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HomeMy WebLinkAbout02.B- Water DOC ID: 3860 CITY OF SAN BERNARDINO — REQUEST FOR COUNCIL ACTION Information/Report From: Stacey R. Aldstadt M/CC Meeting Date: 05/27/2015 Prepared by: Georgeann "Gigi" Hanna, Dept: Water Ward(s): All Subject: Water Department Sewer Rate Collection Study Presentation Current Business Registration Certificate: Not Applicable Financial Impact: Account Budgeted Amount: <<Insert Amount>> Account No. <<Insert Account No.>> Account Description: <<Insert Account Description>> Balance as of: <<Insert Date>> Balance after approval of this item: <<Insert Amount» Motion: Approve the Sewer Collection rate study and forward the item to the Mayor and Common Council to set a date for a public hearing. Subject: There has been an ongoing discussion with City of San Bernardino ("City") staff regarding the possible transfer of the City's sewer collection system to the Water Department ("Department"). Part of this discussion included the implementation of new rates for the collection system, which led the Department to contract with a firm to update the revenue requirements of the system. The results of that study are presented today for review by the Mayor and Common Council. Background: The Mayor and Common Council of the City of San Bernardino is the governing body responsible for setting rates for sewer treatment and collections. While the sewer treatment facilities are managed by the Water Department (Department), the collection facilities are managed by the City's Public Works Department (Public Works). The last major increase of collection system rates was in 2004, as illustrated in Table 1 below. Table 1: Sewer Collection System Rates Effective Date: Residential Rate Amount: 1/1/1999 $1.35 7/1/2004 $3.45 1/11/2009 $3.75 1/1/2010 $4.00 In May 2013, the Department met with staff from the City Manager's office and Public Works to discuss implementation of new sewer rates. Part of this discussion involved Updated: 5/21/2015 by Georgeann "Gigi" Hanna Packet Pg. 98 3860 the transfer of the collection system to the Department, and Public Works requested the Department's assistance in developing revenue requirements for the collection operations. Since that time, ongoing discussions have continued surrounding the possibility of the Department assuming responsibility for the collection system. In June 2013, the Department retained SAIC Energy, Environment & Infrastructure, LLC, now known as Leidos, a nationally recognized utility engineering and rate consulting firm, to, among other tasks, update revenue requirements for the sewer collections system. In 2014, the Board approved an additional contract with FG Solutions, a firm organized by the former principal of Leidos to complete an update of the rate study. That work has been completed, and the study is attached for your review. Financial Impact: FG Solutions' model (attached) summarizes projected revenue requirements. The purposes of this study are to: 1. Summarize projected sewer collection revenue requirements for the six-year period for fiscal years 2015/16 through 2020/21. 2. Present a proposed schedule of sewer collection rates effective through the end of fiscal year 2017/18. 3. To outline potentially changing conditions with fiscal implications and recommendations for ongoing monitoring of these items. FG Solutions reviewed historical operating expenses, existing assets, existing debt service, projected expenditures, potential financing strategies, required capital improvements, local economic factors, and system flow and loading information. Revenue requirements are established utilizing an iterative process that reviews various projected impacts of proposed rates. FG Solutions then functionalized, classified and allocated costs among various customer classes based upon usage characteristics of each class. The model analyzed the results over a six-year period and arrived at rates that meet the basic operational needs of the system, while also providing for the funding of operating and rate stabilization reserves. The model balances the need for funding for system analysis and capital investment with the rate impacts to customers. Adoption of the model will provide funding for the completion of the System's Master Plan. Once the Master Plan has been completed, specific capital improvements will be identified and prioritized. At that time, it will be necessary for an update of the model to be prepared to take into account the full requirements of the system. The results of the analysis include: 1. A recommendation to increase residential sewer collection rates to $9.00 in 2015; $9.45 effective 7/1/2016 and $9.92 effective 7/11/17. Updated: 5/21/20415 by Georgeann "Gigi" Hanna 3860 Attachments: LG Solutions Sewer Collection Rate Study Report - April 2015. Supporting Documents: 040715 Draft SwrCollect Report (PDF) 040715 Swr Collection Draft Appendix A(PDF) Updated: 5/21/2015 by Georgeann "Gigi" Hanna 2.B.a Draft Report 0 L a Sewer Collection Rate Stud; 0 0 U m City of San Bernardino Municipal Water Department L 4) 3 m d E` C r �s 0 �fiER �v�4 00 M O Q N CDd' V d O U L 3 L r ti E April 2015 m a SOLUTIONS Packet Pg. 101 0 �o c as N O d 3 a+ CO C O r V O O U m r L m 3 a� Cn c m �a a I a� I � d o co Co M t' O a O a+ V _O O U 3 Cn 0 LO 0 Cl Cl c m E u m Q Packet Pg. 102 Draft Report 0 c L a Sewer Collection Rate Study N c 0 0 U City of San Bernardino Municipal Water Department L 3 a� Cn � N 13 r CLc E z V � L d r R• �. 