216,906
Although the City’s capital projects are focused on the collection system owned by the City, those projects are necessary to provide both collection and treatment services for the City’s customers, and therefore it is appropriate to allocate those capital costs in the same way as the SJ/SC Facility costs.
The debt service allocations are based on the use of the funds raised by the 2006 Series A Sewer Certificates of Participation. Both the City of Milpitas CIP and SJ/SC Facility CIP are allocated based on the total plant costs given to the City of Milpitas by the City of San José.
Using the above allocations, MFSG has calculated the cost basis for each of the City’s sewer service functions, completing steps one, two and three of the cost of service proces s. The fourth step is developing units of service for each customer class.
4.4 Development of Unit Costs of Service by Cost Causative Component The City collects data on each of its customer classes, including the “loading” of each pollutant tracked within the sewer cost of service analysis. Flow is tracked as million gallons per day (MGD), while the pollutant loadings are tracked as pounds per da y (lbs/day) based on the yearly active days for each customer class, which range from 176 to 365. Exhibit 4.4.1 shows the annual loadings of each cost causative component for the most recently available Fiscal Year.
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4. Cost of Service Analysis November 2018
19 Exhibit 4.4.1 Cost Causative Component Data by Customer Class Customer Class FY 2017 Flow BOD TSS NH3 Days
Units (HCF) (MGD) (lbs/day) (lbs/day) (lbs/day) Active
Single-Family 1,097,580 2.249 4.693 4.693 0.657 365
Mobile Home Park 35,847 0.073 0.153 0.153 0.021 365
Multiple-Family 682,820 1.399 2.919 2.919 0.409 365
Motels and Hotels 102,661 0.210 0.544 0.212 0.012 365
General Office 174,990 0.502 0.544 0.335 0.046 261
City of Milpitas 12,680 0.029 0.032 0.020 0.003 323
Service Stations 17,654 0.036 0.054 0.085 0.000 365
Eat/Drink Establishments 212,372 0.435 4.540 2.034 0.036 365 Convalescent Hosp/Daycare 16,397 0.034 0.064 0.024 0.004 365 Personal Services, Laundries 35,194 0.072 0.090 0.066 0.003 365 Electrical/Electronics 150,403 0.431 0.108 0.054 0.108 261 Machinery Manufacture 4,349 0.012 0.030 0.057 0.000 261 RockTenn (Jefferson Smurfit) 2,848 0.006 0.109 0.006 0.001 365 T. Marzetti Co. 13,815 0.033 0.659 0.066 0.000 313
Prudential Overall Supply 19,742 0.057 0.250 0.134 0.001 261 Siemens Water Tech 43,450 0.125 0.009 0.367 0.001 261
Elmwood Rehabilitation 93,018 0.191 0.660 0.497 0.035 365 Linear Technology 105,018 0.301 0.234 0.179 0.050 261
DS W 654 0.002 0.000 0.000 0.000 261
Magic Tech & Headway Tech 43,542 0.125 0.447 0.002 0.001 261 Lucky Pure Water 352 0.001 0.001 0.000 0.000 365
Milpitas Materials 16 0.000 0.000 0.000 0.000 365
Union Pacific Railroad 26 0.000 0.000 0.000 0.000 261
Cisco 11,752 0.034 0.008 0.004 0.008 261
Lifescan 221 0.001 0.000 0.000 0.000 261
Schools/Colleges 23,803 0.101 0.110 0.084 0.025 176
Total 2,901,202 6.458 16.260 11.991 1.423
To determine the unit rate for operating expenses, each customer class’ loading in each cost causative component is multiplied by that customer class’ days active. These values are summed to arrive at the blended unit rate of operating costs. For example, Single Family users produced 4.693 lbs/day of BOD, times 365 days active, giving a total lbs/year of 1,712.79. The lbs/year value is determined for each customer class, and then they are added together to arrive at the total lbs/year of 5,708.85. In step three, the annual operating cost of BOD treatment was determined to be $1,501,978 (see Exhibit 4.3.1) , therefore the per unit operating cost of BOD treatment is $1,501,978 divided by 5,708.85, which equals $263. This method of determining the unit cost of o perating the system is used because it takes into account both the volume and strength of each class’ sewer effluent as well as the number of days per year each customer class is active, resulting in a blended per unit cost of operating the whole system on an annual basis.
