City of Salinas
Industrial Waste Treatment Facility
Improvements Project
Technical Memorandum
INDUSTRIAL USER RATES AND FEES
DRAFT | March 2023
INDUSTRIAL USER RATES AND FEES | INDUSTRIAL WASTE TREATMENT FACILITY IMPROVEMENTS PROJECT | CITY OF SALINAS DRAFT | MARCH 2023 | i
pw://Carollo/Documents/CA/Salinas/201196-000000/03 Reports and Studies/02 Deliverables/Funding and Financing/Financial/TM_IndustrialUserRates&Fees Contents
Section 1 Background and Introduction 1
1.1 Study Background 1
1.2 Rate Development Process Overview 1
1.2.1 Revenue Requirements Analysis 2
1.2.2 Cost-of-Service Analysis 2
1.2.3 Rate Design 2
Section 2 Revenue Requirements Analysis 3
2.1 Revenue Requirements Prior to Rate Increases 3
2.1.1 Expenditures 3
2.1.2 Revenues 5
2.1.3 Cash Flow Test 5
2.1.4 Debt Coverage Test 5
2.1.5 Capital Planning and Reserves 6
2.2 Revenue Requirements with Recommended Rate Increase 6 Section 3 Cost of Service 7
3.1 Functional Cost Allocation 7
3.2 Rate Component Allocation 7
3.2.1 O&M Allocation 8
3.2.2 Allocation of Debt Service and Capital Expense 8
3.2.3 Allocation of FY 2024 Revenue Requirements 9
Section 4 Rate Design Analysis 10
4.1 Proposed Rate Structure 10
4.1.1 Monthly Fixed Charge 10
4.1.2 Reservation Capacity Charge 10
4.1.3 Flow Rate 10
4.1.4 BOD Rate 10
4.2 Proposed Rate Schedule 11
4.3 Rate Adoption 11
Section 5 Analysis of Water Delivery for Recycling 12
5.1 Revenue Requirement Analysis 12
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5.2 Cost Allocation and Water Demand Analysis 12
5.2.1 Operating Expenses 13
5.2.2 Capital Improvement Program 13
5.2.3 Debt Service 13
5.2.4 Water Delivery for Recycling Allocation Results 13
5.3 Rate Calculation 14
5.3.1 Proposed Rate Structure 14
5.3.2 Monthly Fixed Charge 15
5.3.3 Volume Rate 15
5.3.4 Rate Calculation Methodology 15
5.4 Calculation 15
5.5 Rate Adoption 16
Section 6 Connection Fee 17
6.1 Background 17
6.2 Statutory Considerations 17
6.3 Approach 18
6.4 Connection Fee Components 18
6.4.1 Calculating System Value 18
6.4.2 Calculating System Capacity 18
6.5 Connection Fee Methodology 19
6.6 Buy-In Methodology 19
6.7 Incremental Methodology 19
6.8 Hybrid Methodology 20
6.9 Industrial Wastewater Connection Fee 20
Tables
Table 1 Operating Expenditure Forecast ($ thousands) 3
Table 2 Annual Debt Service ($ thousands) 4
Table 3 Non-Operating Expenditure Forecast ($ thousands) 4 Table 4 Capital Expenditure Forecast ($ thousands) 4
Table 5 Revenue Forecast Prior to Rates and Fees Increase ($ thousands) 5 Table 6 Cash Flow Test Prior to Rates and Fees Increase ($ thousands) 5 Table 7 Debt Coverage Test Prior to Rates and Fees Increase ($ thousands) 6 INDUSTRIAL USER RATES AND FEES | INDUSTRIAL WASTE TREATMENT FACILITY IMPROVEMENTS PROJECT | CITY OF SALINAS DRAFT | MARCH 2023 | iii
Table 8 Reserves Target Test ($ thousands) 6
Table 9 Cash Flow with Recommended Revenue ($ thousands) 6 Table 10 Allocation of O&M Budget to Rate Components ($ thousands) 8 Table 11 Allocation of Debt Service and Capital to Rate Components ($ thousands) 9 Table 12 Projected FY 2024 Allocation of Rate Revenue Requirements to Rate Components ($ thousands) 9
Table 13 Current Industrial Wastewater System Rates 10
Table 14 Five-year Rate Schedule 11
Table 15 Capital Improvement Program Allocation 13
Table 16 Projected FY 2024 Revenue Requirements Allocated to Water Delivery Recycling 14 Table 17 Fixed Monthly Charge Calculation 15
Table 18 Volume Charge Calculation 15
Table 19 Proposed FY 2024 Rates for Water Delivery for Recycling 16 Table 20 Industrial Waste Connection Fee Calculations 20 Figures
Figure 1 Conceptual Overview of the Rate-Setting Process 2 Figure 2 FY 2024 Allocation Split Between Industrial Wastewater and Water Delivery for Recycling 14
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Abbreviations
$/AF cost per acre-foot
AF acre-feet
AWWA American Water Works Association
BOD biochemical oxygen demand
Carollo Carollo Engineers
CIP capital improvement program
City City of Salinas
CSIP Castroville Seawater Intrusion Project
Fac Plan Salinas Industrial Wastewater Capacity and Financial Analysis Report FY fiscal year
HUD United States Department of Housing and Urban Development IWCCS industrial waste collection and conveyance system IWTF industrial waste treatment facility
lb pounds
M1 Manual American Water Works Association M1 Manual: Principles of Water Rates, Fees, and Charges
M1W Monterey One Water
MCWRA Monterey County Water Resources Agency
MG million gallons
mgd million gallons per day
MOP manual of practice
MOP 27 Water Environment Federation Manual of Practice No. 27 Financing and Charges for Wastewater Systems
O&M operations and maintenance
PS pump station
PWM Pure Water Monterey
PWM Project Pure Water Monterey Groundwater Replenishment Project R&R repair and replacement
RTP regional treatment plant
Study industrial wastewater rate study
TM technical memorandum
VFD variable frequency drive
WEF Water Environment Federation
INDUSTRIAL USER RATES AND FEES | INDUSTRIAL WASTE TREATMENT FACILITY IMPROVEMENTS PROJECT | CITY OF SALINAS DRAFT | MARCH 2023 | 1
Section 1
BACKGROUND AND INTRODUCTION
The City of Salinas (City) owns and operates an industrial waste collection and conveyance system (IWCCS), which is separate from the City’s sanitary and storm sewer systems. The system accepts flow from local processing facilities, which are primarily for agricultural products, such as fresh produce washing and packaging operations. The wastewater is conveyed for disposal or recycling to the industrial waste treatment facility (IWTF) located south of the City along the Salinas River.
