NOTICE OF SPECIAL MEETING
Pursuant to Section 54956 of the Government Code of the State of California, a Special meeting of the Tracy City Council is hereby called for:
Date/Time: Tuesday, April 18, 2023, 5:30 p.m.
(or as soon thereafter as possible)
Location: A quorum of City Council will be in attendance at:
Tracy City Hall
333 Civic Center Plaza, Tracy, CA.
and
A Council Member will attend remotely at the following location:
Omni Shoreham Hotel
2500 Calvert Street NW
Washington, District of Columbia 20008
Government Code Section 54954.3 states that every public meeting shall provide an opportunity for the public to address the Tracy City Council on any item, before or during consideration of the item, however no action shall be taken on any item not on the agenda.
This meeting will be open to the public for in-person and remote participation pursuant to Government Code Section 54953(e)
For Remote Public Comment:
During the Items from the Audience, public comment will be accepted via the options listed below. If you would like to comment remotely, please follow the protocols below:
• Comments via:
o Online by visiting https://cityoftracyevents.webex.com and using the following Event Number: 2558 988 5926 and Event Password: TracyCC o If you would like to participate in the public comment anonymously, you may submit your comment via phone or in WebEx by typing “Anonymous” when prompted to provide a First and Last Name and inserting [email protected] when prompted to provide an email address. o Join by phone by dialing +1-408-418-9388, enter 25589885926#8722922# Press *3 to raise the hand icon to speak on an item
• Protocols for commenting via WebEx:
o If you wish to comment under “Items from the Audience/Public Comment” portion of the agenda:
Listen for the Mayor to open “Items from the Audience/Public Comment”, then raise your hand to speak by clicking on the Hand icon on the Participants panel to the right of your screen.
If you no longer wish to comment, you may lower your hand by clicking on the Hand icon again.
o Comments for the “Items from the Audience/Public Comment” will be accepted until the public comment period is closed.
April 18, 2023 Special Meeting
1. Call to Order
2. Ac
tions, by Motion, of City Council pursuant to AB 2449, if any
3. Ro
ll Call
4. I
TEMS FROM THE AUDIENCE - In accordance with Council Meeting Protocols and Rules of Procedure, adopted by Resolution No. 2019-240, and last amended by Resolution No. 2021-049, a five-minute maximum time limit per speaker will apply to al
l individuals speaking during “Items from the Audience/Public Comment”. For non- agendized items, Council Members may briefly respond to statements made or questions posed by individuals during public comment; ask questions for clarification; direct the individual to the appropriate staff member; or request that the matter be placed on a future agenda or that staff provide additional information to Council.
5. DI
SCUSSION ITEMS
5 .A. Staff recommends that Council conduct a workshop to consider a proposed increase to the Wastewater rates and provide feedback on rate scenarios.
6. C
ouncil Items and Comments
7. Adjournment
Mayor
Posting Date: April 14, 2023
The City of Tracy is in compliance with the Americans with Disabilities Act and will make all reasonable accommodations for the disabled to participate in employment, programs and facilities. Persons requiring assistance or auxiliary aids in order to participate, should contact the City Manager’s Office at (209) 831-6000 at least 24 hours prior to the meeting.
Apri l 18, 2023
Agenda Item 5.A
RECOMMENDATION
Staff recommends that Council conduct a workshop to consider a proposed increase to the Wastewater rates and provide feedback on rate scenarios
EXECUTIVE SUMMARY
In 2019, the City contracted with Raftelis to perform a Wastewater rate study for the purpose of
establishing a proposed five-year rate schedule. The study conducted a cost- of
-service analysis that establishes a nexus between the cost to serve Wastewater customer
s and the rates charged to customers, per Proposition 218.
BACKGROUND AND LEGISLATIVE HISTORY
The City of Tracy Operations and Utilities Department provides wastewater service to over 23,000 residential, commercial and industrial customers loca ted within city l imits. The City’s wastewater system consists of a Wastewater Treatment Plant (WWTP) on 54 acres, treatment ponds on 67 acres, 465 miles of collection pipelines, 26,000 lower sewer laterals, and over 10 booster and lift stations throughout the City.
The City of Tracy maintains a wastewater collection system which collects wastewater from inside buildings, houses, apartments, and other facilities throughout the City and transports it via underground pipes to its WWTP. The WWTP tr eats an average of 9.8 million gallons of wastewater per day from its customers. The WW TP also receives wastewater from other sources such as sep tage haulers, RV’s from residents, and local business. The City also services one industrial customer that maintains its own collection system and one septage receiving station.
The City’s Wastewater rates were last adjusted 10 years ago in 2013, the costs to treat the City’s wast ewater ha ve increased since 2013 and require the implementation of rate adjustments to sufficiently fund wastewater operations and maintenance expenses, debt service payments, and capital expenditures while adequately funding reserves for capital improvements and achieving debt coverage requirements.
In 2019, the City contracted with Raftelis to perform a Wastewater rate study for the purpose of establishing a proposed five-year rate schedule. The study conducted a cost- of
-service analysis that establishes a nexus between the cost to serve Wastewater customers
and the rates charged to customers, per Proposition 218.
ANALYSIS
The goals and objectives of the rate study included developing a financial plan for the City’s Wastewater enterprise that supports the City’s Wastewater operating and capital programs, prudently maintains an adequate level of fund reserves in future years and maintains the long-term financial stability of the Wastewater enterprise. The study also develops Wastewater rates that recover the City’s costs of providing Wastewater service, are fair
and equitable to all customer classes, comply with the legal requirements of proposition 218, and to the extent possible, minimizes the impact on customers.
Agenda Item 5.A
April 18, 2023
In preparing the rate study, Raftelis worked closely with City staff to develop a Wastewater
financial plan. The plan estimates annual revenues, operations and maintenance
expenses, debt service payments, capital expenditures and reserve funding.
The overall purpose of the financial plan is to determine annual wastewater rate revenues required to achieve sufficient cash flow, maintain adequate reserves, and meet debt coverage requirements.
The Wastewater
Enterprise is required to meet debt service coverage requirements on its outstanding wastewater certificates of participation. The required debt coverage ratio is
1.20, meaning that the Wastewater fund’s net operating revenues (total revenues, less operating expenses) m
ust amount to at least 1.20 times the amount of annual debt service. Failure to meet debt service coverage results in a technical default, which without foreseeable action
(such as implementing rate increases), could result in a downgrade of credit
rating, higher costs for future debt issuance, or even denial of credit. In 2022, after a review of the City’s 2004 Wastewater bonds by Moody’s Investors Service, the City received a downgrade of the Wastewater Enterprise’s credit rating from A1 to A2. The adoption of rate increases with identification of a multi-year strategy could lead to an upgrade
in the credit rating.
The City has an operating reserve to provide funds to meet ongoing cash flow requirements r
elated to operating expenses. The current operating reserve target is equal to 30 percent of the annual operating and maintenance expenses and two percent for capital
reserve.
Raftelis compared projected revenue with projected expenses to calculate debt coverage ratios and
ending reserve balances. The proposed revenue adjustments seek to build reserves
to target levels and reach debt covenant requirements (coverage of 1.20) Expenses include $375k for a wastewater desalination contract and totals $18M (includes $1.9M of
debt service) in FY 2023.
The table below depicts the assumed capital projects for both scenarios.
The Wastewat
er Enterprise must increase its revenues from wastewater rates over the five-year study period to adequately fund its operating and capital expenditures, meet required debt coverage, and maintain sufficient reserve funding.
In prepar
ing the rate study, Raftelis worked closely with City staff to develop financial plan options for the City’s consideration. Scenario 1 is the minimum rate increase to exactly meet the required debt coverage ratio and meet the operating reserve goal by the study period. Scenario 2 provides more of a buffer in meeting the debt coverage ratio and meets the operating reserve goal by the end of the study period. A summary of the revenue increase for each scenario are shown below.
FYE 2024 FYE 2025 FYE 2026 FYE 2027 FYE 2028
Cash Funded CIP $0 $1,660,000 $3,200,000 $5,200,000 $7,200,000 Agenda Item 5.A
April 18, 2023
FY 2024 FY 2025 FY 2026 FY2027 FY2028 Total
August 1 July 1 July 1 July 1 July 1
Scenario 1 40.5% 16% 9% 9% 8% 82.5%
Scenario 2 45% 11% 9% 9% 8% 82%
The proposed rates for Scenario 1 are shown in the table below.
Proposed Revenue Adjustments - Two Scenarios
Agenda Item 5.A
April 18, 2023
The impact to utility customers in year one of rate scenario 1 is an increase of $12.55 per month to single family residential customers and a decrease of $15 per month to multi- family residential customers. Multi-family residential customers will see a decrease to their bill because the rate is now in proportion to their use and assumed strength. Commercial customers bills are increasing because their wastewater strength (defined as the concentration of biochemical oxygen demand and total suspend solids) have been revised upwards to reflect the latest best practices and known concentrations at the WWTP.
The chart below depicts the monthly bill impacts in year one of rate scenario 1.
The proposed rates for Scenario 2 are shown below.
Agenda Item 5.A
April 18, 2023
The impact to utility customers in year one of rate scenario 2 is an increase of $14.05 per month
to single family residential customers and a decrease of $9.06 per month to multi- family residential customers. Multi-family residential customers will also see a decrease to their
bill in scenario 2 because the rate is now in proportion to their use and assumed strength. Commercial customers bills are increasing because their wastewater strength (defined as the concentration of biochemical oxygen demand and total suspend solids) have been
revised upwards to reflect the latest best practices and known concentrations at the WWTP. The chart below depicts the monthly bill impacts in year one of rate scenario 2.
Comparison of Surrounding Single Family Wastewater Bills The chart below compares the City’s current single family residential Wastewater rate, proposed rates for scenarios one and two to the Cities of Modesto, Manteca, Stockton, Riverbank, Ceres, Livermore and Lathrop. The City’s current Wastewater rate is the lowest in the surrounding area and with both proposed rate scenarios, rates would continue to be on the lower range for the surrounding area.
Agenda Item 5.A
April 18, 2023
The City provides a Low-Income Rate Assistance (LIRA) program for qualified utility customers. The total amount of the discount is $26.05, with $2.55 of that being directly applicable to the Wastewater rate. The LIRA program is funded through the City’s General fund. Over the last year, the City has partnered with PG&E and is now able to auto-enroll qualified customers into the LIRA program. This partnership has resulted in an increase in the number of households receiving the discount, from 1,275 households to 5,100 households.
FISCAL IMPACT
The City’s Wastewater utility relies almost ent irely on customer revenues to sustain its operat
ions. The proposed rate increases will generate revenue to fund operational and infrastructure needs and continue to provide reliable high-quality Wastewater services.
The proposed rates will also allow the City to achieve its required debt coverage ratio minimum of 1.20, which is essential to m aintain or improve a strong credit rating and the financial health of the Wastewater fund.
PUBLIC OUTREACH/ INTEREST
Staff has planned public outreach and education strategies including an open house, residential survey, informational booth during farmers market, dedicated email address for resident questions, and answers to frequently asked questions on the City’s website.
COORDINATION
Coor
dination between the Finance and Operations and Utilities departments in conjunction with Raftelis allowed for the completion of the Wastewater Rate study.
STRATEGIC PLAN
This item supports the Governance strategic priority goal 2.6 by ensuring short and long- term fiscal health through the completion of a Wastewater rate study.
ACTION REQUESTED OF T
HE CITY COUNCIL
Staff recommends that Council conduct a workshop to consider a proposed increase to the Wastewater rates and provide feedback on rate scenarios.
Prepared by: Sara Cowell, Director of Finance
Reviewed by: Nancy Ashjian, Assistant City Attorney
Karin Schnaider, Assistant City Manager
Approved by: Midori Lichtwardt, Acting City Manager
Attachments:
Attachment A: Rate Study report by Raftelis
Attachment B: Wastewater Rate Study Presentation
Attachment A
Wastewater Cost of Service and Rate
Design Study
DRAFT Report / April 18, 2023
City of
Tracy
445 S Figueroa St, Suite 1925
Los Angeles CA 90071
www.raftelis.com
April 18, 2023
Ms. Sara Cowell
Director of Finance
City of Tracy
333 Civic Center Plaza
Tracy, CA 95376
Subject: Wastewater Cost of Service and Rate Design Study
Dear Ms. Cowell,
Raftelis is pleased to provide this Wastewater Cost of Service and Rate Design Study Report to the City of Tracy (City). The overall purpose of the study was to develop a proposed five-year wastewater rate schedule for Fiscal Year (FY) 2023-24 through FY 2027-28 that is fair, equitable, and funds the City’s wastewater utility.
As part of the rate study Raftelis and Staff:
» Developed a ten-year financial plan for the City ’s Wastewater Enterprises to ensure financial sufficiency, meet operating costs, fund long-term capital needs, and maintain prudent reserves. » Conducted a wastewater cost of service analysis to ensure a strong nexus between proposed rates and the cost to provide services to customers.
» Developed five years of wastewater rates that we believe are defensible and equitable.
It has been a pleasure working with you and we thank you and other City staff for the support provided to Raftelis during this study.
