Loading...
The URL can be used to link to this page
Your browser does not support the video tag.
Home
My WebLink
About
2013/12/17 Item 10
CITY COUNCIL AGENDA STATEMENT CITY OF CHULA VISTA 12117113, Itemz_ ITEM TITLE: PUBLIC HEARING TO CONSIDER THE PROPOSED INCREASE TO THE SEWER SERVICE RATES RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING AN INCREASE mT SEWER SERVICE RATES FOR FISCAL YEARS 2014115 THROUGH 2018119 AND AMENDING THE MASTER FEE SCHEDULE ACCORDINGLY RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA SETTING THE AMOUNT TO BE DEPOSITED INTO THE SEWER FACILITIES REPLACEMENT FUND, FOR FISCAL YEARS 2014115 THROUGH 2018119, AND CONTINUING AT THE 2018119 AMOUNTS UNTIL THE CITY COUNCIL TAKES ACTION TO INCREASE, OR OTHERWISE ADJUST THE AMOUNT SUBBY: DIRECTOR OF PUBLIC WORKS(fo ASSISTANT DIRECTOR OF ENGINEERINGag r REVIE'VVED BY: CITY MANAGER ASSISTANT CITY MANAGER f J�>5 415THS VOTE: YES ' ® NO ❑ SUAZMARY The City has recently completed a comprehensive review of its sewer rates, conducted on behalf of the City by Financial Consulting Solutions Group, Inc. (FCS Group (www.fcsgroup.com)). The purpose of the review was to ensure that sewer rates will continue to provide adequate funding for: (1) the cost of wastewater treatment services outsourced to the City of San Diego's Point Loma Wastewater Treatment Plant (PLWTP); (2) the cost of operating and maintaining the City's sewer collection system; and (3) investment in the infrastructure needed to provide service consistent with applicable federal; state, and local laws. The rate review has been proceeding in conjunction with a system-wride capacity evaluation and update to the City's Wastewater Management System planning document. This enabled the review to take into account the system needs identified in the Wastewater Asset Management Plan, supporting strategic use of funds and an overall more sustainable asset. 4 10-1 12117/13, Item /0 Page 2 of 14 The rate review also considered the establishment of an Environmental Protection Agency (EPA) Permit Renewal Liability Reserve. This reserve would help fund the City of Chula Vista's share of costs related to the potential upgrade to secondary treatment of the PLWTP or other alternatives. In alignment with City Strategy 4.1 (Ensure a sustainable and well maintained infrastructure to provide safe and appealing communities to live work and play), the rate modification described is proposed in order to ensure that the City may continue to provide adequate funding to meet future financial obligations. ENVIRONMENTAL REVIEW The Development Services Director has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity involving a sewer rate update, is not a "Project" as defined under Section 15378 of the State CEQA Guidelines because the activity consists of the creation of governmental funding mechanisms and related governmental fiscal activities which at this time do not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment. Therefore, pursuant to Section 15060(c)(3) of the State CEQA Guidelines the activity is not subject to CEQA. Thus, no environmental review is required. Although environmental review is not required for this governmental fiscal activity; once the scope of an any future construction project proposed to be funded by these sewer fees has been more specifically defined, environmental review will be required and the appropriate environmental determination will be made. RECOMMENDATION Staff recommends that Council conduct the public hearing to take and consider public testimony and adopt the resolutions. BOARDS/COMMISSION RECOMMENDATION Not applicable. DISCUSSION Background The City provides wastewater services as a self-supporting utility enterprise. The revenue generated by collection of sewer fees is solely used to cover operational expenses, including the cost of operating and maintaining the wastewater infrastructure (sewer mains, manholes, pump stations, etc.) owned by the City; charges for wastewater treatment services outsourced to the PLWTP, operated by the City of San Diego Metropolitan Wastewater District (Metro); the cost of developing system improvement projects; and the administrative costs such as billing services. As discussed in more detail in this report, an increase in sewer service rates is recommended because operational costs are rising; due in part to the rising cost of treatment, as well as the need to establish the EPA Permit Renewal Liability Reserve fund, which will address the City's share of the cost of future upgrades to bring the PLWTP current with secondary treatment standards, or an alternate solution. 10-2 12117113, Item /0 Page 3 of 14 Under the California Health and Safety Code (§53756), agencies that provide sewer services may adopt a schedule of fees or charges. for a period of up to five years, authorizing "automatic adjustments that "pass through" inflationary adjustments and/or increases m wholesale sewer charges. On February 5. 2008, the City Council, through Resolution 2008-043, adopted the first three nears of a five-year rate plan for Fiscal Year (FY) 2008 to FY2012 prepared by Camp Dresser McKee. Inc. This action excluded the last two years of the rate plan due to unresolved issues. such as the potential upgrade of the Point Loma Wastewater Treatment Plant. On June 8. 2010, the City Council adopted Ordinance 3155 stating that sewer service rates for FY2010 would remain in effect until the City Council takes action to increase_ or other-wise adjust the rates. Staff evaluated the sewer rates for FY2011 and FY2012 and recommended no rate increases. The City has not enacted any sewer rate increase since 2010. 2013 Sewer Rate Studv—Revenue Needs for Next 5 Fiscal Fears (Attachment A) In December of 2011. the City retained FCS Group to prepare the "Sewer Cast-of-Service Rate Study" completed in November 2013 (Study). The Study established the annual revenue needed to meet the utility's existing and projected obligations for the next five }rears (FY2014/15 to FY2018/19) and developed a plan to provide for the continued fiscal health of the utility. Projected revenue needs are shown in Table 1. The proposed sewer rate adjustment would cover the difference between the revenue currently generated and the projected revenue needed each year going forward. Table 1 —Existing and Projected Revenue Requirements -t" �s.-":rk,--, J --sem rte;, '_'_ jt i. r. u �: `e"-' ti_i't nr 7. !" �? 14, }' ^ ,! is r Eintiap.; 3projecied' �Projectid=�Projrcted =_Pinjecled Arn�rctid AYXrcgtti� �'�►at�l'eir" �_ :, _��T?rse tion _. F�'13114 �]h�'13113Fl`1576;= r�F1'1W17r' ?F�'17118 t x '18119 ;tHlkrcocs. Castinerrue 4 Ice*Cost•Wasimwe ru>m�t 519353,02& 519"964.519 S20 563.455 1S21,190a59 5?IA15.769 53_. 10 242 5;.057,2I4 36°' � JC4,21 Etpendimrc-Replaces:tent II ' ru B tins SFR Fee 51.50D.ODD S1.80S,000 52.116.320 S2.424.973 52,500,000 S3"649.959 52,149.959 25°" EPA Permit Reamer]Linbititp RcsmvFum&2 VA I S1,83&610 S1.8:8,6101 SI,838"6101 S1"83861D I 51.838.610 S1"834.610 219" D Iaster-a[er. ta=cc opmzioncosts(incl.=WW ",115.0361 SUOIN41 SMAS.836 510,005,129 S10321,2SS SI0,106,24S 1 S1"591212 ir_ E Irotal Costs I S29.995,063 [532.913923 533,167 Li 1535.452,071 IS36.475,667 1536.60,059 I SS,666,995 I 1004: Rate Structure The City's sewer rate is structured around a fixed component and a variable component. The fixed component of the rate helps stabilize revenues from year to year. improving the utility's ability to plan ahead financially. The variable component of the rate is established based on water usage (volume). The variable component helps incentivize conservation efforts among City residents and also helps distribute the treatment expenses equitably. with users who generate more effluent paying more in fees. Over the past 10 years, through conservation, the City has reduced wastewater floes from 16.346 million gallons per day in 2003 to 15.734 million gallons per day in 2013, although the population has increased roughly 30.000 since then. 10-3 12117113, Item /9 Page 4 of 14 The sewer billing equation used to calculate fees for single-family residential customers is as follows. Winter Volume Service FixedServic] + 90% Of = � Sewer Service Charge Average Water Usage 0 x Charge Fee The City of Chula Vista's sewer service charge is made up of three different fees: the Sewer Service Fee, Sewerage Facilities Replacement Fee and the Storm Drain Fee. Consequently, revenue generated by the City's sewer service charge is distributed between three separate funds. The City is proposing to adjust the Sewerage Facilities Replacement Fee and the Sewer Service Fee components of the sewer service charge. Said adjustment is shown in the Combined Sewer Rate Forecast shown in Table 2. Even though the Storm Drain Fee is collected in the same bill as the sewer fees, it is not being re-evaluated or adjusted as part of this effort. The Storm Drain Fee is subject to different legal requirements and is not part of the Sewer Enterprise Fund, nor is it an item that will be considered for adjustment with this Public Hearing, Proposed Sewer Rates for FY2014/2015 through FY2018/2019 Table 2 shows current FY2013/14 sewer rates alongside proposed rates FY2014/15 through FY2018/19. Rates were developed to meet the City's yearly projected revenue requirements shown in Table 1. Table 2 - Combined Sewer Rate Forecast (Sewer Service Charge*) FY,2013/14 a>FY:2014/15;•FY,2015/16•:FY 2016/17. F.Y.•2017/18,; FY,2018/19• Monthly Feed Service a€� A �,�b. s#,n`At P o�osed - Ps'o"o`s'ed ' =P'ro used':' Pro"osed '� Proposed ` Single-Family $8.03 $8.97 $10.23 $11.62 $12.97 $14.53 All Others 518"Meter $8.03 $8.97 $10.23 $11.62 $12.97 $14.53 314"Meter $8.03 $8.97 $10.23 $11.62 $12.97 $14.53 1"Meter $13.38 $15.60 $18.48 $21.66 $24.72 $28.49 1-1/2"Meter $26.76 $26.64 $32.23 $38.41 $44.32 $51.77 2"Meter $42.81 $39.89 $48.72 $58.49 $67.82 $79.68 3"Meter $80.28 $75.23 $92.71 $112.07 $130.52 $154.15 4" Meter $133.79 $114.98 $142.20 $172.34 $201.051 $237.91 6"Meter $267.59 $225.40 $279.67 $339.76 S396.971 $470.61 8"Meter $428.14 $446.24 $554.61 $674.61 $788.83 $936.01 `FY 2013/14• J FY;2014/M ,FYr2D]5/16, FY 2016/17 EYn201.7/18• _FY 2018/19: Volume Charge"per Hundred C�iblc Feet(M!r,Y::Yew .L� '7. .;� , - r, " ; a YY te_.zi''r'�; =n;=:1�.f n ��.• 31 Xistin L pro ose"d'r fih' osed _'Pra -sed:" ;,.Pro osed.;:YPro sed Residential Single-Family $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Multi-Family $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Mobile Homes i $3.571 $3.861 $3.971 $4.071 $4,191 $4.26 Non-Residential Commercial-Low $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Commercial-Med $4.88 $5.40 $5.56 $5.73 $5.92 $6.02 Commercial-Hieb $7.49 $8.54 $8.82 $9.11 $9.43 $9.59 Special Users Varies Varies Varies Varies Varies Varies 10-4 12117113, Item Page 5 of 14 (*)Table 2 does not include the Storni Drain Fee of 50.70 per month for single-family customers and a monthly fee based on water consumption of 50.06 per Hundred Cubic Feet for all other customers. The Storm Drain Fee is not changing with this rate adjustment. The City's existing sev=er service charges are set forth in the City's Master Fee Schedule. As these sev=er service charges are amended._ the Master Fee Schedule would need to be amended accordingly. Reasons for Proposed Rate Increase The reasons for the proposed increase are as follows: (1) Rising costs of w=astewater treatment service provided by the City of San Diego (2) Meed for replacement/rehabilitation of existing sewer facilities; as identified in the City's N� astewater Asset Management Plan (3) The need to establish a reserve for the EPA Permit Renew=al Liability Reserve Fund (4) Rising costs of materials, construction and energy The following provides more information on each of these issues and how they would be addressed through the proposed rate increase. Rising Costs of Wastewater Treatment Service. The wastew=ater treatment costs represent approximately 65% of the total FY2013/14 fund's obligation. Charges for treatment at the PLWTP reflect the cost of maintaining and operating the Metro system. The City of San Diego allocates costs to all participating agencies in proportion to the quantity and strength of sewage they contribute to the system. Chula Vista's proportionate share is based on the City's flow=, which represents approximately 10% of the total flow in the Metro system. The yearly increase in revenue requirements (see Table 1) accounts for rising costs of local system maintenance; and wastew=ater treatment senvice provided by the City of San Diego. The wastewater treatment costs assessed by the City of San Diego make up the majority of the costs for the City's rate update. Pursuant to California"Government Code Section 53756, an agency that purchases wastewater treatment from a public agency may provide for automatic adjustments that pass through the adopted increases or decreases in the wholesale charges for wastewater treatment established by the other agency. Accordingly, the City's proposed five- year rate increase includes the projected City of San Diego treatment charges. Facilities Replacement/Rehabilitation per Wastewater Asset Management Plan. The Sewer Facilities Replacement (SFR) Fee was established in 1987 as a funding mechanism for the rehabilitation and/or replacement of structurally deficient sewer facilities. Based upon the needs defitied by the City's Wastewater Asset Management Program (VAMP); it is designed to provide ongoing funding to maintain and replace the City's physical sewer system. Chart 1 summarizes the projected replacement funding needs over the next hundred years. By providing a consistent funding level for capital projects. the City can strategically address the needs identified in the WAMP. Because the current SFR Fee is a volumetric rate (50.18 per hcf of water consumption), annual variations in water consumption creates a volatile revenue source 10-5 12117113, Item l0 Page 6 of 14 and may negatively impact project development. To decrease potential revenue volatility and assist the City in planning for capital projects, the 2013 Sewer Rate Study recommends converting the SFR Fee to a fixed charge. To mitigate potential financial impacts on ratepayers, this conversion is proposed to take place on a phased basis from FY 2014115 through FY 2018119. Over this five-year period, the SFR Fee would shift from being exclusively volumetric to being exclusively fixed as shown in Table 3 Chart 1— Collection System Renewal Needs per WAMP 515,000000 - - - — t S10.000,000 — --- 1 55,000.00oAJU-_ s. _4ia�f>�ir�1t r ��i�tlH I �W m O•1'+' ,1 iD•Ch I•✓1•m•r f 1"+ O M 10 Ot'N J1 W .r N H N N N N 1V N N - N N N N N N H N N H N H N N H N N N N N N N N N s Replatement � Rehab ----100•yr average The SFR Fee currently provides roughly $1.8 million annually in cash resources, but additional funding will be needed in coming years in order to meet expected increased needs based on WAMP projections. The revenue collected through the SFR Fee will be deposited into the SFR Fund and is projected to increase by $2.2 million by FY 2018119, corresponding to a total annual funding level of$4 million. Inflationary increases in construction costs and variation in number of projected accounts contributing to the SFR fund necessitate a higher revenue target as compared to the 3.6 million identified on Chart 1. 