The capital unit rate is simply the total cost of each cost causative component (as identified in step three) divided by the total loading in each cost causative component shown at the bottom of the above exhibit.
For example, the total capital cost of treating TSS was calculated as $309,455 per year (see exhibit 4.3.2), and the total loading of TSS is 11.991 lbs/year. Therefore, the total capital unit rate for TSS is $309,455 divided by 11.991, which equals $25,807. This method of calculating capital costs is straightforward and does not take into account the days active of each customer class, because the capital needs of the system are present regardless of how much the system is being utilized throughout the year. It is assumed that City Council Regular Meeting - Page 759 of 1385
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4. Cost of Service Analysis November 2018
20 all customers have access to the system at all times during the year and that capital costs must be recovered from all customers proportionately based on flow and strength of their sewer effluent.
Exhibit 4.4.2 shows the unit rates for each cost causative component.
Exhibit 4.4.2 Blended Unit Rate by Cost Causative Component Unit Rates Flow BOD TSS NH3
Operating $2,419 $263 $307 $2,398
Capital $641,539 $30,478 $25,807 $152,394
4.5 Determination of Cost of Service by Customer Class
The last step of the cost of service process is simple. Each customer class’ appropriate cost in each or the cost causative components are equal to:
• Operating: Unit Rate x Customer Class Loading x Days Active • Capital: Unit Rate x Customer Class Loading
Each of these calculations results in a class by class accounting for the costs caused by each customer class.
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4. Cost of Service Analysis November 2018
21 Exhibit 4.5.1 FY 2019 Operating Costs by Customer Class and Cost Causative Component Customer Class FY 2019 Flow BOD TSS NH3
Total $ ($/year) ($/year) ($/year) ($/year)
Single-Family $3,537,074 $1,985,696 $450,629 $525,614 $575,135 Mobile Home Park $115,520 $64,852 $14,717 $17,166 $18,784 Multiple-Family $2,200,463 $1,235,329 $280,343 $326,992 $357,800 Motels and Hotels $272,549 $185,730 $52,265 $23,795 $10,759 General Office $409,578 $316,585 $37,359 $26,816 $28,819 City of Milpitas $29,679 $22,940 $2,707 $1,943 $2,088
Service Stations $46,626 $31,939 $5,219 $9,469 $0
Eat/Drink Establishments $1,079,785 $384,215 $435,964 $227,812 $31,795 Convalescent Hosp/Daycare $42,210 $29,665 $6,193 $2,670 $3,682 Personal Services, Laundries $82,391 $63,672 $8,670 $7,416 $2,635 Electrical/Electronics $351,387 $272,103 $7,410 $4,322 $67,553 Machinery Manufacture $14,521 $7,868 $2,071 $4,582 $0
RockTenn (Jefferson Smurfit) $16,916 $5,153 $10,425 $661 $678 T. Marzetti Co. $85,868 $24,993 $54,309 $6,380 $186
Prudential Overall Supply $64,128 $35,716 $17,145 $10,706 $562 Siemens Water Tech $109,006 $78,608 $628 $29,380 $390
Elmwood Rehabilitation $318,396 $168,284 $63,411 $55,645 $31,055 Linear Technology $251,991 $189,994 $16,091 $14,303 $31,603 DS W $1,186 $1,183 $2 $0 $0
Magic Tech & Headway Tech $110,378 $78,774 $30,662 $158 $782 Lucky Pure Water $823 $636 $75 $54 $58
Milpitas Materials $36 $28 $3 $2 $3
Union Pacific Railroad $69 $47 $8 $14 $0
Cisco $27,456 $21,261 $579 $338 $5,278
Lifescan $516 $400 $11 $6 $99
Schools/Colleges $63,396 $43,063 $5,082 $4,560 $10,691
Total Operating Costs $9,231,951 $5,248,734 $1,501,978 $1,300,803 $1,180,435 City Council Regular Meeting - Page 761 of 1385
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4. Cost of Service Analysis November 2018
22 Exhibit 4.5.2 FY 2019 Capital Costs by Customer Class and Cost Causative Component Customer Class FY 2019 Flow BOD TSS NH3
Total $ ($/year) ($/year) ($/year) ($/year)
Single-Family $1,807,244 $1,443,005 $143,020 $121,101 $100,117 Mobile Home Park $59,024 $47,128 $4,671 $3,955 $3,270
Multiple-Family $1,124,312 $897,714 $88,975 $75,339 $62,284 Motels and Hotels $158,913 $134,970 $16,588 $5,482 $1,873 General Office $353,972 $321,734 $16,582 $8,640 $7,016