Sincerely,
Steve Gagnon, PE (AZ) Sarah Wingfield
Project Manager Lead Analyst
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY
Table of Contents
1. EXECUTIVE SUMMARY................................................................................................................... 1
1.1. Study Overview ................................................................................................................................. 1
1.2. Rate Study Process ........................................................................................................................... 1
1.3. Proposed Wastewater Financial Plan ............................................................................................... 1
1.4. Current and Proposed Wastewater Rates ........................................................................................ 5
1.5. Summary of Monthly Bill Impacts ...................................................................................................... 8
2. INTRODUCTION ............................................................................................................................. 13
2.1. City of Tracy Wastewater System ................................................................................................... 13
2.2. Study Overview ............................................................................................................................... 13
3. KEY INPUTS AND ASSUMPTIONS .............................................................................................. 14
3.1. Current Wastewater Rates .............................................................................................................. 14
3.2. Projected Billed Wastewater Use .................................................................................................... 15
3.3. Wastewater Enterprise Financial Assumptions ............................................................................... 15
3.4. Projected Wastewater Number of Accounts and Dwelling Units .................................................... 16
4. WASTEWATER FINANCIAL PLAN ............................................................................................... 17
4.1. Wastewater Enterprise Revenue at Existing Rates ........................................................................ 17
4.2. Wastewater Enterprise Operations & Maintenance Expenses ....................................................... 18
4.3. Wastewater Enterprise Debt ........................................................................................................... 19
4.4. Wastewater Enterprise Capital Improvement Plan ......................................................................... 19
4.5. Wastewater Enterprise Financial Policies ....................................................................................... 19
4.6. Proposed Wastewater Financial Plan ............................................................................................. 20
5. WASTEWATER COST OF SERVICE ANALYSIS ......................................................................... 26
5.1. Methodology .................................................................................................................................... 26
5.2. Wastewater Rate Revenue Requirement ........................................................................................ 26
5.3. Functionalization and Allocation of Expenses to Cost Components .............................................. 28
5.3.1. Functionalization and Allocation of O&M Costs .............................................................................. 28
5.3.2. Functionalization and Allocation of Capital Costs ........................................................................... 32
5.4. Plant Mass Balance Analysis .......................................................................................................... 34
5.5. Wastewater Units of Service ........................................................................................................... 35
5.6. Wastewater Unit Costs .................................................................................................................... 35
5.7. Wastewater Cost Allocation to Customer Classes .......................................................................... 38
6. PROPOSED WASTEWATER RATES ........................................................................................... 40
6.1. Proposed Fixed Charges FY 2023-24 ............................................................................................. 40
6.2. Proposed Volumetric Rates (Test Year FY 2023-24) ..................................................................... 42
CITY OF TRACY
6.3. Proposed Five-Year Wastewater Rate Schedule ........................................................................... 45
7. CUSTOMER BILL IMPACTS .......................................................................................................... 46
7.1. Monthly Wastewater Bill Impacts .................................................................................................... 46
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY
List of Tables
Table 1-1: Proposed Wastewater Revenue Adjustments, Scenario 1.......................................................................... 3 Table 1-2: Proposed Wastewater Revenue Adjustments, Scenario 2.......................................................................... 3 Table 1-3: Current Rate Structure ................................................................................................................................ 6 Table 1-4: Current Wastewater Industrial Capacity and Use Charges ......................................................................... 6 Table 1-5: Proposed Rate Structure for Test Year FY 2023-24 ................................................................................... 7 Table 1-6: Proposed Five-Year Wastewater Rate Schedule, Scenario 1 .................................................................... 7 Table 1-7: Proposed Five-Year Wastewater Rate Schedule, Scenario 2 .................................................................... 8 Table 3-1: Current Rate Structure .............................................................................................................................. 14 Table 3-2: Current Wastewater Volumetric Rates for Septage Customers ................................................................ 15 Table 3-3: Current Wastewater Industrial Capacity and Use Charges (Leprino Only) ............................................... 15 Table 3-4: Projected Billed Consumption Under Existing Rate Structure .................................................................. 15 Table 3-5: Wastewater Enterprise Inflationary Assumptions ...................................................................................... 16 Table 3-6: Additional Wastewater Enterprise Financial Assumptions ........................................................................ 16 Table 3-7: Projected Wastewater Accounts and Dwelling Units ................................................................................. 16 Table 4-1: Projected Rate Revenues at Existing Rates ............................................................................................. 18 Table 4-2: Projected O&M Expenses ......................................................................................................................... 18 Table 4-3: Projected Debt Service .............................................................................................................................. 19 Table 4-4: Detailed Capital Improvement Plan ........................................................................................................... 19 Table 4-5: Projected Reserve Targets ........................................................................................................................ 20 Table 4-6: Proposed Wastewater Revenue Adjustments, Scenario 1........................................................................ 20 Table 4-7: Proposed Wastewater Revenue Adjustments, Scenario 2........................................................................ 20 Table 4-8: Proposed Wastewater Financial Plan, Scenario 1 .................................................................................... 21 Table 4-9: Proposed Wastewater Financial Plan, Scenario 2 .................................................................................... 22 Table 5-1: FY 2023-24 Wastewater Revenue Requirement, Scenario 1 ................................................................... 27 Table 5-2: FY 2023-24 Wastewater Revenue Requirement, Scenario 2 ................................................................... 27 Table 5-3: Summary of Wastewater Enterprise O&M Expenses by Function ............................................................ 29 Table 5-4: Allocation of Functions to Wastewater Cost Causation Components ....................................................... 29 Table 5-5: Allocation of O&M Expenses by Functional Category and Cost Causation Component .......................... 31 Table 5-6: Summary of Capital Assets by Functional Category ................................................................................. 32 Table 5-7: Allocation of Capital Assets by Function and Cost Causation Component ............................................... 33 Table 5-8: Plant Balance Calculation .......................................................................................................................... 34 Table 5-9: FY 2023-24 Units of Service ...................................................................................................................... 35 Table 5-10: Derivation of Wastewater Unit Costs by Cost Component, Scenario 1 .................................................. 36 Table 5-11: Derivation of Wastewater Unit Costs by Cost Component, Scenario 2 .................................................. 37 Table 5-12: Wastewater Unit Costs (Test Year FY 2023-24), Scenario 1 .................................................................. 38 Table 5-13: Wastewater Unit Costs (Test Year FY 2023-24), Scenario 2 .................................................................. 38 Table 5-14: Wastewater Cost Allocation to Customer Classes (Test Year FY 2023-24), Scenario 1 ........................ 39 Table 5-15: Wastewater Cost Allocation to Customer Classes (Test Year FY 2023-24), Scenario 2 ........................ 39 Table 6-1: Proposed Monthly Fixed Rate Calculation for Test Year FY 2023-24, Scenario 1 ................................... 41 Table 6-2: Proposed Monthly Fixed Rate Calculation for Test Year FY 2023-24, Scenario 2 ................................... 42 Table 6-3: Proposed Volumetric Rate Calculation for Test Year FY 2023-24, Scenario 1 ........................................ 43 Table 6-4: Proposed Volumetric Rate Calculation for Test Year FY 2023-24, Scenario 2 ........................................ 44 Table 6-5: Proposed Five-Year Wastewater Rate Schedule, Scenario 1 .................................................................. 45 Table 6-6: Proposed Five-Year Wastewater Rate Schedule, Scenario 2 .................................................................. 45 Table 7-1: Percentage Contributed Flow vs. Revenue by Customer Class ............................................................... 46
CITY OF TRACY
List of Figures
Figure 1-1: Debt Coverage under Status Quo Financial Plan ...................................................................................... 2 Figure 1-2: Reserve Balances under Status Quo Financial Plan ................................................................................. 2 Figure 1-3: Wastewater Enterprise Capital Improvement Plan .................................................................................... 3 Figure 1-4: Wastewater Debt Coverage, Scenario 1 .................................................................................................... 4 Figure 1-5: Wastewater Reserve Balances, Scenario 1 ............................................................................................... 4 Figure 1-6: Wastewater Debt Coverage, Scenario 2 .................................................................................................... 5 Figure 1-7: Wastewater Reserve Balances, Scenario 2 ............................................................................................... 5 Figure 1-8: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023-2 4), Scenario 1 ............................ 8 Figure 1-9: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023- 24), Scenario 2 ............................ 9 Figure 1-10: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 1 ....................................... 10 Figure 1-11: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 2 ....................................... 10 Figure 1-12: Non-Residential Monthly Wastewater Bill Impacts, Scenario 1 ............................................................. 11 Figure 1-13: Non-Residential Monthly Wastewater Bill Impacts, Scenario 2 ............................................................. 12 Figure 4-1: Projected Debt Coverage, Scenario 1 ...................................................................................................... 23 Figure 4-2: Projected Debt Coverage, Scenario 2 ...................................................................................................... 23 Figure 4-3: Projected Ending Balances, Scenario 1 ................................................................................................... 24 Figure 4-4: Projected Ending Balances, Scenario 2 ................................................................................................... 24 Figure 4-5: Operating Wastewater Financial Plan, Scenario 1 ................................................................................... 25 Figure 4-6: Operating Wastewater Financial Plan, Scenario 2 ................................................................................... 25 Figure 7-1: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023- 24), Scenario 1 .......................... 47 Figure 7-2: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023- 24), Scenario 2 .......................... 47 Figure 7-3: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 1 ......................................... 48 Figure 7-4: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 2 ......................................... 49 Figure 7-5: Non-Residential Monthly Wastewater Bill Impacts, Scenario 1 ............................................................... 50 Figure 7-6: Non-Residential Monthly Wastewater Bill Impacts, Scenario 2 ............................................................... 50
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY
List of Abbreviations
ADA: Average Daily Attendance
AF: Acre-feet
AFY: Acre-feet per year
AWWA: American Water Works Association
AWPF: Advance Water Purification Facility
BOD: Biological Oxygen Demand
CIP: Capital Improvement Plan
City: City of Tracy
COS: Cost of Service
CPI: Consumer Price Index
FY: Fiscal year
GPCD: Gallons per capita per day
GPM: Gallons per minute
GW: Groundwater
HCF: One hundred cubic feet
K: Thousand
Lbs: Pounds
M: Million
Manual M1: American Water Works Association’s Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices - M1 Seventh Edition
Max Day: Maximum day water demand
Max Hour: Maximum hour water demand
MG: One million gallons
Mg/L: Milligrams per Liter
MGD: One million gallons per day
NPDES Permit: National Pollutant Discharge Elimination System Permit O&M: Operations and maintenance
PPM: Parts per million
R&R: Repair and replacement
RCLD: Replacement cost less depreciation
SCADA: Supervisory control and data acquisition
SRF Loan: Clean Water State Revolving Fund Loan
SS: Suspended Solids
Study Period: the rate-setting period of this study which extends through fiscal year 2025-26 WWTP: Wastewater treatment plant
CITY OF TRACY
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202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 1
1.Executive Summary
1.1. Study Overview
The City of Tracy last conducted a wastewater study in 2013, and rates have not increased since 2013. The City of Tracy engaged Raftelis to conduct a wastewater cost of service study to establish a proposed five-year rate schedule from FY 2023-24 to FY 2027-28, which is known as the study period. Note that proposed rates cannot be implemented until formally adopted by the City after a public hearing, absent a majority protest by parcels served by the City. Proposition 218 requires that City of Tracy customers be mailed a public hearing notice detailing proposed rate changes no fewer than 45 days before the public hearing.
The study’s major objectives are to:
» Develop a ten-year financial plan that sufficiently funds City of Tracy’s wastewater operations and maintenance (O&M) expenses, debt service payments, and capital expenditures while adequately funding reserves and achieving debt coverage requirements. Debt coverage requirements are a major study driver.
» Conduct a cost of service analysis that establishes a clear nexus between the cost to serve wastewater customers and the rates charged to customers, per Proposition 218 and industry standards. » Develop a five-year schedule of wastewater rates that are fair and equitable.
1.2. Rate Study Process
This study was conducted using industry-standard principles outlined by the Water Environment Federation’s Financing and Charges for Wastewater Systems. The overall process outlined below describes the process to develop wastewater rates.
1. Financial Plan: Develop cash flow projections for the Wastewater Enterprise to determine the amount of revenue required from wastewater rates.
2. Cost of Service Analysis: Allocate costs to wastewater functions, then cost components and lastly to s customer classes based on user characteristics.
3. Rate Design: Develop rates that generate sufficient revenues based on the results of the financial plan and cost of service analysis and communicate the policy preferences of the agency.
4. Report Preparation: Develop a report to document the results of the rate study.
5. Rate Adoption: Proposed rates may be adopted by City Council only after holding a public hearing in accordance with Proposition 218 requirements.
1.3.Proposed Wastewater Financial Plan
Raftelis conducted a status quo cash flow analysis (without rate adjustments) to evaluate whether existing wastewater rates will adequately fund the Wastewater Enterprise’s various expenses over the rate-setting period. Raftelis projected that, without rate increases during the five-year study period, the Wastewater Enterprise will not meet the debt service coverage requirements as shown in Figure 1-1. In addition, reserves fall below the target reserve policy by FY 2023-24, and deplete cash reserves by FY 2023-24, as shown below in Figure 1-2. This demonstrates a need for revenue adjustments for the Wastewater Enterprise.
2 CITY OF TRACY
Figure 1-1: Debt Coverage under Status Quo Financial Plan
Figure 1-2: Reserve Balances under Status Quo Financial Plan
Raftelis worked closely with City staff to develop two options for revenue adjustments: both governed by the need to meet debt coverage requirements. Table 1-1 shows the revenue adjustments for Scenario 1; Table 1-2 shows the revenue adjustments for Scenario 2. Both scenarios enable similar reserve levels, however Scenario 2 provides more of a buffer above the minimum debt coverage ratio of 1.20. Note that the net (uncompounded) rate increase over the study period is roughly equal: 82.5% in Scenario 1 and 82% in Scenario 2).
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 3
Table 1-1: Proposed Wastewater Revenue Adjustments, Scenario 1 Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Effective Date August 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 Revenue Adjustment 40.5% 16.0% 9.0% 9.0% 8.0%
Table 1-2: Proposed Wastewater Revenue Adjustments, Scenario 2 Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Effective Date August 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 Revenue Adjustment 45.0% 11.0% 9.0% 9.0% 8.0%
Key factors influencing the need for proposed Wastewater Enterprise revenue adjustments include:
» Inflation: Operating costs continue to increase from year to year due to inflationary pressures. » Additional staff
» A wastewater desalination contract
» Planned capital expenditures: CIP projects through FY 2027-28 are shown in Figure 1-1 and include substantial repair and replacement (R&R) capital projects. Note that capital projects are delayed in the first two years to minimize revenue increases and bill impacts. » Most importantly - Cashflow to cover debt service requirements
Figure 1-3 shows the proposed CIP financing plan over the study period. As proposed, the CIP is funded by cash reserves and rate revenue. Note that CIP expenses are the same in both scenarios.
Figure 1-3: Wastewater Enterprise Capital Improvement Plan
Figure 1-4 and Figure 1-5 show the debt service coverage and ending reserve balances for the Wastewater Enterprise under Scenario 1. Ending balances are determined by applying yearly net cashflow of incoming revenues (including rate revenues, miscellaneous, and revenue from rate adjustments) less expenses (debt service, CIP, and O&M costs). Note that these costs are the same under both scenarios; the revenue from rate
4 CITY OF TRACY
adjustments differ under each scenario and therefore changes the outcomes of the ending balances and debt service coverage shown below. As shown, we estimate that the City is in technical default in FY 20 23. Under Scenario 1, the revenue adjustment is such that the City just meets its debt coverage requirement and will not meet its minimum reserve requirement, as shown in Figure 1-5, until FY 2027.
