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HomeMy WebLinkAbout13-Water Department / ORIGINAL CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION From: Stacey R. Aldstadt Subject: Public Hearing — Review Sewer Treatment Rate Study 2010 Dept: Water Department and Adopt Resolution Date: December 13, 2010 M/CC Meeting Date: January 10, 2011 Synopsis of Previous Council Action: Resolution 82-201 setting rates effective June 1,1992. Resolution 91-361 repealing Resolution 82-201. Resolution 93-384 setting increased rates effective 01/01/94, repealing Resolution 91-361. Resolution 95-367 setting decreased rates effective 09/21/95, repealing Resolution 93-384. Resolution 98-12 amending Resolution 96-347 and repealing Resolution 95-367. Resolution 2004-124 setting increased rates effective July 1, 2004, repealing Resolutions 96- 347 and 98-12. Resolution 2008-434 setting increased rates effective January 1, 2009 and January 1, 2010. Ways & Means Committee Review November 3, 2010 of Sewer Treatment Rate Study. Mayor & Common Council, on November 15, 2010, set rate hearing for January 10, 2010, at 4:00 p.m. Recommended Motion: Adopt resolution. 1,z w (k J-t Stacey Aldstadt, General Manager Contact person: Don Rh;;rkelford Phone: 384-5184 Supporting data attached: yes Ward: All FUNDING REQUIREMENTS: Amount: Source: (Acct. No.) N/A (property assessment) (Arrt Description) Finance: Council Notes: Rea° °26)11""'7'/ Agenda Item No: sJ 61 - IU-2ol I CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION Staff Report Subject: Public Hearing—Review Sewer Treatment Rate Study 2010 and Adopt Resolution Background: The sewer treatment facilities are operated by the Water Department (Department). Sewer fees and charges were last adjusted January 1, 2009 and January 1, 2010, as a result of a 2008 Sewer Rate Study conducted by R. W. Beck, Inc.. This study analyzed cost of service, developed revenue requirements, and designed new rates to meet the financial requirements of the sewer treatment facilities operated by the Department. Given the volatile economic conditions at that time, Department staff recommended two five percent across-the-board adjustments to sewer treatment rates effective January 2009 and January 2010, respectively. This offered the Department the opportunity to address any cost allocation issues in January 2011. On October 19, 2010, the Board of Water Commissioners (BOWC) conducted a sewer treatment rate workshop to review the 2010 Sewer Treatment Rate Study Model (model) performed by R. W. Beck, Inc. The BOWC authorized submission of the model to the Mayor and Common Council for adoption of a two-step rate increase, approximating a system average of ten percent each, to be implemented February 1, 2011, and January 1, 2012,respectively. On November 3, 2010, the Ways and Means Committee approved submission of the model to the Mayor and Common Council. On November 15, 2010, the Mayor and Common Council set a public hearing for January 10, 2011. Financial Impact: The model projects sewer revenues for Fiscal Years 2011 through 2015 and provides detailed support calculations. After projecting operating expenses, debt service, capital improvement requirements, and applying financing strategies, the model arrived at the lowest possible rates that will meet the Department's four critical needs: 1. To bring the Department's sewer treatment debt coverage ratio in compliance with bond covenants which require net revenues equal to 110% of debt service; 2. To support the estimated $20 million in capital funding needed to meet regulatory compliance requirements over the next five years; 3. To adjust commercial rates to more accurately charge cost of service and eliminate subsidies; and 4. To meet the Department's ongoing fixed obligations during the economic turndown. Residential customers will see a $1/month and a $1.50/month increase in their sewer treatment bills m 2011 and 2012, respectively. The increases should generate an additional $1.9 and $2.2 million in annual operating revenue (respectively) into the Water Department's Sewer Treatment Enterprise Fund. The increase in commercial customer bills will vary according to consumption and the account classification. Recommendation: Adopt resolution. Attachments: R.W. Beck Sewer Treatment Rate Study 2010 Exhibit A—Revenue Requirement Exhibit B—Cost-of-Service and Rate Design Resolution Adopting New Rates Yoajzw,iu IF&0, Copy 1 Resolution 2 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE 3 CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 4 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 5 BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF 6 SAN BERNARDINO AS FOLLOWS: 7 SECTION 1. Users Located Within and Users Located Outside 8 the Incorporated Territory of the City. Pursuant to the provisions 9 of Section 13. 32 . 720 of the San Bernardino Municipal Code, any 10 premises located within or located outside the incorporated 11 territory of the City which is serviced by a connection to the 12 system of sewage and waste treatment of the City shall be charged 13 and the user thereof shall pay a sewer service charge based upon the schedule defined herein. The following rates are effective February 1, 2011, and shall 16 supersede any prior schedules of rates: 17 REGIONAL FACILITIES COLLECTION TOTAL CLASSIFICATION AND TREATMENT SYSTEM MONTHLY 18 CHARGE CHARGE CITY CHARGE 19 Residential $17.00/ $4.00/ $21.00/ (single Family, Duplex, Triplex) month/unit month/unit month/unit 20 Multi-Family, Mobile Home Parks $1.10/hcf . $.35/hcf $1.45/hcf 21 (Four or More Units) + $2.20/month + $1.25/mo + $3.45/mo Retail, Commercial, Light Industrial $2.00/hcf $.35/hcf $2.35/hcf 22 (Non-Office, Bakeries, Markets, Theaters, Dry Cleaners) + $2.20/month + $1.25/mo + $3.45/mo 23 Auto Repair, Car wash $1.30/hcf $.35/hcf $1.65/hcf + $2.20/month + $1.25/mo + $3.45/mo 24 Offices, Motels $1.50/hcf $.35/hcf $1.85/hcf 25 (without Restaurants) + $2.20/month + $1.25/mo + $3.45 mo 2 6 Restaurants, Hotels $2.35/hcf $.35/hcf $2.70/hcf (Hotels/Motels with Restaurants) + $2.20/month + $1.25/mo + $3.45/mo 27 . Laundromats $1.40/hcf $.35/hcf $1.75/hcf + $2.20/month + $1.25/mo + $3.45/mo 28 Page 1 of 5 t - � ` 1 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 2 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 REGIONAL FACILITIES COLLECTION TOTAL CLASSIFICATION AND TREATMENT SYSTEM MONTHLY 4 CHARGE CHARGE CITY CHARGE 5 Hospitals, Convalescent Homes $1.15/hcf $.35/hcf $1.50/hcf • $2.20/month + $1.25/mo + $3.45/mo 6 Schools, Churches, Nursery Schools/Daycare $.90/hcf $.35/hcf $1.25/hcf • $2.20/month + $1.25/mo + $3.45/mo 7 Domestic Liquid Waste $ 0.04 8 Industrial: 9 Per month per unit $ 1.00 Per hcf used $ 0.35 10 Discharge flow (per million gallons) $900.00 Biochemical oxygen demand (per 1000 lbs) $330.00 11 Suspended solids (per 1000 lbs) $640.00 HCF = 100 Cubic Feet of Water Usage 12 The following rates are effective January 1, 2012, and 13 shall supersede any prior schedule of rates: REGIONAL FACILITIES COLLECTION TOTAL ��lsJ CLASSIFICATION AND TREATMENT SYSTEM MONTHLY CHARGE CHARGE CITY CHARGE 16 Residential $18.50/ $4.00/ $22.50/ 17 (Single Family, Duplex, Triplex) month/unit month/unit month/unit Multi-Family, Mobile Home Parks $1.25/hcf $.35/hcf $1.60/hcf 18 (Four or More Units) + $2.40/month + $1.25/mo + $3.65/mo 19 Retail, Commercial, Light Industrial $2.10/hcf $.35/hcf $2.45/hcf Non-Office, Bakeries, Markets, Theaters, Dry Cleaners) + $2.40/month + $1.25/mo + $3.65 mo 20 Auto Repair, Car Wash $1.30hcf $.35/hcf $1.65/hcf 21 - + $2.40/month + $1.25/mo + $3.65/mo Offices, Motels $1.50/hcf $.35/hcf $1.85/hcf 22 (Without Restaurants) + $2.40/month + $1.25/mo + $3.65/mo 23 Restaurants, Hotels $2.70/hcf $.35/hcf $3.05/hcf (Hotels/Motels with Restaurants) + $2.40/month + $1.25/mo + $3.65/mo 29 Laundromats $1.50/hcf 5.35/hcf 51.85/hcf 25 + $2.40/month + $1.25/mo + $3.65/mo Hospitals, Convalescent Homes $1.35/hcf $.35/hcf $1.70/hcf 26 + $2.40/month + $1.25/mo + $3.65/mo 27 Schools, Churches, Nursery Schools/Daycare $1.10/hcf $.35/hcf $1.45/hcf + $2.40/month + $1.25/mo + $3.65/mo Page 2 of 5 1 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 2 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 REGIONAL FACILITIES COLLECTION TOTAL CLASSIFICATION AND TREATMENT SYSTEM MONTHLY 4 CHARGE CHARGE CITY CHARGE 5 Domestic Liquid Waste $ 0.04 Industrial: 6 Per month per unit $ 1.00 7 Per hcf used $ 0.35 Discharge flow (per million gallons) $900.00 Biochemical oxygen demand (per 1000 lbs) $360.00 8 Suspended solids (per 1000 lbs) $640.00 9 HCF = 100 Cubic Feet of Water Usage 10 Pursuant to San Bernardino Municipal Code, Section 11 13. 32. 720 (A) , sewer service charges for all single-family 12 residential dwellings (including duplexes and triplexes) shall be at 13 a fixed monthly rate. ,^ Pursuant to San Bernardino Municipal Code, Section 13. 32. 720 (B) , sewer services charges for multi-family residential 16 units, commercial users, and other designated users, shall be at the 17 appropriate sewer class rate, based upon primary operations and 18 water consumption. 19 Pursuant to San Bernardino Municipal Code, Section 20 13. 32. 720 (C) , sewer services charges for all consumers discharging 21 an average of more than 300 mg/L of biochemical oxygen demand and 22 suspended solids, shall be at the industrial rate based on water 23 consumption, gallons of discharge of flow, weight of biochemical 24 oxygen demand and suspended solids. 25 Sewer service charges for domestic liquid waste, as defined in 26 San Bernardino Municipal Code, Section 13. 32 . 155 (34) , shall be based 27 upon the measured amount of liquid discharged. Page 3 of 5 1 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 2 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 City shall have the right to terminate services provided to 4 users located outside of the incorporated territories of the City by 5 providing a ninety-day written notice to said user; and said user 6 and owner shall be subject to increases in said fee or fees, charges 7 and amounts, which may be imposed by amending this resolution. 8 SECTION 2. Resolution 2008-434 is hereby repealed. 9 10 11 12 13 16 17 18 19 20 21 22 23 24 25 26 27 28 Page 4 of 5 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND Z OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 I HEREBY CERTIFY that the foregoing resolution was duly adopted 4 by the Mayor and Common Council of the City of San Bernardino at a 5 regular meeting thereof, held on the 10th day of January 2011, by the 6 following vote to wit: 7 COUNCIL MEMBERS AYES NAYS ABSENT ABSTAIN 8 MARQUEZ 9 DESJARDINS 10 BRINKER 11 SHORETT 12 KELLEY 13 JOHNSON CMcCAMMACK 16 17 Rachel Clark, City Clerk 18 The foregoing resolution is hereby approved this day 19 of 2011 . 20 21 Patrick J. Morris, Mayor 22 City of San Bernardino 23 Approved as to form: 24 25 25 By: es F. Penman, City Attorney 27 (7 28 Page 5 of 5 Draft Report Sewer Treatment Rate Study City of San Bernardino Municipal Water Department 04 SAN BE��9 F. d v z 0 9?ER yV) December 2010 An SAIC Company Draft Report Sewer Treatment Rate Study City of San Bernardino Municipal Water Department 04 SAN Bx�,�-Y F. O V 7 C i �9yRIF V) December 2010 This report has been prepared for the use of the client for the specific purposes identified in the report. The conclusions, observations and recommendations contained herein attributed to R.W. Beck, Inc. (R.W.Beck) constitute the opinions of R.W. Beck. To the extent that statements, information and opinions provided by the client or others have been used in the preparation of this report, R.W.Beck has relied upon the same to be accurate,and for which no assurances are intended and no representations or warranties are made. R.W.Beck makes no certification and gives no assurances except as explicitly set forth in this report. Copyright 2010,R.W. Beck, Inc. All rights reserved. DRAFT SEWER TREATMENT RATE STUDY City of San Bernardino Municipal Water Department Table of Contents Table of Contents List of Tables DRAFT SEWER TREATMENT RATE STUDY......................................................1 Background...........................................................................................................1 Methodology and Key Assumptions.....................................................................2 Customer,Flow and Loading Projections.............................................................4 RevenueProjections..............................................................................................9 ExpenseProjections............................................................................................11 Revenue Requirement Projections......................................................................14 Cost-of-Service Analysis and Proposed Rate Schedule......................................16 Example Sewer Bill Comparison........................................................................21 OngoingConsiderations......................................................................................22 APPENDIX A Revenue Requirement B Cost-of-Service and Rate Design SEWER TREATMENT RATE STUDY An SAIC Company Table of Contents List of Tables Table I Financial Policies...............................................................................................4 Table 2 Historical and Projected Number of Customers................................................5 Table 3 Projected Sewer Flow by Customer Class (hcf/year)........................................6 Table 4 Projected BOD Loading(lb/year) .....................................................................7 Table 5 Projected TSS Loading(lb/year).......................................................................8 Table 6 Projected Revenues Under Existing Rates...................................................... 11 Table 7 Projected Operation and Maintenance Expenses............................................ 12 Table 8 Projected Capital Improvements..................................................................... 13 Table 9 Projected Debt Service Payments.................................................................... 14 Table 10 Revenue Requirement Projections ................................................................ 15 Table 11 Revenue Requirement Projections—Financial Indicators............................. 16 Table 12 Cost-of-Service Analysis: Functionalization of FY 2010/11 RevenueRequirement....................................................................................... 18 Table 13 Cost-of-Service Analysis: Classification of FY 2010/11 Revenue Requirement...................................................................................................... 19 Table 14 Unit Cost of Service Calculations.................................................................20 Table 15 Proposed Sewer Treatment Rate Schedule....................................................21 Table 16 Monthly Single-Family Residential Bill Comparison...................................21 Table 17 Non-Residential Bill Comparison.................................................................22 2 Draft-Sewer_Treatment_Rate_SWdy_Repon_1213102 DRAFT SEWER TREATMENT RATE STUDY Background The City of San Bernardino provides sewer collection and treatment services to its customers through two separate City departments. The City of San Bernardino Municipal Water Department(Department)provides sewer treatment services, and the City of San Bernardino Public Services Department provides sewer collection services. The Department provides sewer treatment services to approximately 64,000 connections in the City of San Bernardino, the City of Loma Linda, the East Valley Water District, and portions of unincorporated San Bernardino County. The Department is a semi-autonomous agency governed by the five-member Board of Water Commissioners(BOWC). A bi-annual analysis of the revenues and expenditures for the sewer treatment system is conducted to ensure sufficient revenues are collected to effectively provide for the short-term and long-term wastewater treatment needs of the community. The analysis provides a minimum five-year projection of operating and capital program costs in order to provide adequate funding for upcoming expenses and avoid significant unanticipated increases in rates. To achieve planned service goals, incremental rate increases provide a method for ensuring rate stability. Wastewater treatment operations are a 24/7 operation, requiring continuous staffing by State-certified operators. Over the last two years, the wastewater treatment facility eliminated five positions and implemented significant cost reductions. Several costs however, have increased, such as electrical power needed to run the treatment plant, chemical costs for disinfectant, and transportation of sludge. Additionally, Federal and state regulations continue to be the most significant factor in the need for additional capital projects. Revenues for sewer treatment services are collected through the Department's sewer treatment rates, and R. W. Beck, Inc. (R. W. Beck) was retained to conduct a Sewer Treatment Rate Study(Study) for the Department. The purposes of this report are: • To summarize the projected sewer treatment revenue requirements for the five-year study period for fiscal years(FY)2010/11 through 2014/15'. • To present the proposed schedule of sewer treatment rates effective through the end of FY 2011/12 for consideration by the BOWC. • To illustrate projected rates through FY 2014/15. ' The Department's fiscal year begins on July 1. SEWER TREATMENT RATE STUDY .n Sc.