10-6 12117113, Item V Page 7 of 14 Table 3 -Sewer Facilities Replacement (SFR) Fee Forecast 'F1'2013!14 `F�-201!%Li° • -2013i1G FY.2016I17 TY.26FY 2p18119 Alonthl}.Filed Sen�ee Charge-==fir := ��3:_-=:_ _ - -�� ._ Eiisting- .Proposed ,Proposed ti 'Proposed; -Proposed: °Proposrd Sinele-Family SO.001 50.731 51.671 $2.721} S3.70 $3.10 All Others 1 1 1 5/8"Meter so.pol $0.731 51.671 52.721 53.70 $5.10 314" Meter SO-001 $0.731 51.671 $2.721 53.70 55.10 I"Meter SO.0o1 51.82 S4.181 S6.801 S9.25 512.75 1-1/2"Meter $0.0ol $3.641 S8.351 S13.601 518.49 525.50 2"Meter SO.001 $5.821 S11361 S21.761 529.59 540.80 3"Meter SO.001 511.6.11 526.721 $43.521 559.17 581.60 4"Meter 50.00 SI&I91 S41.761 S68.001 592.46 5127.50 6"Meter SO-001 536.371 583.511 $136.001 $184.91 5255.00 8"Meter So.001 572.741 5167.021 5272.011 $369.831 5510.01 .�F71i, -'Y" FY-2013114 ,H 2014/15y FY.2035116. F1'2016117 FY 1017/18' F 1'2018!79 Volume Charge per,Hundred Cubic feet(tscf} r s�:-� _-sr_ .. A _ :_: y�-x ,. Vw :. ms`s=- T ;;� �._ Ezistiag' ' Proposed Proposed Proposed'_ E=Proposed -Proposed; All Customers - 50.181r SO-14 50.i 01 SO.051 50.00 SO.00 The amount to be deposited in the SFR would remain in effect after FY 18/19 until the City Council takes action to increase, or otherwise adjust the amount to be deposited in said fund. Table 2 summarizes the combined sewer rate structure, which combines both the Sewer Service Charge and the SFR Fee. EPA Permit Renewal Liability Reserve. The Citv is the largest contributing member agency of the Metro Joint Powers Authority (JPA) and is responsible for a large share of operating and capital costs. In FY2013/14, the City is expected to account for 519.3 million or 10% of total Metro costs. Given the reliance on Metro for treatment, the City is susceptible to large shifts in Metro's costs. The PLWTP provides only primary treatment and is currently operating under a waiver from the U.S. Environmental Protection Agency (EPA) that is set to expire in 2015. Unless the waiver is renewed, the PLWTP may need to upgrade to provide secondary treatment, a higher level of treatment required to meet more stringent environmental regulations governing treated wastewater effluent. In order to maximize the likelihood of the waiver beinc, renewed. Metro and member agencies are proposing the expansion of a recycled water network that would reuse a larger portion of treated wastewater flows and, therefore, reduce the amount discharged into the ocean. If the waiver is not renewed in 2015, Metro and JPA members would be faced with large capital obligations within 10 years of the waiver's expiration. As the largest member agency, the City would be responsible for a large share of the upgrade costs. Current estimates place the cost of upgrading to secondary treatment in the billions of dollars with Chula Vista's share being about 10% of the total cost. As noted, an alternative to upgrading to secondary treatment is expanding the region's recycled water network. This alternative would also be costly and funds would be required as well. 10-7 i 12117113, Item /0 Page 8 of 14 To help meet this obligation, it is recommended that the City begin funding a dedicated reserve. By planning for the PLWTP upgrade, the City is actively guarding against large rate spikes for its ratepayers. Based on the Study recommendations, the City is proposing to set aside $1.8 million per year for the EPA Permit Renewal Liability effort for the next five years. If the waiver is granted, the City would then have the flexibility to either reduce future rate adjustments to reflect the costs avoided or transfer the funds to the SFR Reserve to apply toward future severer facility replacement needs. The costs for the secondary upgrade at PLWTP are projected to be approximately two billion dollars (without financing costs). The City's proportionate share would be about one to two hundred million dollars. The five-year plan would fund about nine million dollars. This should be a solid base from which the City could then bond and further mitigate the impact to our rate payers. City Wastewater Operation and Maintenance. Line item expenditures in the City's FY2013114 operating budget were used as the starting point to forecast future operating expenses. Future-year costs were forecasted on a line-item basis using the escalation factors shown in Table 4. Table 4—Cost Escalation Factors -•r r a--a.m.w= —ar- �r _ - ,"1.a. t ;. 'CrY'�- _." ,-ci' .s.� �p •',x�: •T.'^'s4€ i'h;;r4'..•3'�.F 7_k.F ;= G Cost;Escalator „� i= ,: ' s �. I. :gyp Descnption;, -+ - iir _.. tr�a..R' ,1w*_ `s »st r as cxr x i .: « r' General Cost Inflation This rate applies to most expenses in the operating expense forecast, and considers the Consumer Price Index (All Urban Consumers, West Region). Although the annual CPI value has ranged from as low as -0.4% to as high as 3.7% over the last 10 years, the average annual CPI value for the same period has been about.2.5%1. To be conservative; the forecasts assumed an annual inflation rate of 3.0% through the entirety of the financial forecast. Labor Cost Inflation This rate was established to account for the fact that labor costs generally increase at a different rate than general inflation. It applies to labor- related expenses such as salaries, benefits, and professional services (on the premise that the rates charged by firms providing those services would likely reflect increases to their labor costs). Based on discussion with City staff on current and expected staffing, labor inflation was assumed to be 2.0%through FY 2014115 and 4.0% thereafter. Construction Cost A separate inflationary rate is applied to construction expenses, which Inflation are generally included in the capital budget instead of the operating Construction Cost budget (there are exceptions though, such as minor asset maintenance Inflation expenses). Capital cost inflation is commonly linked to the Engineering News Record (ENR) Construction Cost Index (CCI). Our review of the historical increases in the ENR 20-city index suggests that costs have roughly increased at a rate between 3 — 4% over the last 10 years. Therefore, the rate analysis assumed a long-term historical average of 4.0% for all ears. United States Department of Labor,Bureau of Labor Statistics(http;/h�ww.bis.gov/cpi/).July 2010. 10-8 12117113, Item /Q Page 9 of 14 Impact to the Ratepaver The amounts shown in Table 1 reflect an increase in total revenue requirements. The impact to the ratepayer would vary depending on their individual water consumption. The following is a sample bill calculation showing the actual dollar increase per year as the neer rates are implemented. The sample calculation in Table 5 reflects three different customer classes. Table 5-Projected Sewer Charges _r_ FY'13113;: F;Y.14/15 FY•15/16:1 FY 16117 F1'.17118;'• F_Y-18119 A�'eragelSew'er 11lOnthl�13111i`.` C "wy 4 �' i s�� t .':n- .< _ u `t =ti tr_ :.Y�..L " a Existing,=t=Proposed= Proposed Proposedy'_ Proposed Proposednr Single Family Residence @ 10 HCF(Hundred Cubic Feet) 540.16 543.71 545.96 548.25 S50.68 552.87 V Multi-Family @ 35 HCF 5112.09 5122.33 $128.25 5134 20 5140.57 5146.28 2"Medium-Strength Commercial - @ 70 HCF V $350.25 5380.09 5399.00 5419.48 5440.78 5458.94 For the single family residence example shown above, the dollar amount and percent increase would be as sho«-n in the following Table 6. Table 6--Projected Rate Increase for Typical Single-Family Residence -P.roposed�Fee--4~XP.roposed �FiscalsYear�' =� - ��-- .r-�--;�-''.tea �...`-� -_ a,Tncreasu}i' Rate-increase FY 14115' $3.55 8.8 Percent* FY 15116 $2.25 5.1 Percent FY 16117 $2.29 5.0.Percent FY 17118 $2.43 5.0 Percent FY 18119 $2.19 4.3 Percent *The City has not had a rate increase since 2010. For the same typical single-family residence discussed above, the revenue collected as a result of the proposed FY2014/2015 rate increase would be distributed in the follo%Ning manner. The breakdown shown in Table 7 is normalized to the $3.55 monthly fee increase. Table 7 --Projected FY 2014/2015 Allocation of Monthly Fee Increase for Typical Single- Family Residence s•' =" Z i' p_erCe tSPIIti �, 4. -,Y• S.Spbt•of SeKer.Ctiarge• ! _ :- `� r- ,=.'3� - '. "- "ms's:' r Ch_arge'lntrease-m F'1-s lncmase:m-F'Y_14/15F." _R3_ - - 14/15 ~.@.- .aN W Metro Cost-N astewater Treatment 51.28 36% Capital Expenditure-Replacemeni Funding(SFA Fee) $0.89 25% EPA Permit Renewal Liability Reserve Funding 54.75 21% W'astewater Maintenance g Operation Costs(incl.support services and vehicle replacement) 50.64 18% Total S3.55 100% 10-9 12/17113, Item_ Page 10 of 14 Comparison of City of Chula Vista's Sewer Service Fee with Other Local Agencies Chart 2 (prepared by Otay Water District) puts existing and proposed City single-family residential sewer bill charges (sewer only, exclusive of storm drain charges) in a regional context. While acknow=ledging that every agency's cost for operating its wastewater collection system varies in accordance with its unique characteristics (size, age of system, demographics etc.). Chart 2 provides a useful perspective for a variety of local jurisdictions. In summary, compared to other jurisdictions in San Diego County, typical single-family residential sewer charges are moderate and are expected to remain so. Even with the proposed FY 2014/15 increase, the monthly bill is expected to remain below the 50th percentile of single-family bills in San Diego County. Customers can have some influence on the sewer rate by actively monitoring and reducing the amount of domestic water used during the winter months (November to April) when usage is monitored and used to set the volumetric portion of the sewer fee for the following year. Noticing regarding winter average consumption monitoring is included on the sewer bill. Chart 2 —Monthly Server Bill Comparison 2013 Seiver Bill Comparison in Sap Diego County (3/4"Residential Meter, 7 hcf of Water Use) V21lesCenter-R'ti' Fc :sw urssaarrr.3:�x.as:cz rte.,•:=sFra_a ,:. cS9fihD• ` • nwr na•+ _,x:: K .ars: ».�. t721le Center--NIP - Del\JaT e K .._= r_:r.r-z- .e ._o a..•..a, n. «»-rr:-- .r- I3mchoSant2Fe _ -�r�-a+.:s.rn•-,.�ax_vr_: u�+o...sxcaere,P.;s: <.w.Mxw�•n.•[.• Buena. •is•w•-.e..yx-.. zc x-.-e.�_ •w�=1- ��r�,s t�..a•twtrr-a,ur:�-r, wn• OCea.nsidC s:" °4 ersraxeE.�c- -w..rns,_n ar•: ._sn.'�n.cbxne«na,ti�xYs.,,m:r Rainbow -•�----,�:R - - .,.iws.�.-a::r.»cx..o�atrzr:t.w. OhNICnhaiII i>t.,s'+c+s awr,ex-r-.was.:rw=:.CSIC ZRx•:.^:ter rtre:sv:hr:zrw:-.m:rv*ec-a•:.. Ramona, kx•%-•a-y�.`a w.....+�;�xra Z[(1B©zu'-•-,���'c-a:,c tiza,� Valle,'sewer-MG Solana Beach-c=.e.,::.xui_-• 7.,� .cs�:� 'r_ c�srsr..:'rc:,.� :.: a PowaF Fallhrooi54436 -M = x Lemon Grm-e Ad—- •�. San Dieao ,rr Vista Chula Vista(2014/15) Imperial Beach -fm=-. :asr NationalCiR Chal*Vjsta(201344)1'arx •sem—r-I11 i 1yr.za:.:ams 1. Cowty of San Diego I ='�''���'• El Cajon Carlsbad 0tar - d' Leucadia 50.00 510.00 $20.00 530.00 $40.00 550.00 560.00 570.00 580.00 S90.00 $100.00 COMMUNITY OUTREACH From the initial stages of this project, City staff and consultant staff have stressed the importance of conducting thorough community outreach to foster transparency and make sure community members' questions and concerns would be heard and responded to as comprehensively as possible. Outreach for the sewer rate review was combined with outreach for the ongoing Wastewater Management System (wastewater master planning) update as well as a 10-10 12117113, Item /d Page 11 of 14 potential change in sewer billing delivery that was being considered to streamline the billing process and reduce administrative costs. The team felt it was important to present these three related planning efforts together to provide the public with the most complete information and best understanding of the Cite process possible. In addition; because sewer rates are linked to infrastructure costs. the Wastewater Master Plan update provides critical background information for the sewer rate update recommendations. Due to vocal community opposition, staff does not intend to propose the change in sewer bill delivery at this time. The updated Wastewater Master Plan is being finalized at this time and will be presented for Council review in early 2014. The combined outreach program entailed the following components. • A website presence with project descriptions. Frequently Asked Questions (FAQs) for each project, community meeting notices. and a Notice of Public Hearing («r\kr%N,.chulavistaca.goy/goto/sewerrates). • Hard cope mailers; including a bilingual tri-fold providing an overview of each of the three planning projects; a formal Proposition 218 Notice of Public Hearing, and a notice for additionaf community meetings. Two mailers were sent to all addresses within the Citi° as well as nonresident property owners. • General community meetings, discussed in more detail below. • Meetings with the following interest groups: Chula Vista Chamber of Commerce and area developers (through the City's ongoing development roundtable). Staff also reached out to other local organizations to offer in-person meetings. • Press outreach, including a press release to the Star News as well as interviews with Channel 10 on October 30th; Channel 5 on November 6, 2013. Copies of outreach materials are included as attachments «lith this report. All outreach was fully bilingual in English and Spanish. To ensure accuracy and parity. Spanish translations of web and hard copy collateral materials were performed by native speakers knowledgeable in engineering (provided by the City's master planning and community outreach consultant, IEC), and were "vetted" by native-speaker senior engineering staff internal to the Citv. Translation services at community meetings were provided by bilingual native-speaker City staff. General Community Meetim Staff conducted four community meetings in total: • November 6, 2013, 1:30 — 3:30 p.m. at Salt Creek Community Center, 2710 Otay Lakes Road • November 6, 2013, 6 — 8 p.m. at Joseph Casillas Elementary School, 1130 East J Street • November 7, 2013, 2:30 —4:30 p.m. at Otay Recreation Center, 3554 Main-Street • November 7, 2013, 6 -8 p.m. at Feaster Charter School, 670 Flower Street 10-11 12/17/13, Item la Page 12 of 14 Multiple locations and times were offered to give