Figure 1-4: Wastewater Debt Coverage, Scenario 1
Figure 1-5: Wastewater Reserve Balances, Scenario 1
Figure 1-6 and Figure 1-7 and show the debt service coverage and ending reserve balance outcomes for Scenario
2. Scenario 2 provides better debt service coverage by “front loading” the revenue adjustments earlier. As shown the debt coverage exceed the minimum of 1.20 in FY 2024. However, reserve balances still do not meet the City’s minimum target until FY 2027 as shown in Figure 1-7.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 5
Figure 1-6: Wastewater Debt Coverage, Scenario 2
Figure 1-7: Wastewater Reserve Balances, Scenario 2
1.4. Current and Proposed Wastewater Rates
The City of Tracy’s current wastewater rate structure consists of a combination of fixed and volumetric charges. Single and Multi-Family customers are charged a flat rate regardless of wastewater discharge. Other classes have a fixed charge and a volumetric rate per hundred cubic feet (hcf) of wastewater discharge. Raftelis worked closely with City Staff to evaluate potential changes to the existing wastewater rate structure. The City’s existing rate structure for all customers except Leprino and Septic Disposal is shown below in Table 1-3.
6 CITY OF TRACY
Table 1-3: Current Rate Structure
Line Customer Class Fixed
Charge
($ / month)
Volumetric
Charge
($ / hcf)
1 Residential
2 Single Family $34.00 N/A
3 Multi-Family $28.75 N/A
4 5 Non-Residential
6 Commercial I $28.75 $1.98
7 Commercial II $28.75 $2.91
8 Commercial III $28.75 $4.89
Table 1-4 shows the current rate structure for the City’s Industrial class (Leprino is currently the only industrial customer) and Septic Disposal customers.
Table 1-4: Current Wastewater Industrial Capacity and Use Charges Industrial Class Units Charge
Capacity Charges
Flow ($/MGD per year) $258,289
BOD ($/lb) $28.23
TSS ($/lb) $43.13
Use Charges
Flow ($/MG) $334.00
BOD ($/1,000 lbs) $489.19
TSS ($/1,000 lbs) $232.35
Septic Disposal Charge
Septic Disposal ($/1,000 gal) $66.90
Table 1-5 shows the proposed rate structure for test year FY 2023-24. The City requested that the Multi- Family class have a combined fixed charge and a volumetric rate as shown. The rate structure shown is a common one, in which Single Family has a flat charge (fixed charge) and the remaining classes have a fixed charge and a volumetric rate. The calculations used to develop these rates are explained in detail in Table 6-1 and Table 6-3.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 7
Table 1-5: Proposed Rate Structure for Test Year FY 2023-24 Line Customer Class Fixed
Charge
($ / month)
Volumetric
Charge
($ / hcf)
1 Residential
2 Single Family $42.92 N/A
3 Multi-Family $5.94 $3.45
4 5 Non-Residential
6 Commercial I $24.42 $3.55
7 Commercial II $24.42 $6.00
8 Commercial III $24.42 $9.50
9 Industrial – Leprino N/A $0.97
10 Septic Disposal N/A $56.80
Table 1-6 shows proposed wastewater rates through FY 2027-28 for Scenario 1. Table 1-7 shows the proposed rates for Scenario 2. This report establishes rates for FY 2023-24 using a cost of service analysis and escalates rates for future years (FY 2024-25 to FY 2027-28) by the revenue adjustments. The fixed charge shown for Multi-Family customers is per dwelling unit.
Table 1-6: Proposed Five-Year Wastewater Rate Schedule, Scenario 1 Customer Class Current Proposed
FY 2024
Proposed
FY 2025
Proposed
FY 2026
Proposed
FY 2027
Proposed
FY 2028
Fixed Charges ($ / month)
Single Family Residential $34.00 $46.55 $54.00 $58.86 $64.16 $69.29 Multi-Family Residential $28.75 $3.91 $4.54 $4.94 $5.39 $5.82 Commercial I $28.75 $26.61 $30.87 $33.64 $36.67 $39.60 Commercial II $28.75 $26.61 $30.87 $33.64 $36.67 $39.60 Commercial III $28.75 $26.61 $30.87 $33.64 $36.67 $39.60
Volumetric Charges ($ / hcf)
Single Family Residential NA NA NA NA NA NA
Multi-Family Residential $0.00 $4.24 $4.92 $5.36 $5.85 $6.31 Commercial I $1.98 $3.41 $3.96 $4.32 $4.70 $5.08
Commercial II $2.91 $6.07 $7.04 $7.67 $8.36 $9.03
Commercial III $4.89 $9.90 $11.48 $12.52 $13.64 $14.73 Septage ($/hcf) $0.00 $73.57 $103.37 $119.91 $130.70 $142.46
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Table 1-7: Proposed Five-Year Wastewater Rate Schedule, Scenario 2 Customer Class Current Proposed
FY 2024
Proposed
FY 2025
Proposed
FY 2026
Proposed
FY 2027
Proposed
FY 2028
Fixed Charges ($ / month)
Single Family Residential $34.00 $48.05 $53.34 $58.14 $63.37 $68.44 Multi-Family Residential $28.75 $4.05 $4.49 $4.90 $5.34 $5.77 Commercial I $28.75 $27.46 $30.48 $33.22 $36.21 $39.10 Commercial II $28.75 $27.46 $30.48 $33.22 $36.21 $39.10 Commercial III $28.75 $27.46 $30.48 $33.22 $36.21 $39.10
Volumetric Charges ($ / hcf)
Single Family Residential NA NA NA NA NA NA
Multi-Family Residential $0.00 $4.38 $4.86 $5.29 $5.77 $6.23 Commercial I $1.98 $3.52 $3.91 $4.26 $4.65 $5.02
Commercial II $2.91 $6.26 $6.95 $7.57 $8.26 $8.92
Commercial III $4.89 $10.21 $11.33 $12.35 $13.46 $14.54 Septage ($/hcf) $0.00 $75.89 $110.05 $122.15 $133.15 $145.13
1.5. Summary of Monthly Bill Impacts
Figure 1-8 and Figure 1-9 show the expected change in the monthly wastewater bill for Single Family residential customers for each scenario.
Figure 1-8: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023-24), Scenario 1
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 9
Figure 1-9: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023-24), Scenario 2
Figure 1-10 and Figure 1-11 show the monthly wastewater bill impacts for a Multi-Family customer that has an average of 7 dwelling units and discharges approximately 5 hcf of sewage per dwelling unit, per month.
For test year 2023-24, the average monthly bill for Multi-Family customers will decrease. This is due to the proposed changes to the rate structure, which will shift charges from a per dwelling unit cost ($28.75) to a smaller fixed charge and volumetric rate which aligns Multi-Family bills with actual discharge to the wastewater treatment plant. Note again that this decrease is reflected in both Scenario 1 and Scenario 2; the magnitude of the change is merely different depending on each scenario.
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Figure 1-10: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 1
Figure 1-11: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 2
Figure 1-12 and Figure 1-13 show the monthly wastewater bill impacts for commercial customers assuming average wastewater discharge for each class under each scenario. The average wastewater discharge for each
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 11
class shown is 683, 1,647, and 585 hcf, respectively. Therefore, the average commercial business discharges a large volume of wastewater. Their bills increase as the assumed wastewater strength1 has been revised upwards2 and trued to the actual strength discharged to the plant.3 Commercial I has the lowest strength; Commercial III has the highest strength. Higher strength customers discharge more BOD and TSS to the plant, which is more costly to treat than lower strength sewage.
Figure 1-12: Non-Residential Monthly Wastewater Bill Impacts, Scenario 1
1 Strength is defined as the concentration of biochemical oxygen demand (BOD) and total suspended solids (TSS).
2 The latest data from large sewage treatment agencies, such as Los Angeles County Sanitation Districts, shows the sewage strength has increased due to the installation of low flow water fixtures. 3 It appears that trueing up strength concentrations and actual flows to what is observed at the wastewater treatment plant was not performed in the prior study.
12 CITY OF TRACY
Figure 1-13: Non-Residential Monthly Wastewater Bill Impacts, Scenario 2
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2.Introduction
2.1. City of Tracy Wastewater System
The City of Tracy wastewater department provides wastewater service to over 23,000 residential, commercial, and industrial customers. Most City customers are located within city limits. The City’s wastewater system consists of a wastewater treatment plant, 290 miles of collection pipelines, 10 miles of sewer mains, and over 10 lift stations.
The City of Tracy maintains a wastewater collection system which transports wastewater discharged from customers to its Wastewater Treatment Plant, which provides tertiary wastewater treatment to treat and dispose of the sewage collected within the City. The City also services one industrial customer and receives septic discharges (trucked in). The industrial customer (Leprino) transports wastewater to the City treatment plant through its own pipeline and therefore does not use the City’s wastewater collection system. This affects the costs attributed to this industrial customer as described in Section 6 – Cost of Service.
2.2. Study Overview
The City of Tracy last conducted a water and wastewater cost of service study in 2013 and has not raised rates since 2013. Nevertheless, the City’s costs to treat wastewater have increased since 2013 and require the implementation of wastewater rate adjustments.
The City of Tracy engaged Raftelis in 2020 to conduct a wastewater cost of service study to establish a proposed five-year wastewater rate schedule from FY 2023-24 to FY 2027-28. Note that proposed rates cannot be implemented until formally adopted by City Council after a public hearing. Proposition 218 requires that the City of Tracy customers must be mailed a public hearing notice detailing any proposed rate changes no fewer than 45 days before the public hearing. The notice explains a customer’s right to protest the rate proposal.
Study Objectives
The study’s major objectives are to:
» Develop a five-year financial plan that sufficiently funds the City of Tracy’s wastewater operations and maintenance (O&M) expenses, debt service payments, and capital expenditures while adequately funding reserves and achieving debt coverage requirements. » Conduct a cost of service analysis that establishes a clear nexus between the cost to serve wastewater customers and the rates charged to customers, per Proposition 218 and industry standards. » Review the City of Tracy’s existing wastewater rate structure to ensure that proposed rates are cost based and achieve policy objectives.
» Develop a five-year schedule of wastewater rates that are fair, equitable, and compliant with Proposition 218 requirements.
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3.Key Inputs and Assumptions
Raftelis developed a wastewater rate model in Microsoft Excel to project financial calculations over the next ten fiscal years with projections shown in this section through the five-year rate-setting period from FY 2023- 24 to FY 2027-28 (i.e., the “study period”). The City’s fiscal year spans from July 1 through June 30.
Projections in future years were made based on estimated FY 2021-22 data using key assumptions outlined below. Assumptions were discussed with and reviewed by City staff. Note that there may be small differences between a reader performing calculations with a calculator and the values shown in tables because Excel does not round to the hundredths place.
3.1.Current Wastewater Rates
The City of Tracy’s current wastewater rate structure consists of a combination of fixed and volumetric charges for its customer classes. Single and Multi-Family customers are charged a flat rate regardless of wastewater discharge. Other classes have a fixed charge and a volumetric rate per hundred cubic feet (hcf) of wastewater discharge. Raftelis worked closely with City Staff to evaluate potential changes to the existing wastewater rate structure. The City’s existing rate structure for all customers except Leprino and Septic Disposal is shown below in Table 3-1:
Table 3-1: Current Rate Structure
Line Customer Class Fixed
Charge
($ / month)
Volumetric
Charge
($ / hcf)
1 Residential
2 Single Family $34.00 N/A
3 Multi-Family $28.75 N/A
4 5 Non-Residential
6 Commercial I $28.75 $1.98
7 Commercial II $28.75 $2.91
8 Commercial III $28.75 $4.89
The City also services a small number of septage and industrial customers. The City’s septage customers pay a dollar per hcf volumetric charge, shown in
Table 3-2 below. The City of Tracy also has industrial capacity and use charges for industrial customers. Currently, Leprino Inc. is the only industrial customer. The rate structure for Leprino is shown in Table 3-3 below.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 15
Table 3-2: Current Wastewater Volumetric Rates for Septage Customers Non-Residential Class Volumetric
Charge
($/hcf)
Septage ($/hcf) $56.21
Table 3-3: Current Wastewater Industrial Capacity and Use Charges (Leprino Only) Industrial Class Units Charge
Capacity Charges
Flow ($/MGD per year) $258,289
BOD ($/lb) $28.23
TSS ($/lb) $43.13
Use Charges
Flow ($/MG) $334.00
BOD ($/1,000 lbs) $489.19
TSS ($/1,000 lbs) $232.35
Septic Disposal Charge
Septic Disposal ($/1,000 gal) $66.90
3.2.Projected Billed Wastewater Use
City staff provided Raftelis with total annual wastewater use data by customer class for FY 2018 -19. Raftelis worked closely with City staff to develop wastewater billed consumption projections over the study period.
Table 3-4 shows projected billed consumption for FY 2024 and the study assumes a constant flow over the study period. Total water use is shown in hundred cubic feet (hcf).
Table 3-4: Projected Billed Consumption Under Existing Rate Structure Customer Class FY 2024
Billed Flow (hcf)
Single Family Residential 2,437,994
Multi-Family Residential 292,421
Commercial I - Low Strength 239,787
Commercial II - Medium Strength 463,934
Commercial III - High Strength 33,165
Industrial (Leprino, hcf) 307,420
Septic Disposal (hcf) 4,438
Total Billed Flow 3,779,159
3.3.Wastewater Enterprise Financial Assumptions
Raftelis and City Staff developed inflationary assumptions as shown in Table 3-5 which are used to escalate operations and maintenance (O&M) expenses ) beyond FY 2023-24. Salary and benefit inflationary increases were discussed with City staff, as wastewater utility personnel cost increases are typically agency-specific. The capital inflation factor is used to adjust uninflated capital project cost to reflect future year costs.
16 CITY OF TRACY
Table 3-5: Wastewater Enterprise Inflationary Assumptions Escalation Factor FY 20234 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 General Budget 6.0% 5.0% 3.0% 3.0% 3.0%
Salary Budget 3.0% 3.0% 3.0% 3.0% 3.0%
Benefits Budget 5.0% 5.0% 5.0% 5.0% 5.0%
Power Budget 5.0% 5.0% 5.0% 5.0% 5.0%
Capital Budget 6.0% 5.0% 3.2% 3.2% 3.2%
Raftelis also projects non-rate revenue which include interest earnings. We assumed the interest rate shown in Table 3-6.