� Corn pa y . . . .. ._. . . .. SEWER TREATMENT RATE STUDY ■ To outline potentially changing conditions with financial implications and, recommendations for ongoing monitoring of these items. Methodology and Key Assumptions To provide for the continued operation of a utility on a sound financial basis,revenues must be sufficient to meet the cash requirements for operation and maintenance (O&M) expense, debt service requirements, debt service coverage requirements, and cash funded capital expenditures not financed with debt. The sum of these cost components for a given year is referred to as a utility's revenue requirement. Historical and budgeted financial and operational data were provided by the Department and used by R. W. Beck to develop the projected revenue requirement for the five-year study period. The revenue requirement analysis was an iterative process draft versions were revised based on comments and input provided by Department staff. The cost-of-service analysis and proposed rates define how the needed revenues would be collected from the Department's various customer classes, and were based on the FY 2010/11 revenue requirement. Key assumptions used in this Study are listed below. A complete list of assumptions and general parameters are provided in Table A-I of Appendix A. Customer Data • The projected number of customers and metered water consumption by customer class were estimated using actual data from FY 2009/10. There is no projected change in the in the number of customers or metered water consumption through FY 2014/15. • Residential and non-residential customer wastewater flows were estimated using meter water consumption data, subsequently adjusted to reflect the estimated percent of metered water consumption that ultimately is discharged to the sewer system. These adjustments are referred to as return factors. Return factors were previously established in previous rate studies,and were unchanged in this study. • Projected biochemical oxygen demand (BOD) and total suspended solids (TSS) concentrations were based on measurements taken by Department staff between 2007 and 2010. Expenses • Projected expenditures are based on the Department's FY 2010/11 budget, with adjustments for inflation and known new and/or non-recurring expenses. • Inflation projected at 2.1 percent per year, unless otherwise noted. This is based on the GDP Price Index projected for the years 2012 through 2016 by the Blue Chip Economic Indicator report published in March 2010. • Projected capital expenditures include a significant investment in facilities over the next five years, to upgrade, retrofit and expand both the Water Reclamation Plant (WRP) and the Rapid Infiltration and Extraction (RIX) facility. This 2 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY aggressive capital program is necessary largely to comply with federal, state and regionally mandated compliance measures. Failure to do so may lead to large environmental based fines. The WRP is a fifty-year old facility that has not had any major investment in over 20 years. • A 25 percent carry-forward assumption is included, meaning that for all capital project costs planned in a given year, 25 percent of the actual expenditure would occur in the following year. This carry-forward assumption acknowledges that some capital project expenditures occur over multiple years. • The RIX facility receives secondary treated wastewater from San Bernardino's WRP and the City of Colton's treatment facility. The City of Colton reimburses the Department for 20 percent of certain RIX related operating and capital expenditures. • Approximately $5 million in State Revolving Fund loans is anticipated over the five-year study period. Projected SRF terms are 3 percent interest over a 20-year repayment period. • Projected revenue bond debt issuance terms are a 5 percent interest over a 30-year repayment period,with a 10 percent capitalized bond reserve. Revenue Assumptions • There is a 45 day lag between the date a rate increase is applicable to San Bernardino customers and the date a rate increase is applicable to customers of the East Valley Water District and the City of Loma Linda. • The projected revenue requirement over the five-year study period does not include any transfers to the City's General Fund. Policy Assumptions The proposed sewer treatment rates are influenced by the financial policy targets shown in Table 1. These financial policies have not been formally adopted by the Department,but were used in the development of the proposed rate structure. SEWER TREATMENT RATE STUDY R. W. Beck 3 SEWER TREATMENT RATE STUDY Table 1 Financial Policies Policy Issue Importance of Financial Policy Financial Policy Target Debt Service Coverage A minimum DSCR is a requirement of lenders. The Departments senior debt Ratio(DSCR) Exceeding the Minimum DSCR provides ordinances require a debt service additional flexibility for the Department to coverage ratio greater than 1.10, accommodate changing conditions such as but a 1.50 minimum for ralemaking unanticipated expenses and may help obtain purposes is used to ensure more favorable future debt terms. sufficient revenue is collected to cover debt service expenditures. Amount of Future Debt A pay-as-you-go capital funding strategy(without Issue debt in amounts to fund the Issued issuing debt) requires higher up-front rate projected capital expenditures while increases but decreases future costs. meeting the minimum DSCR criterion and minimizing rate increases. Reserve Balance Reserves provide more flexibility for the Maintain six months worth of O&M Department to react to changing conditions with expenses. financial implications (such as changes in development activity or the economy). Customer, Flow and Loading Projections The majority of the Department's annual revenue is derived from the sewer treatment rates charged to its customers. Development of customer, sewer flow, and sewer loading projections are essential in developing rate schedules. In this report, sewer loading refers to the BOD and TSS discharged to the Department's sewer system. A more detailed presentation of this data is included in Appendix A (Table A-2 through Table A-6). Customers Historical customer data by customer class were provided by the Department for FYs 2007/08-2009/10. The Department has 21 separate customer classes for billing purposes. These customer classes include single-family residences, multi-family residences, industrial and several non-residential customer classes. Regional sewer treatment services in FY 2009/10 are provided to approximately 64,100 customers, including the customers within the East Valley Water District and the City of Loma Linda. Table 2 shows the actual number of customers for FY 2009/10 with projections through FY 2014/15. It is assumed that the number of customers will remain steady through the projected five-year study period. 4 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 2 Historical and Projected Number of Customers Annual Estimated Projections 1 Line Customer Class 2009110 2010111.2014115 1 Residential 54,715 54,715 2 Residential-Low Income 330 330 3 Residential-Low Income(Pre-1994) 37 37 4 Multi-Family(2 Units)(2) 2,376 2,376 5 Multi-Family(3 Units)(2) 1101 1,101 6 Multi-Family(4 or more units)and Non-Residential(3): 7 Multi-Family(4+Units),Mobile Home Parks 1,826 1,826 8 Multi-Family(4+Units),Mobile Home Parks-Discount 3 3 9 Retail,Commercial,Light Industrial 1,767 1,767 10 Retail,Commercial,Light Industrial-Discount 11 11 11 Auto Repair,Car Wash 288 288 12 Auto Repair,Car Wash-Discount 3 3 13 Offices,Motels(without Restaurants) 768 768 14 Offices,Motels(without Restaurants)-Discount 7 7 15 Restaurants,Hotels 363 363 16 Restaurants,Hotels-Discount 2 2 17 Laundromats 33 33 18 Laundromats-Discount 1 1 19 Hospitals,Convalescent Homes 96 96 20 Schools,Churches,Nursery Schools 342 342 21 Schools,Churches,Nursery Schools-Discount 28 28 22 Industrial 12 12 23 Total 64,109 64,109 Notes: (1)Assumes no growth through FY 2014115 (2)Based on number of units rather than the number of accounts. (3)Certain San Bernardino customer class rates include a sewer landscape discount. In the past, a sewer landscape discount was available to San Bernardino multi-family customers with four or more units and most of the non-residential customers, based on the estimated landscaping area compared with building space on the property. Only 55 of these discount customers remain. Flow and Loading Projections Department staff provided historical water consumption records and BOD and TSS sampling data by customer class to use in projecting future flows, BOD, and TSS loading. Water consumption records and sewer return factors were used for projecting flows based on return flow. Both the BOD and TSS loading were estimated using the sewer strength factors and historical flows. WRP records were used in a mass balance analysis (described below) to help verify the reasonableness of the sewer strength factors. Sewer Flow For residential customers within the City of Loma Linda, actual metered water consumption records were obtained. Metered water consumption for sewer system customers within the City of San Bernardino and the East Valley Water district is not directly available, but was estimated by using FY 2008/09 data from the customer SEWER TREAThf NT RATE STUDY R. W. Beck 5 SEWER TREATMENT RATE STUDY base of the City's water system. For purposes of this Study, the estimated metered water consumption for these residential customers averaged 588 gallons per day per account(gpd/account). Metered water consumption data for non-residential and industrial customers is obtained from the Department on an ongoing basis as bills are prepared. With some exceptions, sewer utilities do not generally measure sewer flow from customers. Instead, metered water consumption data is relied upon and the water consumption data is adjusted to reflect the portion that is discharged to the sewer system. The estimated return factor varies by customer class. The residential and multi-family return factors are 40 percent, and the multi-family with four or more units and non-residential return factors are 70 percent. The non-residential customers classes with sewer discounts and the industrial customers were assigned a 100 percent return factor. The return factors used in this study were determined in previous rate studies and were not changed in this rate study. Projected sewer flows for each customer class are shown in Table 3. Table 3 Projected Sewer Flow by Customer Class(hcflyear) Annual Return Estimated Projections 1 Line Customer Class Factor 2009110 2010111.2014115 1 Residential(2) 40% 5,934,130 5,934,130 2 Residential-Low Income(2) 40% 36,370 36,370 3 Residential-Lox Income(Pra-1994)(2) 40% 4,080 4,080 4 Multi-Family(2 Units)(2) 40% 261,850 261,850 5 Multi-Family(3 Units)(2) 40% 121,340 121,340 6 Multi-Family(4 or more units)and NonResidential(3): 7 Multi-Family(4.Units),Mobile Home Parks 70% 2,518,710 2,518,710 8 Mulfi-Family(4.Units),Mobile Home Parks-Discount 100% 26,690 26,690 9 Retail,Commercial,Light Industrial 7D% 753,820 753,820 10 Retail,Commercial,Light Industrial-Discount 100% 32,360 32,360 11 Auto Repair,Car Wash 70% 82,870 82,870 12 Auto Repair,Car Wash-Discount 100% 2,830 2,830 13 Offices,Motels(without Restaurants) 70% 392,740 392,740 14 Offices,Motels(without Restaurants)-Discount 100% 107,240 107,240 15 Restaurants,Hotels 70% 268,280 269.280 16 Restaurants,Hotels-Discount 100% 8,840 8,840 17 Laundromats 70% 60,850 60,850 18 Laundromats-Discount 100% 1,920 1,920 19 Hospitals,Convalescent Horses 70% 540,690 540,690 20 Schools,Churches,Nursery Schools 70% 311,900 311,900 21 Schools,Churches,Nursery Schools-Discount 100% 193,380 193,380 22 Industrial 100% 337,310 337,310 23 Total 11,999,200 11,999,200 Notes: (1)Assumes no growth through FY 2014115. (2)Based on FY 2008109 average water consumption of 588 gallons per day per residential and multi-family customer accounts.Residential metered water consumption in FY 2009/10 was provided for Loma Linda. (3)Certain San Bernardino customer class rates include a sewer landscape discount. BOD and TSS Loadings BOD and TSS loading is the product of the respective BOD or TSS concentration and sewer flow. BOD and TSS concentrations were obtained from wastewater sampling completed by the Department in 2007 and in 2010. 6 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Sampling in residential and multi-family areas was completed in September and November 2007. Sampling from non-residential customers was conducted between July and December 2007 and in June and July of 2010. Industrial customers are regularly sampled for BOD and TSS as part of their billing. Sewer strengths in this rate study are the average of quarterly sampling during FY 2009/10. Projected BOD loading for each customer class is summarized in Table 4 and projected TSS loading is shown in Table 5. Table 4 Projected BOD Loading (Iblyear) B00 Annual Concerdratlon Eadmated Pro Nona Line CustomerClaae 1 2009110 2010111-2014n5 1 Residential 209 7,749,690 7,749,690 2 Residential-Low Income 209 47,500 47,500 3 Residental-Low Income(Pre-1 994) 209 5,330 5,330 4 MunkFamily(2 Units) 209 341,960 341,960 5 Multi-Family(3 Units) 209 158,460 158,460 6 Multi-Family(4 or more units)and Non-Residential: 7 Multi-Family(4t Units),Mobile Home Packs 209 3,289,320 3,289,320 8 Multi-Family(4t Units),Mobile Home Perks-Discount 209 34,860 34,860 9 Retail,Commercial,Light Industrial 701 3,296,600 3,296,600 10 Retail,Commercial,Light Industrial-Discount 701 141,520 141,520 11 Auto Repair,Car Wash 218 112,780 112,780 j 12 Auto Repair,Car Wash-Discount 218 3,850 3,850 \`rte 13 Offices,Motels(without Restaurants) 230 562,560 562,580 14 Offices,Motels(without Restaurants)-Discount 230 153,620 153,620 15 Restaurants,Hotels 1,067 1,793,540 1,793,540 16 Restaurants,Hotels-Discount 1,067 58,880 58,880 17 Laundmmats 340 129,050 129,050 18 Laundmmals-Discount 340 4,070 4,070 19 Hospitals,Convalescent Homes 364 1,228,440 1,228,440 20 Schools,Churches,Nursery Schools 326 635,580 635,580 21 Schools,Churches,Nursery Schools-Discount 326 394,060 394,060 22 Industrial 1,513 3,185,780 3185,780 23 Total 23,327,470 23,327,470 Notes: (1)SOD concentration based on the result of Department sampling. Industrial SOD concentration Is an average concentration based on sampling of individual customers. (2)Assumes no growth through FY 2014/15, SEWER TREATMENT RATE STUDY R. W. Beck 7 SEWER TREATMENT RATE STUDY Table 5 Projected TSS Loading (Iblyear) TSS Annual Concentration EsOmated Proeotlons Una Customer Class m IL 1 2009110 2010111.2014M5 1 Residential 199 7,385,000 7,385,000 2 Residential-Low Income 199 45,260 45,260 3 Residential-Low Income(Pre-1994) 199 5,080 5,080 4 MuIII-Family(2 Units) 199 325,870 325,870 5 Multi-Femily(3 Units) 199 151,010 151,010 6 MulikFamily(4 or more units)and Non-Residential: 7 Mulb-Family(4,Units),Mobile Home Parks 199 3,134,520 3,134,520 8 Multi-Family(4,Units),Mobile Home Parks-Discount 199 33,220 33,220 9 Retail,Commercial,light Industrial 135 634,520 634,620 10 Retail,Commercial,Light Industrial-Discount 135 27,240 27,240 11 Auto Repair,Car Wash 119 61,300 61,300 12 Auto Repair,Car Wash-Discount 119 2,090 2,090 13 Offices,Motels(without Restaurants) 129 315,150 315,150 14 Offices,Motels(without Restaurants-Discount 129 86,050 86,050 15 Restaurants,Hotels 342 574,780 574,780 16 Restaurants,Hotels-Discount 342 18,870 18,870 17 Laundromats 232 68,280 88,260 18 Laundromats-Discount 232 2,790 2,790 19 Hospitals,Convalescent Homes 164 552,280 552,280 20 Schools,Churches,Nursery Schools 160 311,070 311,070 21 Schools,Churches,Nursery Schools-Discount 160 192,870 192,870 22 Industrial 278 585,370 595,370 23 Total 14,532,620 14,532,620 Notes: (1)TSS concentration based on the result of Depa"rit sampling. IndusbtI TSS concentration is an average donwn9a0on based on sampling of individual customers. (2)Assumes no growth through FY 2014/15. Mass Balance A mass balance analysis was conducted to verify the reasonableness of the return factors and sewer strengths. To verify return factors, a mass balance compares actual WRP influent flows with the calculated value of sewer flow from customers based on water consumption data and return factor estimates. To facilitate this comparison, monthly influent data from the WRP were provided by the Department for FYs 2007/08 through 2009/10. The differences between the calculated wastewater flow and monthly WRP influent wastewater were 1.5 percent in FY 2007/08,4.9 percent in FY 2008/09 and 13 percent in FY 2009/10. These values agree to a reasonable order of magnitude, though the Department should continue to monitor metered water consumption patterns and evaluate if observed changes in FY 2009/10 are persistent as future economic conditions improve. It is also desirable to do similar comparisons for BOD and TSS loadings. However, the influent sampling location at the WRP is at a location that precludes a valid comparison. This is because of the influent sampling location is located downstream of an internal recycle point that is low in flow, but with a very high BOD and TSS concentration. 