as many people as possible an opportunity to attend a meeting. At each meeting, staff welcomed attendees in English and Spanish, then a short PowerPoint presentation introducing the three projects was provided, followed by an open house format discussion where participants had the opportunity to visit topic-oriented poster stations to ask questions and/or provide input. Comment cards were provided to enable written commentary. Some of the questions and concerns relevant to the sewer rate update were: • How much will my sewer bill increase? • Why is the 5-year cumulative increase in the sewer bill so much? • How much was the sewer rate 5 years or 10 years ago? • What portion of the proposed rate increase is due to the need to fund improvements to the Point Loma Wastewater Treatment Plant? Several attendees also expressed concern about the discontinuation of the low income discount. Staff will prepare a separate report with regards to this issue in the near future. Updated FAQs with answers to all questions from the meetings are attached and have also been posted to the project web page. Staff came prepared to the meetings with examples of how the severer rate update would impact typical customers for different land uses. At the Sewer Rate Review open house station, projected rates were calculated for attendees. Questions that could not be answered by staff were were researched and followed up with the attendees. Interest Group Meetines Development Community. Senior City staff and supporting consultants attended the regular meeting of the Development Oversight Committee on November 12, 2013. A brief PowerPoint was presented, followed by Q&A discussion. The primary focus of this outreach was on the updated development fees that will be proposed as part of the new Wastewater Management System document in early 2014. No substantive comments on changes in sewer rates were received at this meeting. Chamber of Commerce. Senior City staff attended the regular meeting of the Board of Directors on November 13, 2013. A brief PowerPoint was presented, followed by Q&A discussion. The outreach included the Wastewater Management System update, the sewer rate update and the billing methodology. The biggest concern was on the billing methodology change that staff is no longer proposing. Staff took the opportunity to begin conversations with the Chamber regarding the methodology of determining the sewer capacity fees for restaurants. The Chamber requested a follow up meeting on this issue. The capacity fees for restaurants is not part of the current effort. The City's ability to increase sewer fees is governed by Proposition 218, which requires written notice of: (i) the location, time and date of the public hearing; (ii) the amount of the proposed fee increase, and (iii) the reasons and bases for the proposed fee increase. The City provided written notice to the affected property owners and rate payers, in accordance with Proposition 218. The notice also included information regarding the public outreach meetings, FAQs, sample 10-12 12117/13, Item /0 Page 13 of 14 calculations and information on how to obtain assistance from Citv staff regarding any questions related to the proposed increase. A coPy of the notice is attached as Exhibit B to this staff report. Proposition 218 requires that the City hold a "majority protest" public hearing prior to implementing an increase. If-written protests are submitted for a majority of the affected parcels, the rate increase shall not be implemented. The number of accounts served by the collection system is 48,922 as of October 2012. Thus; under Proposition 218 rules, a majority protest would exist if written protests %sere submitted by property owners or customers on behalf of at least 24,462 parcels (a simple majority). BILLING METHODOLOGY City staff had proposed changes in the billing delivery process to increase efficiency and reduce costs. Currently, depending on where you live «ithin the city, the City bills its sewer customers in three different ways: • Customers in the Otay Nater District service area are billed monthly and see charges for water and sewer services on the same bill • Customers in the Sweetwater Authority`s service area, but outside the Montgomery Annexation area; are billed bimonthly for sewer services by the City's Finance Department • The remaining customers, most of whom are located in the Montgomery area. are billed semi-annually for sewer services, via their property tax bill. These billings are handled by the City Department of Public Works, Engineering Division. This system (billing via property tax statement) reflects the billing method utilized by the County of San Diego for unincorporated areas and has been in place since before the annexation of the Montgomery area into the City of Chula Vista Under the proposed billing system, all residential customers would have received their sewer bill on their property tax statement, the same manner as customer's located within the Montgomery Annexation area. Business customers would have been billed through a separate, in-house City billing system. After careful consideration of the public's comments and the business community concerns, staff is not recommending any change to the current billing process. DECISION MAKER CONFLICT Staff has reviewed Councilmembers' property holdings and has determined that the effect of the decision contemplated by this action on public officials' interest in real propertywould also affect 10% or more of all property owners in the public officials' jurisdiction, or 5,000 property owners in the jurisdiction of the officials' agency, in substantially the same manner. Therefore, pursuant to California Code of Regulations (§18707, §18707.1), the Public Generally Exception applies. CURRENT YEAR FISCAL IMPACT There is no impact to the sewer fund in the current fiscal year (FY2013/2014) as approval of this action will increase sewer rates for FY2014/201 through FY2018/2019. 10-13 12117113, Item l Page 14 of 14 ONGOING FISCAL IMPACT The proposed rate increase is crucial to the City's ability to operate and maintain the City's wastewater collection system in a manner that continues the current high level of service, including the City's excellent record of avoiding sewer system overflows (SSOs) and spills. If the fee increase is not approved, the City may need to address the resulting shortfall through use of the reserve funds initially. Ultimately the City may address the resulting shortfall through a transfer from the General Fund or by making operational cuts. The City cannot control sewage generation or the cost of outsourced wastewater treatment. The only potential area of cost control would be the City's in-house operations and/or capital expenditures. Reductions in the operations and maintenance area would curtail pipe cleaning and pipe monitoring programs. Reductions in capital expenditures would translate to a reduced ability to rehabilitate and improve aging or undersized facilities. Cuts in either of these programs, which are directly responsible for the City's notable track record of spill avoidance, would make the wastewater collection system more susceptible to failure and spills. This action could potentially result in significant penalties from the State Water Resources Control Board. The reserve policy, outlining the fund balances and their intended uses, was presented earlier today under a separate report. If the proposed rate adjustment is approved, revenues would increase by 4.5% in FY2014/15 and additionally thereafter. This percent revenue increase is not the same as the projected rate increase for a typical single family residential account (see Table 6) because the assumption was made that the water conservation trend would continue. Sewer revenue is directly affected by water consumption, the less water used, the lower the revenue collected. Therefore, the percent increase on a typical bill would be higher than the percent of actual revenue realized. The rate change for the first year would go into effect July 1, 2014. This is anticipated to generate sufficient revenues to meet projected fund expenditures for FY2014/15 through FY2018/19. Furthermore; approval of the proposed sewer facility replacement fee increase will ensure that the City can continue providing reliable service to the City's residents, and can avoid financial impacts of penalties for SSOs and spills. Since we are currently in the winter averaging period, homeowners should be conserving landscaping and domestic water use at this time in order to help insulate them from the sewer rate increases to the extent they can. ATTACHMENTS A. Cost of Service and Rate Study For Sewer Services--November 2013 B. Public Hearing Notice Prepared by: Roberto }ano, Sr. Civil Engineer Public Works Department 3-I£n-,ineer\AGENDAICA5013112-17-131REPORT-PN'-Seiner Rate Update 2013-R7B doc 10-14 r, / / l r l f / r. i // ilial ii a a r / r r. �aODi f 7 r -., ,. /„ � rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr r 1 r� V�VV V ������������V VVV muuuu uuuuuuuuuuuuuuuuuuu fir' � r,/��,,- IIIIIIIIIIIIIIVuuumuuum It w r, ,r //�. %..........�1/%/,� � City ofChula Vista Sewer Cod-of-SemiceRate Study 2013 page TABLE � � � | �� ��[ CON ���� �Un ��^������ �~�K- K ���^� K ~� SECTION 1: EXECUTIVE SUMMARY........... ............................. —............ ...... —.....................— l A. Study Overview....................................................................................................................................l B. Finoncka| P|on---------------------------------------------l C. Rate Design...........................................................................................................................................2 D. Project Findings and Recnrnrnendohoro -----------------------------3 FiscalPolicies..................................................................................................................................S BillingPolicies.................................................................................................................................7 Revenue Requirement Forecast................................................................................................8 Cod-of-Servkce............................................................................................................................ll SECTION 11: SYSTEM (]VFRVIFVV ................... —................... —...................___..................... ' 13 A. City Profile ........................................................................................................................................... 3 B. City Facilities.......................................................................................................................................l3 C. San Diego Metropolitan Sewer Joint Powers Authority..............................................................l4 30l (h) Waiver Implications........................................................................................................l4 Additional Capacity Purchases...............................................................................................l4 O. Recycled Water.................................................................................................................................l5 SECTION III: FINANCIAL PLAN.... ..................................... ............. .......___................... —' l6 RecommendationOverview................................................................................................................l6 A. Methodology......................................................................................................................................l7 &l Overview......................................................................................................................................l8 FinancialConsiderations...........................................................................................................l8 PolicyConsiderations.................................................................................................................l8 A.2 Billing Considerations .................................................................................................................l9 A.3 Billing Policies............................................................................................................................... 9 A.3] Vacant Homes...............................................................................................................20 A.3.2 Account Name Change .............................................................................................2l A.3.3 Back Billing......................................................................................................................2l /\.3/4 Low-Income Discount ..................................................................................................22 /\'4 Expenditures.................................................................................................................................23 /\'4] Operations......................................................................................................................23 � 4P 0, l���� �� ����� City ofChula Vista Sewer Cod-of-SemiceRate Study 2013 page ii A.4.2 CopUo| Requirements ..................................................................................................2S ReplacementFunding...............................................................................................................26 A.5 Policy Requirements...................................................................................................................28 A.5] Minimum Working Capital & Rate Stabilization Reserve.......................................28 A.52 Sewer Emergency Reserve..........................................................................................29 PolicyConsideration ..................................................................................................................29 /\.5.3 Vehicle Replacement Reserve...................................................................................29 PolicyConsideration ..................................................................................................................3U &6 Resources & Revenues ..............................................................................................................3U &6] Operating Revenues....................................................................................................3l StormDrain Fee...........................................................................................................................3l A.6.2 Capital Revenues..........................................................................................................32 B. Forecasted Rate Revenue Requirements----------------------------.33 Scenario | - Baseline...................................................................................................................34 Scenario U - Point Lnrno Upgrade...........................................................................................3S Scenario III -Membrane Bioreactor (k4RR) Plant Construction.........................................37 SECTION IV: COST-OF-SFRVICF.....................