3 �rERp�,4 0 0 CL 0 U L 3 Cn �a L Lo r n 0 v 0 c a� E April 2015 a SOLUTIONS Packet Pg. 103 C This report has been prepared for the use of the client for the specific purposes identified in the O r report. The conclusions, observations and recommendations contained herein attributed to FG ca Solutions, LLC constitute the opinions of FG Solutions, LLC. To the extent that statements, C information and opinions provided by the client or others have been used in the preparation of N m this report, FG Solutions, LLC has relied upon the same to be accurate, and for which no a assurances are intended and no representations or warranties are made. FG Solutions, LLC >% makes no certification and gives no assurances except as explicitly set forth in this report. ©2015 FG Solutions, LLC N Ail rights reserved. o U d O U m L a� 3 m O E CL 4) D L d O W CO M O O. O r U d O U N L O U) r ti O O :.7 C d E M U M Z Q Sewer Collection Rate Study City of San Bernardino Municipal Water Department Table of Contents s �o _ a� Table of Contents List of Tables a V r SEWER COLLECTION RATE STUDY ...................................................................1 N _ Background............................................................................................................1 0 Methodology and Key Assumptions 1 Revenue Requirement Projections ........................................................................8 0 Existing Rates v Proposed Rate Schedule Example Sewer Bill Comparison Ongoing Considerations .............13 3 r a� E Appendix A a cc a� 0 d cc 3 0 �o M t O a m Q: m 0 U 3 0 0 v 0 u c a� E r Q y SOLUTIONS met Pg. 106 - -------- -- Table of Contents List of Tables Table 1 Financial Policies..............................................................................................3 Table 2 New Sewer Collection Expenses and Capital Expenses...................................6 Table 3 Financial Projection: Sewer Line Maintenance Fund......................................9 c Table 4 Financial Projection: Sewer Construction Fund............................................10 Table 5 Current Rate Schedule Table 6 Proposed Rate Schedule..................................................................................11 Table 7 Monthly Single-Family Residential Bill Comparison 12 a. �a CO 0 :r a� 0 v d .r a L 3 d U) 2 _ m E CL tv L m .r 0 so CO M t O C. d V d O U L 3 �a L r ti 0 _ E V Q iV FG Solutions,LLC 040715 Draft SwrCollect Report 2.B SEWER COLLECTION RATE STUDY 0 Background The City of San Bernardino provides sewer collection and treatment services to its customers through two separate City departments. a` The City of San Bernardino Public Services Department ("Public Services Department") provides sewer collection services within the City through = approximately 510 miles of sewer mains. The City of San Bernardino Municipal 0 Water Department ("Department") provides sewer treatment services to customers served by the Public Services Department. 0 As part of an ongoing effort to assure continuity of sewer service, the Department is completing a Sewer Collection Rate Study ("Study"), even though it does not provide sewer collection services. This Sewer Collection Rate Study is being completed ; cooperatively with assistance from the Public Services Department. v) In 2013, the Department retained Leidos Engineering, LLC ("Leidos") to complete E this Study. In 2014, the Leidos project manager founded FG Solutions, LLC ("FG Solutions"), and subsequently, the District hired FG Solutions to complete the project. 0 0 The results of this Study are summarized in this report, the purposes of which are: • To summarize the projected sewer collection revenue requirements for the six-year 3 study period for fiscal years ("FY") 2015/16 through 2020/2 1'. c �o • To present a proposed schedule of sewer collection rates effective through the end co of FY 2017/18. t: 0 • To outline potentially changing conditions with financial implications and, d recommendations for ongoing monitoring of these items. Given that the Public Services Department currently provides sewer collection c services, the City Council is the body that would approve any changes in sewer . collection rates. At this time, the Department's Board of Water Commissioners v) ("BOWC") does not have any formal role in the adoption of sewer collection rates. V 0 La 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, reserves, 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. a The C ity's fiscal year begins on July 1. fSOLUTIONS Packet Pg. SEWER COLLECTION RATE STUDY .r Historical and budgeted financial and operational data were provided by the Department and the Public Services Department, and used by FG Solutions to develop the projected revenue requirement for the six-year study period. The revenue requirement analysis was an iterative process and draft versions were revised based on comments and input provided by Department and Public Services Department staff. _ Next, the revenue requirement was compared with the revenues generated by the existing rates to define the amount of additional revenues needed from rate increases. r_ In general, the degree to which