8 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Revenue Projections Revenue projections are a critical part of the revenue requirement analysis. The three aspects of revenue projections described in the sections below are non-rate revenues, rate revenues under existing rates,and rate revenues from rate increases. Non-Rate Revenues The key sources sewer revenues other than sewer treatment rates are the following: • Reimbursement for RIX-related operating and capital expenditures. The Department manages and funds operations and capital improvements at the RIX facility. The Department is reimbursed for 20 percent of these costs by the City of Colton. In FY 2010/11,this reimbursement is projected to be $931,000. • Reimbursement for RIX-Related administrative expenses. This is,to some extent, a transfer of funds within the Department's Sewer Fund. WRP administrative staff provides administrative services for the RIX facility, and these expenses are recorded as expenses of the Department's Water Reclamation Administration section. There is a corresponding transfer from the Department's RIX Facility section to the Water Reclamation Administration section to offset this expense. The FY 2010/11 budget is $276,000. • Reimbursement for electrical services. Maintenance of electrical components of the City's water system is funded from the Department's Sewer Fund, and the Water Fund reimburses the Sewer Fund for these services. These services include installation, maintenance, and repair services to the Department's electrical equipment, instrumentation, and supervisory control and data acquisition (SCADA) systems. In FY 2010/11, this reimbursement is projected to be $469,000. • Sewer Capacity Fees. These are one-time fees payable at the time of development that represent a proportionate share of the cost of sewer treatment capacity. Capacity Fee revenues have dropped substantially in recent years. In FY 2007/08, they were nearly$1.7 million. In FY 2010/11,they are budgeted to be$100,000. • SARI Discharge and Permits. The Santa Ana Regional Interceptor (SARI) station is operated by the Department under an agreement with the San Bernardino Valley Municipal Water District (SBVMWD) for the discharge of brine wastewater. In FY 2010/11, the Department is projecting $185,000 in SARI discharge and permit reimbursements. • Septic Receiving Fees. The Department receives approximately $95,000 per year from septic customers that deliver septage to the WRP. • Interest Income. The Department invests its capital and operating reserves and earns interest income on these reserves. In FY 2010/11, interest income is projected to be $166,000. SEWER TREATNIENT RATE STUDY R. W. Beck 9 SEWER TREATMENT RATE STUDY Through the five-year rate study period,the revenue from reimbursements is projected to increase at the rate of inflation,because these revenues are linked to O&M expenses that are also projected to increase with inflation. Projected interest income is based on an earnings rate of 3 percent applied to the projected reserve balance. Revenue from the remaining revenue sources is projected to remain at budgeted FY 2010/11 levels through the five-year rate study period. Additional detail of projected non-rate revenues is included in Table A-8 of Appendix A. Rate Revenues under Existing Rates The existing rate schedule is shown in Table A-7 of Appendix A, and detailed information on the projected revenues is included in Table A-8 of Appendix A. Residential customers currently pay a flat monthly service charge of$16. Two- and three-unit multifamily customers also pay a flat monthly service charge of $16 per unit. Qualifying low-income customers are eligible for reductions in the monthly service charge of either$2.55 or$8.95 per month. The service charge for all other customers is $2 per month. In addition, all other non- industrial customers pay a usage charge that depends on the amount of metered water consumption. This usage charge depends on the type of customer. Rates for the City's industrial customers are based on the amount of flow, BOD and TSS discharged. Table 6 summarizes projected revenue under existing rates for FY 2009/10 and for the five-year rate study period. Projected rate revenues under existing rates are based on the Department's FY 2010/11 budget and are projected to remain at these levels throughout the five-year rate study period. 10 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 6 Projected Revenues Under Existing Rates Annual Estimated Projections 1 Line Customer Claw 2009110 2010111-2014115 1 Monthly Charge 2 Residential $10,166,700 $10,505,280 3 Residential-Lax Income 51,650 53,260 4 Residential-Low Income(Pre 1994) 2,934 3,130 5 MulbFamiy(2 Units) 435,061 456,190 6 Multi-Family(3 Units) 204,735 211,390 7 Multi-Family(4 a we units),Non-Residenbal,Industrial 133,372 133,220 8 Usage Charge 9 MultWamily(4,Units),Mobile Home Parks 3,252,553 3,418,260 10 Multi-Family(4t Units),Mobile Home Parks-Discount 17,628 18,950 11 Retail,Commercial,Light Industrial 1,960,708 2,046,110 12 Retail,Commercial,Light Industrial-Discount 33,600 35,600 13 Auto Repair,Car Wash 150,350 153,890 14 Auto Repair,Car Wash-Discount 3,287 3,370 15 Offices,Motels(without Restaurants) 808,493 841,580 16 Offices,Motels(without Restaurants)-Discount 132,857 144,770 17 Restaurants,Hotels 746,969 769,380 18 Restaurants,Hotels-Discount 8,807 9,280 19 Laundromats 109,793 113,020 20 Laundromats-Discount 364 360 21 Hospitals,Convalescent Hanes 699,361 733,790 22 Schools,Churches,Nursery Schools 294,245 311,900 23 Schools,Churches,Nursery Schools-Discount 76,433 81,220 24 Industrial 1370797 1,394,190 25 Total 520,860,697 $21,438,140 Notes: (1)Assumes no growth through FY 2014115. Excluded from the scope of this study is the $2/month Trunk Line fee paid by East Valley customers. Rate Revenues from Projected Rate Increases Rate revenues resulting from rate increases are shown later in this report. Expense Projections Operating Expenses Operating expenses for historical years (FYs 2007/08 and 2008/09) and the FY 2010/11 budget were obtained from the Department. These records were used in identifying any significant changes in costs over the last few years, which was considered when projecting specific operating expense categories. Operating expenses for the study period are projected based on the FY 2010/11 budget and escalate with a 2.1 percent general inflation rate except for the following: ■ Certain expenses related to customer billing and other customer-related services are typically escalated for both customer growth and inflation. Because customer growth is not projected in the next five years, there is no projected increase in in customer billing expenses related to customer growth. SEWER TREATMENT RATE STUDY R. W. Beck 11 SEWER TREATMENT RATE STUDY O.r. ■ Expenses for electricity, chemicals, and contract services for sludge removal are projected to increase at a higher level of a 3 percent annual rate of escalation and change proportional to projected flows. Because changes in treatment plant flow and loading are not projected in the next five years, there are no anticipated changes in these expenses related to changes in flow and loading. Table 7 summarizes the projected operating expenses for the five-year study period. A detailed list of operating expenses is included in Table A-9 of Appendix A. Table 7 Projected Operation and Maintenance Expenses Section Budget Projected(Flecal Years Ending June 30) Line Treatment Expenses Number 2010111 2011112 2012113 2013114 20105 _ 1 Water Reclamation Administration 4010 $1,848,000 $1,887,300 $1,927,440 $1,968,440 $2,010,310 2 Water Reclamation Plant Operations 4020 4,989,000 5,113,620 5,241,440 5,372,570 5,507,090 3 Bio-Solid Processing 4021 2,980,000 3,068,680 3,160,020 3,254,070 3,350,930 4 RIX Facility 4025 3,677,000 3,763,680 3,852,450 3,943,390 4,036,540 5 Water Reclamation Plant Maintenance 4040 1,796,000 1,833,720 1,872,230 1,911,540 1,951,690 6 Water Reclamation Plant Facility Maintenance 4041 520,000 530,920 542,060 553,460 565,080 7 Water Reclamation Plant Electrical Instrumentation 4042 1,290,000 1,317,090 1,344,750 1,372,990 1,401,830 8 Water Reclamation Plant Environmental Control 4050 558,000 569,710 581,670 593,890 600,360 9 General Administrative Expense 4090 3,151,930 3,218,120 3,285,700 3,354,700 3,425,160 10 Less Overhead Applied,Property,Plant and Equipment (200 000) (200'000 1 (200 000) (200,000) (200,000) 11 Total $20,609,930 $21,102,840 $21,607,760 $22,125,050 $2Y,654,I Capital Improvements and Capital Improvement Funding The Department provided its projected capital improvement plan (CIP) through FY 2014/15. Approximately 65 capital improvement projects were identified totaling $62.2 million (in 2011 dollars) over the long-range planning period. Table 8 summarizes projected capital improvements, and additional detail is included in Table A-10 and Table A-11 of Appendix A. As mentioned earlier in this report, a majority of the investment listed above deals with environmental compliance issues at the WRP and RIX. Capital investment in these facilities will expand capability, provide efficient operations, and avoid potentially substantial fines from governmental regulatory compliance bodies as the capital improvements comply with new, ever- increasingly difficult environmental requirements applicable to the Department's facilities. 12 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 8 Projected Capital Improvements Budget Projected(Fiscal Years Ending June 30) Line Capital Improvements Inflation Atli sted(1) 2010111 2011112 2012113 2013`14 2011115 Total 1 Carry Forward from Previous Year(2) $0 $1,676,500 $5,087,130 $1,228,780 $4,736,280 $12,728,690 2 3 Capital Encumbrances 4 WRP-ReplacementRehabilitation $4,670,000 $8,453,880 $1,058,080 $1,330,420 $570,510 $16,082,890 5 WRP-New System Assets 1,690,000 4,441,350 3,153,380 7,876,060 2,608,040 19,768,830 6 Advanced Purification Hot Plant Const.&Testing 0 6,635,500 260,610 9,578,990 9,780,150 26,256,250 7 RIX Fealty Expansion/New System Assets 0 357,350 130,300 0 0 487,650 8 RIX Faalibes Rehabilitation 346000 459450 312740 159650 163,000 1,440,840 9 Total $6,706,000 $20,348,530 $4,915,110 $18,945,120 $13,121,700 $64,036,460 10 11 Total Capital Encumbrances $6,706,000 $22,025,030 $10,002,240 $20,173,900 $17,857,980 $76,765,150 12 13 less Carry Forward(2) ($1,676,500) ($5,087,130) ($1,228,780) ($4,736,280) ($3,280,430) ($16,009,120) 14 15 Plus Capital Outlay(3) $391,000 $250,000 $255,250 $266,080 $283,200 $1,445,530 16 17 Funded Annual Encumbrances S5,420,500 $17,187,900 $9,028,710 $15,703,700 $14,850,750 $62,201,560 Notes: (1)Based on a 2.1%annual CIP inflation rate. (2)Assumes a 25 percent annual carry toward beginning in FY 2011112. (3)Assumes$250,000 per year beginning in FY 2011112 per Department staff.These are included in the budget,but then are capitalized. Capital outlays include tools,equipment,vehicles,etc. Capital expenditures for the full-scale design and construction of the Advanced Purification Plant were not included in the five-year study period. Table 8 shows the capital improvements in inflation adjusted dollars, and also shows the impact of the 25 percent carry forward assumption. The total amount of capital improvement encumbrances is shown in Line 9 of Table 8. From this 25 percent is deducted and minor capital projects included in the Department's operating budget are added, to obtain(in Line 17)the total amount funded in each year. The carry-forward amount shown in Line 13 is added to the succeeding year total. A small amount of funding (approximately $0.4 million from the City of Colton for RIX improvements and approximately $3.3 million in grant funding) is from outside sources. The remainder will be funded via a combination of sewer rate revenues, use of existing Department reserves,or future issuances of debt. As described above under financial policies, the sizing and timing of debt issuances is done to minimize rate impacts, meet coverage requirements, and meet reserve requirements. Existing and Projected Debt Service Table 9 shows existing and projected annual debt service payments. The Department is currently making debt service payments on $36.2 million in senior lien debt and $35.1 million of subordinate lien debt. Payments on existing debt are $5.8 million in FY 2010/11, and will decrease to $5.2 million by FY 2014/15 as the Department's 1992 RIX debt and 1994 SARI debt is retired. To meet the Department's policy goals, approximately $51.9 million of debt issuances are anticipated in the next five fiscal years. It is assumed that $5 million will be SEWER TREATMENT RATE STUDY R. W. Beck 13 SEWER TREATMENT RATE STUDY funded by state revolving funds with projected annual debt service payments based on a 3 percent interest rate and a 20-year repayment period. The remaining capital improvement funding would be provided through revenue bonds with projected annual debt service payments based on a 5 percent interest rate and a 30-year repayment period. More detailed information on existing and projected debt service is included in Table A-12 of Appendix A. Table 9 Projected Debt Service Payments Issue Issue Interest Projected(Fiscal Year,Ending June 30) Line Existing and Protected Debt Service Amount Date Rate 2010111 2011112 2012111 2013114 2014115 1 Existing Debt Service 2 1998 Refunding Sewer Rev.Gen.of Participation(Senior Deb) 536,230,000 1998 3.955-5.00% $3,338,650 $3,365,400 $3,386,180 $3,412,650 $3,439,410 3 SBVMWD-SAM Rights(Subordinate Debt)(1) 5,084,729 1994 7.25% 456,250 456,250 456,250 D 0 4 SWRCB-RI%Dento(Subordinate Debt)(2) 4,015,216 1992 3.30% 279,190 0 0 0 0 5 SWRGB-RI%Full(Subordinate Debt)(2) 25,978,599 1997 2.80% 1,758,900 1,758,900 1,758,900 1,758,900 1,758,900 6 New Debt Service 7 State Revolving Fund 0 2011 3.00% 0 0 0 0 0 8 State Revolving Fund 0 2012 3.00% 0 0 0 0 0 9 State Revolving Fund 0 2013 3.00% 0 0 0 0 0 10 State Revolving Fund 5,000,000 2014 3.00% 0 0 0 336,080 336,050 11 State Revolving Fund 0 2015 3.00% 0 0 0 0 0 12 Future Revenue Bond Debt 0 2011 5.00% 0 0 0 0 0 13 Future Revenue Bond Debt 13,420,000 2012 5.00% 0 872,990 872,990 872,990 872,990 14 Future Revenue Bond Debt 8,800,000 2013 5.00% 0 0 572,450 572,460 572,450 15 Future Revenue Bond Debt 11,550,000 2014 5.00% 0 0 0 751,340 751,350 16 Future Revenue Bond Debt 13,200,000 2015 5.00% 0 0 0 0 858,680 17 Total $123,278,544 $5,832,990 $6,453,540 $7,046,770 $7,704,420 $8,589,860 Notes: (1)SBVMWD:San Bernardino Valley Municipal Water District. (2)SWRCB:State Water Resources Control Board. Revenue Requirement Projections To provide for the continued operation of a utility on a sound financial basis, revenues must be sufficient to meet the cash requirements for operation and maintenance (O&M) expense, debt service and debt service coverage requirements, and cash funded capital expenditures not financed with debt. Table 10 shows the Department's revenue requirement projections through FY 2014/15. Lines 1 through 19 show sources of funds, including beginning year reserves, Department's sources of funds include reserves, sewer treatment rate revenues under existing rates, sewer treatment rate revenues from future increases, other revenues, and debt proceeds. Over the five-year planning period, four rate increases are projected ranging in size from 8.5 percent to 9.5 percent. Although four rate increases are shown in Table 10, the BOWC is only considering the first two at this time. These rate increases are system-wide averages, and as a result of the cost-of-service analysis and rate design shown below, rates for individual customer classes will differ from the system-wide averages. Debt issuances ranging from $8 million to $15.5 million are projected between FY 2011/12 and FY 2014/15. 