This technical memorandum (TM) provides a capacity fee model, rate model, and proposed rates for the industrial waste system. The proposed rates presented in this TM are based on projects developed in the Salinas Industrial Wastewater Capacity and Financial Analysis Report (Fac Plan), also prepared by Carollo Engineers (Carollo).
Twenty-three existing industries discharge to the IWTF with planned near-term development adding two new dischargers and longer-term development adding more. Permits are issued by the City to the industrial dischargers for three-year terms. Dischargers are charged monthly fees based on their average monthly flow and biochemical oxygen demand (BOD).
1.1 Study Background
The City retained Carollo, an independent rate consultant, to conduct an Industrial Wastewater Rate Study (Study) for the City’s industrial wastewater rates and forthcoming water delivery for recycling rates. The City’s last study was completed in May 2012, with the current rate and rate structure last updated January 1, 2013. The key driver for this rate study is significant upcoming capital costs associated with needed improvements and capacity expansions to IWTF and collection system. The Fac Plan identified approximately $28.0 million in near-term projects (including studies and investigations) and $41.5 million of long-term projects. Details of these project recommendations can be found in the Fac Plan. This Study is being conducted with the intent of establishing and implementing rates that would sufficiently finance these upcoming capital costs associated with collection system and IWTF expansion as well as typical annual system operations.
Another element of this Study is related to the development of an agreement between the City, Monterey County Water Resources Agency (MCWRA), and Monterey One Water (M1W) to deliver water for recycling from the IWTF. The IWTF has existing and proposed new infrastructure to transfer treated water to M1W’s Regional Treatment Plant (RTP) for further treatment and subsequent reuse by M1W and MCWRA. This rate study establishes an appropriate cost per acre-foot ($/AF) that M1W and MCWRA should pay to offset costs associated with water delivery for recycling.
1.2 Rate Development Process Overview
Carollo used an industry standard step-by-step approach when reviewing the City’s industrial wastewater rates. This approach is consistent with industry standards established within the Water Environment Federation (WEF) Manual of Practice (MOP) No. 27 Financing and Charges for Wastewater Systems (MOP 27).
This step-by-step approach is summarized and outlined in Figure 1.
INDUSTRIAL USER RATES AND FEES | INDUSTRIAL WASTE TREATMENT FACILITY IMPROVEMENTS PROJECT | CITY OF SALINAS DRAFT | MARCH 2023 | 2
Figure 1 Conceptual Overview of the Rate-Setting Process
1.2.1 Revenue Requirements Analysis
The revenue requirements analysis tests the utility’s fiscal health. It compares the City’s forecasted revenues to its forecasted operations and maintenance (O&M) expenses, capital improvement costs, debt service, and reserve policies to determine the adequacy of the existing rates to recover costs. If the City falls short of any of these benchmarks, then rate revenue likely needs adjustments.
1.2.2 Cost-of-Service Analysis
The goal of the cost of service analysis is to identify an equitable and fair nexus between the costs incurred by the City and the rates assessed to each customer.
1.2.3 Rate Design
The rate design analysis ties together the preceding steps into final rates charged to each customer. The rates calculated in this step incorporate projected revenue requirements and the cost of service allocations into a fair and equitable cost recovery mechanism.
Revenue Requirement Analysis
Compares existing revenues of the City to
its operating, capital reserves, and policy
driven costs to establish the adequacy of
the existing cost recovery levels.
Cost-of-Service Analysis
Revenue requirements are assigned to
functional categories on a line-by-line
basis. Functional costs are allocated to
cost components based on engineeering
standards. Cost categories are further
allocated to each customer class based
on demand profiles.
Rate Design Analysis
The results of the customer class
allocation form the basis of the rate
design.
Rate Adoption
Adhere Propositon 218 process for City
Council to adopt and codify proposed
rates.
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Section 2
REVENUE REQUIREMENTS ANAL YSIS
The revenue requirements analysis has two main purposes – it serves as a means of evaluating each cost center’s fiscal health and adequacy of current rate levels; and it sets the basis for near- and long-term rate planning.
There are two tests utilized to define the recommended annual revenues necessary:
• Debt Service Coverage Test – Debt coverage is the amount of annual revenue in excess of the annual operating expenses and annual debt service that the City must generate. This is represented as a ratio of the annual debt service and is typically outlined in the official statement for each debt issuance. The City’s current debt coverage ratio minimum is 1.10 times the annual debt service.
However, the Study used a minimum of 1.20, as the City is in the process of applying for capital funding that may require a higher debt coverage ratio than the City’s existing requirement. • Reserve Test – End of year reserve balances for each of the City’s unrestricted reserves should meet minimum target balances.
If revenues fail only one of these tests, then that respective shortfall sets the revenue increase. If both tests are failed, the greater shortfall defines the required revenue increase.
Data was provided by City staff based on current projections for operating and non-operating expenditures, capital improvement program (CIP), debt service, as well as baseline revenues. The City also provided baseline reserve balances and restricted fund targets. Capital and operations costs will vary for a variety of reasons: Changes in flow discharges from industries, costs of consumables (such as electricity), pandemics, inflation, rainfall events, etc. The costs presented herein represent an estimate of the future costs required for the system.
2.1 Revenue Requirements Prior to Rate Increases
2.1.1 Expenditures
Table 1 summarizes the City’s operating and non-operating expenditures forecasted during the rate-setting period (fiscal year [FY] 2023 to FY 2028).
Table 1 Operating Expenditure Forecast ($ thousands)
Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Salaries and Benefits $702 $724 $745 $885 $911 $938 Supplies and Materials $98 $101 $104 $107 $111 $114
Outside Services $638 $726 $759 $1,386 $1,779 $1,866
Other Charges $184 $252 $259 $267 $275 $283
Capital Outlay $19 $89 $2 $68 $120 $2
Total Operating Expenses $1,642 $1,891 $1,869 $2,713 $3,196 $3,203 Notes:
(1) Totals may not sum due to rounding.