City of Milpitas $20,726 $18,838 $971 $506 $411
Service Stations $27,048 $23,210 $1,656 $2,182 $0
Eat/Drink Establishments $475,597 $279,209 $138,366 $52,488 $5,535 Convalescent Hosp/Daycare $24,779 $21,557 $1,966 $615 $641 Personal Services, Laundries $51,189 $46,270 $2,752 $1,709 $459 Electrical/Electronics $297,655 $276,529 $3,289 $1,392 $16,445 Machinery Manufacture $10,392 $7,996 $919 $1,476 $0
RockTenn (Jefferson Smurfit) $7,323 $3,744 $3,309 $152 $118 T. Marzetti Co. $43,032 $21,180 $20,100 $1,714 $38
Prudential Overall Supply $47,493 $36,297 $7,609 $3,450 $137 Siemens Water Tech $89,727 $79,887 $279 $9,467 $95
Elmwood Rehabilitation $160,644 $122,292 $20,125 $12,821 $5,406 Linear Technology $212,529 $193,085 $7,142 $4,608 $7,693 DS W $1,204 $1,202 $1 $0 $0
Magic Tech & Headway Tech $93,907 $80,056 $13,609 $51 $190 Lucky Pure Water $509 $462 $24 $12 $10
Milpitas Materials $22 $20 $1 $1 $0
Union Pacific Railroad $56 $48 $3 $4 $0
Cisco $23,258 $21,607 $257 $109 $1,285
Lifescan $437 $406 $5 $2 $24
Schools/Colleges $74,283 $64,900 $3,345 $2,179 $3,860
Total Capital Costs $5,165,273 $4,143,347 $495,564 $309,455 $216,906
By adding each customer class’ operating and capital cost recovery, it can be determined what percentage of annual rate revenue should be generated by each customer class. Exhibit 4.5.3 shows the results of the cost of service analysis.
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4. Cost of Service Analysis November 2018
23 Exhibit 4.5.3 Cost of Service Result by Customer Class Annual Cost Recovery Per Class Total Total Total O&M Capital O&M Capital $ % %
Single-Family $3,537,074 $1,807,244 $5,344,318 38.3% 35.0% Mobile Home Park $115,520 $59,024 $174,544 1.3% 1.1%
Multiple-Family $2,200,463 $1,124,312 $3,324,775 23.8% 21.8% Motels and Hotels $272,549 $158,913 $431,462 3.0% 3.1%
General Office $409,578 $353,972 $763,550 4.4% 6.9%
City of Milpitas $29,679 $20,726 $50,404 0.3% 0.4%
Service Stations $46,626 $27,048 $73,674 0.5% 0.5%
Eat/Drink Establishments $1,079,785 $475,597 $1,555,382 11.7% 9.2% Convalescent Hosp/Daycare $42,210 $24,779 $66,990 0.5% 0.5% Personal Services, Laundries $82,391 $51,189 $133,580 0.9% 1.0% Electrical/Electronics $351,387 $297,655 $649,043 3.8% 5.8% Machinery Manufacture $14,521 $10,392 $24,913 0.2% 0.2% RockTenn (Jefferson Smurfit) $16,916 $7,323 $24,240 0.2% 0.1% T. Marzetti Co. $85,868 $43,032 $128,900 0.9% 0.8%
Prudential Overall Supply $64,128 $47,493 $111,621 0.7% 0.9% Siemens Water Tech $109,006 $89,727 $198,733 1.2% 1.7%
Elmwood Rehabilitation $318,396 $160,644 $479,040 3.4% 3.1% Linear Technology $251,991 $212,529 $464,520 2.7% 4.1%
DS W $1,186 $1,204 $2,389 0.01% 0.02%
Magic Tech & Headway Tech $110,378 $93,907 $204,284 1.2% 1.8% Lucky Pure Water $823 $509 $1,332 0.01% 0.01%
Milpitas Materials $36 $22 $59 0.0004% 0.0004%
Union Pacific Railroad $69 $56 $124 0.001% 0.001%
Cisco $27,456 $23,258 $50,714 0.3% 0.5%
Lifescan $516 $437 $954 0.01% 0.01%
Schools/Colleges $63,396 $74,283 $137,679 0.7% 1.4%
Total Annual Cost $9,231,951 $5,165,273 $14,397,224 100.00% 100.00%
The results shown above allow the equitable distribution of annual costs to each customer class. In any given fiscal year, the net operating revenue requirement is multiplied by the O&M percentage shown above for each customer class to determine that class ’ O&M cost responsibility. The same is done for annual capital costs. In each year, the rate determined for each customer class is equal to:
• Residential Customers:
[Flat Fee Allocation + (O&M Net Revenue Requirement x % O&M Allocation from Cost of Service) + (Capital Net Revenue Requirement x % Capital Allocation from Cost of Service)] (Billable Dwelling Units x 6)
The total residential costs are divided by six times the residential billable dwelling units to account for bi- monthly billing. Each custome r will receive six sewer bills throughout the year, and therefore the total annual cost must be spread over six times the number of customers.