Table 3-6: Additional Wastewater Enterprise Financial Assumptions Interest Earnings Value
Annual Reserve Interest Rate 0.5%
3.4. Projected Wastewater Number of Accounts and Dwelling Units
Table 4-7 shows the projected number of wastewater accounts and dwelling units. Wastewater account growth projections are needed to estimate wastewater rate revenues over the study period. City staff provided Raftelis with the number of accounts/dwelling units by customer class for FY 2018-19. Raftelis then applied the annual account growth rates shown below to each class to project accounts over the study period.
Table 3-7: Projected Wastewater Accounts and Dwelling Units Customer Class FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Account Growth Factors
Single-Family Residential 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% Multi-Family Residential 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%
Commercial 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Number of Accounts
Single Family Residential 22,069 22,415 22,767 23,124 23,487 23,856 Single Family Residential - LR 1,531 1,555 1,579 1,604 1,629 1,655 Multi-Family Sewer - per
dwelling unit 582 587 592 598 603 608
Multi-Family Sewer LIRA 22 23 23 23 23 23
Commercial I - Low Strength 390 390 390 390 390 390
Commercial II - Medium
Strength 313 313 313 313 313 313
Commercial III - High Strength 63 63 63 63 63 63
Industrial - Leprino 1 1 1 1 1 1
Subtotal - Accounts 24,971 25,347 25,728 26,116 26,509 26,909
4 City Staff provided its FY 2023 budget for use in Raftelis’ financial planning models. For this reason, budget values were used without inflation factors for FY 2023.
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4.Wastewater Financial Plan
Section 4 details the proposed Wastewater Enterprise financial plan. The following subsections estimate annual revenues, O&M expenses, debt service payments, capital expenditures, and reserve funding through FY 2027-28. The overall purpose of the financial plan is to determine annual wastewater rate revenues required to achieve sufficient cash flow, maintain adequate reserves, and meet debt coverage requirements.
4.1.Wastewater Enterprise Revenue at Existing Rates
The Wastewater Enterprise’s revenue sources consist of wastewater rates, connection fees, interest earnings on cash reserves, and other non-rate revenues. The rate revenue projections shown in this section assume that current FY 2021-22 wastewater rates are effective throughout the study period, and therefore represent estimated revenues in the absence of any wastewater rate increases. This status quo scenario provides a baseline from which Raftelis evaluated the need for revenue adjustments (i.e. gross rate revenue increases).
Calculated Wastewater Rate Revenues
Raftelis projected annual wastewater rate revenues over the study period based on current FY 2022-23 wastewater rates (from Table 1-6) and projected number of accounts (or dwelling units for MFR) (from Table 3-7). Table 4-1 shows projected wastewater rate revenues under current rates, calculated as follows:
Fixed Charge Revenue = [ FY 2022-23 monthly charge] × [Number of accounts or dwelling units] × [12 Bills per year]
Variable Rate Revenue = [ FY 2022-23 volumetric unit rate] × [wastewater discharge]
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Table 4-1: Projected Rate Revenues at Existing Rates
Revenue FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Single Family
Residential
$9,004,079 $9,145,418 $9,288,975 $9,434,786 $9,582,886 $9,733,311 Single Family
Residential - LR
$577,654 $586,722 $595,932 $605,286 $614,787 $624,438 Multi-Family Sewer
& MFR LIRA
$1,571,475 $1,571,475 $1,571,475 $1,571,475 $1,571,475 $1,571,475 Commercial I - Low
Strength
$134,550 $134,550 $134,550 $134,550 $134,550 $134,550 Commercial II -
Medium Strength
$107,985 $107,985 $107,985 $107,985 $107,985 $107,985 Commercial III -
High Strength
$21,735 $21,735 $21,735 $21,735 $21,735 $21,735
Total Fixed Charge
Revenues
$11,417,478 $11,567,884 $11,720,652 $11,875,817 $12,033,419 $12,193,494
Commercial I - Low
Strength
Commercial II -
Medium Strength
$527,531 $527,531 $527,531 $527,531 $527,531 $527,531 Commercial III -
High Strength
$1,500,053 $1,500,053 $1,500,053 $1,500,053 $1,500,053 $1,500,053 Total Volumetric
Rate Revenues
$180,197 $180,197 $180,197 $180,197 $180,197 $180,197
Industrial Revenues $381,357 $381,357 $381,357 $381,357 $381,357 $381,357
Septic Disposal
Revenues
$222,091 $222,091 $222,091 $222,091 $222,091 $222,091
Total Rate Revenue $14,228,706 $14,379,113 $14,531,881 $14,687,046 $14,844,647 $15,004,722
4.2.Wastewater Enterprise Operations & Maintenance
Expenses
Table 4-2 shows a summary of Wastewater Enterprise O&M expenses over the study period. O&M expenditures include the cost of operating and maintaining wastewater collection, treatment, and disposal facilities. O&M expenses also include laboratory services and other administrative costs. The projected increases in O&M expenses are shown in Table 4-2 below. O&M expenses were provided by City staff for FY 2022-2023 in current dollars and then adjusted for inflation (based on inflationary assumptions shown in Table 3-5).
Table 4-2: Projected O&M Expenses
Expense FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 O&M Costs
Administration $1,823,953 $1,901,935 $1,983,412 $2,068,538 $2,157,499 $2,250,470 Collection $3,228,106 $3,671,595 $4,322,234 $4,475,266 $4,612,491 $4,741,110 Treatment $9,752,918 $10,252,158 $11,215,264 $11,567,250 $11,931,323 $12,272,701 Indirect Costs $935,855 $992,006 $1,041,607 $1,072,855 $1,105,040 $1,132,666 Wastewater
Desalination Contract $375,000 $750,000 $750,000 $750,000 $750,000 $1,000,000 Total Operating Expenses $16,115,832 $17,567,694 $19,312,517 $19,933,909 $20,556,354 $21,396,947
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 19
4.3.Wastewater Enterprise Debt
Table 4-3 shows the Wastewater Enterprise’s projected debt service obligations. Existing debt service consists of the City’s 2004 Wastewater Treatment Plant COPS Bonds and 2021 Wastewater COP Refunding Bonds.
Table 4-3: Projected Debt Service
Expense FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 Existing Debt Service
2004 WW Treatment Plant COPS $1,852,530 $1,852,530 $0 $0 $0 $0 2021 WW COP Refunding $0 $0 $1,504,650 $1,508,400 $1,502,200 $1,509,800 Total Existing Debt $1,852,530 $1,852,530 $1,504,650 $1,508,400 $1,502,200 $1,509,800
4.4. Wastewater Enterprise Capital Improvement Plan
Table 4-4 shows the proposed capital improvement plan. The City expects to spend over $17 million on capital projects over the study period, highlighting the need to maintain adequate reserves and preserve its wastewater collection and treatment system through regular repairs. The City plans to defer or reduce capital projects in FY 2022-23 and FY 2023-2024 to minimize the need for rate increases.
Table 4-4: Detailed Capital Improvement Plan
Capital Improvement Project FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Cash-Funded Capital $0 $0 $1,660,000 $3,200,000 $5,200,000 $7,200,000 Debt-Funded Capital $0 $0 $0 $0 $0 $0
Total CIP $0 $0 $1,660,000 $3,200,000 $5,200,000 $7,200,000
4.5.Wastewater Enterprise Financial Policies
Required Debt Coverage
The Wastewater Enterprise has debt covenants for debt service coverage on its outstanding wastewater certificates of participation. The required debt coverage ratio is 1.20, meaning that the Wastewater Enterprise’s net operating revenues (i.e., total revenues less operating expenses) must amount to at least 1.20 times the amount of annual debt service. Failure to meet debt service coverage results in a technical default, which, without foreseeable remedial action (such as implementing rate increases), could result in a downgrade of credit rating, higher costs in future debt issuance, or even denial of credit.
Reserve Targets
The City has an operating reserve to provide funds to meet ongoing cash flow requirements related to operating expenses. The current operating reserve target is equal to 30 percent of annual O&M expenses. It is also common to have capital reserves to provide available funds for CIP projects. The City of Tracy currently does not have a formal capital reserve policy, however Raftelis modeled an industry norm equal to 2% of net capital assets for the Wastewater Enterprise. Table 4-5 shows projected operating and capital reserve targets.
20 CITY OF TRACY
Table 4-5: Projected Reserve Targets
Reserve Target FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Operating Reserve $4,834,750 $5,270,308 $5,793,755 $5,980,173 $6,166,906 $6,419,084 Capital Reserve $3,608,496 $3,608,496 $3,608,496 $3,608,496 $3,608,496 $3,608,496 Total $8,443,245 $8,878,804 $9,402,251 $9,588,668 $9,775,402 $10,027,580
4.6. Proposed Wastewater Financial Plan
The wastewater enterprise must increase its revenues from wastewater rates over the study period to adequately fund its operating and capital expenditures, meet required debt coverage, and maintain sufficient reserve funding. Raftelis worked closely with City staff to identify financial plan options for the City’s consideration.
The selected proposed annual revenue adjustments are shown in Table 4-6 and Table 4-7. Revenue adjustments represent annual percent increases in total rate revenue relative to rate revenue generated by the prior year’s wastewater rates.
Table 4-6: Proposed Wastewater Revenue Adjustments, Scenario 1 Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Effective Date August 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 Revenue Adjustment 40.5% 16.0% 9.0% 9.0% 8.0%
Table 4-7: Proposed Wastewater Revenue Adjustments, Scenario 2 Description FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Effective Date August 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 Revenue Adjustment 45.0% 11.0% 9.0% 9.0% 8.0%
Table 4-8 and Table 4-9 show projected net cashflow under the proposed financial plans. The net cashflow for each year in the study is calculated by subtracting total expenses (Line 18) from total revenues (Line 5). The resulting net cashflows are shown in Line 20. Lines 21 and 22 of Table 4-8 and Table 4-9 show the starting and ending cash balances for the Wastewater Enterprise’s combined capital and operating reserves.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 21
Table 4-8: Proposed Wastewater Financial Plan, Scenario 1 Line Line Item FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Revenue
2 Rate Revenue $14,228,706 $14,379,113 $14,531,881 $14,687,046 $14,844,647 $15,004,722 3 Revenue Increases (Adjustments) $0 $5,338,246 $9,152,178 $11,404,227 $13,900,014 $16,374,273 4 Other Revenue $104,345 $112,161 $125,458 $138,771 $153,355 $167,376 5 Total Revenue $14,333,051 $19,829,520 $23,809,517 $26,230,044 $28,898,016 $31,546,371 6 7 Expenses
8 O&M Expenses
9 Administration $1,823,953 $1,901,935 $1,983,412 $2,068,538 $2,157,499 $2,250,470 10 Collection $3,228,106 $3,671,595 $4,322,234 $4,475,266 $4,612,491 $4,741,110 11 Treatment $9,752,918 $10,252,158 $11,215,264 $11,567,250 $11,931,323 $12,272,701 12 Indirect Costs $935,855 $992,006 $1,041,607 $1,072,855 $1,105,040 $1,132,666 13 Wastewater Desalination Contract $375,000 $750,000 $750,000 $750,000 $750,000 $1,000,000 14 Subtotal – O&M Expenses $16,115,832 $17,567,694 $19,312,517 $19,933,909 $20,556,354 $21,396,947 15 16 Debt $1,887,865 $1,887,900 $1,508,400 $1,502,200 $1,509,800 $1,505,600 17 Capital $0 $0 $1,660,000 $3,200,000 $5,200,000 $7,200,000 18 Total Expenses $18,003,697 $19,455,594 $22,480,917 $24,636,109 $27,266,154 $30,102,547 19 20 Net Cashflow ($3,670,646) $373,926 $1,328,600 $1,593,935 $1,631,862 $1,443,824 21 Starting Cash Balance $5,100,000 $1,429,354 $1,803,279 $3,131,880 $4,725,814 $6,357,677 22 Ending Cash Balance $1,429,354 $1,803,279 $3,131,880 $4,725,814 $6,357,677 $7,801,501
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Table 4-9: Proposed Wastewater Financial Plan, Scenario 2 Line Line Item FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 1 Revenue
2 Rate Revenue $14,228,706 $14,379,113 $14,531,881 $14,687,046 $14,844,647 $15,004,722 3 Revenue Increases (Adjustments) $0 $5,931,384 $8,857,181 $11,079,247 $13,541,984 $15,983,431 4 Other Revenue $104,345 $115,394 $126,913 $138,612 $151,411 $163,474 5 Total Revenue $14,333,051 $20,425,891 $23,515,975 $25,904,905 $28,538,042 $31,151,628 6 7 Expenses
8 O&M Expenses
9 Administration $1,823,953 $1,901,935 $1,983,412 $2,068,538 $2,157,499 $2,250,470 10 Collection $3,228,106 $3,671,595 $4,322,234 $4,475,266 $4,612,491 $4,741,110 11 Treatment $9,752,918 $10,252,158 $11,215,264 $11,567,250 $11,931,323 $12,272,701 12 Indirect Costs $935,855 $992,006 $1,041,607 $1,072,855 $1,105,040 $1,132,666 13 Wastewater Desalination Contract $375,000 $750,000 $750,000 $750,000 $750,000 $1,000,000 14 Subtotal – O&M Expenses $16,115,832 $17,567,694 $19,312,517 $19,933,909 $20,556,354 $21,396,947 15 16 Debt $1,887,865 $1,887,900 $1,508,400 $1,502,200 $1,509,800 $1,505,600 17 Capital $0 $0 $1,660,000 $3,200,000 $5,200,000 $7,200,000 18 Total Expenses $18,003,697 $19,455,594 $22,480,917 $24,636,109 $27,266,154 $30,102,547 19 20 Net Cashflow ($3,670,646) $970,297 $1,035,058 $1,268,796 $1,271,888 $1,049,081 21 Starting Cash Balance $5,100,000 $1,429,354 $2,399,651 $3,434,709 $4,703,504 $5,975,393 22 Ending Cash Balance $1,429,354 $2,399,651 $3,434,709 $4,703,504 $5,975,393 $7,024,473
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 23
Figure 4-1 and Figure 4-2 show projected debt coverage (red line) relative to the debt coverage requirement (green line) under each scenario. As shown, the City does not meet debt coverage in FY 2023. However, the revenue adjustments will ultimately meet future debt service coverage requirements in both Scenario 1 and Scenario 2. Scenario 2, as shown in Figure 4-2, provides more of a buffer in FY 2023-2024.