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Debt service during the study period consists of annual payments on outstanding and proposed debt obligations. Debt service on the existing 2015 Department of Housing and Urban Development (HUD) loan ends in FY 2025. Total proposed debt for the study period is $29.1 million, with $27.1 million to be issued during the rate-setting period. All proposed debt assumes a 30-year term and a 5.0 percent interest rate.
Total annual debt service payments range from $0.5 million to $1.9 million during the rate-setting period, as shown in Table 2.
Table 2 Annual Debt Service ($ thousands)
Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Existing Debt Service $513 $519 $525 $- $- $-
Proposed Debt Service $- $887 $1,452 $1,452 $1,781 $1,781 Total Debt Service $513 $1,406 $1,977 $1,452 $1,781 $1,781 Notes:
(1) Totals may not sum due to rounding.
Debt service and cash or rate funded capital expenses are considered non-operating expenditures. Table 3 summarizes the City’s non-operating expenditures forecasted during the rate-setting period.
Table 3 Non-Operating Expenditure Forecast ($ thousands) Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Total Debt Service $513 $1,406 $1,977 $1,452 $1,781 $1,781 Rate Funded Capital $2,825 $691 $3,350 $3,100 $3,012 $2,581 Total Non-Operating Expenses $3,338 $2,097 $5,328 $4,552 $4,793 $4,362 Notes:
(1) Totals may not sum due to rounding.
Table 4 summarizes the City’s forecasted capital expenditures. Operating expenses are escalated annually by varying factors based on discussion with City staff. Most capital costs that were provided by City staff have been escalated to the respective years the costs are anticipated to occur in. In instances where capital costs were not already escalated by the City, costs were escalated annually by 3 percent.
Table 4 Capital Expenditure Forecast ($ thousands)
Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Collection System $20 $1,289 $5,312 $2,503 $200 $800
Aeration Lagoon - Existing $654 $3,270 $1,526 $- $- $-
Selective Pond Flow Optimization $1,456 $7,279 $3,397 $- $- $- Pond 3 Pump Station (PS) Upgrade $255 $1,273 $594 $- $- $- Aeration Variable Frequency Drive
(VFD) Motor Upgrades $216 $1,080 $504 $- $- $-
Backup Power $- $- $618 $- $- $-
Treatment System - Future $- $- $- $333 $6,919 $1,427 Studies and Investigations $225 $- $- $- $- $-
Total Capital Expenses $2,825 $14,191 $11,950 $2,837 $7,119 $2,227 Notes:
(1) Totals may not sum due to rounding.
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2.1.2 Revenues
Table 5 summarizes the City’s forecasted revenues during the rate-setting period assuming no revenue increase to Charges for Service. There is an assumption of growth in industrial users accounts of one account annually in FY 2027 and FY 2028. There is also an assumption of connection fees revenue in FY 2027 and FY 2028 due to the assumed account growth. Connection fees are one-time fees assessed to new developments connecting to the industrial wastewater system. These fees are discussed in greater detail in Section 6 of this memo.
Table 5 Revenue Forecast Prior to Rates and Fees Increase ($ thousands) Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Operating Revenues
Charges for Services $2,900 $2,900 $2,900 $2,900 $3,323 $3,647 Other Revenues
Interest on Investments $47 $47 $47 $47 $47 $47
Connection Fee Revenue $- $- $- $- $4,424 $4,277
Revenues Prior to Increase $2,947 $2,947 $2,947 $2,947 $7,794 $7,971 Notes:
(1) Totals may not sum due to rounding.
2.1.3 Cash Flow Test
Table 6 summarizes the City’s forecasted revenues during the rate setting period, assuming no revenue increases. The City is projected to have a cash flow deficit beginning in FY 2023. However, in FY 2028 the City does have a cash flow surplus.
Table 6 Cash Flow Test Prior to Rates and Fees Increase ($ thousands) Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Total Revenues $2,947 $2,947 $2,947 $2,947 $7,794 $7,971 Expenses
Total Operating Expenses $1,642 $1,891 $1,869 $2,713 $3,196 $3,203 Debt Service $513 $1,406 $1,977 $1,452 $1,781 $1,781 Rate Funded Capital (PAYGO) $2,825 $691 $3,350 $3,100 $3,012 $2,581 Total Policy Expenditures $0 $0 $0 $0 $82 $0
Cash Flow Prior to Increase ($2,033) ($1,041) ($4,250) ($4,317) ($276) $407 Notes:
(1) Totals may not sum due to rounding.
2.1.4 Debt Coverage Test
Table 7 summarizes the debt coverage forecast during the rate-setting period. Debt service coverage is calculated as the ratio of the City’s net income to its annual debt service. Without rate increases, the City is projected to fall below its required debt service coverage ratio of 120 percent (1.20x) in FY 2024 through FY 2026. Growth projections and connection fee revenue in FY 2027 and FY 2028 bring the debt service coverage ration well over the 1.20x requirement.
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Table 7 Debt Coverage Test Prior to Rates and Fees Increase ($ thousands) Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Total Revenues $2,947 $2,947 $2,947 $2,947 $7,794 $7,971 IWTF and IWCCS Expenses $1,642 $1,891 $1,869 $2,713 $3,196 $3,203 Debt Service $513 $1,406 $1,977 $1,452 $1,781 $1,781 Debt Coverage (1.20x)
Coverage Ratio Prior to Increase 2.55 0.75 0.55 0.16 2.58 2.68
2.1.5 Capital Planning and Reserves
The projected reserve balances for the Industrial Wastewater Operating Fund are presented in Table 8.
Starting reserve fund balances for FY 2023 and current targets were provided by City staff. The City is not projected to meet its reserve policy targets throughout the rate-setting period, as shown in Table 8.
Table 8 Reserves Target Test ($ thousands)
Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Beginning Balance $8,790 $6,758 $6,354 $3,521 $706 $2,334 Cash Flows ($2,033) ($1,041) ($4,250) ($4,317) ($276) $407 Ending Balance $6,758 $5,716 $2,104 ($796) $430 $2,741
Minimum Target $405 $466 $461 $669 $788 $790
Operating Revenue Balance
Above/(Under) Target $6,353 $5,250 $1,644 ($1,465) ($358) $1,951 Notes:
(1) Totals may not sum due to rounding.