—................... —...................---..................... ' 39 A. Sewer Rates Background.................................................................................................................39 B. Current Sewer Rates..........................................................................................................................40 C. Rate Design.........................................................................................................................................4l C. Functional Allocation.................................................................................................................4l C.2 Customer Data Analysis ............................................................................................................42 C.3 Rates..............................................................................................................................................43 SewerService Charge ...............................................................................................................44 Sewer Facilities Replacement Fee ..........................................................................................44 SECTION V: CONCLUSION ----------------------------------- 49 APPENDICES ................. — ............ .......................... —............ ...... —.....................— ............ 5l A. Sewer Billing Memo ...........................................................................................................................5l StudyObjective...........................................................................................................................................J2 DataOverview............................................................................................................................................J2 Montgomery............................................................................................................................................53 Process----------------------------------------------53 Limitations.....................................................................................................................................53 Otoy...........................................................................................................................................................S3 Process----------------------------------------------S4 Limitations.....................................................................................................................................S4 @ 4PO, l���� �� ����� City ofChula Vista Sewer Cod-of-SemiceRate Study 2013 page iii Svveeiwvahar-----------------------------------------------.54 Process----------------------------------------------SS Limitations.....................................................................................................................................SS StudyFindings..............................................................................................................................................S5 Montgomery............................................................................................................................................5J Otoy...........................................................................................................................................................J6 Sweetwater..............................................................................................................................................J8 CombinedReconciliation.........................................................................................................................59 Consistency of Data Records with Calculated Revenues .............................................................J9 Completeness and Accuracy ofData Sets ----------------------------'59 Conc|odnn-------------------------------------------------.61 � �� l���� �� ] ����� %� ����� ������J� City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page SEC�U 10N "U °° E XECTI VE SUMMARY The City of Chula \/imtu (City) provides sewer collection services for roughly 250,000 oih/ residents. The ouUeobon system consists of roughly 500 nh|ea of pipeline conveying wastewater flows to the San Diego Regional Sewer Authority for treatment and disposal. The City's sewer enterprise fund is self-supporting and funds the operations, maintenance, repair, and rehabilitation and expansion of the ayotcrn, which consists of a ouUeodon aya\enn and acvvcr pomp stations, and sewer uooeam maintenance roads. The utility is primarily supported by oacr fees, which provide u sustainable uuuuul funding source. The objective of this study is to develop u rate plan that generates sufficient revenue to fund the financial obligations of the acp/er utility and equitably recover costs from ooaturncra. A. �TNF�Y ��\/���\/|�VV ��. STUDY OVERVIEW ���� ' ��� , ' luDecember of20ii, the City contracted with FCS GROUP toperform ufinancial forecast and comi- of-acrvioc study for its sewer enterprise fund. The study consisted ufthree main components: � Five-Year Financial Plan & Revenue Requirement: Establishes the annual amount ufrate revenue needed to meet the utility's onnend and projected obligations. The plan was developed with u longer- term planning horizon in order to account for future needs and maintain the fiscal health ofthe utility. � XKutc Design: I<ovievvm the utility's existing oUc mbnctu,c and eatuhUahem equitable mevvcr ndcm to collect the forecasted revenue needs. The rate design incorporates historical customer data to validate the rate setting process. � Financial Model: /\ tailored fiuuuoiu| noodc| was developed to meet the City's unique needs v/hi|c providing an effective and useful tool for continued City use. FCS GROUP incorporated unique teuiu,ca into the model based outhe needs ofthe City and City staff. This report delineates the basis for the proposed five-year financial plan and recommended rates. B. F/KANC/AU PLAN The five-year financial plan was developed using mrobust and dynamic oueh flow model that mirrors the utility's accounting and operations. The nnodc| utilized noukip|o fluunoiu| scenarios to account for potential changes in operating costs — apooifiouUy, increases in treatment ouata related to the upgrade of City of Sun [)icgo`m Point Loma YVuetcvvutcr Treuinocui Plant (P|.VyTP). Similarly, nnu|dp|e capital scenarios were run to view the impacts of longer-term capital costs related to the potential construction of the City's own treatment plant. These scenarios are discussed further in Section III ufthis report. This study also included uuupdate of the City's Sewer Facilities Kep|uoenocut (SFR) Fee, which the City inqpuaca on customers to fond long-term capital rcp|uocnoent needs outlined in its VVuatcv/uicr Asset Management Program (VVAMP). The City currently funds infrastructure reinvestment through ���^������ ������� T�� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page its SFR Fee, which imucharge per unit ufsewer flow. Toprovide umetric for benchmarking revenue collection, it is recommended that the City fund |mog-ienn asset rcp|uoenocnt by collecting u percentage of its annual system depreciation expense through rates. The City currently funds roughly 30% of its annual depreciation expense or $1.8 million. |norder tuprovide increased funding for the active rep|uoennerK of aging infrastructure, this analysis umaunncm that replacement funding will increase to 54% of annual system depreciation expense ($4.0 million) by FY 2018/19. This update included two key elements: � Evaluating uturget funding level and developing uphaoing strategy to implement it, given other projected rate revenue needs. The current SFR Fee of$O.|Qper hundred cubic feet (hoDiabased ouuCity policy io fund about 28% of the sewer utility's uunuu| depreciation expense through the SFR Fee; the City expressed interest in increasing the SFR Fee to achieve best nnonugcnneut practice o6ieodvca and minimize long-term costs. + Phasing the SFR Fee from uvo|unocido charge to u fixed rate over u five-year period, to iuc,caec the predictability and security ofreplacement funding. �� �� ��T� [���U���� C. RATE.:.�- ���_~/n��n � This study also included ureview ufthe City's sewer rate structure in the context ufProposition 2|8, which requires odi|ibem to set rates that are based on the cost of providing service (um defined by an equitable allocation of utility costs to customer c|uaaem based on their service rcgui,crneuie). The diagram shown below U|umtrn1ea the key components of the existing sewer rate structure: f'cvjmutmd 1�Y20,13/14 Projected FY 2083/84 Projected FY 2013/14 &Zuvuwue: $555,5001 R.evewum: $30.5M 11evenum: $1.9 M Fee Cuzup000mk Goes Into: Pays For: The City's current rate structure was implemented in F,/ 2007/08 [uUuvving u cost-of-service study. The rate structure consists ofufixed and variable component; with the fixed component based on water meter size and variable component on cmtiruutcd sewer flows. Sewer flows are estimated based on a two-month winter average of water usage for single-family residences, and ootnu| water naugc for other customers. The water usage is then udinatcd downward to account for consumptive vvu\er usage (such as irrigation) that does not cuter the movver system — consistent with the City's Mumic, Pec Schedule, this unu|yaia uses o|uam-apeoifio ro1co of return to account for differences in naogc ���^������ ������� T�� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page patterns uoroma customer o|umaea. These rates of return are generally consistent with industry mtuudu,dm, which suggest that 80 — 90Y6 of water used by customers enters the acv/c, system. The City's current sewer rate structure is iUumiruicd in Exhibit 1 below: Exhibit 1: Existins! Sewer Rates R] III mi Single-Family $8.03 rResidential ,J, F."", "1 10 "M I R �Q 7�71)n-,'. All Others: Single-Family $3.39 $0.18 $3.57 90% 1-1/2"Meter $26.76 Non-Residential 6"Meter $267.59 Special Users Varies $0.18 Varies 90% 8"Meter $428.14 |VaxcmuvoamnoommFee oc$omnv,month for single-family customers and$oo*nv,uo/for other customers. 121 The assumed percentage of waterusage entering the sewer systemand subject to volurne charges,as published in the City's MasterFee xox,00le. Because the current ru(c structure adheres to industry-accepted cost-of-service principles and Proposition 218 equity requirements, the City expressed a preference that any rate recommendations remain relatively consistent with it. As urcmu|t, FCB GROUP updated the rate structure based unthe City's current and forecasted expenditures and developed a detailed cost allocation. D. PROJECT �UW��UN/�� � �F� ��/���������F���|���� ��. / n^����_�� " ' "on��"/ n��^» ^`" `�� "��_����,,`,,`u_" `��r` " /��" `-� As part of the financial planning pruocaa, FCS GROUP provided a set of 6mou| policy recommendations for the City that promote equitable cost recovery and sustain the utility's fluunoio] health. FCS GROUP developed multiple fiuuuciu| fbreouai scenarios to cvuluuic the impacts of various financial and capital planning options, apcoi6ouUy focusing on the inq»uota of costs that the utility will incur to upgrade its treatment oupuody to serve existing ouaturnera and future growth. Three distinct financial scenarios were analyzed iuconjunction vvitbivvou|tccouiivecupitu| eoenurioa. The revenue requirement analysis, which determines the level of revenue needed to meet the utility's 6nunoiu| obligations, used the City's FY 2013/14 Budget as u baseline for forecasting operating revenues and expenditures. Capital expenditures were based on the City's five-year capital improvement plan which defines planned capital expenditures through FY 2016/17. Based upon the revenue requirement analysis, Exhibit 2pruvidcm usummary ofthe revenue requirement forecast for the 5cvvcr Service Charge (excluding both SFR and Storm Drain[cca}. ��^l����� ��U���� TY� ��� �a�r��� c�mm w�* � ���� ���"�����m ` ` City of Chula Vista Sewer Cash-of-Service Rate Study November 2013 page 4 Exhibit 2: Revenue Requirement Forecast— Sewer Service Charge Summary of Projected Revenues: Sewer Service Charge $40.0 M $35.0 M ,t a ,-.: ®Additional Revenue From Rate Adjustments $30.O M p a o W ¢ u $25.0 M 13Interest Earnings&Other Revenues $20.0 M ®SSC Revenue(d),Existing $15.0M � u � u Rates $10.0 M $5.0 M $0.0 M FY FY FY FY FY FY 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Summary of Projected Costs: Sewer Service Charge $40.0 M 8 y I[$ ®Point Loma Reserve Funding $35.0 M $1.8 $30.O Mi ^ �i ®Vehicle Replacement $25.0 M �� q a . tl Allocation $20.0 M ®Rate-Funded Capital $15.0 M ®Other O&M $10.0M 1 $5.O M ®Metro $0.0 M FY FY FY FY FY FY 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 IMMOZ=1M=IM== Annual Adjustment to Sewer Service Charge 4.30% 3.77% 3.87% 4.07% 1.67% 18.96% Total Revenues $ 29,863,535 $ 31,065,026 $ 32,156,359 $ 33,313,054 $ 34,590,893 $ 35,249,601 $5,386,066 Total Expenses $ 28,498,064 $ 31,105,923 $ 32,050,901 $ 33,027,097 $ 33,975,668 $ 35,015,100 $6,517,036 Net Cash Flow $ 1,365,471 $ (40,896) $ 105,457 $ 285,956 $ 615,226 $ 234,502 Summary of Sewer Revenue Fund Activity: Beginning Balance $ 21,414,904 $ 22,604,355 $ 22,484,515 $ 21,860,251 $ 22,456,020 $ 23,450,160 Net Cash Flow 1,365,471 (40,896) 105,457 285,956 615,226 234,502 Plus:Vehicle Replacement Allocation 556,548 567,679 579,032 590,613 602,425 614,474 Less:Vehicle Replacement Costs (732,568) (646,622) (1,308,754) (280,800) (223,511) (161,423) Ending Balance $ 22,604,355 $ 22,484,515 $ 21,860,251 $ 22,456,020 $ 23,450,160 $ 24,137,712 Net Change $ 1,189,450 $ (119,840) $ (624,264) $ 595,769 $ 994,140 $ 687,552 $2,722,808 Minimum Balance $ 15,145,331 $ 15,559,304 $ 15,579,035 $ 16,085,943 $ 16,609,680 $ 17,686,081 +* F3 1S ""ROUP 111141'J "wpm"oUJ).0011I City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page It is important to note that vvidhuu1 rate inorcuaoa, operating expenditures will outpace rcvcnoca as conservation reduces the amount ofrate revenue the City collects. Based outhe City's development projections, the analysis umeunnem annual cumiorne, growth of 1.05%; huaod on our experience regarding declining regional water demands, we have aaaorncd annual reductions in per-capita sewer Uovve of 1.50Y6 (resulting inunaggregate annual rate revenue reduction uf-0.