Figure 4-1: Projected Debt Coverage, Scenario 1
Figure 4-2: Projected Debt Coverage, Scenario 2
Figure 4-3 and Figure 4-4 show the Wastewater Enterprise ’s projected ending balance under each of the proposed financial plans. The blue bars indicate the ending balance. The total reserve target is represented by the orange line; the minimum (operating) reserve target is represented by the green line. As shown, the reserve balances are similar for each scenario.
24 CITY OF TRACY
Figure 4-3: Projected Ending Balances, Scenario 1
Figure 4-4: Projected Ending Balances, Scenario 2
Figure 4-5 and Figure 4-6 show the financial plans for each of the two proposed scenarios in this study .
Revenues under the proposed financial plan and status quo financial plan are represented by the purple and orange lines, respectively. Revenue requirements including O&M expenses, debt service, and reserve funding for CIP/other purposes are represented by the various stacked bars. Revenue adjustments are required to generate sufficient revenue to recover O&M expenses and debt service payments over the study period.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 25
Figure 4-5: Operating Wastewater Financial Plan, Scenario 1
Figure 4-6: Operating Wastewater Financial Plan, Scenario 2
26 CITY OF TRACY
5.Wastewater Cost of Service
Analysis
The Cost of Service (COS) analysis allocates the overall rate revenue requirement to customer classes based on their use of and cost causation to the wastewater system . Th e COS provides the basis for the proposed wastewater rates through FY 2027-28.
5.1.Methodology
The methodology used to develop the COS analysis and to apportion the revenue requirement to user classes is informed by the WEF’s Manual of Practice (MOP) No. 27 Financing and Charges for Wastewater Systems. COS analyses are specific to each wastewater system. However, there are four distinct steps in every COS analysis to recover costs from customers in an accurate, equitable, and defensible manner:
1. Cost functionalization: O&M expenses and capital assets are categorized by their functi on in the wastewater system. Sample functions may include collection, treatment, and customer service, among others.
1. Cost causation component allocation: Functionalized costs are then allocated to cost causation components based on their burden on the wastewater system. The cost causation components include flow, biological oxygen demand (BOD), and suspended solids (SS), among other specific cost components. The revenue requirement is allocated accordingly to the cost causation components and results in the total share of the revenue requirement attributable to each cost component.
2. Mass balance analysis: The flow and strength (BOD and SS) of wastewater treatment plant (WWTP) influent is attributed to each customer class based on water use data and wastewater generation and strength assumptions that vary by customer classification. This analysis estimates the burden each customer class places on the wastewater system.
3. Revenue requirement distribution: The mass balance analysis is utilized to distribute the re venue requirement for each cost causation component unit cost to customer classes based on each customer class’s individual burden on the wastewater system.
5.2.Wastewater Rate Revenue Requirement
The first step in a COS analysis is to determine the revenue required from wastewater rates. The total revenue requirement results from the wastewater financial plan outlined in Section 5, and is shown in Table 5-2 below.
Table 5-2 shows the wastewater rate revenue requirement for FY 2023-24 (also referred to as the test year). The revenue requirement is split into operating and capital categories (Columns C -D), which are later allocated based on O&M expenses and capital assets. The revenue requirements (Lines 2-4) include projected FY 2022- 23 O&M expenses, debt service, and rate- funded CIP expenditures . The revenue offsets (Line 8) include all non-rate revenues. These revenues are applied as offsets to the final rate revenue requirement. The adjustment for cash balance (Line 12) is equal to FY 2022-23 negative net operating cash flow under the proposed financial plan, and accounts for the drawdown of operating reserves in FY 202 2-23. All values are from the proposed wastewater financial plan operating cash flow ( Table 4-8). The final rate revenue requirement (Line 15) is calculated as follows:
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 27
Total revenue required from rates (Line 16) = Revenue requirements (Line 5) - Revenue offsets (Line 10) - Adjustments (Line 14)
Table 5-1: FY 2023-24 Wastewater Revenue Requirement, Scenario 1 [A] [B] [C] [D] [E]
Line Cost Operating Capital Total
1 Revenue Requirement
2 O&M Expenses $17,567,694 $0 $15,737,944
3 Total Debt Service Expenses $0 $0 $1,887,900
4 Rate Funded Capital Projects $0 $0 $0
5 Total Revenue Requirement $17,567,694 $0 $19,455,594
6 7 Revenue Offsets
8 Miscellaneous/Non-Rate Revenues $87,679 $87,679
9 Interest Income $8,020 $8,020
10 Total Revenue Offsets $112,161 $0 $112,161
11 12 Less: Adjustments
13 Adjustment for Cash Balance ($373,926) ($373,926)
Adjustment for Mid-Year Increase ($485,295) ($485,295) 14 Total Adjustments ($859,221) $0 ($859,221)
15 16 Revenue Required from Rates $18,314,754 $1,887,900 $20,202,654
Table 5-2: FY 2023-24 Wastewater Revenue Requirement, Scenario 2 [A] [B] [C] [D] [E]
Line Cost Operating Capital Total
1 Revenue Requirement
2 O&M Expenses $17,567,694 $0 $15,737,944
3 Total Debt Service Expenses $0 $1,887,900 $1,887,900 4 Rate Funded Capital Projects $0 $0 $0
5 Total Revenue Requirement $17,567,694 $1,887,900 $21,042,474 6 7 Revenue Offsets
8 Miscellaneous/Non-Rate Revenues $89,424 $89,424
9 Interest Income $9,508 $9,508
10 Total Revenue Offsets $115,394 $0 $115,394
11 12 Less: Adjustments
13 Adjustment for Cash Balance ($970,297) ($970,297)
Adjustment for Mid-Year Increase ($539,217) ($539,217) 14 Total Adjustments ($1,509,514) $0 ($1,509,514)
15 16 Revenue Required from Rates $18,961,814 $1,887,900 $20,849,714
As shown in Table 5-2 above, the operating revenue requirement consists of all O&M expenses less all revenue offsets. The capital revenue requirement consists of total debt service costs and rate funded capital projects.
28 CITY OF TRACY
5.3. Functionalization and Allocation of Expenses to Cost Components
After determining the revenue requirement, the next step of the wastewater COS analysis is to allocate O&M expenses and capital assets to the following functions:
» Collection: costs related to the system of collection and transport of wastewater discharges from customers to the wastewater treatment plant
» Treatment: costs associated with the w astewater treatment facilities to treat wastewater to tertiary standards and disposal
» Customer: costs of billing, revenue collections, and other customer services functions » General: costs for general administration and operational expenses or any other costs that do not clearly relate to another functional category (i.e., indirect costs)
The functionalization helps allocate costs to each of the cost causation components. Some cost causation components correspond directly to the functions listed above. The cost causation components include:
» Flow: costs that vary based on the quantity of wastewater generated » Biochemical Oxygen Demand (BOD): costs that vary based on the BOD strength parameter of wastewater; Biochemical oxygen demand is a measure of the oxygen needed by microorgani sms to utilize the wastewater in terms of milligrams per liter (mg/L) » Suspended Solids (SS): costs that vary based on the SS strength parameter of wastewater; Suspended Solids are a measure of wastewater strength based on the amount of solid particles in suspension in wastewater prior to treatment also generally expressed in milligrams per liter (mg/L). » Customer: directly associated with the Customer functional category » General: directly associated with the General functional category
5.3.1.FUNCTIONALIZATION AND ALLOCATION OF O&M COSTS
As stated above, the first step is to functionalize O&M expenses. Raftelis worked with City staff to assign wastewater O&M expenses by line item to each function. Table 5-3 summarizes FY 2023-24 wastewater O&M expenses by function. As stated above, this intermediate step is necessary to allocate wastewater O&M expenses to individual cost causation components. O&M costs are the same for both scenarios in the study.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 29
Table 5-3: Summary of Wastewater Enterprise O&M Expenses by Function [A] [B] [C] [D]
Line Functional Category FY 2023-24
O&M Expenses Percent of Total
1 Wastewater Collection $1,443,386 9%
2 Grit Removal/Primary
Settling/Treatment (TSS) $2,171,733 13%
3 Aeration (BOD) $1,503,501 9%
4 Secondary
Settling/Treatment (BOD) $3,190,029 19%
5 Residuals Proc. and Disp.
(BOD & TSS) $3,386,894 20%
6 Billing & Customer Service $985,320 6%
7 Admin & General $4,136,830 25%
8 Total O&M Expenses $16,817,694 100.0%
Table 5-4 shows the allocation of functionalized costs to the various cost causation components. The percentages shown in Table 5-4 are used to allocate the functionalized expenses to each cost component as shown in Table 5-5. The Wastewater Collection function is allocated entirely to the collection cost causation component because these are collection-related costs. The remaining lines show how each function is allocated to each cost component. For example, 100% of grit removal and primary settling costs are allocated to flow because these facilities are sized based on flow.
Table 5-4: Allocation of Functions to Wastewater Cost Causation Components [A] [B] [C] [D] [E] [F] [G] [H] [I]
Line Functional Category Sewage
Collection
Flow BOD TSS Customer General Total
1 Wastewater Collection 100% 100.0%
2 Grit
Removal/Primary
Settling/Treatment
(TSS)
100%
100.0%
3 Aeration (BOD) 100% 100.0%
4 Secondary
Settling/Treatment
(BOD)
100%
100.0%
5 Residuals Proc. and
Disp. (BOD & TSS)
51% 49% 100.0%
6 Billing & Customer
Service
100% 100.0%
7 Admin & General 5% 95% 100.0%
Using the percentages from Table 5-4, Table 5-5 shows the allocation of FY 2023-24 O&M expenses by function to each cost causation component. Total O&M expenses associated with each function (shown in Column I in Table 5-5 below) were determined in Table 5-3. The total dollar amount allocated to each cost causation component is determined by multiplying the total expense (Column I) by the corresponding percentage allocation for each cost component in Table 5-4 above. Line 8 sums the total cost by cost component.
30 CITY OF TRACY
For example, $1,443,386 (Column C, Line 1) is calculated by multiplying the total dollar amount of O&M costs allocated to wastewater collection from Column I, Line 1 (see Table 5-3 for derivation) by the corresponding cost causation factor allocation (developed in Table 5-4). The same calculation is performed for the remaining functions (i.e., Column C × Column I in Lines 2-7). Lines 1-7 are summed to determine the total dollar amount allocated to the flow cost causation component (Column C, Line 8).
The same calculations are repeated for the remaining cost causation components (Columns D-H) to determine the allocation of O&M expenses to each cost causation component (Line 8). The O&M allocation percentages (Line 9) are the proportion of O&M expenses allocated to each cost causation component, excluding general costs. Because general costs underlie each of the remaining five cost components, the total value for general costs (Line 8, Column H) is redistributed evenly among the other cost components in Line 9 of Table 5-5. This results in the final O&M allocation percentages shown in Columns C-H of Line 11.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 31
Table 5-5: Allocation of O&M Expenses by Functional Category and Cost Causation Component [A] [B] [C] [D] [E] [F] [G] [H] [I]
Line Functional Category Sewage
Collection
Flow BOD TSS Customer General Total
1 Wastewater Collection $1,443,386 $1,443,386
2 Grit Removal/Primary
Settling/Treatment (TSS) $2,171,733 $2,171,733
3 Aeration (BOD) $1,503,501 $1,503,501
4 Secondary
Settling/Treatment (BOD) $3,190,029 $3,190,029
5 Residuals Proc. and Disp.
(BOD&TSS) $1,725,106 $1,661,788 $3,386,894
6 Billing & Customer Service $985,320 $985,320
7 Admin & General $206,841 $3,929,988 $4,136,830
8 Total O&M Expenses $1,443,386 $2,171,733 $6,418,637 $1,661,788 $1,192,162 $3,929,988 $16,817,694 9 O&M Allocation w/o
General 11.2% 16.9% 49.8% 12.9% 9.3%
100.0%
10 Reallocation of General
Costs $1,883,533 $2,833,983 $8,375,942 $2,168,535 $1,555,700
$16,817,694
11 O&M Allocation 11.2% 16.9% 49.8% 12.9% 9.3% 100%
32 CITY OF TRACY
5.3.2. FUNCTIONALIZATION AND ALLOCATION OF CAPITAL COSTS Capital assets are utilized in COS analyses to allocate the capital revenue requirement to the cost causation components. The distribution of short-term CIP project costs can be heavily weighted to specific cost causation components based on the type of projects. Use of short-term plans to allocate capital costs may cause rates to fluctuate and result in customer confusion. The overall wastewater asset base however is considerably stable in the long-term, and therefore is more representative of long-term capital investment in the City of Tracy’s wastewater system. Thus, functionalized capital assets are used to allocate capital costs (the capital revenue requirement).
Table 5-6 summarizes FY 2018-19 capital assets by function. T his intermediate step is necessary to allocate capital assets to individual cost causation components.
Table 5-6: Summary of Capital Assets by Functional Category [A] [B] [C] [D]
Line Functional Category FY 2018-19
Capital Assets Percent of Total
1 Collection $94,486,707 52%
2 Primary Trmt $9,701,493 5%
3 Aeration $24,289,195 13%
4 Secondary Trmt $14,776,081 8%
5 Residuals $8,647,200 5%
6 General WWTP $20,848,003 12%
7 General $7,676,103 4%
8 Total Capital Assets $180,424,781 100%
Table 5-7 shows the allocation of capital assets by function to each cost causation component. The percentage allocation of each function (Columns C-H) to the various cost causation components was determined in Table 5-6. The total dollar amount allocated to each cost causation component (Line 8) is determined by multiplying the total asset value (column I) associated with each function by the corresponding percentage allocation. This is consistent with the methodology used to determine the allocation of O&M expenses to cost causation components in Table 5-5.