2.2 Revenue Requirements with Recommended Rate Increase Based on the projected deficits in the debt service coverage test presented in Table 7, Carollo recommends annual revenue increases of 22.0 percent for FY 2024 and FY 2025, and 2.0 percent annual increases thereafter. This revenue plan shown in Table 9 is projected to generate enough revenue to meet all three financial tests and provide adequate financial capacity for unexpected future cashflow events.
Table 9 Cash Flow with Recommended Revenue ($ thousands) Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Annual Rate Increase 0.0% 22.0% 22.0% 2.0% 2.0% 2.0%
Revenues before Adjustment $2,900 $2,900 $2,900 $2,900 $3,323 $3,647 Additional Revenues from Increase $- $638 $1,416 $1,503 $1,823 $2,114 Non-Operating Revenues $47 $47 $47 $47 $4,471 $4,324
Less: Total Expenses ($4,980) ($3,988) ($7,197) ($7,264) ($8,071) ($7,565) Cash Flow After Increases ($2,033) ($403) ($2,833) ($2,815) $1,546 $2,520 Notes:
(1) Totals may not sum due to rounding.
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Section 3
COST OF SERVICE
The industrial wastewater system cost of service analysis is consistent with the MOP 27 standard methods to allocate the revenue requirements based on discharge characteristics. This analysis creates an equitable and fair basis for collecting rates from each customer. In the case of the City’s industrial waste system, there is only one customer class, industries. This analysis initially allocates costs to functional categories based on how the City’s system is designed and operated.
The functional cost allocation takes these projected revenue needs and allocates them to individual functional costs related to the City’s collection, treatment, and administrative processes. Each of the City’s expenses are allocated based on what function it serves. In the City’s case, these functions are flow, BOD, customer service and water delivery for recycling. Water delivery for recycling costs will not be recovered from industrial customers. The cost of service analysis for water delivery for recycling is discussed in detail in Section 5.
3.1 Functional Cost Allocation
The functional cost allocation assigns the revenue requirements for the test year (FY 2024) by major function. The Study developed a list of functions specific to the industrial wastewater system. Each functional category is allocated to specific rate components, which can easily be assigned to rates. The functional categories used for the City are listed below. • Influent PS.
• Aeration lagoon.
• Percolation ponds.
• Transfer PS.
• Water delivery for recycling.
• Solids removal.
• Backup power.
• Lift stations.
• Pipelines.
• Stormwater.
• Lab.
• Customer.
• As all others.
The City’s industrial waste budget was analyzed line by line to allocate each line item to one or more functional categories.
3.2 Rate Component Allocation
Industrial wastewater costs consist of both volumetric components and non-volumetric components. The volumetric components include flow and strength – BOD. The non-volumetric component includes costs associated with administrative functions.
The following describes each of the industrial wastewater rate components for the City:
Flow: Operating and capital costs incurred by the industrial waste system to handle the quantity of flows discharged to or collected by the system.
BOD: During treatment, microbial organisms consume dissolved oxygen while oxidizing the organic matter present in wastewater. BOD measures the quantity of oxygen required for that process. Expenses include costs incurred to remove and dispose of organic compounds.
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Customer Service: Costs related to administrative support activities, including accounting and customer service. These costs are common to all customers and are reasonably uniform across the different customer classes.
Carollo reviewed the operating budget, CIP, and debt service and allocated each line item to the appropriate functional category based on direction from City staff. The functionalized capital, debt, and O&M are then allocated to the appropriate rate components.
3.2.1 O&M Allocation
Carollo collaborated with City staff to allocate the industrial waste system operating expenses to functional categories and then to rate components. Table 10 summarizes the allocation of the functionalized O&M expenses to rate components for FY 2024.
Table 10 Allocation of O&M Budget to Rate Components ($ thousands) Description Total Value Flow BOD Customer
Service
Water
Delivery for
Recycling
Influent PS $155 100% 0% 0% 0%
Aeration Lagoon 674 0% 100% 0% 0%
Percolation Ponds 185 60% 40% 0% 0%
Transfer PS 42 100% 0% 0% 0%
Water Delivery for Recycling 65 0% 0% 0% 100%
Solids Removal 60 0% 100% 0% 0%
Backup Power 6 30% 70% 0% 0%
Lift Stations 52 100% 0% 0% 0%
Pipelines 12 100% 0% 0% 0%
Stormwater 12 100% 0% 0% 0%
Lab 47 30% 70% 0% 0%
Customer 71 0% 0% 100% 0%
As All Others 510 29% 61% 5% 5%
Total ($) $1,891 $546 $1,158 $98 $89
Total (%) 28.9% 61.2% 5.2% 4.7%
Notes:
(1) Totals may not sum due to rounding.
3.2.2 Allocation of Debt Service and Capital Expense
Carollo reviewed the existing debt documents provided by City staff and collaborated with staff to allocate CIP to functional categories and then rate components. Capital costs were allocated based on the near-term CIP. Existing debt service is allocated 100 percent to flow, while future debt service is based on the near-term CIP.
Table 11 summarizes the allocation of debt service and CIP to rate components.
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Table 11 Allocation of Debt Service and Capital to Rate Components ($ thousands) Description Total Value Flow BOD Customer
Service
Water
Delivery for
Recycling
Existing Debt Service $518 100% 0% 0% 0%
Debt Service - CIP 887 41% 39% 0% 20%
Non-Debt Capital Expense 691 41% 39% 0% 20%
Total ($) $2,097 $1,166 $615 $0 $316
Total (%) 55.6% 29.3% 0.0% 15.1%
Notes:
(1) Totals may not sum due to rounding.
3.2.3 Allocation of FY 2024 Revenue Requirements
The revenue requirements are allocated using the allocation percentages discussed previously in this section. Table 12 summarizes the allocation of FY 2024 revenue requirements into the rate components. As shown in the below table, the City’s costs are primarily split between flow (45 percent) and BOD (42 percent).
