DATE: April 4, 2023
DEPARTMENT: PUBLIC WORKS
FROM: DAVID JACOBS, DIRECTOR
BY: BRIAN FRUS, SENIOR ENGINEER
TITLE: ESTABLISHMENT OF NEW INDUSTRIAL WASTEWATER RATES FOR FISCAL YEARS 2024 THROUGH 2028 RECOMMENDED MOTION:
A motion to approve a resolution to establish new Industrial Wastewater rates for fiscal years 2024 through 2028 that 1) Includes annual rate increases of 22% effective July 1, 2023 (FY 2024), 22% on July 1, 2024 (FY 2025), 2% on July 1, 2025 (FY 2026), 2% on July 1, 2026 (FY 2027), and 2% on July 1, 2027 (FY 2028) and 2) Implements a new four-part rate structure effective July 1, 2023.
EXECUTIVE SUMMARY:
Twenty-three existing industries discharge to the Industrial Wastewater Collection and Conveyance System (IWCCS). A list of current industries is available as Exhibit A on the attached Resolution. Revenue under the current Industrial Wastewater rates is insufficient to meet operating and capital expenses for the next five years, fiscal year (FY) 2024 through FY 2028, and therefore revenue adjustments are needed. Recommended revenue increases are an average of 22% annually to industrial wastewater rates in FY 2024 and FY 2025 and 2% annually in FY 2026 through FY 2028. The City’s current Industrial Wastewater rates have been in effect since January 1, 2013.
Permits are issued by the City to the industrial dischargers for three-year terms. Dischargers are charged a fixed monthly service fee and variable fees based on their average monthly flow and biochemical oxygen demand (BOD), a measure of water quality. Individual industrial customer increases will vary depending on allocated monthly capacity, flow contributed, and BOD. The has planned near-term development for the IWCCS adding two new dischargers with the potential longer-term development adding even more.
The proposed industrial wastewater rates are comprised of four components detailed below, also listed in Exhibit B on the attached Resolution:
A fixed monthly service charge (flat fee),
A monthly allocation reservation charge which is based on monthly allocation, A variable flow charge for the amount of wastewater contributed to the industrial waste system, And a variable charge for the pounds of BOD in wastewater contributed.
The recommended rates and rate structure are based on the cost of service (COS) analysis and provided a defensible nexus between the cost of service provided and rates charged. The analysis was completed using Water Environmental Federation standards alongside industry best practices.
Property-related fees and charges in California are governed by Proposition 218, which dictates that rates do not exceed the proportional cost of service. In addition to the proportionality requirements, Proposition 218 requires public agencies in California to meet procedural requirements for adoption of new or increased rates for property-related fees. The City must hold a public hearing to consider the proposed rate increases and must provide written notice at least 45 days in advance of said hearing to all customers subject to the proposed new or increased rates. Any industry user that is directly liable to the public agency for payment of the property-related fees may submit a written protest against the new or increased rates at any time until the close of the public hearing. City Council may not adopt the proposed new or increased rates if more than 50 percent of the industry users directly liable for payment and with operations upon properties which the proposed rates will be imposed, submit written protests.
BACKGROUND:
The City of Salinas is planning on improvements to its IWCCS, which treats wastewater from 23 local agriculture‐based industries. The system is comprised of a network of piping and pump station, which covey wastewater to the Industrial Waste Treatment Facility (IWTF) for treatment and disposal.
The City retained Carollo, an independent rate consultant, to conduct an Industrial Wastewater Rate Study (Rate Study) for the City’s industrial wastewater rates. The City’s last Study was completed in May 2012, with the current rate and rate structure last updated on January 1, 2013. The key driver for this rate study is significant upcoming capital costs associated with necessary improvements and capacity expansions to the IWCCS system, including updates to increase reliability and redundancy of treatment and conveyance facilities, implement automation and control, and improve energy and operational efficiency. A Facility Plan currently in development by Carollo has identified approximately $28.0 million in near-term projects (including studies and investigations) and $41.5 million of long-term projects.
Major projects are comprised of improvements at the IWTF south of the City of Salinas in unincorporated Monterey County and the Airport Lift Station (Airport LS) at the south end of Airport Boulevard near Hansen Street in the City. Capital improvements include:
Aeration Lagoon expansion and addition of aerators
Pond automation and flow distribution
Pond 3 Pump Station expansion
Pond aeration motor efficiency upgrades
Influent Pump Station flow metering
Electrical equipment relocation
Backup power
Airport Lift Station upgrades
City staff and Carollo met with largest five IWTF industrial dischargers in separate meetings to discuss the upcoming projects and the results of the Rate Study. Two additional meetings were also held prior to the Public Hearing to give all industrial customers an opportunity to discuss and ask questions regarding the planned capital improvements and Rate Study results.
The attached Industrial User Rates and Fees Technical Memorandum also evaluated connection fees and rates for water deliveries for recycled water (recycled water rates) in addition to the industrial dischargers rates. Neither the connection fees nor the recycled water rates are subject to proposition 218 processes. Therefore, only the industrial rates are being brought to Council for consideration and establishment at this time. The connection fees and recycled water rates will be presented to Council for approval at a later date.
CEQA CONSIDERATION:
Not a Project. The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378). In addition, CEQA Guidelines Section 15061 includes the general rule that CEQA applies only to activities which have the potential for causing a significant effect on the environment. Where it can be seen with certainty that there is no possibility that the activity in question may have a significant effect on the environment, the activity is not subject to CEQA. Because the proposed action and this matter have no potential to cause any effect on the environment, or because it falls within a category of activities excluded as projects pursuant to CEQA Guidelines section 15378, this matter is not a project. Because the matter does not cause a direct or foreseeable indirect physical change on or in the environment, this matter is not a project. Any subsequent discretionary projects resulting from this action will be assessed for CEQA applicability.
STRATEGIC PLAN INITIATIVE:
The proposed establishment of new Industrial Wastewater rates meets the City Council’s Strategic Plan Initiative of Infrastructure and Environmental Sustainability. The new rates will provide for fiscally responsible management and funding of the Industrial Waste Enterprise Fund, which will better allow for the improvement of City facilities.
DEPARTMENTAL COORDINATION:
This project has and will continue to rely on coordination between the Water, Waste and Energy (WWE) division in Public Works, Finance, Legal and the City Manager’s office. WWE oversees the overall execution of the Rate Study, while coordinating with the City Manager, and with Finance and Legal for review of documents for consistency with established procedures, policy and statues.
FISCAL AND SUSTAINABILITY IMPACT:
The proposed rate increases will provide an additional $7.5 million in funds generated for the Industrial Waste Enterprise Fund from FY 2024 through FY 2028. During this five-year period, the rate increases provide enough revenue in each year to meet debt service coverage requirements of existing and projected debt, as well as allows the fund to maintain a minimum amount of cash on hand greater than or equal to 90 days of operation and maintenance expenditures to help mitigate any liquidity risks. The rate increases will help to fund necessary capital improvements to the IWCCS, as well as provide for financial longevity and ensure reliable, uninterrupted operation of the City’s industrial waste system.
AVAILABLE ALTERNATIVES
Council has the following alternatives:
1. Approve a resolution establishing new Industrial Wastewater rates for fiscal years 2024 through 2028, starting July 1, 2023; or
2. Reject approving the proposed new Industrial Wastewater rates. This alternative will delay the needed repair and expansion of the facility, possibly delaying planned industrial capacity growth.
ATTACHMENTS:
Industrial User Rates and Fees Technical Memorandum
Resolution
Exhibit A - Industrial Wastewater Users List
Exhibit B - Proposed Industrial Rate Structure
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