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24 • Non-Residential Customers:
Bi Monthly Flat Fee
+
[(O&M Net Revenue Requirement x % O&M Allocation from Cost of Service) + (Capital Net Revenue Requirement x % Capital Allocation from Cost of Service)] Annual Billable Units in HCF
Non-residential customers are billed on flow, so the basis for each rate is the total flow in HCF from each customer class.
The City’s rates can now be calculated on an annual basis, given assumed operating and capital costs. The next section of this report details a financial plan developed by M FSG to plan for the major operational and capital investments that the City will need to make in its sewer system over the next five to ten years.
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5. Financial Plan and Proposed Rates November 2018
25 5. FINANCIAL PLAN AND PROPOSED RATES
5.1 Total Revenue Projections at Current Rates
In Section 2, the projected costs (revenue requirements) of the system were presented and, in Section 3, projected customers and sewage generation were presented. In this section, we use the results of the cost of service analysis presented in Section 4 to determine an appropriate financial plan and set sewer rates for the next five years.
5.1.1 Revenues vs. Expenses at Current Rates
The adequacy of revenues from current rates was evaluated in order to determine if existing rates are sufficient to recover the revenue requirements. Exhibit 5.1.1 compares the revenue requirements with total revenue projections at current rates for the base year and the first five years of the planning period.
Exhibit 5.1.1 Sewer Revenue Requirements and Revenue at Current Rates
Exhibit 5.1.1 demonstrates that revenue collected at current sewer rates is insufficient to cover the revenue requirements in some years from FY 2020 to FY 2023. Current sewer rates would continue to not to generate sufficient revenue to fund the revenue requirements ov er the remainder of the long -term planning period. This has a significant impact on the sewer fund’s financial health.
5.1.2 Projected Sewer Fund Cash Balances at Current Rates When considering the five-year rate plan, it is important to consider the long-term impact of rate changes made in early years. If the City were to not adjust rates in the five -year timeframe, the sewer system would experience heavy deficits over both the five-year and ten-year timeframe. Exhibit 5.1.2 shows the five-year sewer fund cash balance projection under the scenario in which the City does not adjust rates in any fiscal year. To be consistent with the City’s budget documents, all cash balance charts in this report show the combined balance of the City’s Sewer Fund, Sewer Fund CIP, Treatment Plant Construction Fund, Sewer 2017 Bonds Fund, and Sewer Infrastructure Replacement Fund.
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Millions
New SJ/SC Facility Debt Service
SJ/SC Facility Cash Funded CIP
City of Milpitas Cash Funded CIP
Current Debt Service
SJ/SC Facility Operating Expenses
City of Milpitas Operating
Expenses
Total Revenue at Current Rates
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5. Financial Plan and Proposed Rates November 2018
26 Exhibit 5.1.2 Sewer Fund End of Year Balance at Current Rates (Five-Year Projection)
Under the current sewer rates, the Sewer Fund operating cash balance would be completely depleted in FY 2023. MFSG recommends that the City implement annual rate increases immediately to position the fund for the future investments needed in the sewer system.