14 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 10 Revenue Requirement Projections Projected(Fiael Years Ending June 30) Line 2010111 2011112 2012113 2013114 2014115 1 SOURCES OF FUNDS 2 Beginning Fund Balance(Resbicted and Unrestricted) $20,737,540 $13,521,120 $10,560,000 $11,071,280 $11,285,670 3 Sewer Rate Revenue under Existing Rates 21,438,140 21,438,140 21,438,140 21,438,140 21,438,140 4 Revenues under Future Rate Increases(1) 5 %of Sales 6 Year Sales Revenue 7 February 2011 9.5% $756,990 $2,036,630 $2,036,630 $2,036,630 $2,036,630 8 January 2012 9.5% 1,014,750 2,230,110 2,230,110 2,230,110 9 January 2013 8.5% 994,190 2,184,920 2,184,920 10 January 2014 8.5% 1,078,690 2,370,640 11 January 2015 0.0% 0 12 Subtotal,Rate Revenue From Rate Increases $756,990 $3,051,380 $5,260,930 $7,530,350 $8,822,300 13 14 Service Charges and Other Revenue 2,100,970 2,197,780 2,198,990 2,172,280 2,193,890 15 Interest Income and Non-Operating Revenues 299,000 335,600 359,600 391,100 427,100 16 Debt Proceeds 0 12,200,000 8,000,000 15,500,000 12,000,000 17 Total Revenue $24,595,100 $39,222,900 $37,257,660 $47,031,870 $44,881,430 18 19 Total Sources of Funds $45,332,640 $52,744,020 $47,817,660 $58,103,150 $56,167,100 20 21 USES OF FUNDS 22 08M Expenditures $20,609,930 $21,102,840 $21,607,760 $22,125,050 $22,654,990 23 24 Debt Service 25 Existing Debt-Senior Debt $3,338,650 $3,365,400 $3,386,180 $3,412,650 $3,439,410 26 Existing Debt-Subordinate Debt 2,494,340 2,215,150 2,215,150 1,758,900 1,758,900 27 Proposed Debt-Senior Debt 0 872,990 1,445,440 2,532,870 3,391,550 28 Total Debt Service $5,832,990 $6,453,540 $7,046,770 $7,704,420 $8,589,860 29 30 Capital Expenditures 31 Cash Funded $5,368,600 $2,427,640 $91,850 $1,488,010 $1,497,910 32 Debt Funded 0 12,200,000 8,000,000 15,500,000 12,000,000 33 Total Capital Expenditures $5,368,600 $14,627,640 $8,091,850 $16,988,010 $13,497,910 34 35 Total Expenditures $31,811,520 $42,184,020 $36,746,380 $46,817,480 $44,742,760 36 37 Ending Fund Balance $13,521,120 $10,560,000 $11,071,280 $11,285,670 $11,424,340 Notes: (1)Assumes a rate implementation lag of 45 days for East Valley Water District and Loma Linda. Lines 21 through 37 show the projected uses of funds. These uses of funds include O&M expenses shown in Table 7 of this report, existing and proposed debt service shown in Table 9 of this report, and capital is funded on a pay as you go basis by sewer rates and/or existing Sewer Fund reserves and debt service. The projected financial performance indicators of debt service coverage and the end of year reserve balance are shown on Table 11. The minimum debt service coverage ratio for rate setting purposes is 1.5 for all senior lien debt. The proposed rate increases result in the Department reaching this coverage criterion in FY 2012/13. SEWER TREATIvfENT RATE STUDY R. W. Beck 15 SEWER TREATMENT RATE STUDY Table 11 Revenue Requirement Projections—Financial Indicators Projected(Fiscal Years Ending June 30) Line 2010111 2011112 2012113 2013114 2014115 1 FINANCIAL PERFORMANCE INDICATORS 2 Debt Service Coverage Ratio 3 Senior Debt Service 1.19 1.40 1.58 1.58 1.50 4 Total Debt Service 0.68 0.92 1.09 1.22 1.19 5 6 Debt Service Coverage Ratio Crilerlan: 7 Senior Debt Service-Convenant Requirement 1.10 1.10 1.10 1.10 1.10 8 Senior Debt Service-Minimum for Ratemaking Purposes 1.50 1.50 1.50 1.50 1.50 9 10 EOY Reserve Balance 11 $ $13,521,120 $10,560,000 $11,071,280 $11,285,670 $11,424,340 12 Criterion: >6 months OBM Yes Yes Yes Yes Yes 13 Comparison Value: 6 months of O&M $10,304,965 $10,551,420 $10,803,880 $11,062,525 $11,327,495 The minimum reserve balance criterion is six months of O&M expenses, which is between $10.3 and $11.3 million during the five-year study period. This criterion is exceeded in each of the five years of this rate study planning period. Table 10 shows the need for the four projected rate increases to insure the Department meets its financial policy criteria. The fast two of the four rate increases are proposed for adoption. The magnitude and timing of the second two rate increases will depend on a number of conditions that are expected to change over time. Some of these conditions are discussed later in this report. The revenue requirement analysis should to be reviewed on an ongoing basis and rate adjustments may need to be made if significant changes occur. As stated above, Table 10 shows the projected system-wide average rate increases. The actual amount of increase to any given customer will likely differ from the overall system average. The cost-of-service analysis and rate design section describes how the proposed sewer rates were developed. Cost-of-Service Analysis and Proposed Rate Schedule Key Assumptions and Methodology The development of an equitable sewer rate structure typically includes a cost-of- service analysis that allocates the revenue requirements to each customer class. The allocation of revenue requirements among the various customer classes takes into account sewer flow, BOD concentration, TSS concentration, and the number of service connections in each customer class. The design of a sewer rate schedule takes the cost-of-service analysis results and also incorporates additional policy and rate transitioning considerations. This section describes the cost-of-service analysis and rate design,with additional detail provided in Appendix B. This cost-of-service analysis was generally completed consistently with industry standard methodologies described in Principles of Water Rates, Fees & Charges - Manual MI published by the American Water Works Association (AWWA) and the Financing and Charges for Wastewater Systems published by the American Public Works Association, the American Society of Civil Engineers, and the Water Pollution 16 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Control Federation. The three steps in a cost-of-service analysis include (1)f nictionalization, (2) classification,and(3)allocation. Functionalization involves categorizing the utility's assets and revenue requirements into the various sewer service functions provided. In this cost-of-service analysis, four system functions were identified: collection, treatment, customer accounts, and administration. The second step in performing a cost-of-service analysis is classification. This step involves assigning the functionalized revenue requirement into cost components reflective of service characteristics. In this cost-of-service analysis, four classification cost components were used: flow, BOD, TSS, and customers. The result of this step includes unit costs for providing sewer service including a $/hundred cubic feet of sewer flow, $/Ib BOD, $/lb TSS,and $/customer. The third step in a cost-of-service analysis is allocation and involves allocating the revenue requirement for each classified cost component to each customer class based the usage characteristics (flow, BOD, TSS, and number of accounts) of each customer class. Cost-of-Service Analysis Results Table 12 shows the results of the functionalization step, where the revenue requirement expenses are grouped as either related to sewer treatment, sewer �.. collection, and customer-related activities such as billing or administration. The rate revenue requirement shown in Table 12 is for the remaining five months of the Fiscal Year after the proposed rate increase is effective. SEWER TREATMENT RATE STUDY R. W. Beck 17 SEWER TREATMENT RATE STUDY Table 12 Cost-of-Service Analysis: Functionalization of FY 2010111 Revenue Requirement FY 2010111 Total f ANm Funcronaliation Amount Fundionaliaation Percentage Line Rate Increase 1 Treatment Collection Customer Admin Treatment Collecion Customer Admin 1 RATE REVENUE REQUIREMENT 2 3 Operating Expenses 4 Water Reclamation Administration $806770 $0 $0 $565,350 $247,420 0.0% 0.0% 70.1% 29. 5 Water Reclamation Plant Operators 2,178,000 2,178,000 0 0 0 100.0% 0.0% 00% 0.0 6 BioSolid Processing 1,30D,950 1,300,950 0 0 0 1000% 0.0% 0.0% 0.0 7 RIX Facility 1,605,240 1,605,240 0 0 0 100.0% 04% 0.0% 0. 8 Water Reclamation Pant Maintenance 784,060 784,050 0 0 0 100.0% 0.0% 0.0% 0.0 9 Water Reclamation Plant Facility Malnenanm 227,020 227,020 0 0 0 100.0% 0.0% 0.0% 0.0 10 Water Reclamation Pant Electrical Instrumentation 563,170 563,170 0 0 0 700.0% 0.0% 0.0% 0.0 11 Water Reclamation Pant Environmental Control 243,600 243,600 0 0 0 100.0% 0.0% 0.0% 0.0 12 General Administrative Expense 1,376020 0 0 0 1,376,020 0.0% 0.0% 0.0% 100.0 13 Other 87,310 1 (87.3101 0 0 0 100.0% 0.0% 0.0% 0.0 14 Total Operating Expenses $8,997,520 $6,814,730 $0 $565,350 $1,617,440 75.7% 0.0% 6.3% 18.0 15 16 Existing Debt Service(2) $1,667,300 $1,649,700 $0 $1,146 $16,455 98.9% 0.0% 0.1% 1.0 17 18 Non-Sewer Rate Revenues 19 Service Charges and Other Revenue ($917,200) ($917,200) $0 $0 so 1000% 0.0% 0.0% D 20 Interest Income and Nan-0peraling Revenues(3) 58070 58,070 0 0 0 100.0% 0.0% 00% 0. 21 Total Nan-Saver Rate Revenues (5975,270) (5975,270) 50 30 SO 200.0% 0.0% 0.0% 0. 22 23 TOTAL RATE REVENUE REQUIREMENT $9,689,550 $7,489,160 $0 $566,496 $1,633,895 77.3% 0.0% 5.8% 1 6. Notes: (1)This column is the projected rate revenue collected in the five months of FY 2010111 after the 211/11 effective date of the rate increase. (2)Based on the fundonalizabon of net plant investment.The$1,667,300 portion of the rate revenue requirement attributetl to existing debt service is the portion of the senior lien debt collected through rates after the proposed rate ircrease becomes effective. This Table shows that only a portion of this amount is paid by sewer rates. The remainder of the debt service is funded with non-rate revenues shown in Lines 19 and 20 of this table. Add'Nonal detail in Appendix B. (3)Excludes interest income Over 77 percent of the Sewer Fund's rate revenue requirement is related to sewer treatment, 6 percent is customer-related,and 17 percent is administrative. Because the Department does not provide sewer collection services, none of the rate revenue requirement is related to sewer collection. The classification step involves dividing the rate revenue requirement into flow, BOD, TSS, and customer components as shown in Table 13. Many sewer treatment costs were equally split among flow, BOD, and TSS components, in recognition that treatment plant operating costs are due in part to the volume of wastewater flow, in addition to the functions of removing BOD and TSS from wastewater. In some instances, specific sewer treatment expenses were more precisely allocated among the four customer characteristics. Some examples include: • Electricity at the WRP: Allocated 15% to flow, 65% to BOD, and 20% to TSS in as most of the power is required for aeration and therefore allocable to BOD. • Ferric Chloride use at the WRP: Allocated 100% to BOD based on use for to control hydrogen sulfide formation (to prevent corrosion and odors) resulting from anaerobic conditions related to the organic content of the wastewater. • Polymer use at the WRP: Allocated 100% to TSS as polymer use is associated with the primary clarifier solids and the TSS that comprises them. 18 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY • Bio-Solids Processing costs: Allocated 50% to BOD and 50% to TSS, in recognition that the cost to process bio-solids does not depend on the amount of wastewater flows. • RIX Facility Operating Costs: Allocated 75%to flow, 12.5% to BOD, and 12.5% to TSS in recognition that treatment is provided by RIX and flow-related design of the RIX basins. Administration costs were allocated among flow, BOD, TSS, and customer components based on a weighted average of other directly allocated costs. Table 13 Cost-of-Service Analysis:Classification of FY 2010/11 Revenue Requirement FY 2010111 Tonal$After Clacsificalim Amount Classification Percentiles Line Rate Increase 1 Flow BOD TSS Customer Flow BOD TSS Customer i RATE REVENUE REQUIREMENT 2 3 Operating Expenses 4 Treatment $6,814,730 $2,246,529 $2,499,617 $2,068,584 $0 330% 36.7% 30.4% 0.0% 5 Colkclion 0 0 0 0 0 1010% 0.0% 0.0% O.D% 6 Customer 565,350 0 0 0 565,350 0.0% 0.0% 0.0% 100.0% 7 Administrative 1,617,440 511,330 537,463 454,905 113,743 31.6% 33.2% 28.1% 7.0% 8 Total Operating Expenses $8,997,520 $2,757,859 $3,037,079 $2,523,489 $679,093 % 318% 28.0% 7.5% 9 10 Existing Debt Service 11 Treatment $1,649,700 $879,577 $385,061 $385,061 $0 53.3% 23.3% 23.3% 0.0% 12 Collection 0 0 0 0 0 100.0% 0.0% 00% 0.0% 13 Customer 1,146 0 0 0 1,146 0.0% 00% 00% 100.0% 14 Administrative 16,455 5,202 5,468 4,628 1,157 31.6% 33.2% 28.1% 7.0% 15 Total Existing Debt $1,667,300 8884,779 1390,529 5389,689 52,303 53.1% 23.4% 23.4% 0.1% 6 17 Non-Sewer Rate Revenues;(2) 18 Treatment ($975,270) ($579,431) ($207,846) ($187,993) $0 59.4% 21.3% 19.3% 0.0% 19 Collection 0 0 0 0 0 100.0% 0.0% 0.0% 0.0% 20 Customer 0 0 0 0 0 0.0% 0.0% 0.0% 100.0% 21 Administ2tive 0 0 0 0 0 31.6% 33.2% 28.1% 70% 22 Total Non-Sewer Rate Revenues ($975,270) ($579,431) ($207,846) ($187,993) $0 59.4% 21.3% 19.3% 0.9% 23 24 TOTAL RATE REVENUE REQUIREMENT $9,689,550 83,063,208 $3,219,762 $2,725,185 $681,396 31.6% 33.2% 28.1% 7.0% Notes: (1)This column Is the projected rate revenue collected in the five months of FY 2010111 after the 211111 effective date of the rate increase. (2)Excludes interest income. The allocation step of the cost-of-service analysis is shown in Table 14. Unit costs are calculated by dividing the portion of the revenue requirement associated with each system characteristic (flow, BOD, TSS, and Customer) by the respective number of units of service. The customer unit cost refers to the annual cost for each customer. These unit costs are used in the development of the proposed sewer rates described below. SEWER TREATMENT RATE STUDY R. W Beck 19 SEWER TREATMENT RATE STUDY Table 14 Unit Cost of Service Calculations FY 2010111 Total$After ClassiRcatlon Amount Line Rate Increase 1 Flow ROD TSS Customer 1 RATE REVENUE REQUIREMENT $9,689,550 $3,063,208 $3,219,762 $2,725,185 $681,396 2 3 Units of Service 4 Amount 4,999,683 9,719,825 6,055,292 26,713 5 Units hcf Its Its units 6 Unit Cost-of-Service,$/Unit $0.61 $0.33 $0.45 $25.51 Notes: (1)This column is the projected rate revenue collected in the five months of FY 2010111 after the 211111 effective date of the rate increase. Proposed Sewer Rate Schedule The cost-of-service analysis indicated, in general, the need for larger rate increases for customers with higher wastewater strength compared with the system-wide average. Customers with higher wastewater strengths include restaurants, hotels, and the retail, commercial, and light industrial customer class. Conversely, rate increases for single- family residences are lower than the system-wide average. The proposed sewer rate schedule effective during FYs 2010/11-2011/12 is provided in Table 15, with the existing rate schedule included for comparison. These rates reflect the system-wide revenue increases discussed earlier in this report. The proposed rate changes would become effective on February 1, 2011 and January 1,2012, 20 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 15 Proposed Sewer Treatment Rate Schedule Existing Rates Proposed Rates Line Customer Class 0110112010 0210112011 0110112012 Unfit 1 Percent Rate Increase Na 9.5% 9.5% 2 3 Monthly Charge 4 Residential $16.00 $17.00 $18.50 $/month 5 Residential-Low Income 13.45 14.30 15.55 $/monlh 6 Residential-Low Income(Pre-1994) 7.05 7.50 8.15 $/month 7 Muld-Family(2 Units) 32.00 34.00 37.00 $/month 8 Multi-Family(3 Units) 48.00 51.00 55.50 $/month 9 Muld-Family(4 or more units),Non-Residential,Industrial 2.00 2.20 2.40 $/month 10 Non-Residential 2.00 2.20 2.40 Vmoith 11 Industrial 2.00 2.20 2.40 $/month 12 Usage Charge 13 MuIO-Family(4-Units),Mobile Home Parks $0.95 $1.10 $125 $thcl 14 Retail,Commercial,Light Industrial 1.90 2.00 2.10 SW 15 Auto Repair,Car Wash 1.30 1.30 1.30 $Ind 16 Offices,Motels(without Restaurants) 1.50 1.50 1.50 $Intl 17 Restaurants,Hotels 2.00 2.35 2.70 $Ind 18 Laundromats 1.30 1.40 1.50 Slhd 19 Hospitals,Convalescent Homes 0.95 1.15 1.35 $Ind 20 Schools,Churches,Nursery Schools 0.70 0.90 1.10 $Ihd 21 Industrial 22 Discharge Flow $900 $900 $900 $Img 23 Biochemical Oxygen Demand Charge 292 330 360 $11,000 Ibs 24 Suspended Solids Charge 640 640 640 $11,000Ibs These proposed rates represent a transition from the existing rate schedule to cost-of- service based rates while also incorporating the system-wide average rate revenue increases described in Table 10. These proposed rates were developed based on transitioning to cost-of-service rates over the five-year rate study planning period. Example Sewer Bill Comparison Table 16 compares the Division's example monthly residential sewer bills with those for other local sewer systems. Table 16 Monthly Single-Family Residential Bill Comparison Proposed) Existing Rates Adopted Rates 1 Line Amount Effective 21112011 11112012 1 Residential 2 San Bernardino(2) $20.00 01/01/10 $21.00 $22.50 3 4 Colton $34.09 07101106 nm n/a 5 Cucamonga Valley Water District $15.65 07/01110 $15.65 $16.00 6 East Valley Water District $28.93 n/a $28.93 n/a 7 Eastern Municipal Water District $22.34 01107/09 n/a n/a 8 Fontana $18.51 07/01/10 nm Na 9 Redlands $19.88 01101/10 n/a n/a 10 Rialto $25.97 05/01/01 We n/a 11 Riverside $20.55 07101/10 $20.55 $23.55 Notes: (1)Proposed rates are shown for the Department. If values appear in this table for other jurisdictions,then the rate increases have already been adopted and are in effect at these dates. SEWER TREATMENT RATE STUDY R. W. Beck 21 SEWER TREATMENT RATE STUDY (2)Includes the S4/month sewer collection charge effective January 1,2010 for all years. Any proposed changes in the sewer collection charge are not incorporated in this comparison. A summary of sewer bill comparisons for some non-residential customers with those for other local sewer systems as provided in Table 17. Table 17 Monthly Non-Residential Bill Comparison Proposed/ Existina Rates Adopted Rates 1 Line Amount Effective 21112011 1/112012 1 Restaurant(fit hcf low) 2 San Bernardino(2) $211 01101110 $242 $273 3 4 Colton $235 07101106 n/a Na 5 Cucamonga Valley Water District $79 07101110 n1a Na 6 East Valley Water District $223 Na $223 Na 7 Fontana $426 07101110 n1a Na 8 Redlands $350 01101110 Na Na 9 Rialto $405 05101/01 Na Na 10 Riverside $368 07101110 $368 $424 11 12 Industrial-Hospital(7,288 hcf low) 13 San Bernardino(2) $18,270 01101110 $18,728 $19,090 14 15 Colton $5,253 07101106 Wa Na 16 Cucamonga Valley Water District $15,232 07101110 n/a Na 17 East Valley Water District $10,281 Na $10,281 Na 18 Fontana $31,480 07101110 Na Na 19 Redlands $15,232 01101110 n/a Na 20 Rialto $22,275 001101 n/a Na 21 Riverside $13,795 07101/10 $13,795 $15,765 22 23 Industrial-Universay(3,385 hcl low) 24 San Bernardino(2) $B,851 01/01110 $9,087 $9,273 25 26 Callon $11,305 07101106 n/a Na 27 East Valley Water District $3,932 Na $3,932 Na 28 Fontana $14,631 07101110 Wa Na 29 Redlands $7,074 01101/10 n/a Na 30 Rialto $6,862 05101101 Na n1a 31 Riverside $9,375 07101110 $9,375 $10,614 Notes: (1)Proposed rates are shown for the Department.If values appear in this table for other jurisdictions,then the rate increases have already been adopted and are in effect at these dates. (2)Includes the$1.25 monthly charge and usage charge of$0.35 per hcf of metered water consumption for the sewer collection system effective as of January 1,2010 for all years. Ongoing Considerations A two-year rate proposal has been proposed for the BOWC's consideration. The revenue requirement analysis shown in Table 10 above extends for a period of five years. There are a number of factors that will change over the next few years that have financial implications. The extent to which these factors change will influence the Department's next review of sewer treatment rates. The Department should continue to monitor its financial status on an ongoing basis, and should continue to monitor the following: ■ Water consumption and customer growth. The revenue requirement analysis assumes zero customer growth through FY 2014/15. Customer growth will 22 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY increase the size of the customer base and will increase capacity fee revenue and rate revenues compared with projections. Increases in non-residential water consumption that is used to determine sewer bills will have the same effect on sewer treatment rate revenues. Decreases in the number of customers and non- residential water consumption will have the opposite effect. • Advanced Purification Plant project development. Full-scale design and construction of the Advanced Purification Plant is not included in this rate study. Over the next few years, the Department will know more about project costs and funding alternatives. This information should be incorporated into future financial projections. • Interest rates. Interest rates that differ from assumptions used in this report will have financial implications. • Overhead allocation to the City's General Fund. These financial projections do not include any additional transfers to the City's General Fund. To the extent the Department is required to make any such transfers in the future, the proposed and projected sewer treatment rates should be re-evaluated. SEWER TREATty EW RATE Snror R. W. Beck 23 Appendix A REVENUE REQUIREMENT SEWER TREATMENT RATE STUDY An SAIC Company E� E g `m d O J > m d N } rn Epp m m N l0 aN. 