Table 12 Projected FY 2024 Allocation of Rate Revenue Requirements to Rate Components ($ thousands) Description FY 2024
Total Flow BOD Customer
Service
Water
Delivery for
Recycling
O&M Expenses $1,891 $546 $1,158 $97 $89
2015 HUD Loan Debt Service $518 $518 $- $- $-
CIP Debt Service $887 $364 $345 $- $178
Cash-funded Capital $691 $284 $269 $- $138
Total Expenses $3,988 $1,713 $1,773 $97 $405
Less: Cash Balance ($403) ($108) ($257) ($22) ($16)
Less: Other Non-rate
Revenue ($47) ($13) ($30) ($3) ($2)
Total ($) $3,538 $1,592 $1,486 $73 $388
Total (%) 45.0% 42.0% 2.0% 11.0%
Notes:
(1) Totals may not sum due to rounding.
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Section 4
RATE DESIGN ANAL YSIS
The rate design analysis ties together the prior two steps (revenue requirement analysis and cost of service analysis) into fair and equitable rates assessed to each customer. The City and Carollo explored alternative rate structure options, with the goal of equitable cost recovery and revenue stability for the utility.
Current rates shown in Table 13 were last updated January 1, 2013. The current rate structure has the following components:
• Monthly minimum service charge per account regardless of wastewater flow or BOD contributed. • Flow rate per MG of average monthly flow.
• BOD rate per pound of average monthly BOD contributed.
Table 13 Current Industrial Wastewater System Rates
Parameter Monthly Fee, $/unit
Flow – Average Monthly $1,036/million gallons (MG)/month BOD – Average Monthly $0.28/pounds (lb)/month
Minimum Industrial Waste Service Charge $415/month
4.1 Proposed Rate Structure
4.1.1 Monthly Fixed Charge
The fixed monthly charge will recover costs related to administrative support activities. These costs are common to all customers and are reasonably uniform across the different customer classes. This charge is a monthly fixed amount.
4.1.2 Reservation Capacity Charge
The reservation capacity charge recovers a portion of the debt service payment cost for CIP related debt.
The reservation capacity charge will be charged per MG of allocated capacity. This component of the customer bill will not vary month to month.
4.1.3 Flow Rate
The flow rate recovers its proportionate share of operating, capital, and debt service payment costs. The flow rate is per MG of average monthly flow.
4.1.4 BOD Rate
The BOD rate recovers its proportionate share of operating, capital, and debt service payment costs. The flow rate is per pounds of average BOD.
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4.2 Proposed Rate Schedule
Table 14 illustrates wastewater rates for industrial customers throughout the rate setting period.
Table 14 Five-year Rate Schedule
Description FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Monthly Service Charge – per account $415 $263 $321 $327 $334 $341 Reservation Capacity Charge – per MG
of reserved capacity $- $91 $111 $113 $115 $117
Flow – per MG of average monthly $1,036 $1,389 $1,695 $1,729 $1,764 $1,799 BOD – per lb of average monthly $0.28 $0.29 $0.35 $0.36 $0.37 $0.38 Notes:
(1) Bill impacts will be variable per industry due to rate structure change and cost-of-service analysis results.
4.3 Rate Adoption
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.
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Section 5
ANAL YSIS OF WATER DELIVERY FOR RECYCLING
The IWTF has been identified as a key source for water that may be recycled in Monterey County. The Pure Water Monterey (PWM) Groundwater Replenishment Project (original and expanded PWM Project) creates up to 10,150 acre-feet (AF) per year of safe, reliable and drought resilient water supplies for Monterey County communities. This helps the region respond to droughts, sensitive species and habitat needs, and groundwater adjudication and overdraft. M1W owns and operates the treatment associated with PWM. In 1998, the MCWRA initiated operation of the Castroville Seawater Intrusion Project (CSIP) to irrigate agricultural lands in the Salinas Valley with water delivery for recycling, offsetting groundwater use. Due to increased conservation M1W has seen reduced influent flows. At the same time because of the extended drought conditions both M1W and MCWRA have recognized the increased need for water delivery for recycling in the region.
The City’s proposed improvements to the IWTF system would provide operational and efficiency improvements as well as capacity reliability and redundancy enhancements for the industrial users while maximizing the potential for additional water delivery for recycling.
The City is working with M1W and MCWRA to develop a long-term agreement for recycling of the IWTF effluent. The IWTF has existing infrastructure to transfer treated water to M1W’s RTP for further treatment and subsequent reuse and there are plans for implementing new infrastructure to improve reliability and redundancy for the purpose of water delivery. This Study establishes an appropriate dollar per AF cost to offset expenses related to the delivery of water for recycling. This section summarizes and presents the results of Carollo’s analysis of cost of service of water delivery for recycling, along with the assumptions and inputs used, and the methodological basis of the analysis. The analysis herein sets the framework for new charges and fees associated with water delivery for recycling, but ultimately these will be outlined in the City’s final agreement terms with M1W and MCWRA. Thus the final agreement may differ from fees and charges outlined in this TM.
Note that the water delivery for recycling rates are not subject to proposition 218 processes as discussed in further detail in Section 5.5.
5.1 Revenue Requirement Analysis
The first step in calculating rates for water delivery for recycling is the revenue requirement analysis. This compares the City’s forecasted revenues to its forecasted operating and capital costs. There are multiple revenue requirement tests that can be considered such as cash flow, debt coverage, and reserves tests. If a deficit occurs, rates are recommended to increase until there is no longer a shortfall.
5.2 Cost Allocation and Water Demand Analysis
The City has not yet established separate accounting for water delivery for recycling and industrial wastewater; all expenses are tracked as one enterprise. However, the projected expenses – both operating and non-operating – will be accounted for separately and proportionately allocated to industrial wastewater and water delivery for recycling. For this analysis, the test year (FY 2024) expenses summarized in the previous section were allocated between industrial wastewater and water delivery for recycling.
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5.2.1 Operating Expenses
For the O&M budget, this Study provides an estimate of the percentage of costs associated with water delivery for recycling. This Study allocated the portion of budgeted costs based on these allocations.
Operating expenses were organized into salaries and benefits, supplies and materials, outside services other charges, and capital outlay. Within these categories, the City allocated some costs to water delivery for recycling. Based on discussions with M1W and MCWRA, a five-year average annual demand for water delivery for recycling is 1,000 AF per year. This value is used for the financial analysis used in this TM. Actual demand may vary for a variety of reasons, including drought conditions.
5.2.2 Capital Improvement Program
Carollo and City staff reviewed all capital improvement projects, and they were allocated in whole or in part to the system for water delivery for recycling based on the estimated level of benefit to the system. There were two projects partially or totally allocated to water delivery for recycling:
• Selective Pond Flow Optimization (partial allocation). • Pond 3 PS Upgrade (total allocation).