In Table 5-7, lines 10 and 12 reallocate general assets to the other cost causation components. Because general WWTP assets apply only to treatment related cost components, which are Flow, BOD, and TSS cost causation components, total General WWTP values are reallocated between these three components in Lines 9-10. The percentages applied in line 9 represent the percent share of total asset value for these three cost causation components. Following this step, general assets are reallocated across the remaining cost components according to the percentages shown in Line 12 (which represent the percent share of total assets for each cost component). The final capital asset allocation to cost components is shown in Line 14. These percentages are used to allocate the capital revenue requirement to the cost components.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 33
Table 5-7: Allocation of Capital Assets by Function and Cost Causation Component [A] [B] [C] [D] [E] [F] [G] [H] [I]
Line Functional Category Sewage
Collection
Flow BOD TSS General
WWTP
General Total
1 Collection $94,486,707 $94,486,707
2 Primary Trmt $9,701,493 $9,701,493
3 Aeration $24,289,195 $24,289,195
4 Secondary Trmt $14,776,081 $14,776,081
5 Residuals $4,404,430 $4,242,770 $8,647,200
6 General WWTP $20,848,003 $20,848,003
7 General $7,676,103 $7,676,103
8 Total Capital Assets $94,486,707 $9,701,493 $43,469,705 $4,242,770 $20,848,003 $7,676,103 $180,424,781 9 % of WWTP Assets 17% 76% 7% 100%
10 Reallocation of
General WWTP
Assets
$3,522,779 $15,784,601 $1,540,623 $20,848,003
11 Subtotal $94,486,707 $13,224,272 $59,254,306 $5,783,394 $7,676,103 $180,424,781 12 Allocation w/o
General
62% 6% 29% 3% 100%
13 Reallocation of
General Assets
$99,261,470 $13,714,524 $61,450,991 $5,997,796 $180,424,781 14 Final Capital Asset
Allocation to Cost
Components
55% 8% 34% 3% 100%
34 CITY OF TRACY
5.4.Plant Mass Balance Analysis
The next step of the wastewater COS analysis is to attribute flow and strength loadings entering the City’s wastewater treatment plant to the customer classes. We need to know the flow and strength loadings from each class entering the plant because the end goal is to multiply these flow and strength loadings by the unit cost for each cost component to allocate costs to the customer classes.
Table 5-8 shows Raftelis’ mass balance analysis of the wastewater treatment plant based on City provided influent data for FY 2018-19. City staff provided:
» Total FY 2018-19 wastewater flows entering the wastewater treatment plant » FY 2019-20 BOD and TSS concentrations entering the plant » FY 2018-19 water use associated with non-residential wastewater customers
With the above known, Raftelis estimated residential flow into the WWTP by subtracting commercial and industrial flows from the net plant flow shown in Line 3, Column F. A reasonable estimate of residential indoor water use (which is the total amount of water flow discharged to the sewer system) is around 50 to 65 gallons per person per day (gpcd). Table 5-8 shows the mass balance calculations for the City of Tracy, which estimate an indoor water use of 61 gpcd (Line 14 -2,437,000 hcf divided by the estimated single family residential population of 82,200 and converted to gallons) - which is a reasonable wastewater flow estimate for single family residential customers.
Table 5-8: Plant Balance Calculation
[A] [B] [C] [D] [E] [F] [G] [H]
Line FY 2023
FY 2019
Flow
(MG)
BOD
(mg/L)
TSS
(mg/L)
Flow
(hcf/year)
BOD
(lbs/year)
TSS
(lbs/year)
1 Total Plant Influent 3,027 303 292 4,046,521 7,654,242 7,376,366 2 Less: I&I 200 50 50 267,362 83,454 83,454
3 Net Plant Influent 2,827 3,779,159 7,570,788 7,292,912 4 5 Non-Residential
6 Commercial I 179.37 250 250 239,787 374,234 374,234
7 Commercial II 347.05 500 500 463,934 1,448,118 1,448,118 8 Commercial III 24.81 1,000 600 33,165 207,042 124,225 9 Industrial - Leprino 229.95 27 54 307,420 51,814 103,627 10 Septic Disposal 3.32 5,400 12,000 4,438 149,615 332,478 11 Subtotal Non-Residential
Flow
784 7,177 13,404 1,048,744 2,230,822 2,382,682
12 13 Net Residential Flow 2,043 313 288 2,730,415 5,339,966 4,910,230 14 Single Family Residential 1,824 2,437,994 4,768,199 4,384,476 15 Multi-Family Residential 219 292,421 571,767 525,754
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 35
5.5.Wastewater Units of Service
Table 5-9 shows the units of service by cost component and class. Note that the units of service for the sewage collection system are different than the flow into the WWTP because Leprino and Septic customers do not use the collection system. The units of service are used to allocate costs to each customer class, as explained in Section 5.7.
Table 5-9: FY 2023-24 Units of Service
Line Customer Class Sewage
Collection
(hcf)
WWTP
Flow (hcf)
BOD
(lbs/year)
TSS
(lbs/year)
Customer
Accounts
1 Residential
2 Single Family
Residential
2,437,994 2,437,994 4,835,032 4,451,309 23,970
3 Multi-Family
Residential
292,421 292,421 579,781 533,768 610
4 Subtotal Residential 2,730,415 2,730,415 5,414,813 4,985,077 24,580 5 6 Non-Residential
7 Commercial I 239,787 239,787 299,387 299,387 390
8 Commercial II 463,934 463,934 1,448,118 1,448,118 313 9 Commercial III 33,165 33,165 207,042 124,225 63
10 Industrial (Leprino) NA 307,420 51,814 103,627 1
11 Septic Disposal 0 4,438 149,615 332,478 0
12 Subtotal Non-
Residential
736,886 1,048,744 2,155,975 2,307,835 767
13 Total 3,467,301 3,779,159 7,570,788 7,292,912 25,347
5.6.Wastewater Unit Costs
Table 5-10 and Table 5-11 show the derivation of the unit costs by cost component under each scenario. Each table derives two sets of unit costs in Line 8 and Line 18. This is because Leprino and Septic customers do not use the collection system and there is therefore one set of unit costs for Leprino and Septic and unit rates for all other customers. Line 1 shows the allocation of the operating revenue requirement to the cost components.
The revenue requirement (shown in Table 5-2) is allocated to the cost components using the O&M allocation percentages shown in Table 5-4. Line 2 shows the allocation of debt service, which applies the capital asset allocation percentages shown in Table 5-7. The capital asset allocation percentages from Table 5-7 are also used to allocate the capital revenue requirement to the cost components. The unit costs for Leprino and Septic are derived by dividing the total costs in Line 4 by the units of service in Line 6 (see Table 5-9 for the development of units of service). To derive rates for the remaining customer classes, the functionalized costs of capital projects that do NOT benefit Leprino customers are added to the total cost of service in Lines 11 and 12. The resulting total cost of service is then divided by the service units in Line 15 (which do not include Leprino or Septic). This yields the additional costs required for all other customers, listed in Line 16. These are then added to the Leprino & Septic unit costs, generating the final unit cost for all other customers (shown in Line 18). As shown, it is only the collection cost component that differs between lines 8 and 17.
36 CITY OF TRACY
Table 5-10: Derivation of Wastewater Unit Costs by Cost Component, Scenario 1 [A] [B] [C] [D] [E] [F] [G] [H] [I]
Line FY 2024 Sewage
Collection
WWTP Flow
(hcf)
BOD TSS Customer Total Allocation
Basis
1 Operating Cost
$2,051,200 $3,086,255 $9,121,543 $2,361,572 $1,694,184 $18,314,754 O&M
Allocation
2 Existing Debt Service (2004
Debt Issue was
for WWTP) $0 $319,007 $1,429,381 $139,512 $0 $1,887,900 % of WWTP
Assets
3 Capital Projects that benefit all
customers $0 $0 $0 $0 $0 $0
Capital Asset
Allocation
4 Total Cost by Cost
Component $2,051,200 $3,405,262 $10,550,924 $2,501,084 $1,694,184 $20,202,654
5 6 Service Units 3,467,301 3,779,159 7,570,788 7,292,912 304,160 7 Units hcf hcf lbs/yr lbs/yr bills/yr
8 Unit Costs for Leprino &
Septic (Only) $0.00 $0.90 $1.39 $0.34 $5.57
9 Units $/hcf $/hcf $/lb $/lb per monthly bill
10 11 Capital Projects that do no
benefit Leprino $0 $0 $0 $0 $0 $0
Capital Asset
Allocation
12 Total Cost of Service (w/ non-
Lep Capital) $2,051,200 $3,405,262 $10,550,924 $2,501,084 $1,694,184 $20,202,654 13 14 Service Units 3,467,301 3,467,301 7,369,360 6,856,807 15 hcf hcf lbs/yr lbs/yr
16 Additional Unit Cost $0.59 $0.00 $0.00 $0.00
17 Total Unit Rate for All
Customers Except Leprino $0.59 $0.90 $1.39 $0.34 $5.57
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 37
Table 5-11: Derivation of Wastewater Unit Costs by Cost Component, Scenario 2 [A] [B] [C] [D] [E] [F] [G] [H] [I]
Line FY 2024 Sewage
Collection
WWTP Flow
(hcf)
BOD TSS Customer Total Allocation
Basis
1 Operating Cost $2,123,668 $3,195,293 $9,443,807 $2,445,006 $1,754,040 $18,961,814 O&M Allocation
2 Existing Debt Service (2004
Debt Issue was for WWTP)
$0 $319,007 $1,429,381 $139,512 $0 $1,887,900 % of WWTP Assets
3 Capital Projects that benefit all
customers
$0 $0 $0 $0 $0 $0 Capital Asset
Allocation
4 Total Cost by Cost
Component
$2,123,668 $3,514,300 $10,873,188 $2,584,518 $1,754,040 $20,849,714 5 6 Service Units 3,467,301 3,779,159 7,570,788 7,292,912 304,160 7 Units hcf hcf lbs/yr lbs/yr bills/yr
8 Unit Costs for Leprino &
Septic (Only) $0.00 $0.93 $1.44 $0.35 $5.77
9 Units $/hcf $/hcf $/lb $/lb per monthly bill
10 11 Capital Projects that do no
benefit Leprino
$0 $0 $0 $0 $0 $0 Capital Asset
Allocation
12 Total Cost of Service (w/ non-
Lep Capital)
$2,123,668 $3,514,300 $10,873,188 $2,584,518 $1,754,040 $20,849,714 13 14 Service Units 3,467,301 3,467,301 7,369,360 6,856,807 15 hcf hcf lbs/yr lbs/yr
16 Additional Unit Cost $0.61 $0.00 $0.00 $0.00
17 Total Unit Rate for All
Customers Except Leprino $0.61 $0.93 $1.44 $0.35 $5.77
38 CITY OF TRACY
The unit costs for all customers but Leprino and Septic customers in each scenario are restated below in Table 5-12 and Table 5-13.
Table 5-12: Wastewater Unit Costs (Test Year FY 2023-24), Scenario 1 [A] [B] [C] [D] [E] [F]
Line Cost Causation
Component COS Allocation Units of Service General Unit
Cost
Unit Costs for
Leprino & Septic
1 Sewage Collection $2,051,200 3,467,301 $0.59 $0.00
2 WWTP Flow (hcf) $3,405,262 3,779,159 $0.90 $0.90
3 BOD $10,550,924 7,570,788 $1.39 $1.39
4 TSS $2,501,084 7,292,912 $0.34 $0.34
5 Customer $1,694,184 304,160 $5.57 $5.57
6 Total $20,202,654
Table 5-13: Wastewater Unit Costs (Test Year FY 2023-24), Scenario 2 [A] [B] [C] [D] [E] [F]
Line Cost Causation
Component COS Allocation Units of Service General Unit
Cost
Unit Costs for
Leprino & Septic
1 Sewage Collection $2,123,668 3,467,301 $0.61 $0.00
2 WWTP Flow (hcf) $3,514,300 3,779,159 $0.93 $0.93
3 BOD $10,873,188 7,570,788 $1.44 $1.44
4 TSS $2,584,518 7,292,912 $0.35 $0.35
5 Customer $1,754,040 304,160 $5.77 $5.77
6 Total $20,849,714
5.7.Wastewater Cost Allocation to Customer Classes
Using the units of service from Table 5-9 and the unit costs from Table 5-10, Table 5-14 and Table 5-15 show the allocation of the rate revenue requirement by cost causation component to each customer class for each scenario. This is known as the cost to serve each class. Each value is calculated by taking the units of service for each customer class and multiplying it by the corresponding unit cost. For example, the cost allocation for Single Family Residential sewage collection for scenario 1 is calculated by multiplying the units of service for Single Family sewage collection from Table 5-9 (2,437,994 hcf) by the unit rate for Single Family sewage collection ($0.59/hcf) shown in Line 17 of Table 5-10. Note that, because Microsoft Excel does not round the unit rate ($0.59/hcf) when calculating, and due to the scale and size of the hcf multipliers (2.5 million hcf), the outcome shown in Table 5-14 will be marginally greater than a hand-calculated value.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 39
Table 5-14: Wastewater Cost Allocation to Customer Classes (Test Year FY 2023-24), Scenario 1 [A] [B] [C] [D] [E] [F] [G] [H]
Line Customer Class Sewage
Collection
(hcf)
WWTP Flow
(hcf)
BOD
(lbs/year)
TSS
(lbs/year)
Customer Total
1 Residential
2 Single Family $1,442,278 $2,196,788 $6,645,135 $1,503,644 $1,602,159 $13,390,004 3 Multi-Family $172,992 $263,490 $796,835 $180,306 $40,758 $1,454,381 4 Subtotal Residential $1,615,270 $2,460,278 $7,441,970 $1,683,950 $1,642,917 $14,844,385 5 6 Non-Residential
7 Commercial I $141,854 $216,063 $521,546 $128,343 $26,068 $1,033,874 8 Commercial II $274,456 $418,034 $2,018,149 $496,628 $20,921 $3,228,187 9 Commercial II $19,620 $29,884 $288,541 $42,603 $4,211 $384,858 10 Industrial (Leprino) NA $277,005 $72,209 $35,539 $67 $384,820 11 Septic Disposal $0 $3,999 $208,509 $114,022 $0 $326,530 12 Subtotal Non-Residential $435,930 $944,985 $3,108,954 $817,134 $51,267 $5,358,269 13 14 Total $2,051,200 $3,405,262 $10,550,924 $2,501,084 $1,694,184 $20,202,654
Table 5-15: Wastewater Cost Allocation to Customer Classes (Test Year FY 2023-24), Scenario 2 [A] [B] [C] [D] [E] [F] [G] [H]
Line Customer Class Sewage
Collection
(hcf)
WWTP Flow
(hcf)
BOD
(lbs/year)
TSS
(lbs/year)
Customer Total
1 Residential
2 Single Family $1,493,234 $2,267,129 $6,848,102 $1,553,804 $1,658,763 $13,821,033 3 Multi-Family $179,103 $271,927 $821,173 $186,321 $42,198 $1,500,723 4 Subtotal Residential $1,672,337 $2,539,056 $7,669,275 $1,740,125 $1,700,962 $15,321,756 5 6 Non-Residential
7 Commercial I $146,866 $222,982 $537,476 $132,624 $26,989 $1,066,936 8 Commercial II $284,152 $431,419 $2,079,791 $513,195 $21,660 $3,330,217 9 Commercial II $20,313 $30,841 $297,354 $44,024 $4,360 $396,891 10 Industrial (Leprino) NA $285,875 $74,415 $36,724 $69 $397,083 11 Septic Disposal $0 $4,127 $214,877 $117,826 $0 $336,830 12 Subtotal Non-Residential $451,331 $975,243 $3,203,913 $844,393 $53,078 $5,527,958 13 14 Total $2,123,668 $3,514,300 $10,873,188 $2,584,518 $1,754,040 $20,849,714
40 CITY OF TRACY
6. Proposed Wastewater Rates
Section 6 presents detailed calculations of proposed wastewater rates through FY 2027-28. All proposed rates are calculated directly from the results of the COS analysis (in Section 5) for FY 2023-24 (i.e. the “test year”).