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Ell � !!/ EE! k kk\ ))) | !!«® ) mil,= ,fly \#! h ! i!! ) |Iƒ$&!!f}/$�)!\!\/f2!! ))\ „ ----- - ������_,�.;�;;m:�;� leas § S�. 6� e eeeeeeem Q C a � '0� mF�md,x '_' Leo o�000mosixx q.�iN Zaxb Z Eo LL^ mF'�a mmUb mmFfAbSbonrtxiF n�zq oSb g o m N�m C C q�y du rEac9i m n n _ <e <aE E oq E' ..r D FsFs E £nC`SUC��g n mY �E rvU E5 q " ' _ m U� � r'9 MAr A Hz `a a m a �e �p m m^$o�x^����� � w �LL r c E ° W w ¢ E � 3 v. 0 a' o d O E m� � Wit- _ g 88. - U S `a a » » a = » MR- 6N �^gs�s ^R�^^�s��ze� s g �R ig m` A» g o � a' nn d A Ags EA _ yg t� s 99� a E d R 1 Resolution 2 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE 3 CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 4 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434 . 5 BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE CITY OF 6 SAN BERNARDINO AS FOLLOWS : 7 SECTION 1. Users Located Within and Users Located Outside 8 the Incorporated Territory of the City. Pursuant to the provisions 9 of Section 13 . 32 . 720 of the San Bernardino Municipal Code, any 10 premises located within or located outside the incorporated 11 territory of the City which is serviced by a connection to the 12 system of sewage and waste treatment of the City shall be charged 13 and the user thereof shall pay a .sewer service charge based upon the 14 schedule defined herein. 15 The following rates are effective February 1, 2011, and shall 16 supersede any prior schedules of rates: 17 REGIONAL FACILITIES COLLECTION TOTAL CLASSIFICATION AND TREATMENT SYSTEM MONTHLY 18 CHARGE CHARGE CITY CHARGE 19 Residential $17.00/ $4.00/ $21.00/ (Single Family, Duplex, Triplex) _ month/unit month/unit month/unit 20 Multi-Family, Mobile Home Parks $1.10/hcf $.35/hcf $1.45/hcf 21 (Four or More Units) + $2.20/month + $1.25/mo + $3.45/mo Retail, Commercial, Light Industrial $2.00/hcf $.35/hcf $2.35/hcf 22 (Non-Office, Bakeries, Markets, Theaters, Dry Cleaners) + $2.20/month + $1.25/mo + $3.45/mo 23 Auto Repair, Car Wash $1.30/hcf $.35/hcf $1.65/hcf + $2.20/month + $1.25/mo + $3.45/mo 24 offices, Motels $1.50/hcf $.35/hcf $1.85/hcf 2 5 (without Restaurants) + $2.20/month + $1.25/mo + $3.45 mo Restaurants, Hotels $2.35/hcf $.35/hcf $2.70/hcf 26 (Hotels/Motels with Restaurants) + $2.20/month + $1.25/mo + $3.45/mo 27 Laundromats $1.40/hcf $.35/hcf $1.75/hcf + $2.20/month + $1.25/mo + $3.45/mo 28 Page 1 of 5 I RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 2 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 REGIONAL FACILITIES COLLECTION TOTAL III CLASSIFICATION AND TREATMENT SYSTEM MONTHLY 4 CHARGE CHARGE CITY CHARGE 5 Hospitals, Convalescent Homes $1.15/hcf $.35/hcf $1.50/hcf + $2.20/month + $1.25/mo + $3.45/mo 6 Schools, Churches, Nursery Schools/Daycare $.90/hcf $.35/hcf $1.25/hcf 7 + $2.20/month + $1.25/mo + $3.45/mo Domestic Liquid Waste $ 0.04 8 Industrial: 9 Per month per unit $ 1.00 Per hcf used $ 0.35 10 Discharge flow (per million gallons) $900.00 Biochemical oxygen demand (per 1000 lbs) $330.00 11 Suspended solids (per 1000 lbs) $640.00 12 HCF = 100 Cubic Feet of Water Usage 13 The following rates are effective January 1, 2012, and 14 shall supersede any prior schedule of rates: REGIONAL FACILITIES COLLECTION TOTAL 15 CLASSIFICATION AND TREATMENT SYSTEM MONTHLY CHARGE CHARGE CITY CHARGE 16 Residential $18.50/ $4.00/ $22.50/ 17 (Single Family, Duplex, Triplex) month/unit month/unit month/unit 18 Multi-Family, Mobile Home Parks $1.25/hcf $.35/hcf $1.60/hcf (Four or More Units) + $2.40/month + $1.25/mo + $3.65/mo 19 Retail, Commercial, Light Industrial $2.10/hcf $.35/hcf $2.45/hcf (Non-Office, Bakeries, Markets, Theaters, Dry Cleaners) + $2.40/month + $1.25/mo + $3.65 mo 20 Auto Repair, Car Wash $1.30hcf $.35/hcf $1.65/hcf 21 + $2.40/month + $1.25/mo + $3.65/mo 22 Offices, Motels $1.50/hcf $.35/hcf $1.85/hcf (Without Restaurants) + $2.40/month + $1.25/mo + $3.65/mo 23 Restaurants, Hotels $2.70/hcf $.35/hcf $3.05/hcf v (Hotels/Motels with Restaurants) + $2.40/month + $1.25/mo + $3.65/mo 24 Laundromats $1.50/hcf $.35/hcf $1.85/hcf 25 + $2.40/month + $1.25/mo + $3.65/mo 2 6 Hospitals, Convalescent Homes $1.35/hcf $.35/hcf $1.70/hcf + $2.40/month + $1.25/mo + $3.65/mo 27 Schools, Churches, Nursery Schools/Daycare $1.10/hcf $.35/hcf $1.45/hcf + $2.40/month + $1.25/mo + $3.65/mo 28 Page 2 of 5 1 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 2 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 REGIONAL FACILITIES COLLECTION TOTAL CLASSIFICATION AND TREATMENT SYSTEM MONTHLY 4 CHARGE CHARGE CITY CHARGE 5 Domestic Liquid Waste $ 0.04 6 Industrial: Per month per unit $ 1.00 Per hcf used $ 0.35 7 Discharge flow (per million gallons) $900.00 Biochemical oxygen demand (per 1000 lbs) $360.00 8 Suspended solids (per 1000 ibs) $640.00 9 HCF = 100 Cubic Feet of Water Usage 10 Pursuant to San Bernardino Municipal Code, Section 11 13. 32 . 720 (A) , sewer service charges for all single-family 12 residential dwellings (including duplexes and triplexes) shall be at 13 a fixed monthly rate. 14 Pursuant to San Bernardino Municipal Code, Section 15 13. 32. 720 (B) , sewer services charges for multi-family residential 16 units, commercial users, and other designated users, shall be at the 17 appropriate sewer class rate, based upon primary operations and 18 water consumption. 19 Pursuant to San Bernardino Municipal Code, Section 20 13. 32 . 720 (C) , sewer services charges for all consumers discharging 21 an average of more than 300 mg/L of biochemical oxygen demand and 22 suspended solids, shall be at the industrial rate based on water 23 consumption, gallons of discharge of flow, weight of biochemical 24 oxygen demand and suspended solids . 25 Pursuant to San Bernardino Municipal Code, Section 26 13. 32. 155 . 34, sewer services charges for domestic liquid waste, 27 shall be based upon the measured amount of liquid discharged. 28 / Page 3 of 5 i 1 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 2 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 City shall have the right to terminate services provided to 4 users located outside of the incorporated territories of the City by 5 providing a ninety-day written notice to said user; and said user 6 and owner shall be subject to increases in said fee or fees, charges 7 and amounts, which may be imposed by amending this resolution. 8 SECTION 2 . Resolution 2008-434 is hereby repealed. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Page 4 of 5 1 RESOLUTION OF THE CITY OF SAN BERNARDINO FIXING AND ESTABLISHING CHARGES FOR SERVICES AND FACILITIES FURNISHED BY THE CITY SEWERAGE COLLECTION AND TREATMENT SYSTEM LOCATED WITHIN AND 2 OUTSIDE THE INCORPORATED TERRITORY OF THE CITY, AND REPEALING RESOLUTION 2008-434. 3 I HEREBY CERTIFY that the foregoing resolution was duly adopted 4 by the Mayor and Common Council of the City of San Bernardino at a 5 regular meeting thereof, held on the 10th day of January 2011, by the 6 following vote to wit: 7 COUNCIL MEMBERS AYES NAYS ABSENT ABSTAIN 8 MARQUEZ 9 DESJARDINS 10 BRINKER 11 SHORETT 12 KELLEY 13 JOHNSON 14 McCAMMACK 15 16 17 Rachel Clark, City Clerk 18 The foregoing resolution is hereby approved this day 19 of 2011 . 20 21 Patrick J. Morris, Mayor 22 City of San Bernardino 23 Approved as to form: 24 25 26 By' James F. Penman, City Attorney 27 28 Page 5 of 5 Draft Report Sewer Treatment Rate Study City of San Bernardino Municipal Water Department tt�7 F H�-pF4 S. December 2010 An SAIC Company Draft Report Sewer Treatment Rate Study City of San Bernardino Municipal Water Department v 7 O H December 2010 This report has been prepared for the use of the client for the specific purposes identified in the report. The conclusions, observations and recommendations contained herein attributed to R.W. Beck, Inc. (R.W. Beck) constitute the opinions of R.W. Beck. To the extent that statements, information and opinions provided by the client or others have been used in the preparation of this report, R.W. Beck has relied upon the same to be accurate,and for which no assurances are intended and no representations or warranties are made. R.W. Beck makes no certification and gives no assurances except as explicitly set forth in this report. Copyright 2010, R.W. Beck, Inc. All rights reserved. DRAFT SEWER TREATMENT RATE STUDY City of San Bernardino Municipal Water Department Table of Contents Table of Contents List of Tables DRAFT SEWER TREATMENT RATE STUDY......................................................1 Background...........................................................................................................1 Methodology and Key Assumptions.....................................................................2 Customer, Flow and Loading Projections.............................................................4 Revenue Projections..............................................................................................9 Expense Projections............................................................................................11 Revenue Requirement Projections......................................................................14 Cost-of-Service Analysis and Proposed Rate Schedule......................................16 Example Sewer Bill Comparison........................................................................21 Ongoing Considerations......................................................................................22 APPENDIX A Revenue Requirement B Cost-of-Service and Rate Design SEWER TREATMENT RATE STUDY An WC Company Table of Contents List of Tables Table 1 Financial Policies...............................................................................................4 Table 2 Historical and Projected Number of Customers................................................ 5 Table 3 Projected Sewer Flow by Customer Class (hcf/year)........................................6 Table 4 Projected BOD Loading (lb/year) ..................................................................... 7 Table 5 Projected TSS Loading(lb/year)....................................................................... 8 Table 6 Projected Revenues Under Existing Rates...................................................... 11 Table 7 Projected Operation and Maintenance Expenses ............................................ 12 Table 8 Projected Capital Improvements ..................................................................... 13 Table 9 Projected Debt Service Payments.................................................................... 14 Table 10 Revenue Requirement Projections ................................................................ 15 Table 11 Revenue Requirement Projections—Financial Indicators............................. 16 Table 12 Cost-of-Service Analysis: Functionalization of FY 2010/11 Revenue Requirement....................................................................................... 18 Table 13 Cost-of-Service Analysis: Classification of FY 2010/11 Revenue Requirement...................................................................................................... 19 Table 14 Unit Cost of Service Calculations.................................................................20 Table 15 Proposed Sewer Treatment Rate Schedule....................................................21 Table 16 Monthly Single-Family Residential Bill Comparison...................................21 Table 17 Non-Residential Bill Comparison.................................................................22 2 DraR_Sewer Tmatment_Rate_Study Report 1213102 DRAFT SEWER TREATMENT RATE STUDY Background The City of San Bernardino provides sewer collection and treatment services to its customers through two separate City departments. The City of San Bernardino Municipal Water Department (Department) provides sewer treatment services, and the City of San Bernardino Public Services Department provides sewer collection services. The Department provides sewer treatment services to approximately 64,000 connections in the City of San Bernardino, the City of Loma Linda, the East Valley Water District, and portions of unincorporated San Bernardino County. The Department is a semi-autonomous agency governed by the five-member Board of Water Commissioners (BOWC). A bi-annual analysis of the revenues and expenditures for the sewer treatment system is conducted to ensure sufficient revenues are collected to effectively provide for the short-term and long-term wastewater treatment needs of the community. The analysis provides a minimum five-year projection of operating and capital program costs in order to provide adequate funding for upcoming expenses and avoid significant unanticipated increases in rates. To achieve planned service goals, incremental rate increases provide a method for ensuring rate stability. Wastewater treatment operations are a 24/7 operation, requiring continuous staffing by State-certified operators. Over the last two years, the wastewater treatment facility eliminated five positions and implemented significant cost reductions. Several costs however, have increased, such as electrical power needed to run the treatment plant, chemical costs for disinfectant, and transportation of sludge. Additionally, Federal and state regulations continue to be the most significant factor in the need for additional capital projects. Revenues for sewer treatment services are collected through the Department's sewer treatment rates, and R. W. Beck, Inc. (R. W. Beck) was retained to conduct a Sewer Treatment Rate Study (Study) for the Department. The purposes of this report are: • To summarize the projected sewer treatment revenue requirements for the five-year study period for fiscal years (FY)2010/11 through 2014/151. • To present the proposed schedule of sewer treatment rates effective through the end of FY 2011/12 for consideration by the BOWC. • To illustrate projected rates through FY 2014/15. 