|Q%). /\ major component of the City's operating expenses is the payment to Sun Diego Metropolitan Wastewater Joint Powers Authority (Metro) for heo1nncnt of its acp/cr Dovva. This annual expense represents the largest operating expense for the sewer utility at nearly $19.4 million in FY 2013/14 or 70% of total operating expenditures. The study forecast eaou|u1cm ireutnocut costs by 3.0Y6 ouuuoUy to account for anticipated Metro ,uic iucrcmaca — this analysis umaunoea iuDu1iouu,y udiumtnocute during the five-year study period, though itia worth noting that Metro's increases may behigher ur |ovvor depending on v/heibe, o, not it can ,cncvv its 301 (b) waiver with the United Siuiee Buvirounoeniu| Protection Agency (EPA). This forecast does not adjust the City's abo,c of Metro ouato for anticipated growth because (o) most of Metro's ouata are fixed and do not depend on vu|ornc and (b) this unu|ymia uaaurnea that usage poltccno are airni|ur uoroam the region and that the City's share of ioiu| Dovva and loadings in the regional system renouium ooueiuu( relative to other participating agencies. Though the City's allocated share of costs has actually iuo,cuecd in recent years relative to other agencies, this unu|ymia umaunnco that future conservation-related demand reductions will beconsistent onuregional level. Given the potential variability ofthe City's share of treatment ooeim, crpoeu,c to Metro rate increases, and the share of the odiUty`e operating budget, o periodic review of forecasted treatment ouatm may be warranted as any increase in this expenditure can materially impact the utility's Uuanoiu| bou|th and the need for rate increases. The adequacy wf the projected ru;exawdreromaeimcroameaivd/rocdvdenowdem; owacbuaJ/0etro6vcroameaimposed on the sewer utility. Fiscal Policies The revenue requirement also incorporates components of the fiscal policy review. The City's flaoo] policies defined four reserves. These reserves defined nnininrunn reserves to be held for operations and sewer system replacement funding. Based outhe review of the draft fimou| policies prepared by the City, FCS GROUP recommends the following adjustments to the reserve policies. � Sewer Working Capital and Rate Stabilization Reserve: The City's draft policy targets o minimum reserve of 180 days ofworking capital. Based onvariations in the City's revenue and expenditure oueh flow cycles, PCS GROUP ,eoonnnneudm splitting the rcmc,vc into two components: \. Aworking capital reserve targeted ut90days of operating expenditures. This reserve intends to protect the City from natural fluctuations in revenue and expense cycles, which is prudent given that the City bills customer bimonthly but incurs expenses continuously throughout the year. 2. /\ rate stabilization reserve with utarget balance of 90 days ofoperating expenditures. This reserve intends to provide the City with o greater degree of flexibility to ^^mn000ih" ,utca and phase increases in over multiple yooxa, which is prudent given the potential variability in the City's payments toMetro. Combined the two reserves generate utarget balance of 180 days which may improve the utility's bond rating. The combined reserve target is equal to $13.8 million inF,y 2013/14. The reserve policy target of 180 days may be phased into reduce impacts to rates. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page • Qmv+mr Emergency Reserve: The Chv`a draft policy targets 5% of operating expenditures as an emergency reserve to cover "isolated failures [and] insurance deductibles." This target adequately provides ,cmcrvem for the crne,gcucy replacement of critical infrastructure given the City's current system umacim. Additionally, it is recommended that the City review this target as its ummctm continually change. Specifically, if the City were tubuild its own treatment plant inthe future, adjusting the target balance to m percentage of total myaicnn uemeie or the value of the most expensive uamei may provide increased protection against system failures. This reserve target ie equal to $|.4million inP,y 2013/14. • VmbU«Um Replacement Reserve: The City's draft policy defines an annual uUoou1iun to fond vehicle replacements homed on fb,ccuet of rep|mcezocui needs and ummunued lifespan of all vehicles. By setting aside u fixed ornouoi, this approach levels the City's vehicle ,eDloccrneut ouato and minimizes impacts to ratepayers, capcoiuUy in years with larger replacement needs. The annual allocation amount for [?/ 2O|3/|4iaequal tu $55G,540aaofthe writing ufthis report and is accounted for as u sub-reserve vviibiu the Scvvcr Working Capital and Operating Reserve. Annual rcp|uoenoen\ needs are debited against uunuu| contributions and the existing Vehicle Replacement Reserve balance. Sewer Working Capital and Operating Reserve balances can be used in the event that replacement needs are greater than the existing balance and annual contributions — unnounim used in this "/uy would be repaid with future vehicle ,eDlocenocut aUuoudona. In addition to the reserves described above, the recommended scenario introduces an "EPA Permit I<ouevvul Liability Reserve" vvbc,c the City would set aside u fixed amount each year tobuild up a source ofequity funding for the pLVVTpupgrade. Based unanassumed 20% cash funding level uf the City's share of the upgrade costs, this analysis assumes rate-funded transfers on the order of$1.8 million per year until the upgrade occurs in the mid-to-late 2020m. The assumed reserve policies are summarized below: ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page Reserve Purpose Minimum Balance Maximum Balance • Manage differences - 90 days of - 125% of minimum Working Capital in revenue and operating expenses balance ($8.6 expense cycles ($6.9 million in million in 2014) 2014) • Protect against - 90 days of - 125% of minimum Rate Stabilization unforeseen operating expenses balance ($8.6 fluctuations in ($6.9 million in million in 2014) revenues or 2014) expenses • Provide funding for 5% of operating 125% of minimum Emergency emergency asset expenses ($1.4 balance ($1.7 replacement and million in 2014) million in 2014) insurance deductibles • Levelize cost Vehicle replacement allocation ($556,548 in Vehicle Replacement impacts of vehicle 2014) replacement needs EPA Permit - Accrue funding for Annual transfers of about $1.8 million from Renewal Liability PLWTP upgrade 2015 —2025 (recommended scenario only) Billing Policies The City of Chula Vlgu does not currently have u noUov regarding the hUUnu of vacant hon/ce and back billing of unbilled sewer service. Furthermore, the assumed acp/cr flow used to oo1ou|u\e hU|a is reset for customers receiving u nun/c change in the billing myaieno. The proposed policies outlined below are to be used as u starting point for City staff to develop fbnnd policies and procedures. The guu| ofthese recommendations is to promote umore equitable rneunm ufcharging customers vvhUc supporting the 6mou| health of the City's aevvor utility. The policy recommendations are provided below. * Vacant KUomumo: Provide u waiver of the monthly ournrnudity charge for vacant residential properties. Theme udiumtnnectm should be limited to vacant homes only; therefore, in the instance u house is no longer vacant the customer must notify the City so the appropriate charges can be reinstated. All fixed monthly charges should continue tobecollected. * Customer Account Name Change: Coatunocra changing the name on the uoounut should not have their uamurned sewer Oovvm reset. City staff should work with the billing contractor to uUou/ for an override of this automatic reset utthe time of the account name change. * Back K$0Uiog: The sewer utility should be allowed to collected charges for up to two years of unbilled sewer charges. Tbcmc amounts should be collected over ureasonable time period, ,utbcr than being due in full at the time the billing error is discovered (e.g., two months of unbilled service should be collected over two consecutive months). These unbilled amounts should be in ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page addition to normal service charges billed to the customer. If the repayment schedule is financially burdensome to u ouaionnc,, an alternative repayment schedule could hcnegotiated between the City and said customer. � Low-income Discount: The City should seek u non-rate revenue funding auoroc for its |up/- inourne discount program and have |cgu| review for compliance with Proposition 218. Absent non-rate revenue funding source, the City must discontinue its |o*-iuoonnc discount program. Revenue Requirement Forecast This uuu|ymia considered three scenarios.' Of the three mocno,ioe, it was decided with City staff that the heai and most fimouUy prudent scenario oaaurnea that the City nnecte its future capacity requirements by purchasing additional capacity at the Point Lurnu VVumtevvn1er Treatment Plant (PLVVTP), resulting iuhigher Metro-related costs. Additionally, the financial plan fbUovva the current schedule of treatment payments vvbilc providing additional funding to offset the City's share of the PLVVTP upgrade. Assuming a denial of the 301(h) primary discharge waiver in 2015, the financial plan begins funding u reserve to oumh fund 20% or roughly $20 million of the City's nearly $100 million share of the $i billion cost toupgrade the plant io full secondary treatment.zThis is done by funding ancw EPA Permit Ilenevvu| Liability Reserve over umulti-year period, with the goal being to reach the desired oumh hu|onoe of $20 nnU|iuu by the time the City has to fond its share of the upgrade ooumtcuodou cost. /\amunoing that the utility begins funding the IIP/\ Permit I<enevvu| Liability Reserve in FY 2014/15 and can accrue cuab funding for the upgrade until FY 2024/25, the annual contribution tuthe EPA Permit Renewal Liability Reserve is about $|.Q rniUiuu. Additionally, the City p|uum to complete its VVuetev/u1er /\aaei Muuugenneui Program (Vy/\MP) in early 2014. It will fund the myeicrn ,cpluccrneut needs defined in the YV/\MP through the Bc`vc, Puoi|diea /{ep|oocnnert (SFR) Fee, which is uoumpuncnt of the current rate structure (ace Exhibit I on Page 4); the targeted funding level is huacd on aperocntuge of the aymtenn`a depreciation cxycnmc. The City ou,,cndy funds roughly $1.8 million o, 3096 of total depreciation through the SFR Fee; based on discussions with City mtuh[ the unu|ymia ountcnp|utem increasing the SFR Pee to fund u higher percentage of depreciation expense over the study period, and aamornca that the utility funds about 54Y6ofdepreciation expense hyFY2Oi8/i9. The uuu|yaim increases replacement funding to $4.0 million over the five-year fb,ccuet period beginning with an initial funding level of$1.8 million in FY 2013/14 based on the existing SFR Fee of$0.18 per ho[ Additionally, in order to provide a more reliable source of funding, PL5 G}lDiJp rocononueudm that the City transition the SFR Fee from its current volumetric ,utc to u fixed rate. The BFIl Pcc is progressively transitioned toward u fixed rn1c over the five-year forecast period. The fixed SFR Fee is ucharge per meter equivalent unit (MB|J), increasing with meter size to reflect the increased oupuoi(y requirements that larger noctcm impose on the system. The mobedu|c of the proposed SFR Fee transition strategy and resulting rate increases are displayed in Exhibit below. / See Section III ofthe report for the alternative scenario descriptions. »Source: Council addendum|o2OO8rate study. $lbillion iahigh end of1hcforecasted range inZ00Ddollars. The exact cost ofthe treatment upgrade is unknown at this time and is subject to the renewal or expiration of Metro's 30|(h)waiver from the EP/\. ��^l����� ��U���� TY� ��� �a�r��� c�mm w�* � ���� ���"�����m ` ` City of Chula Vista Sewer Cash-of-Service Rate Study November 2013 page 9 Exhibit 3: Summary of SFR Reserve Projections 7.7 Proposed SFR Fee Transition Strategy: Total Depreciation Expense $ 6,358,414 $ 6,549,167 $ 6,745,642 $ 6,948,011 $ 7,11,012,731Target Percent ofDeprecationExpenseFunded 29% 30% 34% 37% 4025%Target SFR Fee Revenue Level(Amount Funded) $ 1,827,430 $ 1,958,000 $ 2,266,320 $ 2,574,973 $ 2,8 $ 2,144,121Fee Shift(Volume/Fixed) 100°//0°/ 72%/28% 44°//56°/ 19%/81°/ W/u/1u Variable SFR Fee per Hundred Cubic Feet(hct) $0.18 $0.14 $0.10 $0.05 $0.00 $0.00 ($0.18) Fixed SFR Fee per Meter Equivalent Unit(MM $0.00 $0.73 $1.67 $2.72 $3.70 $5.10 $5.10 Beginning SFR Reserve Balance $ 2,799,611 $ 3,005,037 $ 3,035,087 $ 3,065,438 $ 3,096,093 $ 3,327,054 Plus:Revenues: SFR Fee Revenue $ 1,827,430 $ 1,958,000 $ 2,266,320 $ 2,574,973 $ 2,850,000 $ 3,971,551 $ 2,144,121 Interest Earnings&Other 27,996 30,050 30,351 30,654 30,961 33,271 5,274 Total $ 1,855,426 $ 1,988,050 $ 2,296,671 $ 2,605,627 $ 2,880,961 $ 4,004,821 $ 2,149,395 Less:Expenses Sewer Access Roads $ (200,000) $ (208,000) $ (216,320) $ (224,973) $ $ WAMP-Manholes (500,000) (600,000) (700,000) (800,000) (900,000) (1,313,985) WAMP-Pipes (500,000) (600,000) (700,000) (800,000) (900,000) (1,313,985) WAMP-Pump Stations (300,000) (400,000) (500,000) (600,000) (700,000) (1,021,988) Transfers to Revenue Fund (150,000) (150,000) (150,000) (150,000) (150,000) (150,000) Total $ (1,650,000) $ (1,958,000) $ (2,266,320) $ (2,574,973) $ (2,650,000) $ (3,799,959) Prgiected Ending SFR Reserve Balance $ 3,005,037 $ 3,035,087 $ 3,065,438 $ 3,096,093 $ 3,327,054 $ 3,531,916 $ 732,305 Net Change $ 205,426 $ 30,050 $ 30,351 $ 30,654 $ 230,961 $ 204,863 Summary of Projected Revenues & Costs: Sewer Facilities Replacement Fee $4.0 M ®Transfers to Revenue $3.5 M Fund $3.0 M WAMP-Pump Stations $2.5 M t ,pI WAMP-Pipes u t $2.0 M 1111111 � ! WAMP-Manholes $1.5 M VV1 0 $1.0 M Sewer Access Roads $0.5 M l ����� ��p � ����� w k a ������ ° 1 ������ u;y ; � SFR Fee Revenue $0.0M FY FY FY FY FY FY 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 Exhibit 3 shows that by FY 2018/19, the amount of annual SFR Fee revenue is projected to double. It is worth noting that during the study period, the proposed strategy assumes that SFR Fees are set based to cover a reduced set of replacement needs from FY 2013/14 through FY 2017/18 (this analysis originally assumed WAMP-related outlays on the order of $3 million per year in 2013 dollars, adjusted for inflation). Beyond FY 2017/18, the analysis assumes that WAMP-related outlays increase back to the previously assumed level; SFR Fees are increased to cover these incremental costs and generate additional funding for future replacement needs. +* � 1 � . . � �s ss�s.t`a^r m�rn�a rn�mem City of Chula Vista Sewer Cost of Service Fate Study Novernber 2013 page 10 The overall "rate increase" is defined by the increases in both the Sewer Service Charge and the SFR Fee. Exhibit 4 outlines the major findings of the aggregate financial forecast. Exhibit 4: Five-Year Financial Forecast o 7Rate Revenue Before Rate Adjustments: Sewer Service Charges $ 29,195,886 $ 29,143,238 $ 29,090,685 $ 29,038,227 $ $ 29,052,467 $ (143,419) SFRFees 1,827,430 1,818,919 1,810,447 1,802,015 1,794,330 (33,099) Total $ 31,023,316 $ 30,962,157 $ 30,901,132 $ 30,840,241 $ 30,779,485 $ 30,846,798 $ (176,518) Rate Revenue After Rate Adjustments: Sewer Service Charges $ 29,195,886 $ 30,397,454 $ 31,486,923 $ 32,646,768 $ 33,915,524 $ 34,561,132 $ 5,365,246 SFR Fees 1,827,430 1,958,000 2,266,320 2,574,973 2,850,000 3,971,551 2,144,121 Total $ 31,023,316 $ 32,355,454 $ 33,753,243 $ 35,221,740 $ 36,765,524 $ 38,532,683 $ 7,509,367 Annual Rate Revenue Adjustment 0.00% 4.50% 4.50% 4.50% 4.50% 4.50% 24.62% Ending Operating Reserve Balance $ 22,604,355 $ 22,484,515 $ 21,860,251 $ 22,456,020 $ 23,450,160 $ 24,137,712 $ 1,533,357 Targeted Minimum Balance: Working Capital Reserve $ 6,87.5,.560 $ 7,063,492 $ 7,0.50,070 $ 7,279,464 $ 7,.516,474 $ 8,028,990 $ 1,153,430 Rate Stabilization Reserve 6,87.5,.560 7,063,492 7,0.50,070 7,279,464 7,.516,474 8,028,990 1,153,430 Emergency Reserve 1,394,211 1,432,319 1,478,894 1,527,014 1,576,732 1,628,101 233,890 Total $ 15,145,331 $ 15,559,304 $ 15,579,035 $ 16,085,943 $ 16,609,680 $ 17,686,081 $ 2,540,750 Net Available Operating Reserve Balance $ 7,459,023 $ 6,925,211 $ 6,281,216 $ 6,370,077 $ 6,840,480 $ 6,451,630 $ (1,007,393) Ending Sewer Facilities Replacement Reserve Balance $ 3,005,037 $ 3,035,087 $ 3,065,438 $ 3,096,093 $ 3,327,054 $ 3,531,916 $ 526,879 Ending EPA Permit Renewal Liability Reserve Balance $ - $ 1,838,610 $ 3,677,220 $ 5,515,830 $ 7,354,439 $ 9,193,049 $ 9,193,049 Total Ending Reserve Balance 121 $ 25,609,392 $ 27,358,212 $ 28,602,909 $ 31,067,942 $ 34,131,653 $ 36,862,677 $ 11,253,286 Vehicle Replacement Allocation $ 556,548 $ 567,679 $ 579,032 $ 590,613 $ 602,425 $ 614,474 $ 57,926 Ending Vehicle Replacement Reserve Balance 131 $ 686,093 $ 607,149 $ (122,572) $ 187,240 $ 566,154 $ 1,019,205 $ 333,112 [l1 Excludes Stonn Drain Fee revenues and expenses. 