needed system analysis and capital investment can be implemented was balanced with the rate impacts to customers to develop the proposed a` rate schedule. The proposed rate schedule also provides for operating and revenue stabilization reserves, as described in further detail below. co Key assumptions used in this Study are listed below. Additional assumptions are c provided in the printout of the rate calculations that comprise Appendix A. 0 Fund Structure L) d There are two Funds associated with the sewer collection system. Fund 132 is the Sewer Line Maintenance Fund. Its sources of funds are predominately rate revenues 3 and these revenues are used to pay operation and maintenance ("O&M") expenses and 4) provide a transfer to the Sewer Construction Fund for capital improvements. a) The Sewer Construction Fund (Fund 245) obtains revenues from connection fees and a E transfer from the Sewer Line Maintenance Fund. Both funds receive interest income a 1 on their respective reserves. o Expenses • Projected O&M expenditures are primarily based on the Department's FY 14/15 0 budget. The FY 14/15 projected O&M expenditures are approximately $2.5 million. Approximately 60 percent of O&M expenditures (approximately $1.5 million) is for personnel services. The remainder are for items such as materials & a supplies, contractual services, and certain internal services including fleet, garage, 0 and information technology charges. Additional O&M expense data is shown in Table 3 shown later in this report. o U • A transfer to the General Fund is included. City staff indicate that this transfer is 3 intended to cover the costs of services provided by other City departments rn associated with the General Fund. In FY 14/15, $700,000 is transferred, consistent with the FY 14/15 budget. In subsequent years, the transfer is 10 percent of sewer ° LO collection rate revenues. 0 • Inflation projected at 2.1 percent per year,unless otherwise noted. c w • Described in further detail below, there are a number of new expenses associated E with new sewer collection system initiatives. Some of these new expenses are best categorized as operation and maintenance,and some are capital improvements. • Projected capital expenditures are anticipated to be entirely funded by rate a revenues, connection fee revenues, and interest income. No grants are anticipated and no issuances of debt are projected. 2 FG Solutions,LLC 040715 Draft SwrCollect Report Packet Pg. 108 2.B.a SEWER COLLECTION RATE STUDY Revenue and Reserve Assumptions • Rate revenue for FY 14/15 is from the City's FY 14/15 budget for the Sewer Line Maintenance Fund 132. • No increases in rate revenue from customer growth is anticipated. This may be a S conservative assumption, and any growth that increases the number of rate payers .2 and doesn't causes expenses to substantively increase will have a beneficial financial impact. The effect of any system growth over the near-term is expected to be small. a` • As of 6/30/14, reserves in the Sewer Line Maintenance Fund and Sewer Construction Fund are $3,363,383 and $2,738,304, respectively. co c 0 a� Policy Assumptions c0 The proposed sewer collection rates are influenced by the financial policy targets shown in Table 1. These financial policies have not been formally adopted, but were used in the development of the adopted rate structure. ; d N Table 1 Financial Policies E Policy Issue Importance of Financial Policy Financial Policy Target m Debt Service Coverage A minimum DSCR is a requirement of lenders. Not applicable. There is no existing Ratio(DSCR) Exceeding the minimum DSCR provides debt associated with the sewer additional flexibility for the Department to collection system and none is accommodate changing conditions such as anticipated in the six-year study unanticipated expenses and may help obtain period. If debt is issued in the °m more favorable future debt terms. future,DSCR policy targets will M need to be established. Amount of Future Debt A pay-as-you-go capital funding strategy(without None anticipated in the six-year m Issued issuing debt)requires higher up-front rate study period. increases but decreases future costs. m Reserve Balance Reserves provide more flexibility for the Operating reserves exceeding 3 c Department to react to changing conditions with months of 0&M expenses. financial implications(such as changes in capital $800,000 per year deposited into a y costs,development activity,or the economy). proposed Revenue Stabilization U) Reserve. LO O New Expenses and Capital Expenses c This section describes capital expenses and expenses associated with new and ongoing sewer collection initiatives. Generally, these expenses require additional funding in d order to be fully implemented, although existing Maintenance Fund and Construction E Fund reserves would also be used. They are described in the paragraphs that follow. Cleaning and TV Inspection of Collection System a TV inspection of a sewer collection system is important to assess the condition of the underground sewer lines. Cleaning of sewer mains is typically done in conjunction Draft FG Solutions Packet Pg. 109 SEWER COLLECTION RATE STUDY with TV inspection to enhance the quality of the inspection efforts. Public Services Department staff report that as of August 2013, approximately 30 percent of the larger