5.2 Recommended Financial Plan and Rates
Given the results of the projections under current rates, MFSG recommends a phased in financial plan that will generate sufficient revenue over the five-year planning period to fully fund the sewer system and maintain the recommended minimum cash balance in the sewer fund, as well as position the fund for the long-term investments needed in the City’s sewer infrastructure. Exhibit 5.2.1 shows MFSG’s recommended sewer rates . It should be noted that in FY 2019, the projections assume that the City implement the new rates on February 1, 2019, just over halfway through the Fiscal Year. Each subsequent year assumes that the City adopt rates effective on July 1 of each Fiscal Year.
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5. Financial Plan and Proposed Rates November 2018
27 Exhibit 5.2.1 Recommended Sewer Rates
Current
FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Sewer User Rate Revenue Increase per Year 4.0% 8.0% 8.0% 7.0% 6.0% Month of Implementation February July July July July
Residential (per Dwelling Unit)
Single-Family $90.27 $97.60 $102.52 $111.07 $118.34 $124.14 Mobile Home Parks $56.97 $76.03 $79.86 $86.53 $92.19 $96.71 Multiple-Family $69.32 $74.96 $78.73 $85.30 $90.88 $95.34
Non-Residential Fixed Flat Fee (per bill) $15.27 $24.30 $25.03 $25.78 $26.55 $27.35
Commercial (per HCF)
Motels and Hotels $4.36 $4.36 $4.58 $4.97 $5.37 $5.75
General Office $4.67 $4.67 $5.44 $5.67 $6.14 $6.84
City of Milpitas $4.18 $4.18 $4.61 $4.91 $5.31 $5.80
Service Stations $4.34 $4.34 $4.54 $4.93 $5.32 $5.70
Eat/Drink Establishments $7.49 $7.49 $7.49 $8.11 $8.73 $9.06 Convalescent Hosp/Daycare $4.23 $4.23 $4.46 $4.84 $5.23 $5.60 Personal Services, Laundries $3.95 $3.95 $4.23 $4.56 $4.92 $5.31 Electrical/Electronics $4.59 $4.59 $5.35 $5.58 $6.04 $6.72 Machinery Manufacture $6.08 $6.08 $6.70 $7.12 $7.70 $8.43
Monitored Sites (per HCF)
RockTenn (Jefferson Smurfit) $4.67 $8.35 $8.35 $9.39 $10.11 $10.46 T. Marzetti Co. $8.34 $9.16 $9.63 $10.65 $11.48 $12.09
Prudential Overall Supply $6.70 $6.70 $6.70 $7.08 $7.66 $8.42 Siemens Water Tech $4.91 $4.91 $5.61 $5.87 $6.36 $7.06
Elmwood Rehabilitation $5.49 $5.49 $5.49 $5.89 $6.35 $6.69 Linear Technology $4.59 $4.59 $5.47 $5.71 $6.18 $6.88
DS W $4.59 $4.59 $4.80 $4.92 $5.34 $6.04
Magic Tech & Headway Tech $4.53 $4.62 $5.82 $6.07 $6.57 $7.32
Non-Monitored Sites (per HCF)
Lucky Pure Water $3.94 $3.94 $4.21 $4.54 $4.91 $5.29
Milpitas Materials $3.94 $3.94 $4.21 $4.54 $4.91 $5.29
Union Pacific Railroad $5.11 $5.11 $5.84 $6.12 $6.63 $7.35 Cisco $4.59 $4.59 $5.35 $5.58 $6.04 $6.72
Lifescan $4.59 $4.59 $5.35 $5.58 $6.04 $6.72
Institutional (per HCF)
Schools/Colleges $6.31 $6.31 $7.94 $8.05 $8.73 $9.99
Note that the impact of the revenue increase identified on the top line of the above chart does not necessarily reflect the rate increase for any given customer class. The rates charged to each class consider a number of factors, including that class’ allocation of Flow, BOD, TSS and NH 3 costs. The financial plan
only defines the total increase in revenue each year. The rates are calculated to meet that revenue target given the changing allocations of operating and capital expenses that are projected each year.
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5. Financial Plan and Proposed Rates November 2018
28 5.3 Total Revenue Projections at Proposed Rates
To maintain the financial health of the City ’s sewer operations over the first five years of th e planning period, sewer rate revenue needs to be increased. In addition to covering the revenue requirements, revenue must also be enough to satisfy the minimum cash balance specified of 180 days operating expenses outlined in Section 2.1.