121 Includes Operating Reserve,SFR Reservc,and EPA Permit Renewal Liability Reserve. Excludes Trunk Sewer Capital Reserve. 131 Included in the cnding Operating Reserve balance. Breakdown of Revenue/Fee Increase [1] Funding for the EPA Permit Renewal Liability Reserve City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 poAo ll &IzhUbUt 4 provides u breakdown of the key factors driving the revenue increase — given that most costs are funded through the revenue generated from both fixed and variable charges, iiwould hc reasonable to apply this breakdown proportionately to evaluate the proposed fee iuc,coeca. In the event that rates generate more cash than is needed, the City can use the extra ouah for any of these purposes (or other acvver utility purposes). The City oun|d apply the funds tuvvnzd long-term financing goals for either the Point l.onoo expansion or general infrastructure replacement needs, o, use the funds as ucontingency to rnunugc future rate increases. Cost--of-Service The cost-of-service analysis builds unthe revenue requirement analysis \u determine the amount of revenue that is to be collected through Sewer Service Charges (net of Storm Drain and 5FAL Fees). The unu|yaia consisted of u detailed, line-item allocation of the City's operating costs and non- operating revenue requirement components. Costs were allocated between the fu||uvviug functional categories: + Customer: Fixed costs ummociu1cd with utility billing and other functions that are equally attributable to all customers, ,cgo,d|eae of flows or `vaaie`vu1e, strength. This unu|yeie aUuoutem utility billing costs, 50% of other ouaturncr service ouata, and the vehicle replacement allocation to this category. These costs are allocated between customer classes based outhe number ofaccounts served. + Service: Fixed costs uamociu1cd with oueionocr service that might ,euaouub|y be uUocuicd based on capacity requirements (as defined by nnctcr size). This nuu|ymim uUuoo1ea 50% of customer service ouatm and General Fund transfers tu this category. These oua\m are uUuou1ed between customer classes based outhe number ofmeter equivalent units (MBl]e) served. + Flow: Fixed and vuriuh|c ooeie uemooiu(cd with providing capacity to convey and treat vvaotcvvutcr Dovvm, regardless of strength. Most other operating costs are uUooutod to this category, including ooa\a that are apcoiflouUy attributable to the conveyance ayatcrn and goue,u| operations and maintenance uttdhutuh|c to the system uaaeim as uvvbo|e. These oomie are uUoouicd hcivvccu cumiorne, c|meaea based on estimated flow (defined as the |ovvemi consecutive two-month average demand for single-family residences, and actual water usage for other oumtonuera). + Chemical Oxygen Demand (COD): Fixed and variable oomim uemooiu(cd with providing capacity to treat wastewater and rcrnuvc [OD. This category includes oherniou|a and u portion of other operating expenses uttdhntub|c to treatment (e.g. payments to Mcou for vvumievvuter t,euinneuU, and is allocated hetvvccn ouatonue, o|umaca based on cednnuied C0I] loadings (as defined by estimated flows and assumed average COD concentrations by class). � Total Suspended 8oUldo (l[Q8): Fixed and variable oua\m associated with providing capacity totreat wastewater and remove T35. This category includes oherniou|m and upodion of other operating expenses uUdhutuh|c to kcutnoeut (e.g. payments to Metro for v/umtevvuic, ireu1nocnU, and is uUocuicd between customer c|uaaem based on estimated TSS loadings (as defined byestimated flows and assumed average T83 concentrations by o|oaa). By defining the costs allocated to the functional components of the system, unit costs are developed to charge each customer class for the unique demands they place on the system. Based onthe updated functional allocation, costs shifted slightly tothe fixed rate components. This shift increases the revenue collected from the fixed meter charge and provides increased revenue ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 12 atdbUhn. Based on the functional allocation, 18Y6 of costs were allocated to the meter charge and 82% were allocated (othe volumetric (variable) charges. Costs were also allocated to each cueionoc, c|umm based on their unique obo,ucic,iabca, as exhibited in billing data provided by the City. Customer statistics were forecasted based on [?/ 2O|0/|\ aornrnury-|eve| customer data provided by the City. As residential ouaionne,m (single-family and multi-family) oouadiuie the majority of the City's ooaturncr base (roughly 96%) and generate o majority of the demand for sewer services, most of the utility's ouata are uU0001od to tboao onmturncra. Based on the forecasted FY 2014/15 customer statistics (u000uoie, NIBl]m, flows, loadings) and the allocation principles described above for each function of service, single-family and multi-family customers were allocated 62% and 16% of the FY 2014/15 revenue requirement. The remaining 22% is ouUcoted from the City's ournrneroiu| customers. The proposed ,utc structure is the culmination of the revenue requirement and cost-of-service analysis and is designed to meet the revenue needs outlined inExhibit 4 on Page 7. The proposed rates (combining the Sewer Service Charge and 3[}< [cc, but excluding the Storm Drain Fee) are displayed below in Exhibit 5. Exhibit 5: Sewer Rate Forecast (Includes Sewer Service Chari!e and SFR Fee) zzlmmlIm IBM All Others: WResidential !M7 11 ffil", Mon ohly Sing le-Family Bill @D/V6ey/V $40./6 $43.73 $45.96 $48.25 $50.68 $52.87 |l|Assumes that 90%of usage enters the sewer system and is subject to the sewer volume rate(see Exhibit 1) ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 13 UU SEC U���� ° SYS �� � OVERVIEW UK�~�|`� " x ° K ������ To better understand the humie for the fiuoucio| forecast and ,utc design, it is important to highlight the unique features ofthe City's system, policies, and majoropconsiderations. The City's sewer system provides sewer collection services for roughly 250,000 okv residents. The collection myaieno oouaimtm of roughly 500 nui|em ofpipeline conveying dimobo,gc to the 8uu Diego Regional Sewer Authority for treatment and disposal. The City's sewer enterprise fund is ac|['muppurdng and funds the operations, maintenance, repair, and rehabilitation and expansion of the ayatcnn, which consists of collection mymieno, ecvver pump stations, and aovvor uooeaa roads. The utility's user fcce generate the majority ofrcvenoc for this fund and have provided adequate and sustainable revenues annually. The goal is to develop uro1e structure that generates enough rate revenue for the City to meet its various financial obligations and comply with the equity regui,crneuie eeiohUabed by Proposition 218. A. ��|�`� �������UU � ��. CITY ' m��' n��- Loou1ed7nnilcmfiorndown(owuSun [)icgoundtbe Mexican border, Chula Vista imeconomically and culturally diverse. Recent and rapid growth has grown the City to the 7th largest in Southern California and |4`" largest inthe California. However, inrecent years growth has a|ovvcd as the |oou| and national economy contracted. Aaupopular suburb ofSan Diego, amajority oftheaevverud|ity`a customers are residential. Single-family homes and multi-family dwellings combine for roughly 96% of the o1i|iiy`m oueionoc, humc; 92% and 4%, respectively. The City has implemented a |ovv-iuconoc discount to help support residences; the low-income discount is reviewed and discussed in further detail later iuthis report. B. ��|lF�� ��� ��|| |TUK�� ��. CITY ' ������� � �u��� The City's sewer utility operates oouUcodonaymicmounmimtingofrouuh|y480nd|emufpipeline and a number of lift stations. The collection aymtcnn conveys sewer Uovve to San I)icgo`o Point Loma Wastewater Treatment Plant (PL.Vy7P). The City iabilled bythe San Diego Metropolitan Wastewater Joint Powers Authority based on the volume and strength of the sewer Uon/m sent to the above trca1 �ntp|uc�a�s nn The City's system has historically expanded as needed to serve growth, creating increased operational and nouiuieuonce costs. To better ruuuugc the City's infrastructure, the City has contracted with the international engineering firm GDI} to develop a comprehensive VVua\evvuter Asset Management Program (YV/\MP) io actively reinvest and manage the sewer infrastructure. The WAMP is expected to be finished in early 2014, and recommends average annual capital investments of$3million— $5million. 3 Metro is a branch of the City of San Diego's Public Utilities Department,which manages both the Point Loma and South Bay treatment plants,among others. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 14 C�� � �� KU F�U����� ���T����[]��lUl� �� ��KV��� l��|��T [���VU���� . �r�/ � ��n����� ,v`� / n���/ ��m 'r�/ � �� , , �/� ���// � / POWERS � NTW���|TY /`^� / / /��nw / , As the City does not operate its ovvu treatment , all sewer discharge is meui to Metro for treatment and disposal. N4exn is u 000|bdun ofmunicipalities and special diabioLa that share in the use of the City of San Diego's regional sewer treatment Csoi|idca. Metro was established in 1998 to give participating agencies u stronger voice in the operation of the acv/cr aymtcnn they use for ireu1nocni. Collectively, participating agencies pay for approximately 35% of the eyeicrn"e upkeep and capital costs with usage rates based on the percentage of sewer flows they generate.4 301 (h) Waiver Implications The City is the largest contributing member agency ofthe Metro JPA and is noapunaib|c for alarge share ofoperating and capital costs. luFY2Oi3/i4, the City iaexpected toaccount for $i9.4million or 1096 of total Metro ooaim.5 Given the ,e|iuuoe on Metro for keuirneut, the City is susceptible to large shifts in Meku`a costs. For example, the pI~VVTP upern1ca under u waiver from the U.S. Buvi,ounoeniu| Protection Agency (EPA) that is set to expire in 2015. Subject to renewal of this waiver, Point Lonnu`m primary treatment may need upgrading io secondary treatment, uhigher level oftreatment required to meet more stringent environmental regulations governing treated wastewater effluent. In order to rnuxinnizo the likelihood of the waiver being renewed, Metro and member agencies are proposing the expansion of a recycled water network that would reuse a larger portion of treated wastewater flows and, therefore, reduce the amount discharged into the uocuu. If the waiver is not renewed in 2015, Metro and JPA nncmbcra p/uu|d be faced with large capital obligations within \O years ofthe waiver's expiration. As the largest member agency, the City would be responsible for u large share of the p|uut"e upgrade costs. Current emtinnutcm place the cost of upgrading to secondary treatment at $| billion with Chula Yimtu`a share being $97 nnU|iun, or 9.7% of the total ooei.« As noted, an alternative to upgrading to secondary ireu1nneui is expanding the region's recycled water network. Additional Capacity Purchases Additionally, in order to meet future growth the City will need to purchase additional capacity at the PL7YVP in the future. Previous studies reviewing the City's current Metro treatment capacity and the need topurchase additional capacity assumed ucapacity deficit beginning in FY 2014/15; however this capacity deficit projection iehmaedonmaaurnedao`vorflovvm of 20.8 MGD iuPY20O9/iO. These assumed flows exceed current flows by roughly 4.6 MGD based on FY 2009/10 flows of 16.2 MGD, aoreported byCity engineering mtuf[/ Adjusting the oupuoi(y fb,ccuet to reflect current movver flows, the City would face u i,euirneui capacity deficit of roughly | M(]I] in FY 2024/25. Table \ of Metro's 2008 Capacity Valuation Report establishes a 2007 value of$14.38 per gallon per day (gpd) of sewer flow for this additional capacity. Beou|ubug the uaeurned capacity unit coat to account for increases due to inflationary 4Metro's website: . 'Estimates based Metro's draft Fy20ll/|2cost allocation. Chula Vista's payments are roughly 29%ofall costs allocated to participating agencies(agencies other than the City of San Diego). 