sewer mains have been inspected, with 70 percent remaining. The estimated cost to inspect the remaining 70 percent of the system is $2.5 million. For rate setting purposes, this is scheduled to take three years, starting July 2015 and finishing July 2018. Spread out over the three y ears, the estimated annual cost is approximately 0 $830,000, and this type of work would typically be paid from the Sewer Line c Maintenance Fund. v, as Onl?oing Cleaning and TV Inspection of Collection System a. After the larger lines have been inspected, projected to occur in 2018, the Public Services Department anticipates ongoing TV inspection and cleaning needs as part of c the activities needed to operate the collection system on a long-terra basis. The estimated annual cost of this ongoing TV inspection and cleaning is $500,000, and it would typically be paid from the Sewer Line Maintenance Fund. v Completion of Sewer Collection Master Plan The Public Services Department has begun a Sewer Collection Master Plan, but the 3 effort has been placed on hold. Completion of the Master Plan is critical in m developing a long-term capital improvement plan for the Sewer Collection System. The Public Services Department estimates the remaining work on the Master Plap_ will cost approximately $1 million, and this work would be scheduled for FY 14/15 and �o 15/16. Completion of the Master Plan would be paid from the Sewer Construction o Fund. L d Analyst Position 3 In order to manage the above projects and interpret the data that comes from the TV inspection,the Public Services Department anticipates the need for an analyst position. M Spot Repairs 0 a When a sewer line is inspected and cleaned, it is possible to identify needed spot repairs. Public Services Department staff estimate that for the 30 percent of the system that has been cleaned, the estimated construction cost of identified spot repairs c is approximately $12 million. cL This total cost to address needed spot repairs includes additional items identified by � the Public Service Department: L 0 • Construction inspection. Each $4 million of construction cost per year requires 'O 1 inspector plus an annual expense for a truck. c v • Contract manager. Each $6 million of construction cost per year requires 1 contract manager. a E • Sewer crew and vactor. Each $4 million of construction cost per year requires 1 sewer crew FTE and expense for a vactor truck. Q For the purposes of this Study, personnel costs are $100,000 per year (including benefits), the annual expense for a vactor truck is $50,000 per year, and the costs 4 FG Solutions,LLC 040715 Draft SwrCollect Report Packet Pg. 110 2.B.a SEWER COLLECTION RATE STUDY associated with a vehicle for the construction inspector are included in the $100,000 annual fully-burdened personnel cost. Using these assumptions, the annual cost to address 10 percent of the known spot repairs each year is approximately $1.3 million. The annual cost to address 20 percent of the known spot repairs is approximately $2.6 million. Costs would be paid from o the Sewer Construction Fund. a r Line Repairs y a� Public Services Department staff have identified approximately $10 million in known a line repairs. The annual cost to address 10 percent of the known line repairs is approximately $1 million and the annual cost to address 20 percent of the known line co repairs is approximately $2 million. Cost would be paid from the Sewer Construction o Fund. u a2 Other On-Going Expenses and Capital Expenses 0 This rate study also includes the following: • Sewer manhole rehabilitation at various locations. This $25,000 annual 3 expense is currently funded from the Sewer Line Maintenance Fund and is Cn projected to continue. d • Sewer siphon flushing at various locations. This $25,000 annual expense is E currently funded from the Sewer Line Maintenance Fund and is projected to a continue. o • Sewer line replacement: Arrowhead Avenue at Warm Creek. $300,000 in (D capital funds from the Sewer Construction Fund is projected for FY 14/15, consistent with the FY 14/15 budget. co • Sewer main extensions. This $20,000 annual expense is currently funded from the Sewer Construction Fund and is projected to continue. o CL • Sewer capital improvement plan administration. This $15,000 annual expense W is currently funded from the Sewer Construction Fund and is projected to continue. c U • Sewer repair and relocation at Cedar Street & Highland Avenue. $210,000 in co capital funds from the Sewer Construction Fund is projected for FY 14/15, consistent with the FY 14/15 budget. o • Wet weather flow monitoring. To be done in conjunction with the Sewer Master Plan, $200,000 in capital funds from the Sewer Construction Fund is projected for FY 14/15, consistent with the FY 14/15 budget. °. Table 2 shows how these expenses were considered in this Study. Table 2 also shows E E the costs for currently ongoing projects that have been budgeted in previous years but U are not yet finished. These currently ongoing projects are in a column labeled "carry- over" and would be funded from existing reserves. Table notes, containing additional Q explanation and supporting calculations, follow the table. Draft FG Solutions Packet Pg. 111 SEWER COLLECTION RATE STUDY Table 2 New Sewer Collection Expenses and Capital Expenses Estimated Cost Line New Expense