Table 15 shows the six-year CIP totals by project category and the allocation between industrial wastewater and water delivery for recycling.
Table 15 Capital Improvement Program Allocation
Projects FY 2023 - FY 2028(2) Industrial Wastewater
% Allocation
Water Delivery for
Recycling
Collection System $10,124 100.0% 0.0%
Aeration Lagoon - Existing 5,451 100.0% 0.0%
Selective Pond Flow Optimization $12,131 50.0% 50.0%
Pond 3 PS Upgrade $2,122 0.0% 100.0%
Aeration VFD Motor Upgrades $1,800 100.0% 0.0%
Backup Power $617 100.0% 0.0%
Treatment System - Future $8,679 100.0% 0.0%
Studies and Investigations $225 100.0% 0.0%
Total CIP $41,149 $32,911 $8,237
Total % Allocation 80.0% 20.0%
Notes:
(1) All dollars in thousands.
(2) Totals may not sum due to rounding.
5.2.3 Debt Service
CIP-related debt service was based on the allocation of the six-year (FY 2023 to FY 2028) CIP associated with water delivery for recycling. No existing debt service was allocated to water delivery for recycling.
5.2.4 Water Delivery for Recycling Allocation Results The share of expenses in FY 2024 allocated to water delivery for recycling is shown in Table 16.
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Table 16 Projected FY 2024 Revenue Requirements Allocated to Water Delivery Recycling Description FY 2024
Total
Industrial
Wastewater
Water Delivery
for Recycling
Customer
Service(2)
O&M Expenses $1,891 $1,705 $89 $97
2015 HUD Loan Debt Service $518 $518 $- $-
Debt Service - CIP $887 $709 $178 $-
Cash-Funded Capital $691 $553 $138 $-
Total Expenses $3,988 $3,486 $405 $97
Less: Cash Balance ($403) ($365) ($16) ($22)
Less: Other Non-rate Revenue ($47) ($43) ($2) ($3)
Revenue Requirement $3,538 $3,077 $388 $73
Revenue Requirement Allocation 87.0% 11.0% 2.0%
Notes:
(1) All figures in thousand dollars.
(2) Customer service is further allocated between industrial waste and water delivery for recycling based on total number of accounts (22 industrial customers and 1 water delivery for recycling customer).
Figure 2 shows the final FY 2024 revenue requirement split between industrial wastewater and water delivery for recycling once the customer costs were allocated.
Figure 2 FY 2024 Allocation Split Between Industrial Wastewater and Water Delivery for Recycling
5.3 Rate Calculation
5.3.1 Proposed Rate Structure
As part of the Study, the City and Carollo explored alternative rate structure options, with the goal of equitable cost recovery for the City and monthly bill stability for M1W and MCWRA. After discussions with City staff, this Study recommends the following rate structure.
Industrial
Wastewater
89%
Water Delivery for
Recycling
11%
FYE 2024
Revenue Requirement = $3.54 M
$ 3.15 M
$ 0.39 M
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5.3.2 Monthly Fixed Charge
The fixed monthly charge will recover costs related to administrative support activities. These costs are common to all customers and are reasonably uniform across the different customer classes. The purpose of a fixed charge is to provide both the City and M1W and MCWRA financial predictability and stability despite potential variability in water delivery for recycling use. The debt service payment cost for CIP related debt is also included in the fixed monthly charge.
5.3.3 Volume Rate
The volume rate recovers the operating and remaining capital costs incurred by the industrial wastewater system to manage and treat wastewater to a standard required by its waste discharge requirements. The management includes efforts to maximize the wastewater available for recycling while treatment is to make the water more suitable for recycling than if left untreated.
5.3.4 Rate Calculation Methodology
To calculate the rates, Carollo took the following step-by-step approach:
1. Calculate the total revenue requirements projected for FY 2024 for water delivery for recycling.
2. Separate those costs into two categories:
a. Customer (administration-related) and debt service costs. b. All other water delivery for recycling related costs.
3. Divide the customer and debt service costs by 12 months to get the monthly fixed charge.
4. Divide all other costs by the total projected FY 2024 volume of water delivery for recycling. This provides the volume rate ($/AF).
5.4 Calculation
The calculation of each rate component for water delivery for recycling is shown in Table 17.
Table 17 Fixed Monthly Charge Calculation
Description Test Year - FY 2024
Customer/Administration Costs $3,297
Debt Service Costs $177,562
Total Costs $180,859
Months 12
Fixed Monthly Charge per Month $15,072
The calculation of the volume rate is shown in Table 18.
Table 18 Volume Charge Calculation
Description Test Year - FY 2024
All other related costs for water delivery for recycling $209,977 Projected flow to M1W and MCWRA for water
delivery for recycling (AF) 1,000
Volume Rate ($/AF) $210
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Table 19 shows the recommended FY 2024 fixed monthly charge and volume rate for water delivery for recycling. It is recommended that both the fixed and volume components of the rates are escalated annually by the same percentages proposed in the industrial wastewater rate adjustments.
Table 19 Proposed FY 2024 Rates for Water Delivery for Recycling Existing Rate Class FY 2024
Fixed Monthly Charge (dollars per month) $15,072
Volume Rate ($/AF) $210
All in $/AF(1) $391
Notes:
(1) All in cost is the total water delivery for recycling revenue requirement divided by 1,000 AF.
5.5 Rate Adoption
Property-related fees and charges in California are governed by Proposition 218, which dictates that rates do not exceed the proportional cost of service. Because water delivery for recycling is an optional service in the City, and thus not a property-related fee, Proposition 218 does not extend to the City’s rates for water delivery for recycling. However, the City’s industrial wastewater rates are governed by Proposition 218.
Therefore, any revenues recovered by the industrial wastewater rates are attributable to the costs to serve those users. Similarly, costs attributable to serving water delivery for recycling to M1W and MCWRA will be recovered through a separate revenue stream. In conjunction with this analysis, Carollo conducted an industrial wastewater comprehensive rate study. That study allocated costs directly to water delivery for recycling forming the basis for this rate analysis.