'The Department's fiscal year begins on July 1. SEWER TREATMENT RATE STUDY An SAIC Company SEWER TREATMENT RATE STUDY ■ To outline potentially changing conditions with financial implications and, recommendations for ongoing monitoring of these items. Methodology and Key Assumptions To provide for the continued operation of a utility on a sound financial basis, revenues must be sufficient to meet the cash requirements for operation and maintenance (O&M) expense, debt service requirements, debt service coverage requirements, and cash funded capital expenditures not financed with debt. The sum of these cost components for a given year is referred to as a utility's revenue requirement. Historical and budgeted financial and operational data were provided by the Department and used by R. W. Beck to develop the projected revenue requirement for the five-year study period. The revenue requirement analysis was an iterative process draft versions were revised based on comments and input provided by Department staff. The cost-of-service analysis and proposed rates define how the needed revenues would be collected from the Department's various customer classes, and were based on the FY 2010/11 revenue requirement. Key assumptions used in this Study are listed below. A complete list of assumptions and general parameters are provided in Table A-I of Appendix A. Customer Data • The projected number of customers and metered water consumption by customer class were estimated using actual data from FY 2009/10. There is no projected change in the in the number of customers or metered water consumption through FY 2014/15. • Residential and non-residential customer wastewater flows were estimated using meter water consumption data, subsequently adjusted to reflect the estimated percent of metered water consumption that ultimately is discharged to the sewer system. These adjustments are referred to as return factors. Return factors were previously established in previous rate studies, and were unchanged in this study. • Projected biochemical oxygen demand (BOD) and total suspended solids (TSS) concentrations were based on measurements taken by Department staff between 2007 and 2010. Expenses • Projected expenditures are based on the Department's FY 2010/11 budget, with adjustments for inflation and known new and/or non-recurring expenses. • Inflation projected at 2.1 percent per year, unless otherwise noted. This is based on the GDP Price Index projected for the years 2012 through 2016 by the Blue Chip Economic Indicator report published in March 2010. • Projected capital expenditures include a significant investment in facilities over the next five years, to upgrade, retrofit and expand both the Water Reclamation Plant (WRP) and the Rapid Infiltration and Extraction (RIX) facility. This 2 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY aggressive capital program is necessary largely to comply with federal, state and regionally mandated compliance measures. Failure to do so may lead to large environmental based fines. The WRP is a fifty-year old facility that has not had any major investment in over 20 years. • A 25 percent carry-forward assumption is included, meaning that for all capital project costs planned in a given year, 25 percent of the actual expenditure would occur in the following year. This carry-forward assumption acknowledges that some capital project expenditures occur over multiple years. • The RIX facility receives secondary treated wastewater from San Bernardino's WRP and the City of Colton's treatment facility. The City of Colton reimburses the Department for 20 percent of certain RIX related operating and capital expenditures. • Approximately $5 million in State Revolving Fund loans is anticipated over the five-year study period. Projected SRF terms are 3 percent interest over a 20-year repayment period. • Projected revenue bond debt issuance terms are a 5 percent interest over a 30-year repayment period, with a 10 percent capitalized bond reserve. Revenue Assumptions • There is a 45 day lag between the date a rate increase is applicable to San Bernardino customers and the date a rate increase is applicable to customers of the East Valley Water District and the City of Loma Linda. • The projected revenue requirement over the five-year study period does not include any transfers to the City's General Fund. Policy Assumptions The proposed sewer treatment rates are influenced by the financial policy targets shown in Table 1. These financial policies have not been formally adopted by the Department,but were used in the development of the proposed rate structure. SEWER TREATMENT RATE STUDY R. W. Beck 3 SEWER TREATMENT RATE STUDY Table 1 Financial Policies Policy Issue Importance of Financial Policy Financial Policy Target Debt Service Coverage A minimum DSCR is a requirement of lenders. The Department's senior debt Ratio(DSCR) Exceeding the Minimum DSCR provides ordinances require a debt service additional flexibility for the Department to coverage ratio greater than 1.10, accommodate changing conditions such as but a 1.50 minimum for ratemaking unanticipated expenses and may help obtain purposes is used to ensure more favorable future debt terms. sufficient revenue is collected to cover debt service expenditures. Amount of Future Debt A pay-as-you-go capital funding strategy(without Issue debt in amounts to fund the Issued issuing debt) requires higher up-front rate projected capital expenditures while increases but decreases future costs. meeting the minimum DSCR criterion and minimizing rate increases. Reserve Balance Reserves provide more flexibility for the Maintain six months worth of 0&M Department to react to changing conditions with expenses. financial implications (such as changes in development activity or the economy). Customer, Flow and Loading Projections The majority of the Department's annual revenue is derived from the sewer treatment rates charged to its customers. Development of customer, sewer flow, and sewer loading projections are essential in developing rate schedules. In this report, sewer loading refers to the BOD and TSS discharged to the Department's sewer system. A more detailed presentation of this data is included in Appendix A (Table A-2 through Table A-6). Customers Historical customer data by customer class were provided by the Department for FYs 2007/08-2009/10. The Department has 21 separate customer classes for billing purposes. These customer classes include single-family residences, multi-family residences, industrial and several non-residential customer classes. Regional sewer treatment services in FY 2009/10 are provided to approximately 64,100 customers, including the customers within the East Valley Water District and the City of Loma Linda. Table 2 shows the actual number of customers for FY 2009/10 with projections through FY 2014/15. It is assumed that the number of customers will remain steady through the projected five-year study period. 4 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 2 Historical and Projected Number of Customers Annual Estimated Projections 1 Line Customer Class 2009110 2010111.2014115 1 Residential 54,715 54,715 2 Residential-Low Income 330 330 3 Residential-Low Income(Pre-1994) 37 37 4 Multi-Family(2 Units)(2) 2,376 2,376 5 Multi-Family(3 Units)(2) 1,101 1,101 6 Multi-Family(4 or more units)and Non-Residential(3): 7 Multi-Family(4+Units),Mobile Home Parks 1,826 1,826 8 Multi-Family(4+Units),Mobile Home Parks-Discount 3 3 9 Retail,Commercial,Light Industrial 1,767 1,767 10 Retail,Commercial,Light Industrial-Discount 11 11 11 Auto Repair,Car Wash 288 288 12 Auto Repair,Car Wash-Discount 3 3 13 Offices,Motels(without Restaurants) 768 768 14 Offices,Motels(without Restaurants)-Discount 7 7 15 Restaurants,Hotels 363 363 16 Restaurants,Hotels-Discount 2 2 17 Laundromats 33 33 18 Laundromats-Discount 1 1 19 Hospitals,Convalescent Homes 96 96 20 Schools,Churches,Nursery Schools 342 342 21 Schools,Churches,Nursery Schools-Discount 28 28 22 Industrial 12 12 23 Total 64,109 64,109 Notes: (1)Assumes no growth through FY 2014/15 (2)Based on number of units rather than the number of accounts. (3)Certain San Bernardino customer class rates include a sewer landscape discount In the past, a sewer landscape discount was available to San Bernardino multi-family customers with four or more units and most of the non-residential customers, based on the estimated landscaping area compared with building space on the property. Only 55 of these discount customers remain. Flow and Loading Projections Department staff provided historical water consumption records and BOD and TSS sampling data by customer class to use in projecting fixture flows, BOD, and TSS loading. Water consumption records and sewer return factors were used for projecting flows based on return flow. Both the BOD and TSS loading were estimated using the sewer strength factors and historical flows. WRP records were used in a mass balance analysis (described below) to help verify the reasonableness of the sewer strength factors. Sewer Flow For residential customers within the City of Loma Linda, actual metered water consumption records were obtained. Metered water consumption for sewer system customers within the City of San Bernardino and the East Valley Water district is not directly available, but was estimated by using FY 2008/09 data from the customer SEWER TREATMENT RATE STUDY R. W. Beck 5 SEWER TREATMENT RATE STUDY base of the City's water system. For purposes of this Study, the estimated metered water consumption for these residential customers averaged 588 gallons per day per account(gpd/account). Metered water consumption data for non-residential and industrial customers is obtained from the Department on an ongoing basis as bills are prepared. With some exceptions, sewer utilities do not generally measure sewer flow from customers. Instead, metered water consumption data is relied upon and the water consumption data is adjusted to reflect the portion that is discharged to the sewer system. The estimated return factor varies by customer class. The residential and multi-family return factors are 40 percent, and the multi-family with four or more units and non-residential return factors are 70 percent. The non-residential customers classes with sewer discounts and the industrial customers were assigned a 100 percent return factor. The return factors used in this study were determined in previous rate studies and were not changed in this rate study. Projected sewer flows for each customer class are shown in Table 3. Table 3 Projected Sewer Flow by Customer Class (hcflyear) Annual Return EsBmated Pro ectlons 1 Line Customer Class Factor 2009110 2010111.2014115 1 Residential(2) 40% 5,934,130 5,934,130 2 Residential-Low Income(2) 40% 36,370 36,370 3 Residential-Low Income(Pr0994)(2) 40% 4,080 4,080 4 Muth-Family(2 Units)(2) 40% 261,850 261,850 5 Multi-Family(3 Units)(2) 40% 121,340 121,340 6 MuW-Family(4 or more units)and Non-Residential(3): 7 Multi-Family(4t Units),Mobile Home Parks 70% 2,518,710 2,518,710 8 Multi-Family(4+Units),Mobile Home Parks-Discount 100% 26,690 26,690 9 Retail,Commercial,Light Industrial 70% 753,820 753,820 10 Retail,Commercial,Light Industrial-Discount 100% 32,360 32,360 11 Auto Repair,Car Wash 70% 82,870 82,870 12 Auto Repair,Car Wash-Discount 100% 2,830 2,830 13 Offices,Motels(without Restaurants) 70% 392,740 392,740 14 Offices,Motels(without Restaurants)-Discount 100% 107,240 107,240 15 Restaurants,Hotels 70% 269,280 269,280 16 Restaurants,Hotels-Discount 100% 8,840 8,840 17 Laundromats 70% 60,850 60,850 18 Laundromats-Discount 100% 1,920 1,920 19 Hospitals,Convalescent Homes 70% 540,690 540,690 20 Schools,Churches,Nursery Schools 70% 311,900 311,900 21 Schools,Churches,Nursery Schools-Discount 100% 193,380 193,380 22 Industrial 100% 337,310 337,310 23 Total 11,999,200 11,999,200 Notes: (1)Assumes no growth through FY 2014115. (2)Based on FY 2008109 average water consumption of 588 gallons per day per residential and multi-family customer accounts.Residential metered water consumption in FY 2009110 was provided for Loma Linda. (3)Certain San Bernardino customer class rates include a sewer landscape discount. BOD and TSS Loadings BOD and TSS loading is the product of the respective BOD or TSS concentration and sewer flow. BOD and TSS concentrations were obtained from wastewater sampling completed by the Department in 2007 and in 2010. 6 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Sampling in residential and multi-family areas was completed in September and November 2007. Sampling from non-residential customers was conducted between July and December 2007 and in June and July of 2010. Industrial customers are regularly sampled for BOD and TSS as part of their billing. Sewer strengths in this rate study are the average of quarterly sampling during FY 2009/10. Projected BOD loading for each customer class is summarized in Table 4 and projected TSS loading is shown in Table 5. Table 4 Projected BOD Loading (lb/year) BOD Annual Concentration Estimated Pro ions 2 Line Customer Class m L 1 2009110 2010111-2014115 1 Residential 209 7,749,690 7,749,690 2 Residential-Low Income 209 47,500 47,500 3 Residential-Low Income(Pre-1994) 2D9 5,330 5,330 4 Muld-Family(2 Units) 209 341,960 341,960 5 Multi-Family(3 Units) 209 158,460 158,460 6 Multi-Family(4 or mom units)and Non-Residential: 7 Multi-Family(4,Units),Mobile Home Parks 209 3,289,320 3,289,320 8 Multi-Family(4�Units),Mobile Home Parks-Discount 209 34,860 34,860 9 Retail,Commercial,Light Industrial 701 3,296,600 3,296,600 10 Retail,Commercial,Light Industrial-Discount 701 141,520 141,520 11 Auto Repair,Car Wash 218 112,780 112,780 12 Auto Repair,Car Wash-Discount 218 3,850 3,850 13 Offices,Motels(without Restaurants) 230 562,580 562,580 14 Offices,Motels(Wthout Restaurants)-Discount 230 153,620 153,620 15 Restaurants,Hotels 1,067 1,793,540 1,793,540 I 16 Restaurants,Hotels-Discount 1,067 58,880 58,880 17 Laundromats 340 129,050 129,050 18 Laundromats-Discount 340 4,070 4,070 19 Hospitals,Convalescent Homes 364 1,228,440 1,228,440 20 Schools,Churches,Nursery Schools 326 635,580 635,580 21 Schools,Churches,Nursery Schools-Discount 326 394,060 394,060 22 Industrial 1,513 3,185,780 3,185,780 23 Total 23,327,470 23,327,470 Notes: (1)SOD concentration based on the result of Department sampling. Industrial SOD concentration is an average concentration based on sampling of individual customers. (2)Assumes no growth through FY 2014/15, SEWER TREATM WT RATE STUDY R. W. Beck 7 SEWER TREATMENT RATE STUDY Table 5 Projected TSS Loading (lb/year) TSS Annual Concentration Estimated Protections 2 Line Customer Class (mg/L 1 2009110 2010111-2014115 1 Residential 199 7,385,000 7,385,000 2 Residential-Low Income 199 45,260 45,260 3 Residential-Low Income(Pre-1994) 199 5,080 5,080 4 Multi-Family(2 Units) 199 325,870 325,870 5 Multi-Family(3 Units) 199 151,010 151,010 6 Multi-Family(4 or more units)and Non-Residential: 7 Mulb-Family(4,Units),Mobile Home Parks 199 3,134,520 3,134,520 8 Multi-Family(4+Units),Mobile Home Parks-Discount 199 33,220 33,220 9 Retail,Commercial,Light Industrial 135 634,520 634,520 10 Retail,Commercial,Light Industrial-Discount 135 27,240 27,240 11 Auto Repair,Car Wash 119 61,300 61,300 12 Auto Repair,Car Wash-Discount 119 2,090 2,090 13 Offices,Motels(without Restaurants) 129 315,150 315,150 Offices,14 Os,Motels(without Restaurants)-Discount 129 86,050 86,050 15 Restaurants,Hotels 342 574,780 574,780 16 Restaurants,Hotels-Discount 342 18,870 18,870 17 Laundromats 232 88,280 88,280 18 Laundromats-Discount 232 2,790 2,790 19 Hospitals,Convalescent Homes 164 552,280 552,280 20 Schools,Churches,Nursery Schools 160 311,070 311,070 21 Schools,Churches,Nursery Schools-Discount 160 192,870 192,870 22 Industrial 278 505,370 585,370 23 Total 14,532,620 14,532,620 Notes: (1)TSS concentration based on the result of Department sampling. Industrial TSS concentration is an average concentration based on sampling of individual customers. (2)Assumes no growth through FY 2014/15. Mass Balance A mass balance analysis was conducted to verify the reasonableness of the return factors and sewer strengths. To verify return factors, a mass balance compares actual WRP influent flows with the calculated value of sewer flow from customers based on water consumption data and return factor estimates. To facilitate this comparison, monthly influent data from the WRP were provided by the Department for FYs 2007/08 through 2009/10. The differences between the calculated wastewater flow and monthly WRP influent wastewater were 1.5 percent in FY 2007/08, 4.9 percent in FY 2008/09 and 13 percent in FY 2009/10. These values agree to a reasonable order of magnitude, though the Department should continue to monitor metered water consumption patterns and evaluate if observed changes in FY 2009/10 are persistent as future economic conditions improve. It is also desirable to do similar comparisons for BOD and TSS loadings. However, the influent sampling location at the WRP is at a location that precludes a valid comparison. This is because of the influent sampling location is located downstream of an internal recycle point that is low in flow, but with a very high BOD and TSS concentration. 8 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Revenue Projections Revenue projections are a critical part of the revenue requirement analysis. The three aspects of revenue projections described in the sections below are non-rate revenues, rate revenues under existing rates, and rate revenues from rate increases. Non-Rate Revenues The key sources sewer revenues other than sewer treatment rates are the following: • Reimbursement for RIX-related operating and capital expenditures. The Department manages and funds operations and capital improvements at the RIX facility. The Department is reimbursed for 20 percent of these costs by the City of Colton. In FY 2010/11,this reimbursement is projected to be $931,000. • Reimbursement for RIX-Related administrative expenses. This is, to some extent, a transfer of funds within the Department's Sewer Fund. WRP administrative staff provides administrative services for the RIX facility, and these expenses are recorded as expenses of the Department's Water Reclamation Administration section. There is a corresponding transfer from the Department's RIX Facility section to the Water Reclamation Administration section to offset this expense. The FY 2010/11 budget is $276,000. • Reimbursement for electrical services. Maintenance of electrical components of the City's water system is funded from the Department's Sewer Fund, and the Water Fund reimburses the Sewer Fund for these services. These services include installation, maintenance, and repair services to the Department's electrical equipment, instrumentation, and supervisory control and data acquisition (SCADA) systems. In FY 2010/11, this reimbursement is projected to be $469,000. • Sewer Capacity Fees. These are one-time fees payable at the time of development that represent a proportionate share of the cost of sewer treatment capacity. Capacity Fee revenues have dropped substantially in recent years. In FY 2007/08, they were nearly $1.7 million. In FY 2010/11,they are budgeted to be $100,000. • SARI Discharge and Permits. The Santa Ana Regional Interceptor (SARI) station is operated by the Department under an agreement with the San Bernardino Valley Municipal Water District (SBVMWD) for the discharge of brine wastewater. In FY 2010/11, the Department is projecting $185,000 in SARI discharge and permit reimbursements. • Septic Receiving Fees. The Department receives approximately $95,000 per year from septic customers that deliver septage to the WRP. • Interest Income. The Department invests its capital and operating reserves and earns interest income on these reserves. In FY 2010/11, interest income is projected to be $166,000. SEWER TREATMENT RATE STUDY R. W. Beck 9 SEWER TREATMENT RATE STUDY Through the five-year rate study period, the revenue from reimbursements is projected to increase at the rate of inflation, because these revenues are linked to O&M expenses that are also projected to increase with inflation. Projected interest income is based on an earnings rate of 3 percent applied to the projected reserve balance. Revenue from the remaining revenue sources is projected to remain at budgeted FY 2010/11 levels through the five-year rate study period. Additional detail of projected non-rate revenues is included in Table A-8 of Appendix A. Rate Revenues under Existing Rates The existing rate schedule is shown in Table A-7 of Appendix A, and detailed information on the projected revenues is included in Table A-8 of Appendix A. Residential customers currently pay a flat monthly service charge of $16. Two- and three-unit multifamily customers also pay a flat monthly service charge of $16 per unit. Qualifying low-income customers are eligible for reductions in the monthly service charge of either $2.55 or$8.95 per month. The service charge for all other customers is $2 per month. In addition, all other non- industrial customers pay a usage charge that depends on the amount of metered water consumption. This usage charge depends on the type of customer. Rates for the City's industrial customers are based on the amount of flow, BOD and TSS discharged. Table 6 summarizes projected revenue under existing rates for FY 2009/10 and for the five-year rate study period. Projected rate revenues under existing rates are based on the Department's FY 2010/11 budget and are projected to remain at these levels throughout the five-year rate study period. 