and/or Capital Projects Carry-Over(1) FY 14115 FY 15116 FY 16117 FY 17118 FY 18119 FY 19120 FY 20121 Fund Notes 1 Sewer Manhole Rehabilitabon at Various Locations $0 $25,000 $25,530 $26,070 $26,620 $27,180 $27,750 $28,330 Maintenance 2 2 Sewer Siphon Flushing at Various Locations $157,472 $25,000 $25,530 $26,070 $26,620 $27,180 $27,750 $28,330 Maintenance 2 3 Miscellaneous Sewer Repairs $310,883 $50,000 Maintenance 3 O 4 Sewer Replacement Arrowhead Ave at Warm Creek $0 $300,000 Maintenance 4 ++ 5 Sewer Master Plan $0 $250,000 $750,000 Construction 5 ate+ 6 Complete Clean/TV Collection System $833,333 $833,333 $833,333 Maintenance 6 7 Ongoing Clean/TV Collection System $500,000 $500,000 $500,000 Maintenance 7 y 8 Hire Analyst $100,000 $102,100 $104,240 $106,430 $108,670 $110,950 Maintenance 8 L 9 Sewer Main Extension in excess of 300'SFR Development $0 $20,000 $20,420 $20,850 $21,290 $21,740 $22,200 $22,670 Construction 2 d 10 Sewer Main Extensions $192,716 $0 Construction 4 11 Sewer CIP Administration $0 $15,000 $15,320 $15,640 $15,970 $16,310 $16,650 $17,000 Construction 2 12 Laurelwood Drive Sewer at Tippecanoe Ave $73,257 $0 Construction 4 r 13 "1"Street Sewer Relocation between 5th St and 16th St(Design Only) $48,213 $0 Construction 4 N 14 Cedar Street 8 Highland Avenue Sewer Repair/Relocation $10,000 $210,000 Construction 4 C 15 Wet Weather Flow Monitoring $0 $200,000 Construction 4 C 16 Spot Repairs"Ramp to 20%of Known Needs Year" , , , , , , , , , , , V 17 Line Reparis'Ramp to 20%of Known Needs/Year' $400,000 $800,000 $1,200,000 $1,600,000 $2,000,000 $2,000,000 Construction 10 d 18 Total $792,542 $1,095,000 $2,690,133 $2,864,063 $33,788,073 $4,378,840 $5,303,020 $5,307,280 p 19 (� 20 Maintenance Fund $468,355 $400,000 $984,393 $987,573 $990,813 $660,790 $664,170 $667,610 21 Construction Fund $324,187 $695,000 $1,705,740 $1,876,490 $2,797,260 $3,718,050 $4,638,850 $4,639,670 ar 22 Total $792,542 $1,095,000 $2,690,133 $2,864,063 $3,788,073 $4,378,840 $5,303,020 $5,307,280 L d r C d E t M 12 4) f� L 4) a.+ !0 O O O M O Q O Q' w V d O U L 3 rn �a L r O O i.d t. E t V Q 6 FG Solutions,LLC 040715 Draft SwrCollect Report 2.B.a SEWER COLLECTION RATE STUDY Table 2 Notes: (1) Carry-Over amounts are those encumbered in previous years but not yet spent. Existing Fund reserves must pay for the carry-over amount. The carry-over amount is included in as a FY 14115 expense in the Operating Statement(Table A3) (2) Source: "FY 14.15 Proposed CIP 2014-06-19(2).xls"provided by City staff 1/27/15. Assumed recurring in future years for the purposes of this Rate Study (3) Source: "FY 14-15 Proposed CIP 2014-06-19(2).xls"provided by City staff 1/27/15. For future years,assumed included as Spof/Line Repairs described below. (4) Source: "FY 14-15 Proposed CIP 2014-06-19(2).xls"provided by City staff 1/27/15. Non-Recurring (5)Master Plan completion costs and schedule differs from FY 14/15 budget and is as follows: $1 M to complete(after clean/TV excluded from scope because$for clean and TV is shown above in Note 1).(Source: Robert Eisenbeis,8/27/2013) O Cost: $1,000,000 Schedule: 25%in FY 14/15;75%in FY 15/16(Source: FG Solutions Jan 2015 proposal OK'ed by Tony Frossard 03/15/15) (6) Complete Clean/TV Collection System to As of 8//2013,30%of system Wed so far(Source: John VanHavermaat and Robert Eisenbeis)and 70%remains. N At$500,000 for each 20%of the system(Source John VanHavermaat,8/27/13) IL $1,750,000 Cost to complete clean/TV if all lines are 15"or smaller $2,500,000 Increase to reflect higher cost for alrger lines. Source of adjusted cost estimate: City staff,8/27/13 Schedule: starts FY 15/16 +�- (7)Ongoing Clean/TV Collection System $500,000 to complete 20%of the system(Source John VanHavermaat,8127/13) p Backcheck 1 500 miles of sewer line in the city(Source: John VanHavermaat and Robert Eisenbeis,8/27/13) d 2,640,000 LF p $0.71/LF unit cost for lines 15'or smaller(Tony Frossard,2013) (3 $1,874,400 $374,880 to TV 20%of the system(if all 15"or smaller).Should be lower than$500,000 because lines>15"exist SSM commits to 20%of system per year L Annual cost $500,000 3 Schedule: starts in FY 18/19 (8) Hire Analyst Position rA Hire a full time position to update the Sanitary Sewer Master Plan,to analyze TV data,and other ongoing work. Fills vacant position. Annual cost: $100,000 N Schedule:starts FY 15/16 E R (9)Spot Repairs C $12 million in construction cost identified for the 30%of the system that ghas been cleaned,current dollars. (John VanHavermaat,8/27/13) p Additional staff and equipment needs(source: 8/27/13 meeting) .. Each$4M of construction per year requires 1 inspector plus annual expense for truck. r Each$6M of construction per year requires 1 contract manager. R Each$4M of construction per year requires 1 sewer crew FTE plus expense for 1 vactor. Annual cost$100K per forinspector including inspector truck o Annual cost for a vactor is$50,000($300,000 vactor,six-year life) Per$1.2M(10%of known needs)per year,added cost $95,000 Round up to$100,000 Cost for each 10%of known needs per year: $1,300,000 p Cost for 20%of known needs per year: $2,600,000 t=. d Schedule: ramp up to this amount starts FY 16117 � (10)Line Repairs +- $10 million in known needs r, d 10%of known needs: $1 M 5 Cost for each 10%of known needs per year: $1,000,000 U Cost for 20%of known needs per year: $2,000,000 