6.1. Proposed Fixed Charges FY 2023-24
Table 6-1 shows the calculation of monthly wastewater rates for implementation in August, 2024 (FY 2023- 24). The revenue requirement associated with each class (cost to serve each class) is listed in Column C, and was determined from the customer class cost allocations in Table 5-14. The City would like to maintain the fixed charge for Single Family Customers. For Single Family customers, the fixed charge is calculated by dividing the total revenue requirement by the number of bills. For Multi-family customers, the fixed charge is the total sewage collection and customer costs divided by the total number of dwelling units (as opposed to accounts). This provides a per dwelling unit fixed charge for Multi-Family. For all other customer classes, the fixed charge is set at the cost to serve a Multi-Family unit, which, based on flow, is 57% of a single family dwelling. In other words, the minimum fixed charge for commercial classes is 57% of an equivalent (single family) dwelling unit. Table 6-1 shows the rate derivation for Scenario 1; Table 6-2 shows the same calculation for Scenario 2.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 41
Table 6-1: Proposed Monthly Fixed Rate Calculation for Test Year FY 2023-24, Scenario 1 [A] [B] [C] [D] [E] [G] [H] [I]
Line Customer Class Total
Revenue
Requirement
Number of
Dwelling
Units or
Accounts
Proposed
Monthly
Fixed
Charge (per
EDU)
Current
Monthly
Fixed
Charge
Difference
($)
Difference
(%)
1 Residential
2 Single Family $13,390,004 23,970 $46.55 $34.00 $12.55 37% 3 Multi-Family $1,454,381 4,555 $3.91 $28.75 -$24.84 -86% 4 Subtotal Residential $14,844,385 28,525
5 6 Non-Residential
7 Commercial I $1,033,874 390 $26.61 $28.75 -$2.14 -7% 8 Commercial II $3,228,187 313 $26.61 $28.75 -$2.14 -7% 9 Commercial II $384,858 63 $26.61 $28.75 -$2.14 -7%
10 Subtotal Non-Residential $4,646,919 766
11 12 Total $19,491,304 29,291
42 CITY OF TRACY
Table 6-2: Proposed Monthly Fixed Rate Calculation for Test Year FY 2023-24, Scenario 2 [A] [B] [C] [D] [E] [G] [H] [I]
Line Customer Class Total
Revenue
Requirement
Number of
Dwelling
Units or
Accounts
Proposed
Monthly
Fixed
Charge (per
EDU)
Current
Monthly
Fixed
Charge
Difference
($)
Difference
(%)
1 Residential
2 Single Family $13,821,033 23,970 $48.05 $34.00 $14.05 41% 3 Multi-Family $1,500,723 4,555 $4.05 $28.75 -$24.70 -86% 4 Subtotal Residential $15,321,756 28,525
5 6 Non-Residential
7 Commercial I $1,066,936 390 $27.46 $28.75 -$1.29 -5% 8 Commercial II $3,330,217 313 $27.46 $28.75 -$1.29 -5% 9 Commercial II $396,891 63 $27.46 $28.75 -$1.29 -5%
10 Subtotal Non-Residential $4,794,045 766
11 12 Total $20,115,801 29,291
6.2. Proposed Volumetric Rates (Test Year FY 2023-24)
Table 6-3 and Table 6-4 show the calculation of volumetric wastewater rates for FY 2023-24 in each proposed scenario. The volumetric revenue requirement associated with each rate listed in Column C was determined from the customer class cost allocations in Table 5-14 by subtracting fixed revenue from the total revenue requirement. Because single family customers pay only a monthly fixed charge, their volumetric revenue requirement is zero. Note that Single family customers are paying their fair share; however, it is currently being collected solely through a fixed charge. Thus, the volumetric revenue requirement is zero. Proposed volumetric rates (Column E) are calculated by dividing the volumetric revenue requirement (Column C) by wastewater flow (Column D). Proposed rates are compared to current charges in Columns F-H. Since the commercial fixed charge is lower than the current fixed charge, the volumetric rate for commercial customers must increase to maintain recovery of the full cost to serve each commercial customer.
For commercial customers there are two things impacting their rates. First, the strength of commercial customers is revised upward to reflect the latest industry assumptions for these classes as determined by the Los Angeles County Sanitation Districts (and other large sewerage treatment agencies). Second, based on water use records provided by the City, commercial customers share of plant flows are increasing. Both assumptions increase commercial’s share of wastewater system costs.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 43
Table 6-3: Proposed Volumetric Rate Calculation for Test Year FY 2023-24, Scenario 1 [A] [B] [C] [D] [E] [F] [G] [H]
Line Customer Class Total
Volumetric
Revenue
Requirement
Wastewater
Flow (hcf)
Proposed
Volumetric
Rate ($/hcf)
Current
Volumetric
Rate
Difference ($) Difference (%)
1 Residential
2 Single Family $0 2,437,994 NA NA NA NA
3 Multi-Family
$1,240,631
292,421 $4.24 NA $4.24
NA
4 Subtotal Residential $1,240,631 2,730,415
5 6 Non-Residential
7 Commercial I $909,350 266,430 $3.41 $1.98 $1.43 72% 8 Commercial II $3,128,249 515,482 $6.07 $2.91 $3.16 109% 9 Commercial II $364,743 36,850 $9.90 $4.89 $5.01 102% 10 Industrial (Leprino) $384,820 307,420 $1.25 NA $1.25 NA 11 Septic Disposal $326,530 4,438 $73.57 $89.44 ($15.87) -18% 12 Subtotal Non-Residential $5,113,690 1,130,620
13 14 Total $6,354,321 3,861,035
44 CITY OF TRACY
Table 6-4: Proposed Volumetric Rate Calculation for Test Year FY 2023-24, Scenario 2 [A] [B] [C] [D] [E] [F] [G] [H]
Line Customer Class Total
Volumetric
Revenue
Requirement
Wastewater
Flow (hcf)
Proposed
Volumetric
Rate ($/hcf)
Current
Volumetric
Rate
Difference ($) Difference (%)
1 Residential
2 Single Family $0 2,437,994 NA NA NA NA
3 Multi-Family
$1,279,421
292,421 $4.38 NA $4.38
NA
4 Subtotal Residential $1,279,421 2,730,415
5 6 Non-Residential
7 Commercial I $938,444 266,430 $3.52 $1.98 $1.54 78% 8 Commercial II $3,227,094 515,482 $6.26 $2.91 $3.35 115% 9 Commercial II $376,135 36,850 $10.21 $4.89 $5.32 109% 10 Industrial (Leprino) $397,083 307,420 $1.29 NA $1.29 NA 11 Septic Disposal $336,830 4,438 $75.89 $89.44 ($13.54) -15% 12 Subtotal Non-Residential $5,275,586 1,130,620
13 14 Total $6,555,007 3,861,035
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 45
6.3.Proposed Five-Year Wastewater Rate Schedule
Table 6-5 and Table 6-6 show the proposed five-year wastewater rate schedules for FY 2023-24 to FY 2027-28 for each of the two scenarios. The rates for FY 2023-24 were derived in Table 6-1 and Table 6-3. All other proposed rates in subsequent years are increased by the revenue adjustments shown in Table 4-6 and Table 4-7, respectively. All proposed rates are rounded to the nearest cent.
Table 6-5: Proposed Five-Year Wastewater Rate Schedule, Scenario 1 Customer Class Current Proposed
FY 2024
Proposed
FY 2025
Proposed
FY 2026
Proposed
FY 2027
Proposed
FY 2028
Fixed Charges ($ / month)
Single Family Residential $34.00 $46.55 $54.00 $58.86 $64.16 $69.29 Multi-Family Residential $28.75 $3.91 $4.54 $4.94 $5.39 $5.82 Commercial I $28.75 $26.61 $30.87 $33.64 $36.67 $39.60 Commercial II $28.75 $26.61 $30.87 $33.64 $36.67 $39.60 Commercial III $28.75 $26.61 $30.87 $33.64 $36.67 $39.60
Volumetric Charges ($ / hcf)
Single Family Residential NA NA NA NA NA NA
Multi-Family Residential $0.00 $4.24 $4.92 $5.36 $5.85 $6.31 Commercial I $1.98 $3.41 $3.96 $4.32 $4.70 $5.08
Commercial II $2.91 $6.07 $7.04 $7.67 $8.36 $9.03
Commercial III $4.89 $9.90 $11.48 $12.52 $13.64 $14.73 Septage ($/hcf) $0.00 $73.57 $103.37 $119.91 $130.70 $142.46
Table 6-6: Proposed Five-Year Wastewater Rate Schedule, Scenario 2 Description Current
Rates
FY 2024 FY 2025 FY2026 FY 2027 FY 2028
Fixed Rates
Single Family Residential $34.00 $46.55 $54.00 $58.86 $64.16 $69.29 Multi-Family Residential $28.75 $3.91 $4.54 $4.94 $5.39 $5.82 Commercial I $28.75 $26.61 $30.87 $33.64 $36.67 $39.60 Commercial II $28.75 $26.61 $30.87 $33.64 $36.67 $39.60 Commercial III $28.75 $26.61 $30.87 $33.64 $36.67 $39.60
Volumetric Rates
Single Family Residential $0.00 NA NA NA NA NA
Multi-Family Residential $0.00 $4.24 $4.92 $5.36 $5.85 $6.31 Commercial I $1.98 $3.41 $3.96 $4.32 $4.70 $5.08
Commercial II $2.91 $6.07 $7.04 $7.67 $8.36 $9.03
Commercial III $4.89 $9.90 $11.48 $12.52 $13.64 $14.73 Industrial (Leprino) See Table 1-4 $1.25 $1.45 $1.58 $1.73 $1.86 Septage NA $75.89 $110.05 $122.15 $133.15 $145.13
46 CITY OF TRACY
7.Customer Bill Impacts
7.1. Monthly Wastewater Bill Impacts
Figure 7-1 and Figure 7-2 show sample monthly wastewater bills for single family residential customers at current and proposed FY 2023-24 rates for each scenario. The proposed rates are based on updated strength and flow assumptions which impact the cost allocations to each class.
Before we show the customer impacts for each class, there are a few comparisons that can be made to check for reasonableness. The proposed rates charge customers in proportion to their flow and strength as verified by plant flows and discussed in the plant mass balance section (Section 6.4). Table 7-1 shows the percentage of contributed flow versus the percentage of the revenue requirement associated with each class. For example, we note that SFR customers contribute 65% of the flow to the plant and are charged 66% of the total costs for the wastewater system. Multi-family customers contribute 8% (7.7%) of the flow and are charged 7% of total costs. This is reasonable because SFR customers are each mailed a bill and therefore are allocated more customer costs then Multi-Family customers for which the landlord receives the bill. Commercial I customers (low strength) contribute 6% of the flow, but are allocated 5% of total costs. This makes sense because their low strength sewage is less costly to treat. Commercial II customers (medium strength) contribute 12% of flow and are allocated 16% of costs. This is reasonable because commercial II customer discharge higher strength sewage. Lastly Commercial III customers (highest strength) contribute 1% of the flow and are allocated 2% of costs. Note that Septage customers contribute a greater percentage of the revenue requirement as compared flow. This is because, though Septage customers contribute a small percentage of the overall flow to the treatment plant, their strength loading is higher and thus more costly to treat than other classes.
Conversely, Industrial customers (e.g., Leprino) pay a smaller percentage of the revenue requirement as compared to their overall flow contribution. This is because Leprino has their own pipe to convey sewage to the plan and does not use the City’s collection system and Leprino pretreats its sewage before it is discharged to the City making it low strength sewage. Therefore, the cost to treat Leprino sewage is lower than other classes. These two factors are reflected in their proportion of flow and costs (revenue requirement).
Table 7-1: Percentage Contributed Flow vs. Revenue by Customer Class Customer Class % of Total
Flow
% of Revenue
Requirement
Single Family Residential 64.5% 66.3%
Multi-Family Residential 7.7% 7.2%
Commercial I 6.3% 5.1%
Commercial II 12.3% 16.0%
Commercial III 0.9% 1.9%
Industrial (Leprino) 8.1% 1.9%
Septage 0.1% 1.6%
Figure 7-1 and Figure 7-2 show the bill impact to single family customers under each scenario.
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 47
Figure 7-1: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023-24), Scenario 1
Figure 7-2: Single Family Residential Monthly Wastewater Bill Impacts (FY 2023-24), Scenario 2
48 CITY OF TRACY
Figure 7-3 and Figure 7-4 show monthly wastewater bill impact for an average Multi-Family customer under each scenario. The bill impact assumes a Multi-Family customer with an average of 7 dwelling units and approximately 5.3 hcf of sewage discharge per dwelling unit each month. For test year 2022-23, the average monthly bill for Multi-Family customers will decrease. The City plans to shift from a per dwelling unit cost ($28.75) to a smaller fixed charge and volumetric rate that will allow Multi-Family bills to better align with actual discharges to the wastewater treatment plant.
Figure 7-3: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 1
202 2 WASTEWATER COST OF SERVICE AND RATE DESIGN STUDY 49
Figure 7-4: Multi-Family Monthly per Dwelling Unit Wastewater Bill Impacts, Scenario 2
Figure 7-5 and Figure 7-6 show monthly wastewater bill impacts under each scenario for commercial customers assuming average wastewater discharge for each class. The average wastewater discharge for each class shown is 683, 1,647, and 585 hcf, respectively. These constitute large commercial businesses. Their bills must therefore increase, as the assumed wastewater strength5 has been revised upwards6 and trued to the actual strength discharged to the plant.7 Commercial I has the lowest strength; Commercial III has the highest strength. Higher strength customers discharge more BOD and TSS to the plant, which is more costly to treat than lower strength sewage.