10 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 6 Projected Revenues Under Existing Rates Annual Estimated Projections 1 Line Customer Class 2009110 2010111.2014115 1 Monthly Charge 2 Residential $10,166,700 $10,505,280 3 Residential-Lm Income 51,650 53,260 4 Residential-Low income(Pre-1994) 2,934 3,130 5 Multi-Family(2 Units) 435,061 456,190 6 MultfFamily(3 Units) 204,735 211,390 7 MuIB-Family(4 a more units),Non-Residential,Industrial 133,372 133,220 8 Usage Charge 9 MultWamily(4-Units),Mobile Home Parks 3,252,553 3,418,260 10 Mul&Family(4+Units),Mobile Horne Parks-Discount 17,628 18,950 11 Retail,Commercial,Light Industrial 1,960,708 2,046,110 12 Retail,Commercial,Light Industrial-Discount 33,600 35,600 13 Auto Repair,Car Wash 150,350 153,890 14 Auto Repair,Car Wash-Discount 3,287 3,370 15 Offices,Motels(without Restaurants) 808,493 841,580 16 Offices,Motels(without Restaurants)-Discount 132,857 144,770 17 Restaurants,Hotels 746,969 769,380 18 Restaurants,Hotels-Discount 8,807 9,280 19 Laundromats 109,793 113,020 20 Laundromats-Discount 364 360 21 Hospitals,Convalescent Homes 699,361 733,790 22 Schools,Churches,Nursery Schools 294,245 311,900 23 Schools,Churches,Nursery Schools-Discount 76,433 81,220 24 Industrial 1,370,797 1394,190 25 Total $20,660,697 $21,438,140 Notes: (1)Assumes no growth through FY 2014115. Excluded from the scope of this study is the $2/month Trunk Line fee paid by East Valley customers. Rate Revenues from Projected Rate Increases Rate revenues resulting from rate increases are shown later in this report. Expense Projections Operating Expenses Operating expenses for historical years (FYs 2007/08 and 2008/09) and the FY 2010/11 budget were obtained from the Department. These records were used in identifying any significant changes in costs over the last few years, which was considered when projecting specific operating expense categories. Operating expenses for the study period are projected based on the FY 2010/11 budget and escalate with a 2.1 percent general inflation rate except for the following: ■ Certain expenses related to customer billing and other customer-related services are typically escalated for both customer growth and inflation. Because customer growth is not projected in the next five years, there is no projected increase in in customer billing expenses related to customer growth. SEWER TREATMENT RATE STUDY R. W. Beck 11 SEWER TREATMENT RATE STUDY ■ Expenses for electricity, chemicals, and contract services for sludge removal are projected to increase at a higher level of a 3 percent annual rate of escalation and change proportional to projected flows. Because changes in treatment plant flow and loading are not projected in the next five years, there are no anticipated changes in these expenses related to changes in flow and loading. Table 7 summarizes the projected operating expenses for the five-year study period. A detailed list of operating expenses is included in Table A-9 of Appendix A. Table 7 Projected Operation and Maintenance Expenses Section Budget Projected(Fiscal Years Ending June 30) Line Treatment Expenses Number 2010111 2011112 2012113 2013114 2014115 1 Water Reclamation Administration 4010 $1,848,000 $1,887,300 $1,927,440 $1,968,440 $2,010,310 2 Water Reclamation Plant Operations 4020 4,989,000 5,113,620 5,241,440 5,372,570 5,507,090 3 Bio,Solid Processing 4021 2,980,000 3,068,680 3,160,020 3,254,070 3,350,930 4 RI%Facility 4025 3,677,000 3,763,680 3,852,450 3,943,390 4,036,540 5 Water Reclamation Plant Maintenance 4040 1,796,000 1,833,720 1,872,230 1,911,540 1,951,690 6 Water Reclamation Plant Facility Maintenance 4041 520,000 530,920 542,060 553,460 565,080 7 Water Reclamation Plant Electrical Instrumentation 4042 1,290,000 1,317,090 1,344,750 1,372,990 1,401,830 8 Water Reclamation Plant Environmental Control 4050 558,000 569,710 581,670 593,890 606,360 9 General Administrative Expense 4090 3,151,930 3,218,120 3,285,700 3,354,700 3,425,160 10 Less Overhead Applied,Property,Plant and Equipment (200000) (200 000) (200,000) (20Q000) (200,000) 11 Total $20,609,930 $21,102,840 $21,607,760 $22,125,050 $22,654,990 Capital Improvements and Capital Improvement Funding The Department provided its projected capital improvement plan (CIP) through FY 2014/15. Approximately 65 capital improvement projects were identified totaling $62.2 million (in 2011 dollars) over the long-range planning period. Table 8 summarizes projected capital improvements, and additional detail is included in Table A-10 and Table A-I 1 of Appendix A. As mentioned earlier in this report, a majority of the investment listed above deals with environmental compliance issues at the WRP and RIX. Capital investment in these facilities will expand capability, provide efficient operations, and avoid potentially substantial fines from governmental regulatory compliance bodies as the capital improvements comply with new, ever- increasingly difficult environmental requirements applicable to the Department's facilities. 12 R. W. Beck SEWER TREATMENT RATE STUDY I SEWER TREATMENT RATE STUDY Table 8 Projected Capital Improvements _ Budget Projected(Fiscal Yeam Ending June 30) Line Capital Improvements lmllo 1On Adjusted(1) 2010111 2011112 2012113 2013114 2014115 Total 1 Carry Forward from Previous Year(2) $0 $1,676,500 $5,067,130 $1,228,780 $4,736,280 $12,728,690 2 3 Capital Encumbrances 4 WRP-ReplacementlRehabililation $4,670,000 $8,453,880 $1,056,080 $1,330,420 $570,510 $16,082,890 5 WRP-New System Assets 1,690,000 4,441,350 3,153,380 7,876,060 2,608,040 19,768,830 6 Advanced Purification Pilot Plant Const.It Testing 0 6,636,500 260,610 9,578,990 9,780,150 26,256,250 7 RIX Facility Expansion/New System Assets 0 357,350 130,300 0 0 487,650 8 RIX Facilities Rehabilitation 346000 459,450 312740 159650 163,000 1,440,840 9 Total $6,706,000 $20,348,530 $4,915,110 $18,945,120 $13,121,700 $64,036,460 10 11 Total Capital Encumbrances $6,706,000 $22,025,030 $10,002,240 $20,173,900 $17,857,900 $76,765,150 12 13 Less Carry Forward(2) ($1,676,500) ($5,087,130) ($1,228,780) ($4,736,280) ($3,280,430) ($16,009,120) 14 15 Plus Capital Outlay(3) $391,000 $250,000 $255,250 $266,080 $283,200 $1,445,530 16 17 Funded Annual Encumbrances $5,420,500 $17,187,900 $9,028,710 $15,703,700 $14,860,750 $62,201,560 Notes: (1)Based on a 2,1%annual CIP inflation rate. (2)Assumes a 25 percent annual carry forward beginning in FY 2011112. (3)Assumes$250,000 per year beginning in FY 2011112 per Department staff.These are included in the budget,but then are capitalized. Capital outlays include tools,equipment,vehicles,etc. Capital expenditures for the full-scale design and construction of the Advanced Purification Plant were not included in the five-year study period. Table 8 shows the capital improvements in inflation adjusted dollars, and also shows the impact of the 25 percent carry forward assumption. The total amount of capital improvement encumbrances is shown in Line 9 of Table 8. From this 25 percent is deducted and minor capital projects included in the Department's operating budget are added, to obtain (in Line 17) the total amount funded in each year. The carry-forward amount shown in Line 13 is added to the succeeding year total. A small amount of funding (approximately $0.4 million from the City of Colton for RIX improvements and approximately $3.3 million in grant funding) is from outside sources. The remainder will be funded via a combination of sewer rate revenues, use of existing Department reserves, or future issuances of debt. As described above under financial policies, the sizing and timing of debt issuances is done to minimize rate impacts, meet coverage requirements, and meet reserve requirements. Existing and Projected Debt Service Table 9 shows existing and projected annual debt service payments. The Department is currently making debt service payments on $36.2 million in senior lien debt and $35.1 million of subordinate lien debt. Payments on existing debt are $5.8 million in FY 2010/11, and will decrease to $5.2 million by FY 2014/15 as the Department's 1992 RIX debt and 1994 SARI debt is retired. To meet the Department's policy goals, approximately $51.9 million of debt issuances are anticipated in the next five fiscal years. It is assumed that $5 million will be SEWER TREATMENT RATE STUDY R. W Beck 13 SEWER TREATMENT RATE STUDY funded by state revolving funds with projected annual debt service payments based on a 3 percent interest rate and a 20-year repayment period. The remaining capital improvement funding would be provided through revenue bonds with projected annual debt service payments based on a 5 percent interest rate and a 30-year repayment period. More detailed information on existing and projected debt service is included in Table A-12 of Appendix A. Table 9 Projected Debt Service Payments Issue Issue Interest Projected(Fiscal Years Ending June 30) Line Exisfing and Projected Debt Service Amount Date Rate 2010111 2011112 2012113 2013114 2014115 1 Existing Debt Service 2 1998 Refunding Sewer Rev.Cert.of Participation(Senior Del $36,230,000 1998 3.951YI-5.00% $3,338,650 $3,365.400 $3,366,180 $3,412,650 $3,439,410 3 SBVMWD-SARI Rights(Subordinate Debt)(1) 5,084,729 1994 7.25% 456,250 456,250 456,250 0 0 4 SWRCB-RIX Demo(Subordinate Debt)(2) 4,015,216 1992 3.30% 279,190 0 0 0 0 5 SWRCB-RIX Full(Subordinate Debt)(2) 25,978,599 1997 2.80% 1,758,900 1,758,900 1,758,900 1,758,900 1,758,900 6 New Debt Service 7 State Revolving Fund 0 2011 3.00% 0 0 0 0 0 8 Slate Revolving Fund 0 2012 3.00% 0 0 0 0 0 9 State Revolving Fund 0 2013 3.00% 0 0 0 0 0 10 State Revolving Fund 5,000.000 2014 3.00% 0 0 0 336,080 336,080 11 State Revolving Fund 0 2015 3.00% 0 0 0 0 0 12 Future Revenue Bond Debt 0 2011 S.DD% 0 0 0 0 0 13 Future Revenue Bond Debt 13,420,000 2012 5.00% 0 872.990 872,990 872,990 872,990 14 Future Revenue Bond Debt 8,800,000 2013 5.00% 0 0 572,450 572,460 572,450 15 Future Revenue Bond Debt 11,550,000 2014 5.00% 0 0 0 751,340 751,350 16 Future Revenue Band Debt 13,200,000 2015 5.00% 0 0 0 0 858,680 17 Total $123,278,544 $5,832,990 $6,453,540 $7,046,770 $7,704,420 $8,589,860 Notes: (1)SBVMWD:San Bernardino Valley Municipal Water District. (2)SWRCB:State Water Resources Control Board. Revenue Requirement Projections To provide for the continued operation of a utility on a sound financial basis, revenues must be sufficient to meet the cash requirements for operation and maintenance (O&M) expense, debt service and debt service coverage requirements, and cash funded capital expenditures not financed with debt. Table 10 shows the Department's revenue requirement projections through FY 2014/15. Lines 1 through 19 show sources of funds, including beginning year reserves, Department's sources of funds include reserves, sewer treatment rate revenues under existing rates, sewer treatment rate revenues from future increases, other revenues, and debt proceeds. Over the five-year planning period, four rate increases are projected ranging in size from 8.5 percent to 9.5 percent. Although four rate increases are shown in Table 10, the BOWC is only considering the first two at this time. These rate increases are system-wide averages, and as a result of the cost-of-service analysis and rate design shown below, rates for individual customer classes will differ from the system-wide averages. Debt issuances ranging from $8 million to $15.5 million are projected between FY 2011/12 and FY 2014/15. 14 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY Table 10 Revenue Requirement Projections Projected(Fiscal Years Ending June 30) Line 2010111 201 111 2 2012113 2013114 2014115 1 SOURCES OF FUNDS 2 Beginning Fund Balance(Restricted and Unrestricted) $20,737,540 $13,521,120 $10,560,000 $11,071,280 $11,285,670 3 Sewer Rate Revenue under Existing Rates 21,438,140 21,438,140 21,438,140 21,438,140 21,438,140 4 Revenues under Future Rate Increases(1) 5 %of Sales 6 Year Sales Revenue 7 February 2011 9.5% $756,990 $2,036,630 $2,036,630 $2,036,630 $2,036,630 8 January 2012 9.5% 1,014,750 2,230,110 2,230,110 2,230,110 9 January 2013 8.5% 994,190 2,184,920 2,184,920 10 January 2014 8.5% 1,078,690 2,370,640 11 January2015 0.0% 0 12 Subtotal,Rate Revenue From Rate Increases $756,990 $3,051,380 $5,260,930 $7,530,350 $8,822,300 13 14 Service Charges and Other Revenue 2,100,970 2,197,780 2,198,990 2,172,280 2,193,890 15 Interest Income and Non-Operating Revenues 299,000 335,600 359,600 391,100 427,100 16 Debt Proceeds 0 12,200,000 8,000,000 15,500,000 12,000,000 17 Total Revenue $24,595,100 $39,222,900 $37,257,660 $47,031,870 $44,881,430 18 19 Total Sources of Funds $45,332,640 $52,744,020 $47,817,660 $58,103,150 $56,167,100 20 21 USES OF FUNDS 22 08M Expenditures $20,609,930 $21,102,840 $21,607,760 $22,125,050 $22,654,990 23 24 Debt Service 25 Existing Debt-Senior Debt $3,338,650 $3,365,400 $3,386,180 $3,412,650 $3,439,410 26 Existing Debt-Subordinate Debt 2,494,340 2,215,150 2,215,150 1,758,900 1,758,900 27 Proposed Debt-Senior Debt 0 872,990 1,445,440 2,532,870 3,391,550 28 Total Debt Samoa $5,832,990 $6,453,540 $7,046,770 $7,704,420 $8,589,860 29 30 Capital Expenditures 31 Cash Funded $5,368,600 $2,427,640 $91,850 $1,488,010 $1,497,910 32 Debt Funded 0 12,200,000 8,000,000 15,500,DD0 12,000,000 33 Total Capital Expenditures $5,368,600 $14,627,640 $8,091,850 $16,988,010 $13,497,910 34 35 Total Expenditures $31,811,520 $42,184,020 $36,746,380 $46,817,480 $44,742,760 36 37 Ending Fund Balance $13,521,120 $10,560,000 $11,071,280 $11,285,670 $11,424,340 Notes: (1)Assumes a rate implementation lag of 45 days for East Valley Water District and Loma Linda. Lines 21 through 37 show the projected uses of funds. These uses of funds include O&M expenses shown in Table 7 of this report, existing and proposed debt service shown in Table 9 of this report, and capital is funded on a pay as you go basis by sewer rates and/or existing Sewer Fund reserves and debt service. The projected financial performance indicators of debt service coverage and the end of year reserve balance are shown on Table 11. The minimum debt service coverage ratio for rate setting purposes is 1.5 for all senior lien debt. The proposed rate increases result in the Department reaching this coverage criterion in FY 2012/13. SEWER TREATMENT RATE STUDY R. W. Beck 15 SEWER TREATMENT RATE STUDY Table 11 Revenue Requirement Projections— Financial Indicators Projected(Fiscal Years Ending June 30) Line 2010111 2011112 2012113 2013114 2014115 1 FINANCIAL PERFORMANCE INDICATORS 2 Debt Service Coverage Ratio 3 Senior Debt Service 1.19 1.40 1.58 1.58 1.50 4 Total Debt Service 0.68 0.92 1.09 1.22 1.19 5 6 Debt Service Coverage Ratio Criterion: 7 Senior Debt Service-Convenant Requirement 1.10 1.10 1.10 1.10 1.10 8 Senior Debt Service-Minimum for Ratemaking Purposes 1.50 1.50 1.50 1.50 1.50 9 10 EOY Reserve Balance 11 $ $13,521,120 $10,560,000 $11,071,280 $11,285,670 $11,424,340 12 Criterion: >6 months O&M Yes Yes Yes Yes Yes 13 Comparison Value: 6 months of 08M $10,304,965 $10,551,420 $10,803,880 $11,062,525 $11,327,495 The minimum reserve balance criterion is six months of O&M expenses, which is between $10.3 and $11.3 million during the five-year study period. This criterion is exceeded in each of the five years of this rate study planning period. Table 10 shows the need for the four projected rate increases to insure the Department meets its financial policy criteria. The first two of the four rate increases are proposed for adoption. The magnitude and timing of the second two rate increases will depend on a number of conditions that are expected to change over time. Some of these conditions are discussed later in this report. The revenue requirement analysis should to be reviewed on an ongoing