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Section 6
CONNECTION FEE
6.1 Background
Connection fees, sometimes referred to as capacity fees or system development charges, are one-time fees assessed on new system connections for industrial waste service. The City builds this system based on future estimates of capacity required to serve industrial customers. The connection fee quantifies the cost to create system capacity to serve a new connection.
The City does not currently charge a connection fee to new customers connecting to the industrial wastewater system. Carollo relied on industry best practice and California statutory guidance when developing the analysis in the Study. As with any fee analysis, the City prioritizes cost of service as a foundation of setting the connection fee. Several additional key criteria were at the center of this analysis:
• Does the connection fee represent a reasonable nexus to the costs incurred by the City on behalf of future customers and the benefits received?
• Is the connection fee methodology consistent with standards established in the American Water Works Association (AWWA) M1 Manual: Principles of Water Rates, Fees, and Charges (M1 Manual), and the MOP 27?
• Do the methodology and the resulting recommendations meet City policies and adhere to applicable legal requirements?
• Is the allocation approach consistent with industry practices and relevant California statutory requirements, particularly Government Code §54999.7 and §66013? • Is it expected that the allocation approach will remain appropriate for use by the City in the future? • Is the fee equitable for current and future ratepayers and do they reflect system investment contributions?
Note that the connection fees are not subject to the proposition 218 process, as it is a one-time fee for the developer versus an ongoing fee for service for the end user or property owner. Connection fees are governed under a different code, discussed in the section below.
6.2 Statutory Considerations
Connection fees, also known as impact fees or capacity charges, in California are subject to the requirements of Government Code Sections §54999.7 and §66013. Connection fees are “charges for facilities in existence at the time the charge is imposed or charges for new facilities to be constructed in the future which are of benefit to the person or property being charged.” Section §66013 provides that capacity charges “shall not exceed the estimated reasonable cost of providing the service for which the fee or charge is imposed.” Section §54999.7 establishes a similar cost of service requirement for serving public agencies, including schools.
This analysis should not be considered a legal opinion or guidance, but rather, a documentation of data and assumptions that support the City’s connection fee as a reasonable recovery of costs from new connections for providing industrial wastewater service.
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6.3 Approach
This fee was calculated based on anticipated near-term and long-term CIP projects required to increase the capacity of the IWCCS and IWTF. The connection fee is calculated for the anticipated users that have been identified as future tenants to the Salinas Ag Industrial Center and Merrill Street Campus. These users are anticipated to connect to the system between 2027 and 2030.
The connection fee is based on a relatively straightforward calculation: Divide system value by system capacity, yielding an estimate of the cost to build capacity for one baseline connection. This is demonstrated in Equation 1.
Equation 1 Connection Fee Conceptual Formula
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐹𝐹𝐶𝐶𝐶𝐶 = 𝑆𝑆𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑆𝑆 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝐶𝐶
𝑆𝑆𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑆𝑆 𝐶𝐶𝑉𝑉𝐶𝐶𝑉𝑉𝐶𝐶𝐶𝐶𝐶𝐶𝑆𝑆
Despite this simple equation, quantifying system value and capacity inputs can be complex and will vary from utility to utility based on several factors, including but not limited to:
• Age, size, and density of the system.
• Planned expansion capital projects.
• Anticipated growth.
• Available source of water supply.
• Ability to discharge treated industrial wastewater.
Selecting the most appropriate methodology for any agency depends on the nature of the system, the level of planned investment, and the projected need for system capacity. The methodologies available and the rationale behind choosing each is further detailed later in this section.
An important consideration – and what often presents the most difficulty – is using a system value assumption that matches the system capacity assumption. The two should be in alignment. System value should not be included that is not represented by the system capacity, and vice versa.
This step is further complicated by the nature of investments, as it is sometimes challenging to delineate the infrastructure (or a portion thereof), repairs, or replacements serving only future connections.
6.4 Connection Fee Components
6.4.1 Calculating System Value
The first component of the capacity fee is system value. This can be the value of the existing system, future system, or a combination of both, depending on which methodology is chosen. Regardless of the methodology selected, it is vital that this value represents the capacity (not demand) served in the denominator.
6.4.2 Calculating System Capacity
The denominator of the capacity fee is system capacity. For the IWCCS system, calculation is straightforward using million gallons per day (mgd) as the per unit quantity to be divided into system value and yield a per unit fee.
One challenge is determining “true” system capacity. Using an example of the utility with 50 mgd of treatment capacity, total system capacity may differ from that due to bottlenecks in the system that limit new connections. For instance, the treatment plant may be able to accept flow of up to 50 mgd based on INDUSTRIAL USER RATES AND FEES | INDUSTRIAL WASTE TREATMENT FACILITY IMPROVEMENTS PROJECT | CITY OF SALINAS DRAFT | MARCH 2023 | 19
capacity at the headworks, but there are treatment components that are substantially less, such as firm pumping capacity or seasonal discharge limits on a receiving stream that are substantially less. Therefore, it is important to not just look at the rated capacity but at the whole system and identify where the true bottlenecks to new connections are.
6.5 Connection Fee Methodology
There are three widely accepted methodologies for calculating connection fees, with two primary methods being the buy-in and incremental, and a combination of the two called the hybrid method. For this Study, Carollo calculated connection fees using the incremental method.
6.6 Buy-In Methodology
The buy-in method is most appropriate when existing capacity is sufficient to serve both existing and projected future connections and capital investment projects for new capacity are minimal. Utilities that fit this profile typically have some “buffer capacity” at hand where new connections can benefit from existing capacity that has been built before the agency needs to plan further expansion.
The purpose of the buy-in method is to recover costs that have already been incurred by the City. Existing customers have paid for this system over time through their user rates (through direct capital financing or retired debt). The buy-in method for a connection fee provides a mechanism to reimburse existing system users for carrying the costs of constructing system capacity that is available for future users.