5.3.1 Sewer Revenues vs. Expenses at Proposed Rates
MFSG proposes the use of the current cash balance as well as adjusting rates on a multi- year basis to provide a sound financial bas is for the City’s sewer system . The flowing exhibit shows the revenue increases proposed by MFSG’s rate plan.
Exhibit 5.3.1 Sewer Revenue vs. Expenses Under Proposed Revenue Increases
MFSG’s rate plan for the sewer system depends on the multi -year usage of cash on hand to mitigate (“smooth out”) one-time rate increases. Over the five-year rate plan, the City’s sewer system will depend on a blend of increased rate revenues and the spendi ng down of cash reserves. Due to the cash balance position of the sewer fund at the beginning of FY 2019, MFSG believes that a long -term phase -in is appropriate for the City’s sewer rates.
5.4 Sewer Fund Cash Balance Projections at Proposed Rates Under MFSG’s proposed financial plan the City maintains the recommended reserve balance in each year of the five -year planning period. Under the proposed plan, the City maintains at least 180 days of cash within the Sewer Fund, which is the minimum that MFSG recommends.
5.4.1 Sewer Fund Balance at Proposed Rates
Sewer fund cash on hand will be used to phase in the revenue increases needed to support the long-term financial needs of the sewer system. Exhibit 5.4.1shows the proposed draw-down on the sewer system’s cash balance to phase in the appropriate rate increases.
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Millions New SJ/SC Facility Debt Service
SJ/SC Facility Cash Funded CIP
City of Milpitas Cash Funded CIP
Current Debt Service
SJ/SC Facility Operating Expenses
City of Milpitas Operating Expenses
Total Revenue at Current Rates
Revenue at Proposed Rates
City Council Regular Meeting - Page 768 of 1385
Sewer Rate Study Version: DRAFT
5. Financial Plan and Proposed Rates November 2018
29 Exhibit 5.4.1 Sewer Fund Projected Balance under Proposed Rates (Five-Year)
The sewer system’s cash on hand will be utilized over portions of the projection to mitigate the need for higher sewer rate increases. Under the current projections the City’s sewer rates will be consistently cash flow positive in year six of the projection (FY 202 4). However, at no time with the City’s Sewer Fun fall below the recommended 180 days of operating expenses. Exhibit 5.4.2 shows the long term (ten -year) projection of the City’s Sewer Fund balance.
Exhibit 5.4.2 Sewer Fund Projected Balance under Proposed Rates (Ten-Year)
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Millions
Ending Restricted for CIP Reserves Ending Unassigned, Unrestricted Reserves Minimum Unrestricted Reserve Balance
4.0%
8.0%
8.0%
7.0%
6.0% 3.0% 3.0% 3.0%
3.0%
3.0%
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Millions
Ending Unassigned, Unrestricted Reserves Ending Restricted for CIP Reserves Minimum Unrestricted Reserve Balance
City Council Regular Meeting - Page 769 of 1385
Sewer Rate Study Version: DRAFT
5. Financial Plan and Proposed Rates November 2018
30 The long-term projection includes 3.0% increases in operating expenses, the continuation of the City’s FY 2023 CIP, the long-term projections of the SJ/SC WPCP capital costs, and 3.0% rate increase in each year after FY 2023. The percentages shown above the bars in the exhibit are the assumed revenue increases each fiscal year. It should be noted that the City will re-examine its sewer rate each year, and that these long-term projections will change with each future analysis.
A major consideration when projected the future revenue needs of the City’s system is the impact that the proposed rates will have on the City’s customers. The following section describes the projected impact on the City’s sewer customers.
City Council Regular Meeting - Page 770 of 1385
Sewer Rate Study Version: DRAFT
6. Customer Bill Impacts November 2018
31 6. CUSTOMER BILL IMPACTS AND BILL COMPARISON
6.1 Bi-monthly Bill Impact of Recommended Rates
Exhibit 6.1.1 shows the percentage impact each year on customer bills. Because MFSG recommends adjusting rates to account for the updated cost of service results, the impact differs amongst the customer classes.