basis and rate adjustments may need to be made if significant changes occur. As stated above, Table 10 shows the projected system-wide average rate increases. The actual amount of increase to any given customer will likely differ from the overall system average. The cost-of-service analysis and rate design section describes how the proposed sewer rates were developed. Cost-of-Service Analysis and Proposed Rate Schedule Key Assumptions and Methodology The development of an equitable sewer rate structure typically includes a cost-of- service analysis that allocates the revenue requirements to each customer class. The allocation of revenue requirements among the various customer classes takes into account sewer flow, BOD concentration, TSS concentration, and the number of service connections in each customer class. The design of a sewer rate schedule takes the cost-of-service analysis results and also incorporates additional policy and rate transitioning considerations. This section describes the cost-of-service analysis and rate design,with additional detail provided in Appendix B. This cost-of-service analysis was generally completed consistently with industry standard methodologies described in Principles of Water Rates, Fees & Charges - Manual MI published by the American Water Works Association (AWWA) and the Financing and Charges for Wastewater Systems published by the American Public Works Association, the American Society of Civil Engineers, and the Water Pollution 16 R. W. Beck SEWER TREATMENT RATE STUDY i a SEWER TREATMENT RATE STUDY Control Federation. The three steps in a cost-of-service analysis include (1) f inctionalization, (2) classification, and (3) allocation. Functionalization involves categorizing the utility's assets and revenue requirements into the various sewer service functions provided. In this cost-of-service analysis, four system functions were identified: collection, treatment, customer accounts, and administration. The second step in performing a cost-of-service analysis is classification. This step involves assigning the functionalized revenue requirement into cost components reflective of service characteristics. In this cost-of-service analysis, four classification cost components were used: flow, BOD, TSS, and customers. The result of this step includes unit costs for providing sewer service including a $/hundred cubic feet of sewer flow, $/lb BOD, $/lb TSS, and $/customer. The third step in a cost-of-service analysis is allocation and involves allocating the revenue requirement for each classified cost component to each customer class based the usage characteristics (flow, BOD, TSS, and number of accounts) of each customer class. Cost-of-Service Analysis Results Table 12 shows the results of the functionalization step, where the revenue requirement expenses are grouped as either related to sewer treatment, sewer collection, and customer-related activities such as billing or administration. The rate revenue requirement shown in Table 12 is for the remaining five months of the Fiscal Year after the proposed rate increase is effective. SEWER TREATMENT RATE STUDY R. W. Beck 17 SEWER TREATMENT RATE STUDY Table 12 Cost-of-Service Analysis: Functionalization of FY 2010111 Revenue Requirement FY 2010111 Total$After Funclionalintion Amount Fungionalizatlon Percentage Line Rate Increase 1 Treatment Collection Customer Admin Treatment Collection Customer Admin 1 RATE REVENUE REQUIREMENT 2 3 Operating Expenses 4 Water Reclamation Adminhurason $806,770 $0 $0 $565,350 $241,420 0.0% 0.0% 70.1% 29.9 5 Water Reclamation Plant Operations 2,178.000 2,178,000 0 0 0 100.0% 0.0% 0.0% 0.0% 6 Bio-Solid Processing 1,300,950 1,300,950 0 0 0 100.0% 0.0% 0.0% 0.0% 7 RIXFadliry 1,605,240 1,605.240 0 0 0 100.0% 0.0% 0.0% 0. 8 Water Reclamation Plant Maintenance 784,060 784,060 0 0 0 100.0% 0.0% 0.0% 0.0% 9 Water Reclamation Plant Facility Maintenance 227,020 227,020 0 0 0 100.0% 0.0% 0.0% 0.0% 10 Water Reclamation Plant Electrical Instrumentation 563,170 563,170 0 0 0 100.0% OD% 0.0% 0.0% it Water Reclamation Plant Environmental Control 243,600 243,600 0 0 0 1000.0% 0.0% 0.0% 0.0 12 General Administrative Expense 1,376,020 0 0 0 1,376,020 0.0% 02% 0.0% 100.0 13 Other 87,310 67,31 0 0 0 100.0% 0.0% 0.0% 0.0% 14 Total Operating Expenses $8,997,520 $6,814,730 $0 $565,350 $1,617,440 75.7% 0.0% 6.3% 18.0% 15 16 Existing Debt Service(2) $1,667,300 $1,649,700 $0 $1,146 $16,455 98.9% 0.0% 01% 1.0 17 18 Non-Sewer Rate Revenues 19 Servire Charges and Ober Revenue ($917,200) ($917,200) $0 $0 $0 100.0% 0.0% 0.0% 00% 20 Interest Income and Non-Operating Revenues(3) 58.070 58,070 0 0 0 100.0% 0.0% 0.D% 00% 21 Total Non-Sewer Rate Revenues ($975,270) ($975,270) $0 $0 $0 1 200.0% 0.0% 0.0% 0.0% 22 23 TOTAL RATE REVENUE REQUIREMENT $9,689,550 $7,489,160 $O $566.4% $1,633,895 77.3% 0.0% 5.8% 16.9% Notes: (1)This Column is the projected rate revenue collected in the five months of FY 2010111 after the 211111 effective date of the rate increase. (2)Based on the functionaliza6on of net plant investment.The$1,667,300 portion of the rate revenue requirement attributed to existing debt service is the portion of the senior lien debt collected through rates after the proposed rate increase becomes effective. This Table shows that only a portion of this amount is paid by sewer rates. The remainder of the debt service is funded with non-rate revenues shown in Lines 19 and 20 of this table. Additional detail in Appendix B. (3)Excludes interest income Over 77 percent of the Sewer Fund's rate revenue requirement is related to sewer treatment, 6 percent is customer-related, and 17 percent is administrative. Because the Department does not provide sewer collection services, none of the rate revenue requirement is related to sewer collection. The classification step involves dividing the rate revenue requirement into flow, BOD, TSS, and customer components as shown in Table 13. Many sewer treatment costs were equally split among flow, BOD, and TSS components, in recognition that treatment plant operating costs are due in part to the volume of wastewater flow, in addition to the functions of removing BOD and TSS from wastewater. In some instances, specific sewer treatment expenses were more precisely allocated among the four customer characteristics. Some examples include: • Electricity at the VW: Allocated 15% to flow, 65% to BOD, and 20% to TSS in as most of the power is required for aeration and therefore allocable to BOD. • Ferric Chloride use at the WRP: Allocated 100% to BOD based on use for to control hydrogen sulfide formation (to prevent corrosion and odors) resulting from anaerobic conditions related to the organic content of the wastewater. • Polymer use at the WRP: Allocated 100% to TSS as polymer use is associated with the primary clarifier solids and the TSS that comprises them. 18 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY • Bio-Solids Processing costs: Allocated 50% to BOD and 50% to TSS, in recognition that the cost to process bio-solids does not depend on the amount of wastewater flows. • RIX Facility Operating Costs: Allocated 75% to flow, 12.5% to BOD, and 12.5% to TSS in recognition that treatment is provided by RIX and flow-related design of the RIX basins. Administration costs were allocated among flow, BOD, TSS, and customer components based on a weighted average of other directly allocated costs. Table 13 Cost-of-Service Analysis: Classification of FY 2010111 Revenue Requirement FY 2010111 Total$After Classification Amount Classification Percentage Line Rate Increase(IL Flow BOO TSS Customer Flow BOD TSS Customer 1 RATE REVENUE REQUIREMENT 2 3 Operating Expenses 4 Treatment $6,814,730 $2,246,529 $2,499,617 $2,068,584 $0 33.D% 36.7% 30.4% 0.0% 5 Collection 0 0 0 0 0 1DD.0% 0.0% 0.0% 0.0% 6 Customer 565,350 0 0 0 565,350 0.0% 0.0% 0.0% 100.0% 7 Administrative 1,617,440 511,330 537,463 454,905 113,743 31.6% 33.2% 28.1% 7.0% 8 Total Operating Expenses $8,997,520 $2,757,859 $3,037,079 $2,523,489 $679,093 30.7% 33.8% 28.0% TR 9 10 Existing Debt Service 11 Treatment $1,649,700 $879,577 $385,061 $385,061 $0 53.3% 23.3% 23.3% 0.0% 12 Collection 0 0 0 0 0 100.0% 0.0% 0.0% 0.0% 13 Customer 1,146 0 0 0 1,146 02% 0.0% 0.0% 100.0% 14 Administrative 16,455 5,202 5,468 4,628 1,157 31.6% 33.2% 28.1% 7.0% 15 Total Existing Debt $1,667,300 $884,779 $390,529 $389,689 $2,303 53.1% 23.4% 234% 0.1% 16 17 Non-Sewer Rate Revenues(2) 18 Treatment ($975,270) ($579,431) ($207,846) ($187,993) $0 59.4% 21.3% 19.3% 0.0% 19 Collection 0 0 0 0 0 100.0% 0.0% 0.0% 0.0% 20 Customer 0 0 0 0 0 0.0% 0.0% 0.0% 100.0% 21 Administrative 0 0 0 0 0 31.6% 33.2% 28.1% 7.0% 22 Total Non-Sewer Rate Revenues ($975,270) (5579,431) ($207,846) ($187,993) $0 59.4% 21.3% 19.3% 0.0% 23 24 TOTAL RATE REVENUE REQUIREMENT $9,689,550 $3,063,208 $3,219,762 $2,725,185 $681.3961 31.6% 33.2% 28.1% 7.0% Notes: (1)This column is the projected rate revenue collected in the five months of FY 2010/11 after the 2/1111 effective date of the rate increase. (2)Excludes interest income. The allocation step of the cost-of-service analysis is shown in Table 14. Unit costs are calculated by dividing the portion of the revenue requirement associated with each system characteristic (flow, BOD, TSS, and Customer) by the respective number of units of service. The customer unit cost refers to the annual cost for each customer. These unit costs are used in the development of the proposed sewer rates described below. SEWER TREATMENT RATE STUDY R. W. Beck 19 SEWER TREATMENT RATE STUDY Table 14 Unit Cost of Service Calculations FY 2010111 Total$After Classification Amount Line Rate Increase 1 Flow BOD TSS Customer 1 RATE REVENUE REQUIREMENT $9,689,550 $3,063,208 $3,219,762 $2,725,185 $681,396 2 3 Units of Service 4 Amount 4,999,683 9,719,825 6,055,292 26,713 5 Units hcf Its Ibs units 6 Unit Cast-Of-Service,$IUnit $0.61 $0.33 $0.45 $25.51 Notes: (1)This column is the projected rate revenue collected in the five months of FY 2010111 after the 211111 effective date of the rate increase. Proposed Sewer Rate Schedule The cost-of-service analysis indicated, in general, the need for larger rate increases for customers with higher wastewater strength compared with the system-wide average. Customers with higher wastewater strengths include restaurants, hotels, and the retail, commercial, and light industrial customer class. Conversely, rate increases for single- family residences are lower than the system-wide average. The proposed sewer rate schedule effective during FYs 2010/11-2011/12 is provided in Table 15, with the existing rate schedule included for comparison. These rates reflect the system-wide revenue increases discussed earlier in this report. The proposed rate changes would become effective on February 1, 2011 and January 1, 2012. 20 R. W. Beck SEWER TREATMENT RATE STUDY i I SEWER TREATMENT RATE STUDY Table 15 I Proposed Sewer Treatment Rate Schedule Existing Rates Proposed Rates Line Customer Class 0110112010 0210112011 0110112012 Units 1 Percent Rate Increase n1a 9.5% 9.5% 2 3 Monthly Charge 4 Residential $16.00 $17.00 $18.50 $Imonth 5 Residential-Low Income 13.45 14.30 15.55 $Imonih 6 Residential-Low Income(Pre 1994) 7.05 7.50 8.15 $Imonth 7 Multi-Family(2 Units) 32.00 34.00 37.00 $/month 8 Muff-Family(3 Units) 48.00 51.00 55.50 $/month 9 Multi-Family(4 a more units),Non-Residential,Industrial 2.00 2.20 2.40 $/monM 10 NomResidential 2.00 2.20 2.40 $/monN 11 Industrial 2.00 2.20 2.40 $/month 12 Usage Charge 13 Muff-Family(4,Units),Mobile Home Parks $0.95 $1.10 $1.25 $Ihcf 14 Retail,Commercial,Light Industrial 1.90 2.00 2.10 $Ihcf 15 Auto Repair,Car Wash 1.30 1.30 1.30 $Ihcf 16 Offices,Motels(without Restaurants) 1.50 1.50 1.50 $Ihcf 17 Restaurants,Hotels 2.00 2.35 2.70 $Ihcf 18 Laundromats 1.30 1.40 1.50 $Ihcf 19 Hospitals,Convalescent Homes 0.95 1.15 1.35 $Ihcf 20 Schools,Churches,Nursery Schools 0.70 0.90 1.10 Mot 21 Industrial 22 Discharge Flow $900 $900 $900 3/mg 23 Biochemical Oxygen Demand Charge 292 330 360 $11,000 lbs 24 Suspended Solids Charge 640 640 640 $11,000 lbs These proposed rates represent a transition from the existing rate schedule to cost-of- service based rates while also incorporating the system-wide average rate revenue increases described in Table 10. These proposed rates were developed based on transitioning to cost-of-service rates over the five-year rate study planning period. Example Sewer Bill Comparison Table 16 compares the Division's example monthly residential sewer bills with those for other local sewer systems. Table 16 Monthly Single-Family Residential Bill Comparison Proposed/ Existing Rates Adopted Rates 1 Line Amount Effective 2/1/2011 11112012 1 Residential 2 San Bemardino(2) $20.00 01/01110 $21.00 $22.50 3 4 Colton $34.09 07/01/06 rue rJa 5 Cucamonga Valley Water District $15.65 07/01/10 $15.65 $16.00 6 East Valley Water District $28.93 n/a $28.93 We 7 Eastern Municipal Water District $22.34 01/07/09 n/a n/a 8 Fontana $18.51 07/01/10 n/a We 9 Redlands $19.88 01/01/10 n/a n/a 10 Rialto $25.97 05/01/01 n/a n/a 11 Riverside $20.55 07/01110 $20.55 $23.55 Notes: (1)Proposed rates are shown for the Department. It values appear in this table for other jurisdictions,then the rate increases have already been adopted and are in effect at these dates. SEWER TREATMENT RATE STUDY R. W. Beck 21 SEWER TREATMENT RATE STUDY (2)Includes the$4/month sewer collection change effective January 1,2010 for all years. Any proposed changes in the sewer collection charge are not incorporated in this comparison. A summary of sewer bill comparisons for some non-residential customers with those for other local sewer systems as provided in Table 17. Table W Monthly Non-Residential Bill Comparison Proposed) Existing Rates Adopted Rates 1 Line Amount Effective 21112011 11112012 1 Restaurant(62 hcf Bow) 2 San Bernardino(2) $211 01101/10 $242 $273 3 4 Colton $235 07101106 Na Na 5 Cucamonga Valley Water District $79 07101110 n/a Na 6 East Valley Water District $223 Na $223 Na 7 Fontana $426 07101110 Na Na 8 Redlands $350 01101110 We n/a 9 Rialto $405 05/01101 Na Na 10 Riverside $368 07/01110 $368 $424 11 12 Industrial-Hospital 17,288 hcf Bow) 13 San Bernardino(2) $18,270 01/01110 $18,728 $19,090 14 15 Colton $5,253 07/01106 Na nla 16 Cucamonga Valley Water District $15,232 07/01110 Na Na 17 East Valley Water District $%281 Na $10,281 Na 18 Fontana $31,480 07/01110 Na nla 19 Redlands $15,232 0101110 nla nla 20 Rialto $22,275 05101101 n/a Na 21 Riverside $13,795 07/01110 $13,795 $15,765 22 23 Industrial-University(3,385 hcf Bmv) 24 San Bemardino(2) $8,851 01/01110 $9,087 $9,273 25 26 Colton $11,305 07101/06 Na Na 27 East Valley Water District $3,932 Na $3,932 Na 28 Fontana $14,631 07/01110 Na n/a 29 Redlands $7,074 01101110 Na Na 30 Rialto $6,862 05101101 Na Na 31 Riverside $9,375 07101110 $9,375 $10,614 Notes: (1)Proposed rates are shown for the Department.If values appear in this table for other jurisdictions,then the rate increases have already been adopted and are in effect at these dates. (2)Includes the$1.25 monthly charge and usage charge of$0.35 per hcf of metered water consumption for the sewer collection system effective as of January 1,2010 for all years. Ongoing Considerations A two-year rate proposal has been proposed for the BOWC's consideration. The revenue requirement analysis shown in Table 10 above extends for a period of five years. There are a number of factors that will change over the next few years that have financial implications. The extent to which these factors change will influence the Department's next review of sewer treatment rates. The Department should continue to monitor its financial status on an ongoing basis, and should continue to monitor the following: ■ Water consumption and customer rg owth. The revenue requirement analysis assumes zero customer growth through FY 2014/15. Customer growth will 22 R. W. Beck SEWER TREATMENT RATE STUDY SEWER TREATMENT RATE STUDY increase the size of the customer base and will increase capacity fee revenue and rate revenues compared with projections. Increases in non-residential water consumption that is used to determine sewer bills will have the same effect on sewer treatment rate revenues. Decreases in the number of customers and non- residential water consumption will have the opposite effect. ■ Advanced Purification Plant project development. Full-scale design and construction of the Advanced Purification Plant is not included in this rate study. Over the next few years, the Department will know more about project costs and funding alternatives. This information should be incorporated into future financial projections. ■ Interest rates. Interest rates that differ from assumptions used in this report will have financial implications. ■ Overhead allocation to the City's General Fund. These financial projections do not include any additional transfers to the City's General Fund. To the extent the Department is required to make any such transfers in the future, the proposed and projected sewer treatment rates should be re-evaluated. SEWER TREATMENT RATE STUDY R. W. Beck 23 Appendix A REVENUE REQUIREMENT SEWER TREATMENT RATE STUDY An SAIG Company C oC d -O � FF0 .Ect Uu_ N N c E c c E E o W W Q W d ad . WggORm to d N > > N N N �- N U N N > > > U p N N Z N O O N > > O N O C p p O O v p A � L -p C ._ .� U (U� N N U U L U d Z l}L N N } a' d CO Co N N N C O O LL O jA N fn m iri Q: a m m Q d � O O p p N r N @ @@ O N N N 1' m To c c " co d' a'. a' 3 .0 N N O O Z O -O N N (n of w w C '� c @ @ @ @ � O H N y Q @ @H @ a 0 a nN o BCo OD ] oN N ch ch NN . 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