Equation 2 Buy-In Connection Fee Formula
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐹𝐹𝐶𝐶𝐶𝐶 = 𝐸𝐸𝐸𝐸𝐶𝐶𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐸𝐸 𝑆𝑆𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑆𝑆 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝐶𝐶 𝐸𝐸𝐸𝐸𝐶𝐶𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐸𝐸 𝑆𝑆𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑆𝑆 𝐶𝐶𝑉𝑉𝐶𝐶𝑉𝑉𝐶𝐶𝐶𝐶𝐶𝐶𝑆𝑆 (𝑆𝑆𝐸𝐸𝑚𝑚)
6.7 Incremental Methodology
In contrast with the “backward-looking” buy-in method that looks at historical system investment and capacity, the incremental method is “forward-looking” based on planned expansion and growth of the system. Where the buy-in methodology looks at the unit cost of existing capacity in the system, the incremental methodology reflects the marginal cost of adding capacity to a system that cannot serve forecasted demand with existing infrastructure. The incremental method can be neatly summed up by the philosophy of “growth pays for growth.” There are two components to the incremental methodology: future expansion CIP and available existing capacity.
To estimate the cost of future capacity, the CIP is allocated to either the repair and replacement (R&R) of existing assets or the installation of new assets for new capacity. The costs are allocated in present day dollars, regardless of project timing.
Not all projects fit entirely in one allocation or the other. Some projects may serve both categories. For instance, pipe R&R can have an expansion element to it if the pipe replacement is upsized from the original pipe diameter and adds capacity. Projects can also serve to bolster resiliency, rather than expanding or replacing existing capacity. Once the projects are allocated between R&R and growth, the expansion CIP portion of the equation is ready.
When there is available existing capacity within the built system that is being repaired or replaced as a prerequisite to supporting new connections, it is appropriate to include that capacity in the incremental methodology because it was built not for current users but for future users. To estimate this value of the existing system available for connections, this analysis multiplies the value of the existing system from the INDUSTRIAL USER RATES AND FEES | INDUSTRIAL WASTE TREATMENT FACILITY IMPROVEMENTS PROJECT | CITY OF SALINAS DRAFT | MARCH 2023 | 20
buy-in methodology by the percent of total capacity that is subscribed. Total subscribed capacity is the difference between total capacity and total demand.
Similar to the buy-in method, the incremental method calculation divides system value by the capacity in mgd served by those assets. However, because it is critical for the value used in the numerator to represent the capacity in the denominator, the incremental capacity fee divides the sum of expansion CIP and available asset value by net future capacity available for new connections (the difference of future system capacity and existing capacity), as seen in Equation 3.
Equation 3 Incremental Capacity Fee Formula
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐹𝐹𝐶𝐶𝐶𝐶 = 𝐸𝐸
𝐸𝐸𝐶𝐶
𝑉𝑉𝐶𝐶𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶
𝐶𝐶𝐶𝐶 + 𝑉𝑉𝑉𝑉𝑉𝑉𝑉𝑉
𝐶𝐶 𝐶𝐶𝑜𝑜 𝐸𝐸
𝐸𝐸𝐶𝐶𝑆𝑆
𝐶𝐶𝐶𝐶𝐶𝐶
𝐸𝐸 𝐴𝐴𝐴𝐴𝑉𝑉𝐶𝐶𝑉𝑉
𝑉𝑉
𝐴𝐴𝑉𝑉
𝐶𝐶 𝐶𝐶
𝑉𝑉
𝐶𝐶𝑉𝑉
𝐶𝐶𝐶𝐶𝐶𝐶𝑆𝑆
𝐹𝐹𝑉𝑉
𝐶𝐶𝑉𝑉𝐹𝐹
𝐶𝐶 𝑆𝑆
𝑆𝑆𝑆𝑆𝐶𝐶
𝐶𝐶𝑆𝑆 𝐶𝐶
𝑉𝑉
𝐶𝐶𝑉𝑉
𝐶𝐶𝐶𝐶𝐶𝐶𝑆𝑆 (𝑆𝑆
𝐸𝐸𝑚𝑚) − 𝐸𝐸𝐸𝐸𝐶𝐶
𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶𝐸𝐸 𝑆𝑆
𝑆𝑆𝑆𝑆𝐶𝐶
𝐶𝐶𝑆𝑆 𝐶𝐶
𝑉𝑉
𝐶𝐶𝑉𝑉
𝐶𝐶𝐶𝐶𝐶𝐶𝑆𝑆 (𝑆𝑆
𝐸𝐸𝑚𝑚)
6.8 Hybrid Methodology
For agencies with build-out on the horizon but still with significant expansion CIP planned, a hybrid approach is often appropriate. It combines elements of both methods to form one connection fee. For the valuation component, both buy-in and incremental approaches are included: the existing system value along with expansion projects. To match the capacity reflected in the asset values above, the summed system values are divided by the total of mgd served at the end of the CIP forecast, as shown in Equation 4.
Equation 4 Hybrid Capacity Fee Formula
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐹𝐹𝐶𝐶𝐶𝐶 = 𝑉𝑉
𝑉𝑉𝑉𝑉𝑉𝑉
𝐶𝐶 𝐶𝐶𝑜𝑜 𝐸𝐸
𝐸𝐸𝐶𝐶𝑆𝑆
𝐶𝐶𝐶𝐶𝐶𝐶
𝐸𝐸 𝐴𝐴
𝑆𝑆𝑆𝑆𝐶𝐶𝐶𝐶𝑆𝑆 + 𝐸𝐸
𝐸𝐸𝐶𝐶
𝑉𝑉𝐶𝐶𝑆𝑆𝐶𝐶𝐶𝐶𝐶𝐶 𝐶𝐶
𝐶𝐶𝐶𝐶
𝑇𝑇
𝐶𝐶𝐶𝐶𝑉𝑉𝑉𝑉 𝐶𝐶
𝐹𝐹𝐶𝐶𝑃𝑃
𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑚𝑚 𝐶𝐶
𝑉𝑉
𝐶𝐶𝑉𝑉
𝐶𝐶𝐶𝐶𝐶𝐶𝑆𝑆 (𝑆𝑆
𝐸𝐸𝑚𝑚)
6.9 Industrial Wastewater Connection Fee
The projects presented in Chapter 3 of the Fac Plan will provide added capacity to the industrial waste collection system and treatment facility. The industrial wastewater connection fee calculation using the incremental method is summarized in Table 20.
Table 20 Industrial Waste Connection Fee Calculations
System Treatment Collection Total
Future Systems Improvements ($ millions) $16.5 $1.0
Less: Grant Funded Projects (0.0) (0.0)
Total City Funded Future Value $16.5 $1.0
System Capacity (mgd)
Additional Future System Capacity 3.6 3.0
Connection Fee ($/mgd) $4,582,769 $333,333 $4,916,102