5 Strength is defined as the concentration of biochemical oxygen demand (BOD) and total suspended solids (TSS). 6 The latest data from large sewage treatment agencies, such as Los Angeles County Sanitation Districts, shows the sewage strength has increased due to the installation of low flow water fixtures. 7 It appears that trueing up strength concentrations and actual flows to what is observed at the wastewater treatment plant was not performed in the prior study.
50 CITY OF TRACY
Figure 7-5: Non-Residential Monthly Wastewater Bill Impacts, Scenario 1
Figure 7-6: Non-Residential Monthly Wastewater Bill Impacts, Scenario 2
City of Tracy
Wastewater Rate Study – City Council Presentation
April 18, 2023
Attachment B
Project Team
2 Steve Gagnon, PE (AZ)
Project Manager
25 years experience
15 years rate setting
Extensive CA water and wastewater
rate setting experience
E: [email protected]
P: 714.351.2013
Sarah Wingfield
Financial Analyst
Water and wastewater financial and
cost of service analysis experience
E: [email protected]
P: 213.262.9311
City Staff
Terms You May Hear Tonight
• Rate Study – T he process of determining proposed utility rates • Financial Plan – P art of a rate study that projects revenue and expenses to see if revenue is enough to cover expenses
• hcf – T he unit used to charge for water. One Ccf = 100 cubic feet = 748 gallons. This is a commonly used billing unit in California.
• Capital – ref ers to large infrastructure assets/costs such as pipelines, treatment plants, pumps, etc.
• Rate – T he amount charged per unit of wastewater
• Cost of Service – T he utility’s cost to provide water service to each customer class based on the demands they place on the utility
• Customer Class – S ingle Family Residential, Multifamily, Commercial and Irrigation • Volumetric rate – T he amount charged per unit of water used • Fixed charge – T he amount charged by meter size, it does not vary by water use 3 4
What is a Rate Study?
A financial planning process to set rates that considers:
Fairness
& Equity
Community
Values
Promotes
Utility
Financial
Viability
Cover Ops
and
Maintenance
Cover
Infrastructure
Investment
Legally
Defensible
•Rates must keep up with costs to operate the City’s wastewater system
•The City’s wastewater utility (Enterprise Fund) is not like other government services (Police, Fire, Parks) that are funded by tax dollars from the General Fund
•The wastewater enterprise is funded by customer rate revenue › It’s a non-profit business
› Rate revenue pays for:
› O&M expenses (labor, supplies, chemicals, electricity) › Capital: large projects to rehabilitate pipes and the treatment plant › Debt service to pay back loans
› Reserve funding
•By law (Proposition 218), rates must be based on the cost to serve water 5 Why would the City do a wastewater rate study?
Why Do Rates Need to be Adjusted?
• City has not raised wastewater rates
si
nce 2013!
• Inflation since then: about 32%
• Lots of capital projects planned that need
t
o be funded
• New staff
• Wastewater desalination project
• City has some of the lowest wastewater
c
harges around
• City must meet debt coverage
r
equirement (1.20)
6 Year Inflation
Compound
Inflation
2013 2.0% 100.0%
2014 2.0% 102.0%
2015 2.0% 104.0%
2016 2.0% 106.1%
2017 2.0% 108.2%
2018 2.0% 110.4%
2019 2.0% 112. 6%
2020 2.0% 114.9%
2021 6.7% 122.6%
2022 7.5% 131.8%
Utility Rates vs Other Goods
7 CBS News article: “Water costs are rising across the US – here is why”, August 27, 2019 Critical Capital Needs –
not currently funded
CRITICAL NEEDS – not currently funded
• Emergency Storage Basin – vegetation
• Capacity has been reduced – needs cleaning
• Pipe Gallery – erosion, need to repair/replace
• Pond 1 – full and compacted
• Need to allow it to dry out and then remove
• PLC and Control Systems – out of date/no longer supported by manufacturer, need to replace
• Disinfection unit – outdated, made to fit for the Recycled Water Project. Needs to be upgraded
• New Contact Basin – modifications needed
• May require Ultraviolet instead of chlorine
• Old Concrete Tanks and Structures – need demolition
• Computerized Maintenance Management System (CMMS)
8 Steps in Conducting
a Rate Study
Rate Setting
Framework
•Financial goals and
policies
•Pricing objectives
Financial Plan ($)
•How much $ do you
need (total bill)
•Compare revenue vs
expenses
•Evaluate CIP
financing options
Cost of Service
& Rate Design
•Splits the bill
amongst customer
classes
•Rate calculation
• Customer impact
analyses
Final Rate
Adoption
•Public Outreach
•Report
•Prop 218 Notice
•Public Hearing
1 2
3 4
9 10
Financial Plan
Financial Plan
• Projects revenue and expenses to assess
i
f revenue is sufficient to fund operations
(expenses)
• If not, we increase revenue to fund
anti
cipated wastewater collection and
treatment costs:
› O&M – c hemicals, labor, parts,
supplies
› Capital – l
arge projects
› Reserves – O &M and capital reserves
11 Reserves and Debt Coverage
Need to financially plan for:
• Operating reserve = 30% (110 days) of yearly operating expenses • Capital reserve = no official policy but we have modeled 2% of your w
astewater asset value which is a common reserve target
• Debt coverage ratio = 1.20 for Certificates of Participation • Debt coverage is a major driver for needed rate increases 13 What if You Do Not Increase Rates?
14 Proposed Revenue Adjustments – Two Scenarios
16 FYE 2024 FYE 2025 FYE 2026 FYE 2027 FYE 2028
August 1 July 1 July 1 July 1 July 1
Scenario 1 40.5% 16% 9% 9% 8%
Scenario 2 45% 11% 9% 9% 8%
Scenario 1 – Financial Health
17 FYE 2024 FYE 2025 FYE 2026 FYE 2027 FYE 2028
August 1 July 1 July 1 July 1 July 1
Scenario 1 40.5% 16% 9% 9% 8%
Scenario 2 – Financial Health
18 FYE 2024 FYE 2025 FYE 2026 FYE 2027 FYE 2028
August 1 July 1 July 1 July 1 July 1
Scenario 2 45% 11% 9% 9% 8%
Comparing Scenario 1 (top) & 2 (bottom)
19 20
Cost of Service
& Rates
Cost of Service &
Rate Design
• Cost of Service - s plits up the
“total bill” among customer
classes
• Calculates rates to recover
t
he bill amount for each class
21 What Affects the Cost to Serve a Customer Class?
• Wastewater flow
• Strength of wastewater
› BOD – B iochemical Oxygen
Demand
› TSS – T otal Suspended Solids
• Wastewater strengths are
i
ncreasing due to low flow devices
22 Residential
BOD
(mg/L)
TSS
(mg/L)
BOD
(mg/L)
TSS
(mg/L)
BOD %
Increase
TSS %
Increase
SFR 210 250 313 288 49% 15%
MFR 210 250 313 288 49% 15%
Septage 5,400 12,000 5,400 12,000 0% 0% Commerical
I 150 150 250 250 67% 67%
II 300 300 500 500 67% 67%
III 600 600 1,000 600 67% 0%
Leprino 80 95 27 54 -66% -43%
Prior Study Strength Current Study % Increase
Current
Rates
23 Customer Class
Residential
Fixed
Charge
Volumetric
Rate
SFR $34.00 NA
MFR $28.75 NA
Commerical
I $28.75 $1.98
II $28.75 $2.91
III $28.75 $4.89
Septage $ / 1,000 gal $66.90
Leprino
Capacity Charges
Flow $ per mgd per year $258,289
BOD $ per lb $28.23
TSS $ per lb $43.13
Use Charges
Flow $ per mg $334.00
BOD $ per 1,000 lbs $489.19
TSS $ per 1,000 lbs $232.35
Current
Wastewater Rates – Scenario 1
25 • Proposed MFR charge is a per dwelling charge.
• Average dwelling units per apartment complex is 7
Customer Class Current FYE 2024 FYE 2025 FYE 2026 FYE 2027 FYE 2028 Fixed Charges
Single Family Residential $34.00 $46.55 $54.00 $58.86 $64.16 $69.29 Multi-Family Residential
(per Dwelling Unit) $28.75 $3.91 $4.54 $4.94 $5.39 $5.82 Commercial I $28.75 $26.61 $30.87 $33.65 $36.67 $39.61
Commercial II $28.75 $26.61 $30.87 $33.65 $36.67 $39.61 Commercial III $28.75 $26.61 $30.87 $33.65 $36.67 $39.61 Volumetric Rate
Single Family Residential NA NA NA NA NA NA
Multi-Family Residential
(per Dwelling Unit) $4.24 $4.92 $5.36 $5.85 $6.32
Commercial I $1.98 $3.41 $3.96 $4.32 $4.70 $5.08
Commercial II $2.91 $6.07 $7.04 $7.67 $8.36 $9.03
Commercial III $4.89 $9.90 $11.48 $12.52 $13.64 $14.73
Industrial (Leprino) As shown earlier $1.25 $1.45 $1.58 $1.73 $1.86 Septage ($ / hcf) $73.57 $103.37 $119.91 $130.70 $142.46 Wastewater Rates – Scenario 2
26 • Proposed MFR charge is a per dwelling charge.
• Average dwelling units per apartment complex is 7
Customer Class Current FYE 2024 F YE 2025 FYE 2026 FYE 2027 FYE 2028 Fixed Charges
Single Family Residential $34.00 $48.05 $53.34 $58.14 $63.37 $68.44 Multi-Family Residential
(per Dwelling Unit) $28.75 $4.05 $4.50 $4. 90 $5.34 $5.77 Commercial I $28.75 $27.46 $30.48 $33.22 $36.21 $39.11
Commercial II $28.75 $27.46 $30.48 $33.22 $36.21 $39.11 Commercial III $28.75 $27.46 $30.48 $33.22 $36.21 $39.11 Volumetric Rate
Single Family Residential NA NA NA NA NA NA
Multi-Family Residential
(per Dwelling Unit) $4.38 $4.86 $5.29 $5. 77 $6.23
Commercial I $1.98 $3.52 $3.91 $4.26 $4.65 $5.02
Commercial II $2.91 $6.26 $6.95 $7.57 $8.26 $8.92
Commercial III $4.89 $10.21 $11.33 $12.35 $13.46 $14.54 Industrial (Leprino) As shown earlier $1.29 $1.43 $1.56 $1.70 $1.84 Septage ($ / hcf) $75.89 $110.05 $122.15 $133.15 $145.13 27 Customer Bill
Impacts
Bill Survey
28 Monthly Bill Impact – Scenario 1
29 Customer Class
Average Sewer
Flow per
Account or
Dwelling Unit
Average No.
of Dwelling
Units
Current
Monthly Bill
Total
Proposed
Monthly Bill
Dollar
Difference
Percent
Difference
No. of
Accounts
Single Family Residential 8.5 $34.00 $46.55 $12.55 36.9% 23,970 Multi-Family Residential 5.3 7.0 $201.25 $186.25 -$15.00 -7.5% 610 Commercial I Average Use 57 $141.47 $220.91 $79.44 56.2% 390 Commercial II Average Use 137 $428.13 $859.47 $431.35 100.8% 313 Commercial III Average Use 49 $267.11 $509.07 $241.97 90.6% 63 Monthly Bill Impacts – Scenario 2
30 Customer Class
Average Sewer
Flow per
Account or
Dwelling Unit
Average No.
of Dwelling
Units
Current
Monthly Bill
Total
Proposed
Monthly Bill
Dollar
Difference
Percent
Difference
No. of
Accounts
Single Family Residential 8.5 $34.00 $48.05 $14.05 41.3% 23,970 Multi-Family Residential 5.3 7.0 $201.25 $192.19 -$9.06 -4.5% 610 Commercial I Average Use 57 $141.47 $227.98 $86.51 61.1% 390 Commercial II Average Use 137 $428.13 $886.64 $458.51 107.1% 313 Commercial III Average Use 49 $267.11 $524.99 $257.88 96.5% 63 Likely Questions
1. Why are commercial bills going up?
• Commercial strengths (BOD, TSS) have
been
revised upward to industry best
practices
• Commercial flows and strengths were trued
t
o actual plant flows
2. Why are multi-f amily bills going down?
• Multi-f amily bills are now in proportion to use
and assumed strength
• Cannot trace their prior derivation
• We assumed 100% of water returns to
sew
er
3. Flows are tied back to the total flow at the
pl
ant
31 Residential Total Costs
% of Total
Costs % of Flow
BOD
(mg/L)
Single Family Residential $13,390,004 66.3% 64.5% 313
Multi-Family Residential $1,454,381 7.2% 7.7% 313
Subtotal Residential $14,844,385
Non-Residential
Commercial I $1,033,874 5.1% 6.3% 250
Commercial II $3,228,187 16.0% 12.3% 500
Commercial III $384,858 1.9% 0.9% 1,000
Industrial (Leprino)* $384,820 1.9% 8.1% 27
Septic Disposal $326,530 1.6% 0.1% 5,400
Subtotal Non-Residential $5,358,269
Total $20,202,654 100.0% 100.0%
* Leprino does not use the City wastewater collection system Low Income Rate Assistance (LIRA)
• The City offers a Low Income Rate Assistance (LIRA) program that pr
ovides a discounted rate for qualified customers.
• The total amount of the discount is $26.05, with $2.55 of that being directly appl
icable to the Wastewater rate. The LIRA program is funded through the City’s General Fund.
• Over the last year, the City has partnered with PG&E and is now able to aut
o enroll customers into the LIRA program. This partnership has resulted in a 400% increase in the number of households receiving the discount, from 1,275 to 5,100.
32 Summary
• City has not raised wastewater rates in 10 y ears
• Debt covenants are stressed
• Scenario 1 is the minimum r equired to meet debt coverage • City Single Family Residential wastewater bills will still be lower than m
ost surrounding agencies
Next Steps
• City t o issue Proposition 218 Public Hearing Notice
33 Contact:
Steve Gagnon
213.262.9308 / [email protected]
Sarah Wingfield
213.262.9311 / [email protected]
34 Thank you!
35 End of
Presentation
36 Rate Structure
and Rates
3737
Low Income Rate Assistance
• The Low-I ncome Rate Assistance program will continue to discount the sewer charge by 7.5%, which is currently a $2.55 discount 38 Capital in Need
of Rehabilitation
39