Schedule: ramp up to this amount starts FY 16/17 fn V It is likely that the costs for spot repairs and line repairs will be revised once the o cleaning and TV inspection is complete, and once the Master Plan is complete. The LO costs for spot and line repairs in Table 2 are based on a review of only 30 percent of o the system, and the needs for the remaining 70 percent of the system are not yet o known. ry The information in Table 2 is for financial planning purposes. As described below in the Ongoing Considerations section, this Study should be updated after these efforts are complete. a Draft FG Solutions Packet Pg. 113 SEWER COLLECTION RATE STUDY 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 O&M expense and capital improvements, and to provide sufficient reserves. If a utility is considering issuing debt, revenues must meet debt service and debt service coverage requirements. •a Table 3 shows the revenue requirement projections through FY 20%21 for the Sewer Line Maintenance Fund. Lines 1 through 30 show sources of funds, including sp beginning year reserves, and the Fund's revenues. Line 6 shows sewer collection rate 0, revenue under existing rates, which is approximately $3.26 million per year. Lines 11 through 16 show rate revenue from proposed rate increases. Line 10 shows c the projected $5/month increase in rates effective July 1, 2015, from $4/month to $9/month. In subsequent years, proposed rate increases are 5 percent each year. 0 Lines 35 through 52 show the projected uses of funds. These uses of funds include v O&M expenses, the new expenses described above that are paid from the Sewer Line cc Maintenance Fund, and a transfer to the Sewer Construction Fund for capital improvements. ; a� Lines 54 through 57 show projected end of year Fund Balances. The proposed rates include a rate stabilization reserve per year that increases by approximately $800,000 per year, paid for by $1 per month of the proposed 2015 rate increase. The purpose of this rate stabilization reserve is to provide funds to use in case of circumstances that d cannot be accurately projected at this time. ° 4) The unreserved fund balance also is shown, which at the end of the six-year study period exceeds the target of 3 months of O&M expenses. 0 co co M O a 4) a� 0 U 3 rn V ca ° Lo ti 0 v 0 w c m E r Q 8 FG Solutions,LLC 040715 Draft SwrCollect Report Packet Pg. 114 2.B.a SEWER COLLECTION RATE STUDY Table 3 Financial Projection: Sewer Line Maintenance Fund SEWER LINE MAINTENANCE FUND(FUND 132) Projected Line Sources of Funds FY 14/15 FY 15/16 FY 16117 FY 17/18 FY 18119 FY 19120 FY 20/21 1 Beginning Fund Balance C 2 Rate Stabilization Reserve $0 $0 $800,000 $1,600,000 $2,400,000 $3,200,000 $4,000,000 O 3 Unrestricted Fund Balance $3,363,383 2,614,722 3,936,096 3,552,843 2,463,282 2,009,813 1,382,452 4 Total $3,363,383 $2,614,722 $4,736.096 $5,152,843 $4,863,282 $5,209,813 $5,382,452 C 5 G> 6 Rate Revenues Under Existing Rates $3,264,000 $3,264,000 $3,264,000 $33,264,000 $3,264,000 $3,264,000 $3,264,000 y 7 d 8 Revenues Under Future Rate Increases 9 %of Rate Months 'C 10 Year Revenues Effective r3+ 11 FY 15/16 125.0% 12 $4,080,000 $4,080,000 $4,080,000 $4,060,000 $4,080,000 $4,080,000 N 12 FY 16/17 5.0% 12 367,200 367,200 367,200 367,200 367,200 C 13 FY 17/18 5.0% 12 385,560 385,560 385,560 385,560 , 14 FY 18/19 5.0% 12 404,838 404,838 404,838 d 15 FY 19120 5.0% 12 425,080 425,080 16 FY 20/21 5.0% 12 446,334 0 17 Subtotal,Rate Revenue From Rate Increases $0 $4,080,000 $4,447.200 $4,832,760 $5,237,598 $5,662,678 $6,109,012 d 18 19 Other Operating Revenues $0 $0 $0 $0 $0 $0 $0 Q' 20 Total Operating Revenues $3,264,000 $7,344,000 $7,711,200 $8,096,760 $8,501,598 $8,926,678 $9,373,012 21 3 22 Non-Operating Revenues to 23 Interest Income $33,634 $26,147 $47,361 $51,528 $48,633 $52,098 $53,825 24 Total Non-Operating Revenues $33,634 $26,147 $47,361 $51,528 $48,633 $52,098 $53,825 C 25 d 26 Debt Proceeds $0 $0 $0 $0 $0 $0 $0 E 27 M 28 Total Revenue $3,297.634 $7,370,147 $7,758,561 $8,148,288 $8,550,231 $8,978,776 $9,426,836 CL N 29 p 30 Total Sources of Funds $6,661,017 $9,984,869 $12,494,657 $13,301,132 $13,413,513 $14,188,589 $14,809,288 31 32 SEWER LINE MAINTENANCE FUND(FUND 132) ra 33 Projected 34 Uses of Funds FY 14/15 FY 15/16 FY 16/17 FY 17118 FY 18/19 FY 19/20 FY 20121 p 35 O&M Expenditures 36 Personnel Services $1,538,890 $1,571,210 $1,604,210 $1,637,900 $1,672,300 $1.707,420 $1,743,280 Cl) 37 Maintenance&Operations 204,800 209,100 213,490 217,970 222,550 227,220 231,990 38 Contractual Services 550,200 561,750 573,550 585,590 597,890 610,450 623,270 C 39 Internal Services 184,050 187,920 191,870 195,900 200,010 204,210 208,500 a 40 Transfers Out 700,000 734,400 771,120 809,676 850,160 892,668 937,301 d 41 Total O&M Expenditures $3,177,940 $3,264,380 $3,354,240 $3,447,036 $3,542,910 $3,641,968 $3,744,341 w 42 V 43 Debt Service 44 Existing Debt $0 $0 $0 $0 $0 $0 $0 C 45 New Revenue Bond Debt Service 0 0 0 0 0 0 0 i 46 Total Debt Service $0 $0 $0 $0 $0 $0 $0 N 47 48 New Expenses and/or Capital Expenses 868,355 984,393 987,573 990,813 660,790 664,170 667,610 49 L 50 Transfer to Sewer Line Cosntruction Fund 245 $0 $1,000,000 $3,000,000 $4,000,000 $4,000,000 $4,500,000 $4,500,000 51 r 52 Total Expenditures $4,046,295 $5,248,773 $7,341,813 $8,437.849 $8,203,700 $8.806,138 $8,911,951 53 