Exhibit 6.1.1 Sample Percentage Change in Bi-Monthly Bills by Customer Class FY 2019 FY 2020 FY 2021 FY 2022 FY 2023
Sewer User Rate Revenue Increase 4.0% 8.0% 8.0% 7.0% 6.0% Month of Implementation February July July July July
Residential (per Dwelling Unit)
Single-Family 8% 5% 8% 7% 5%
Mobile Home Parks 33% 5% 8% 7% 5%
Multiple-Family 8% 5% 8% 7% 5%
Commercial (per HCF)
Average Bi-Monthly
Usage (HCF)*
Motels and Hotels 684 0% 5% 9% 8% 7%
General Office 82 2% 16% 4% 8% 11%
City of Milpitas 60 3% 10% 6% 8% 9%
Service Stations 77 3% 4% 8% 8% 7%
Eat/Drink Establishments 198 1% 0% 8% 8% 4%
Convalescent Hosp/Daycare 130 2% 5% 8% 8% 7%
Personal Services, Laundries 101 2% 7% 8% 8% 8%
Electrical/Electronics 171 1% 16% 4% 8% 11%
Machinery Manufacture 40 3% 10% 6% 8% 9%
Monitored Sites (per HCF)
RockTenn (Jefferson Smurfit) 475 79% 0% 12% 8% 4%
T. Marzetti Co. 1,151 10% 5% 11% 8% 5%
Prudential Overall Supply 1,645 0% 0% 6% 8% 10%
Siemens Water Tech 3,621 0% 14% 5% 8% 11%
Elmwood Rehabilitation 3,101 0% 0% 7% 8% 5%
Linear Technology 2,917 0% 19% 4% 8% 11%
DS W 55 3% 4% 3% 8% 12%
Magic Tech & Headway Tech 1,814 2% 26% 4% 8% 11%
Non-Monitored Sites (per HCF)
Lucky Pure Water 59 4% 7% 7% 8% 7%
Milpitas Materials 3 35% 4% 4% 5% 5%
Union Pacific Railroad 4 24% 8% 4% 6% 7%
Cisco 392 0% 16% 4% 8% 11%
Lifescan 37 5% 15% 4% 8% 10%
Institutional (per HCF)
Schools/Colleges 62 2% 25% 1% 8% 14%
* Average bi-monthly usage for Non-Residential customers is calculated for each customer class as:
(Total Annual Flow/Customer Accounts)/6
City Council Regular Meeting - Page 771 of 1385
Sewer Rate Study Version: DRAFT
6. Customer Bill Impacts November 2018
32 The sample bill increases for each customer class vary from year to year due to varying levels of operating and capital spending needs. Each year, rates are calculated based on that year’s operating and capital costs, which are allocated to each customer class based on the Flow, BOD, TSS, and NH3 loadings show in Exhibit 4.4.1 of this report.
The total Sewer Fund rate revenue increase each year will be equal to the percentage sho wn on the top line of the above table.
6.2 Consideration of Mobile Home Park General Fund Subsidy In 2015, the City of San José was presented with “Technical Memorandum No. 3” as a part of the “Phase 3 Flow and Load Study” performed by Carollo Engineers. The purpose of the study was to update the flow data used when allocating the treatment costs of the SJ/SC Regional Waste Water Facility to the Facility’s Tributary Agencies, which include the Cities of San José, Santa Clara and Milpitas, as well as Cupertino Sanitary District, County Sanitation District No. 2-3, West Valley Sanitation District, and Burbank Sanitary District. The conclusion of that analysis was:
“Milpitas’ mobile home data showed very low per -capita flow rates (approximately 30 GPCD in some ye ars). After a close examination of the mobile home data, Carollo found two issues. The first was that the number of data points was very small, totaling only four accounts. The other issue was that although the consumption values for each account changed significantly from year to year, the number of units was relatively consistent.
These issues led to the conclusion that the number of units in the database was incorrect, possibly due to fluctuating vacancies, and the number of data points too small to draw large conclusions. Therefore, Milpitas’s mobile home data was not used in this analysis because a statistically significant number of reliable data points were not available.” - Carollo Engineers, Technical Memorandum No. 3 (2015) at p. 12
The final recommendation of C arollo’s Flow study was to allocate 141 GPD per person to the City of Milpitas Mobile Home account, equivalent to 63 GPD per person. This was based on a weighted average of all Tributary Agencies due to the lack of data quoted above. City staff has since replaced the water meters at the mobile home parks and the more accurate data from the new water meters and sewer flow monitoring will be incorporated into future flow and load studies.