Co 54 Ending Fund Balance,Sewer Line Maintenance C 55 Rate Stabilization Reserve $0 $800,000 $1,600,000 $2,400,000 $3,200,000 $4,000,000 $4,800,000 C 56 Unrestricted Fund Balance 2,614,722 3,936,096 3,552,843 2,463,282 2,009,813 1,382,452 1,097,337 57 Total $2,614,722 $4,736,096 $5,152,843 $4,863,282 $5,209,813 $5,382,452 $5,897,337 = V e0 Table 4 shows the financial projection for the Sewer Construction Fund. The primary a source of funds is the transfer from the Sewer Line Maintenance Fund, although the existing fund balance does earn interest and sewer collection connection fees are deposited into this fund. Draft FG Solutions Pg. 115 SEWER COLLECTION RATE STUDY Table 4 Financial Projection: Sewer Construction Fund Projected Line Sources of Funds FY 14/15 FY 15/16 FY 16117 FY 17/18 FY 18/19 FY 19120 FY 20/21 1 Beginning Fund Balance $2,738,304 $1,974,117 $558,725 $955,249 $1,431,728 $1,322,206 $787,408 2 C 3 Interest Income $0 $19,741 $5,587 $9,552 $14,317 $13,222 $7,874 2 4 Sewer Connection Fees 255,000 255,000 255,000 255,000 255,000 255,000 255,000 t0 5 Transfer from Sewer Line Maintenance Fund 1,000,000 3,000,000 4,000,000 4,000,000 4,500,000 4,500,000 6 Total Revenue $255,000 $1,274,741 $3,260,587 $4,264,552 $4,269,317 $4,768,222 $4,762,874 N 7 O 8 Total Sources of Funds $2,993,304 $3,248,859 $3,819,312 $5,219,802 $5.701,046 $6,090,428 $5,550,282 [' 9 10 Projected 'a 11 Uses of Funds FY 14/15 FY 15116 FY 16/17 FY 17/18 FY 18/19 FY 19120 FY 20/21 r 12 New Expenses and/or Capital Expenses $1,019,187 $2,690,133 $2,864,063 $3,788,073 $4,378,840 $5,3033,020 $5,307,280 N 13 Total Uses of Funds $1,019,187 $2,690,133 $2,864,063 $3,788,073 $4,378,840 $5,303,020 $5,307,280 C 14 15 Ending Fund Balance,Sewer Line Construction Fund $1,974,117 $558,725 $955,249 $1,431,728 $1,322,206 $787,408 $243,002 O V The projected expenses shown in line 12 are those from Table 2 that are paid through the Sewer Construction Fund. The end of year Fund balance is intended to always be L greater than $0 in this fund. 3 a� rn r Existing Rates Table 5 shows the current sewer collection rate schedule, which has been in effect CL since January 1, 2010. Single-family residences pay a flat fee of $4 per month, as o does each unit in a duplex and triplex. For all other connections, the sewer collection r rate includes a monthly charge of$1.25 per account and a usage charge of$0.35 per cc hundred cubic feet of water usage. o �o Table 5 Current Rate Schedule t: O CL Current Customer Class Unit Rate Residential-Single Family °—' g y $/month/account $4.00 Multi-Family Residential(2 Units) $/month/account $8.00 V Multi-Family Residential(3 Units) $/month/account $12.00 3 N Multi-Family(4 or more units)and Non-Residential: � Monthly Charge $/month/account $1.25 Usage Charge $/hcf $0.35 0 0 Proposed Rate Schedule Table 6 shows the proposed rate schedule. The $5/month proposed increase for single- E family residents would allow the Public Services Department to complete maintenance (cleaning of the entire system) and infrastructure assessments (TV inspection, Master Q Plan completion) that are not currently being done. These are required in order to continue to provide long-term sewer collection services. Along with the maintenance and assessments, funds would be available to initiate construction of needed repairs. 10 FG Solutions,LLC 040715 Draft SwrCollect Report Packet Pg. 116 2B.a SEWER COLLECTION RATE STUDY 0 Table 6 Proposed Rate Schedule Line Customer Type Unit Current 71112014 71112015 71112016 1 Residential-Single Family $/month/account $4.00 $9.00 $9.45 $9.92 2 Multi-Family Residential(2 Units) $/month/account $8.00 $18.00 $18.90 $19.85 3 Multi-Family Residential(3 Units) $/monthlaccount $12.00 $27.00 $28.35 $29.77 0 4 Multi-Family(4 or more units)and Non-Residential: 5 Monthly Charge $/month/account $1.25 $2.81 $2.95 $3.10 c 6 Usage Charge $/hcf $0.35 $0.79 $0.83 $0.87 y 0 L a Not shown in Table 6 are potential rates effective 7/1/17, 7/1/18, and 7/1/19. These potential rates, presented here for informational purposes only, would reflect the c addditional 5.0 percent annual rate increases shown in Table 3 above. ° r a� 0 Example Sewer Bill Comparison Table 7 compares the example monthly single-family residential sewer bills with those for other local sewer systems. San Bernardino's total sewer charges are the sum of 3 Sewer Collection rates described in this Study and Sewer Treatment Rates which are N being projected under a separate Sewer Treatment Rate Study. ai Where possible, Table 7 separately identifies rates for sewer collection and treatment, E as some but not all utilities have separate charges. a a) This table shows that the Department's monthly sewer bill for this average residential customer is lower than most neighboring agencies, even after the proposed three rate increases. The table shows currently available information about sewer rates that will be in effect as of July 1, 2015 and where known, includes in the table notes information about future rate increases that have already been adopted. c, V 0 CL m m 0 U L 3 U) ea L O LO n 0 0 c m E L V !d fr' Q 2 Note that the two utilities served by Inland Empire Utilities Agency(IEUA)appear to have lower sewer treatment rates than other utilities. However,Table 7 does not show that IEUA collects property tax revenues in addition to user charge revenues. IEUA's FY 14/15 Budget shows$62.8M of user charge revenues and$40.1 M of property tax revenues. Draft FG Solutions, Packet Pg. 117 SEWER COLLECTION RATE STUDY Table 7 Monthly Single-Family Residential Bill Comparison Line Utility Treatment Collection Total 1 San Bernardino 2 Existing $18.50 $4.00 $22.50 c 3 Proposed 7/1/15 $20.07 $9.00 $29.07 R 4 Proposed 7/1/16 $21.78 $9.45 $31.23 5 Proposed'/1/17 $22.49 $9.92 $32.41 vi 6 a 7 Other Jurisdictions,Rates as of 7/1/15(1) 8 Rialto(4) N/A N/A $50.72 9 East Valley Water District(3) $20.07 $15.36 $35.43 10 Riverside(5) N/A N/A $33.62 g 11 Colton(2) N/A N/A $33.00 m 12 Loma Linda(3) $20.07 $10.97 $31.04 0 13 Redlands N/A N/A $23.24 v 14 Fontana(6) $14.39 $7.37 $21.76 R 15 Cucamonga Valley Water District(6) $14.39 $5.73 $20.12 m Notes: rn (1)Rates effective as of 7/1/15,to the extent rate increases have already been adopted. "N/A"means that treatment and collection rates are not broken out separately. 4) (2)Colton's rate will increase to$34.33 as of 7/1/17. (3)Includes the proposed Department sewer treatment rate increase effective 7/1/15. m EVWD and Loma Linda's sewer collection rate was calculated by FG Solutions,LLC by 0 subtracting the Department's sewer treatment charge from the total charge. (4)Rialto's rate will increase to$60.19 in 2015. M (5)Riverside's rate will increase to$39.59 as of 7/1/17. (6)Sewer treatment provided by Inland Empire Utilities Agency(IEUA). IEUA has adopted treatment rate increases to$15.89 effective 10/1/15,with gradual increases to$20 by FY 19/20. IEUA also collects property tax revenues not shown in this table. Its FY 14/15 budget shows$61.8M in user charge revenue and$40.2M in °c. properly tax revenue m .r Comparisons with other jurisdictions can be useful, but they do not in themselves explain why utility rates are set at the levels they are. Each utility is unique and has its �°� own set of circumstances that influence rate setting. In particular, the following are y not apparent from a monthly bill comparison: �a • Age of infrastructure and needed capital investments in order to maintain o service and comply with regulatory mandates. 0 • The condition of the infrastructure and the extent to which a utility chooses to 0 invest in repairs and replacements to its infrastructure. c m • Whether a utility is currently deferring capital investment and whether large r capital expenditures loom in the future. • Specifically to the comparison shown in Table 7, any additional future rate for a other jurisdictions increases not already adopted and not shown in Table 7. 12 FG Solutions,LLC 040715 Draft SwrCollect Report Packet Pg. 118 2.B.a SEWER COLLECTION RATE STUDY • Level of treatment, capacity of facilities, final disposition of the treated wastewater, point of discharge, etc. Ongoing Considerations o This Study covers a six-year period and proposes rates through FY 17/18. However, c circumstances in a sewer utility typically change on an ongoing basis. There will be d changes over the next few years that are not anticipated or projected in this Study that a` will have financial implications. The extent to which these factors change will influence the Department's next review of sewer collection rates. N The financial status of the Sewer Line Maintenance Fund and the Sewer Construction o Fund should be monitored on an ongoing basis • Customer growth. The Study assumes zero growth in rate revenues resulting from v new customers through the six-year planning period. Increases in non-residential r water consumption that is used to determine sewer bills will have the same effect on sewer collection rate revenues. Decreases in the number of customers and non- 3 residential water consumption will have the opposite effect. N r • Results of TV Inspection and Master Plan. The TV inspection for the remaining d portions of the collection system and completion of the Master Plan will provide E information that is simply unavailable today. This information will allow for a c. better estimate of capital improvement costs. o • Interest rates. The future interest rate environment will have financial implications if debt is considered in the fixture as a means to provide funding for capital 3 improvements. co • Updated analysis after Master Plan is completed. After the Master Plan is complete, CO specific capital improvements will be identified. These capital improvements will c CL be a substantial portion of the sewer collection revenue requirement. A revised analysis will be necessary at that time. The revised analysis should include a cost- of-service analysis that will allocate costs appropriately between residential and non-residential customer classes. The ability to complete a cost-of-service �j analysis is simply not available today because the information required to N complete the cost-of-service analysis (from the Master Plan) is also unavailable. �a • Reserve balances. After the Master Plan is complete and capital improvements are a ta identified, the operating reserve and revenue stabilization reserve balance policies should be reassessed in light of the updated estimated capital project costs. a 0 ;.o c m E L V l0 a Draft FG Solutions, Packet Pg. 119 c O m c a� N d L a a r U C 0 as 0 U m r ca L 3 as CO c m E ca C. m L d Co Fl- t O C. 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