6 Based on cost estimates provided in Council addendum to the 2008 rate study. r |62M{}Deonrcedfrnnu°PY0g'|8CV8EVVE8FLOVV.xloz^filcprovidcd6yCdyeogiuecdugetnf[ ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 15 pressures, the total cost ofthe additional capacity would bcroughly $32.8 million in FY2O24/25. k is important to note that this fb,ccuet is subject to obuuge if realized growth vudcm from assumed growth rates. This additional capacity cost ia included as ulong-term capital expenditure that would be paid for using the funds ouUeo\cd pnrauorK to the City's Scvvcr Capacity Fee Program and deposited in the City's Trunk Sewer Capacity Reserve Pond. This fee program was not included in the current ,u1c study and no uuulymie of the sufficiency of the tee program to meet needs through buildout has been conducted byFCS GROUP. D. `ECYC| E[D WATER The proposed recycled `vu1c, ueivvo,k is intended to be an alternative to u costly upgrade to the Pl.VVTP. Additionally, an expanded recycled vvutc, network has auxiliary benefits. An expanded ayotcno will minimize inq»uota to potable water supplies by reducing consumption currently used for irrigation. For example, golf courses within the San Diego region currently utilize recycled water for irrigation. A majorconsideration for the expansion ufthe recycled water network imthe cost comparison with u PLVVTP upgrade. Given the construction and operating costs involved with expanding the reclaimed vvu1e, system, it would only be economically fcueih|e if the offsetting hcncfiie (iuc,cuecd revenues and/or cost savings) are sufficient to reduce the net cost below that of the P|.VyTPopgrude. As such, the scale of the network expansion is limited by cost; the timing depends on the renewal or expiration ofthe EPA waiver. It should he noted that if, in the future, the City constructed its ov/u t,cuinneui plant that provided recycled water, an increased rcoyo|cd water myatcnn could benefit the City by providing o larger recycled water service area. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 16 SECTION KKxUU °° NANC|AL AN Once guidelines for eabah|iehhnz fiuuuciu| policies have been defined, the next step in the rote study process is to determine the "rate revenue " or the amount of revenue that rates must geue,uic in order to nocei the utility's financial obligations. This unukwie has two nouiupurpomcm — d serves as u noeuum of evaluating the odUh/"e fieco] health and adequacy of current oUc |cvc|a, and it acio the basis for near- and long-term rate planning. As part of this study, multiple rate revenue forecasts were developed to analyze the impacts of potential changes in operations and capital iuveatruoutm including potential |o,gc-aco|c capital projects related to Metro and u proposed City-owned treatment plant. Given the nd|ity`m existing 6nunoiu| pomdion — ourrect fund balances, the need to comply with the City's flaou| policies, and the need to fund capital projects — tbe ,evenucrcguircnneut analysis projects rate revenue increases over the ueni five years. The magnitude of these increases is contingent on the level of capital expenditures required and the funding nncohuniann employed to meet these ooa\a. Generally, three scenarios were evaluated: � Scenario X—K$unuUinc: This scenario assumes operations continue at present levels. U is assumed that this scenario is not viable under a longer-term horizon but will adequately fund short-term needs. � Qcmoarlw UU—U»wlnt Loma Upgrade: This aocnudo develops ufinancial plan inwhich the PLYVTP is upgraded tosecondary treatment following the expiration ofthe EPA 3O\(h)waiver. � Scenario UUU — Membrane Bioreactor (MBR) Plant Cwootrm«tUwo: This aocnmjo develops u Dnunoiu| p|nu that will udcguu1c|y fund the construction of City-owned huu\men1 plant designed to reduce reliance on Metro. Recornmendat'oD Overview Given the above revenue rcgui,crneui scenarios, we ,oconunueud the City implement Scenario XX to supplement current City planning related to potential Metro ooai increases and capital requirements. In addition toproviding funding for normal operations, this scenario builds up udedicated reserve tu offset the costs of the expected Point Loma upgrade. Bybuilding upthe reserve now the City can nniuinoimc ,u(c spikes later when the uncertain costs are realized. It is recommended that the City allow the reserve be used in dnnea of emergency prior to the Point Loma upgrade. To be consistent with the City's draft reserve policies as they pertain tu managing ouah bu|unoca for the other reserves, if funds are appropriated from the reserve, the funds should be replenished in subsequent fimou| years. If the magnitude of the vvitbdruvvu| is material, the City should develop u plan to incrementally replenish the reserves tu its previous urscheduled |cvc|.« The following table provides u summary ofprojected rate increases and major components of the revenue requirement for the recommended scenario. » This approach ieconsistent with the City's draft reserve policies provided toFCS GROUP. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City of Chula Vista Sewer Cash-of-Service Rate Study November 2013 page 17 Exhibit 6: Rate Revenue Requirement Summary (Recommended Scenario) a bn 4 °8 8 11110, I=I III i mi I( I==I III i mi C I= Projected Operating Costs: Metro $ 19,383,028 $ 19,964,519 $ 20,563,455 $ 21,180,359 $ 21,815,769 $ 22,470,242 $ 3,087,214 Other 8,501,188 8,681,867 9,014,426 9,359,923 9,718,863 10,091,774 1,590,586 Total $ 27,884,216 $ 28,646,386 $ 29,577,881 $ 30,540,282 $ 31,534,633 $ 32,562,016 $ 4,677,800 Projected Capital Costs Operating Reserve $ 57,300 $ 53,248 $ 55,378 $ 57,593 $ - $ - SFR Reserve 1,500,000 1,808,000 2,116,320 2,424,973 2,500,000 3,649,959 Other Funds 916,300 520,000 324,480 - - - Total $ 2,473,600 $ 2,381,248 $ 2,496,178 $ 2,482,566 $ 2,500,000 $ 3,649,959 Aggregate Rate Revenue Adjustment 0.0% 4.5% 4.5% 4.5% 4.5% 4.5% 24.6% Monthly Single-Family Bill @ 10 hef121 $40.16 $43.73 $45.96 $48.25 $50.68 $52.87 $12.71 Projected Rate Revenue After Rate Adjustments: Sewer Service Charges $ 29,195,886 $ 30,397,454 $ 31,486,923 $ 32,646,768 $ 33,915,524 $ 34,561,132 $ 5,365,246 SFR Fees $ 1,827,430 $ 1,958,000 $ 2,266,320 $ 2,574,973 $ 2,850,000 $ 3,971,551 2,144,121 Total $ 31,023,316 $ 32,355,454 $ 33,753,243 $ 35,221,740 $ 36,765,524 $ 38,532,683 $ 7,509,367 Ending Operating Reserve Balance 131 $ 22,604,355 $ 22,484,515 $ 21,860,251 $ 22,456,020 $ 23,450,160 $ 24,137,712 $ 1,533,357 Targeted Minimum Balance: Working Capital Reserve $ 6,875,560 $ 7,063,492 $ 7,050,070 $ 7,279,464 $ 7,516,474 $ 8,028,990 $ 1,153,430 Rate Stabilization Reserve 6,875,560 7,063,492 7,050,070 7,279,464 7,516,474 8,028,990 1,153,430 Emergency Reserve 1,394,211 1,432,319 1,478,894 1,527,014 1,576,732 1,628,101 233,890 Total $ 15,14.5,331 $ 1.5,5.59,304 $ 1.5,.579,03.5 $ 16,08.5,943 $ 16,609,680 $ 17,686,081 $ 2,540,750 Net Available Operating Reserve Balance $ 7,459,023 $ 6,925,211 $ 6,281,216 $ 6,370,077 $ 6,840,480 $ 6,451,630 $ (1,007,393) Ending Sewer Facilities Replacement Reserve Balance $ 3,005,037 $ 3,035,087 $ 3,065,438 $ 3,096,093 $ 3,327,054 $ 3,531,916 $ 526,879 Ending EPA Permit Renewal Liability Reserve Balance $ - $ 1,838,610 $ 3,677,220 $ 5,515,830 $ 7,354,439 $ 9,193,049 $ 9,193,049 Total Ending Reserve Balance 141 $ 25,609,392 $ 27,358,212 $ 28,602,909 $ 31,067,942 $ 34,131,653 $ 36,862,677 $ 11,253,286 Vehicle Replacement Allocation $ 556,548 $ 567,679 $ 579,032 1 $ 590,613 $ 602,425 $ 614,474 $ 57,926 Ending Vehicle Replacement Reserve Balance 151 $ 686,093 $ 607,149 $ (122,572) $ 187,240 $ 566,154 $ 1,019,205 $ 333,112 [11 Excludes StormDrain Fee revenues and expenses. [21 Assumes that 90%ofusage enters the sewer system and is subject to the sewer volume rate(see Fxhihit 1) 131 Ending Operating Reserve balance reflects funding of vehicle replacements net ofthe annual vehicle replacement allocation. 141 Includes Operating Reserve and SFR Reserve. Excludes Trunk Sewer Capital Reserve. 151 Included in the ending Operating Reserve balance. The following sections provide a detailed discussion on the revenues and cost drivers, as well as additional detail for the revenue requirement scenarios evaluated. The rate revenue requirement is defined as the net difference between total revenue needs (or expenditures) and the revenue generated through non-rate sources. Additionally, under Scenarios II & III, it is expected the City will need to issue debt in order to meet its capital needs. As such, the debt coverage sufficiency analysis becomes an integral component of the revenue requirement in the out-years of the analysis. However, it is important to note that no debt issuance is expected within the five-year financial plan's time horizon. Regardless, for clarity and completeness, the revenue requirement analysis involves defining and forecasting both needs and resources within the context of both a cash flow test and a debt coverage sufficiency test. � � $s ss%s.t`CSgFgn UJ).0 r III City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 18 A.I Overview /\ revenue requirement unuhmimbzcbudcaocon/pa,iaouofibeCity"auecdmund,eaourocmiodcic,miuc the necessary rate revenue requirement. The following sufficiency tests were used to determine the level ofannual rate revenue needed for the sewer utility: � Cash Flow Sufficiency Test—Utility revenues must be sufficient to cover annual operating expenses and other ouah obligations, including reserve funding, debt service, and u share of eymicnn reinvestment funding. � Deb/ Coverage Sufficiency Test— Currently the City's sewer utility has zero debt liabilities; this is uoaunncd to remain unchanged for the entire five-year Dnunoiu| plan. However, coverage considerations hcoonne inopodoui if the City were to issue debt to either fund u ebu,c of the Pl.VVTP upgrade, expanded recycled vvuicr myetcrn, or construction of City-owned i,eu(rneui plant. As the City does not have outstanding debt with bond ouvcnout defined coverage requirements, the revenue requirement analysis ueca u typical industry coverage ratio of 1.25. Specifically, net ,cvcnucm must, at minimum, he sufficient to gcuc,u(c u coverage ratio of 1.25 (eligible revenues |ema operating expenses must be equal to at least 125% of annual debt service). The utility must mudafv both tests, each of which provides u different perspective on how much revenue is appropriate. Moreover, the revenue requirement oomhiucm both test results in an overlapping fashion mu that, in tandem, each acporu1c uhieodve is met at all dnncm. For example, maintaining u coverage ratio of 1.25 drnca ununu| debt service may generate positive oumb flow, concurrently satisfying both cash flow sufficiency and debt coverage sufficiency tests. Similarly, the cash requirements for capital investment may ueeurc adequate coverage. Therefore, annually satisfying both the cash flow and bond coverage test will reduce financial risk and increase financial stability, helping to sustain a long-term strategy of stable and moderate sewer rates. Financial CDOSide[afiDnS Although the financial forecast focuses on revenue needs from Sewer Service Charges and SFR Fees, this uuu|ymia also considers projected capiio| costs and resources iuthe Trunk Sewer Capital I<cec,vc. Though it is u separate reserve, expenses from the Trunk Sewer Capital Reserve could putcuduUy impact rates if resources are |ovvcr or cxpouaoa are higher than expected. In podion|ur, 8cvvcr Capacity Charges can be used ciihc, for direct capital investment or ,cpuyn/cui of debt service — if annual Capacity Charge rcvcuuoa remain |ovv for an extended period of time, there is u possibility that rates may have to fund debt service costs that it vvuo|d not otherwise have to. 5irni|udy, City staff might consider loans from the Operating Reserve tothe Trunk Sewer Capital Reserve to avoid or delay debt imauuuoc. I]ehi issuance is not projected io occur during the study period, but it will likely beneeded tofund the PLVVTPupgrade when itoccurs. Though debt service is not expected iohe an issue during the study period, it is worth noting that uuuuul Sewer Capacity Charge revenues continue tofall below projections due tothe current housing and construction market conditions. As omatter ufprudent fiscal planning, the onu|yaia oaaunooa on annual development growth rate of 1.05%, which would generate roughly $1.8 million inrevenues. In doing mo, the City reduces its exposure to ,cvcuuo mhodfuUm due to downturns in the housing market. Policy Considerations In addition to being u criterion for complying with debt requirements, the coverage ratio realized is animportant statistic used to ro1c unUUity`a [lnunoiu| integrity and ability tumeet its debt obligations, ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 19 allowing for lower borrowing ousts. Additionally, revenue generated from ohigher coverage ratio may be used for capital purposes, and may reduce the amount of revenue needed to nocei cash needs in subsequent years. This is especially beneficial given the City's exposure to |o,gc capital costs related tuMetro. A,2 Billing Considerations The City does not directly bill all of the ecvvcr utility's ouaionoc,m. The City ebu,ce billing responsibilities with Sweetwater Authority (5 and ()tuv Water District (()kav WD) with each using separate billing methodologies. For example, Sweetwater bills bimonthly while 0ioyVyI} bills monthly. Furthermore, upodiou of the City's customers are billed on an uuuuo| homim as part of the oumturner`a property \uz roll vvhUo others are billed binnonth|y.v The variation in billing frequencies has placed uunique strain on the sewer utility's revenue ouUcodun. Additionally, each billing frequency has its own advantages and disadvantages. These are discussed below: � Monthly & Bimonthly Billing — Monthly and bimonthly billing uUovve customers to pay for sewer service multiple times during the course of a year and effectively charges customers as they receive the service. Additionally, bimonthly bills uUovv ouetorncrm topay in smaller increments and limit any potential financial strain. However, as more bills are sent out (monthly billing requires 12 hiUa per customer— roughly 575,00Obills ifall sewer customers were billed monthly at ucost of$25O,OON, there is u potential increase in the number of errors within said bills.', Similarly, increasing the number of bills also increases the total ouat of billing acp/cr customers. While this cost may he relatively minor relative to other large expenditures(treatment costs),there is potential to reduce costs bysending bills tocustomers less frequently. � AnomuU Tax &KoUU — By charging oumturnerm for aevvcr service on their unnou1 property tax roll, the utility would be able to avoid certain costs umaooiu1cd with bimonthly billings (e.g. postage). However, u drawback of annual or aenni-uuuuu| billing is that there is lcmm flexibility with respect to the timing of rate increases (rate increases must be implemented prior to the billing period in order to collect the additional revenue from the rate inorcaoe}. As u majority of the City's oueionocm are billed through 0tuy VVC) (roughly 63%), it is potentially beneficial to move all customers to a nooutb|y billing cycle to nnuiob O(uy YVZ)"e billing cycle. However, given the mcp/cr utility's oua\ structure (rnuot|y fixed ouatm) it vvuu|d be financially bcnc6oiu| to ooUcot all acvvcr revenue ununuUy through the property tax roll. Additionally, the increased revenue security may minimize any future rate increases as the City will be able to forecast with more accuracy the timing and collection ofsewer revenues. A,3 Billing Policies During the course of the acv/er ooai of service study process City staff raised oouoc,nm over specific billing issues. City staff requested that FCS G}lDlJp develop u met of policy recommendations to be used as a starting point for formal policies. The iaooce addressed as pad of the City's request are discussed below. ^Chula Vista Finance Department, Sewer Bill Payments: http://www.chulavistaca.gov/city services/administrative services/finance/treasur-v/Pqyments/sewer.asp '0 Example only assumes standard postage of$0.45 per bill and no administrative overhead.it is important to note that total cost of billing would,most likely,include a percentage of administrative overhead. ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 20 � Vacant Homes: The City currently charges vacant residential properties for sewer service. The City has asked FCS GROUP to provide upolicy recommendation regarding the appropriateness of billing vacant properties. � Account Name Change: The City's sewer service obo,gc includes uvo|umebio component, which is based on each oumtonne,"m prior year water usage. When uuev/ single-family account is opened, the account nuturnu1iooUy resets to the median assumed single-family sewer usage of I|CP (\O 0CP of water consumption multiplied by u 90% return-to-sewer bzotud. In addition to customers opening new accounts, u number of customers request an account name change. The current billing process and systems treat name changes commensurate to a new account, automatically resetting the assumed usage to 9 11CP regardless of the customer's historic usage pattern. The City has asked FCS GROUP to provide policy and operational recommendations for customer requesting an account name change. � Back Billing: The City does not have u policy cuuhUug staff to retroactively bill customers for unbilled past sewer services—the process of billing for past services is called"back billing." The City has asked FCS GROUP to provide a policy recommendation regarding back billing. � Low-Income Discount: The City currently provides u 30% discount to low-income single-family customers. Due to the California Supreme Court's 2006 ruling in Bighorn-Desert View Water Ageney v. Beringson (confirming that sewer rates were subject to Proposition 218),the City has requested that PCB GROUP review its low-income discount program. /\.3.1 Vacant HDrOeS The City's proposed sewer service charges consist uffixed charges (base charge and sewer facilities rop|uocnneui charge), which vary by meter size, as well as u variable commodity charge huecd on uamunned sewer Dovvm. The fixed charge varies by meter mime, while the variable charges vary by ooaturncr o|umm. For residential oumturncra, the variable charge is ou|ou|uted based on u tvvu-rnurth winter average ufthe previous year's water consumption. lJn|caa uhurne has been vacant for at |ouat one uuuuu| billing cycle, the customer will he billed for both the fixed and variable components of the monthly fee. The City is requesting u policy rcournrnendo1iun regarding the billing of vacant homes. /\ majority of the City's mev/c, ooeie are fixed and will not vary significantly due to eboU-tc,no reductions in residential sewer discharges. Moreover, when unew home ordevelopment physically ounncotm to the City's sewer system and pays the initial sewer capacity charge, that user im effectively reserving capacity within the sewer ooUcotiuu/oonvcyunoc system and regional treatment facility. The fined nnonib|y noc(cr charge is designed to recover fixed ooaia associated with this reserved capacity — those costs related to serving u ouaturncr regardless of mcvvcr discharge. As such, if u ooaturncr meets the definition of u "vacant bonnc," waiving the ournrnudity charge to rcOcot zero sewage discharge is urcumonuhlc accommodation and better reflects the cost burdens that ovocuut home places on the myaienn. The fixed monthly charges should continue iohebilled. Aathe City does not directly bill for water usage and imnot able tudirectly monitor sewer discharges from its single-family residential customers, it should be the o"/uer"m responsibility to contact City billing aiuf[ to request an adjustment to the acvvc, bill for zero usage in the event that u bonoc bcournem vuoouL The City should develop criteria for designating u property as vuounL such as requiring ucustomer \o provide water bills for the preceding two consecutive rnurKha showing zero vvu1e, consumption. The City should also require the property ov/ue, to re-apply for the vacancy program annually; otherwise the bill should automatically be reset at the single-family average usage |cvc| of ho[ Additionally, it should be the owner's responsibility to notify City staff ifu given property is no longer vuouui. The City should back bill for the period in which the residence was ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 21 inhabited, but receiving obU| as uvacant property. Aponxkv charge could also be applied. A penalty charge will help deter users from abusing the policy and protect the City against undue revenue loss. Finally, in oi,ounneiuuccm that uhui|ding structure will hepermanently removed, the owner should be permitted tuapply for ofull sewer fee waiver. Policy Recommendation Vacant residences should be adjusted to ueeunoc zero usage and be charged only the fixed charges for the duration that the house remains vuour8. It should be the customer's responsibility to inform the City when the residence becomes vacant and, conversely, is re-inhabited. If the customer does not inform the City, the customer will he back billed for any duration the house was inhabited but being charged as uvacant residence (see back billing section for additional information). /\.3.2 Account Nar0eChange City sewer customers periodically request name changes to their account. The City's sewer service charge includes uvu|unnebio component, which imbased on each customer's prior year water usage. When unew single-family account is opened, the account automatically resets iothe median assumed single-family sewer usage of 9 hcf(10 hcf of water consumption multiplied by a 90% return-to-sewer factor). The current billing process and ayatcrna treat name changes as effectively setting up uncv/ account, uutonnn1iouUy resetting the ummnnncd umu&o to 9 hofrcgurd|ema of the ouaturner`a historic usage patterns. Name changes dunot reflect changes in actual customer characteristics. It is recommended that the City's billing system be adjusted to uUovv for an override of the untonnudo reset incustomer usage. This reset override would uUovv the customer hiUe to remain the munoc while the customer account uunoe is being changed. This will uUo"/ the billing aymtonn to remain accurate while administrative changes are being made. Policy Recommendation The City's billing process should uUovv staff to adjust an account uunoc, without resetting that ooaturncr`a usage history. Apuamib|c example of this is a check box that when checked does not allow the assumed usage value tohereset. The possibility ofthis feature will need tube oun[lnncd with the City's billing contractor and lT dcpadnocnL /\.3.3 Back Billing The City currently has no fbnnu| policy for the collection of sewer charges from oueionoc,e that have not been billed for sewer service due to u billing error or oversight. The process of collecting the unbilled sewer charges is called back billing. It is important to note that the unbilled movver charges should not be viewed as overdue, unless intentionally fraudulent; that is, the fault should not be p|uocd on the customer for not receiving the bill(s) and therefore not paying the bill(s). It is recommended that the City allow billing staff tu bill for all services not previously billed in the past based outhe following guidelines: ��]����� ��U���� TY� ���.�a�r���.c�mm City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 22 � Time Frame: Absent fraudulent actions unthe part ufthe customer, back billing should belimited tu two years. Placing udne limit will: (1) place the burden onthe City tuproperly bill customers for sewer collection service; and (2) mitigate the financial impact on customers for something that they cannot control. � Collection Procedure: Because the amount owed due to huok billing can be substantial, u defined repayment schedule should be used to collect the amount due. A ouUeodon schedule should be ouay for staff to manage and implement while mitigating the financial burden imposed on the customer. To meet these concerns, the City might wish to consider establishing a repayment schedule that accounts for the duration ofthe missed billings. For example, ifthe customer iabeing back billed for 6months of unbilled services, the repayment aohedo|c should be G months. Under this process, back billed customers would receive the equivalent oftwo bills (past due amount and current amount) until the unbilled amount has been paid. It is important that the City uUovv exceptions to this cu|c vvhe,c appropriate; for ezunq?|e, if the repayment aohcdu|o is financially burdensome, on alternative schedule should be developed. |.umUy, if cueiorne, vvimbea to close the account with u hu|oncc of back billed charges, these charges should be collected as part of the last payment. Policy Recommendation The City should collect unpaid sewer charges through u pruocma of back billing. Back billing ahun|d be limited to two years and collect the unpaid amounts over ureasonable period of time. Where appropriate, special repayment aohcdo|cm could be negotiated if the standard repayment mohcdo|c is financially burdensome tothe customer. A.3.4 Low.-Income Discount The City strives to provide affordable sewer service to its constituents. The City currently offers rate uamiaiuuce to |ov/-iuoocnc single-family customers. 7bemo customers pay 70% (30Y6 discount) of the uonnul single-family fixed and volumetric ,mtca. As ofFebruary 20\2, there are currently 361 eiug|c- funnUy ouaturnerm receiving u reduced rate. This represents roughly 0.8% of total single-family accounts and uloss ofroughly $40,0OOinannual rate revenue. The City's sewer rates are subject to the Proposition 218. Effective July i, 1997, Proposition 218 auhicota all new property taxes and most charges on property owners to voter approval. Water, vvaotcvvutcr and refuse (solid waste) services were granted u puniu| exemption from the c|codon requirements inProposition 2\8. OuJuly 26, 2006, the California 8up,cnne Court issued udecision in Bighorn-Desert View Water Agency v. Beringson, confirming that Proposition 218 does apply to fees based on measured consumption (i.e., vvo1cr, acvvcr, and refuse rates). The ruling clearly ato1cd that charges "for `vu1e, delivery...are cbo,gcm for property-related services, vvheibc, the charge is calculated on the basis of consumption or is imposed as u fixed monthly fec." This ruling confirmed that |uou| governments must comply with the notice and majority protest proceeding and proportionality requirements ofProposition 2|8. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 23 In addition, revenues from wu\er, sewer and government rcfbmc service charges must adhere to the following: # Rates are not hmexceed the cost of providing the service \3, Section 6(2)Ad(\). # Rate proceeds must heused only(o provide the service(Article 13, Bcodou 6(2)(b)(2). # Rates imposed must "not exceed the proportional cost of the service attributable to the parcel (Article i3, Section 6(2)(bV3). The City's |ovv-inounoe discount does not have o cost basis. Rather, the discount is strictly based on counonnio status. A strict interpretation of the proportionality requirement of Proposition 218 limits the City's ability (ouse rate revenue to fund its low-income discount program — albeit uvery small dollar amount, each customer not receiving u discount pays more than their proportionate share of costs tofund $40,00Oinannual discounts. According to our research, there has not yet been u judicial deic,rniuotiou as to whether the "proportionality" requirement of Proposition 218 precludes funding |ovv-inoonnc programs by charging other ratepayers. Interpretations of this issue has been provided by others (i.e., Legislative /\uu|yai'a Office December 1996 guide cuiit|cd "Understanding Proposition 218;" Michael Co|uutuouoofCo|uniuono8LLevin, P.C., March 27, 2005 udio|e entitled "Fresno Court ofAppeal @o|ca Water, Sewer and Trash Fees 5u6ieo\ to Proposition 218;" and the County of 5uorunnecto'a Consolidated Utilities Billing and Service website "Frequently Asked Questions" and "Utility Rate Questions"). In light ofthe Bighorn case, many ugcnoice discontinued their low-income discount program. Other communities continue to provide low-income uaaiatunoe programs using non-user rate revenues, such umtaxes and other City general fund sources. Policy Recommendation Given that the City has not been able to identify ureliable source of non-rate revenue to fund its lo`v- inounoc discount program, werecommend that the City discontinue its low-income discount program to comply with the requirements set byProposition 2\0. A.A. EXpend^fureS As described above, the difference between u u1i|kv`o needs (czpcnmco) and available resources (revenues) serve as the basis for urevenue requirement uuu|ymia. The following section discusses the revenue needs of the City. These needs can be categorized as operating, capital, or policy-related. /\.4.1 Operations Operating needs are expenditures that the City incurs in the day-to-day operations of its systems — examples include Metro beo1nncrt costs, employee au|uricm and benefits, equipment, and vehicle rop|uocnneui. For the purposes of this uuu|yaim and evaluating dchi coverage ,cgui,enocute, the tc,no "operating czpcnacm" czo|udem debt service and other capital or non-cash expenditures, such as additions to rcocrvcm and depreciation funding. As described in the previous section, the debt coverage test considers only ongoing operational expenditures and annual debt service when evaluating outi|ity"e ability tumeet unnoo| debt service requirements. This uoounnco that uutility could delay capital and non-cash expenditures, if necessary, in order to rnukc aunnu| debt service payments. For example, depreciation is not included as an operating expense for this forecast because, while it is ovalid cost of the system, it is u non-cash expense that does not necessarily represent an outflow of cash (at least ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 24 until the underlying ummeta must be replaced). By contrast, the Chn`m payment to Metro for treatment represents udiaorete expense that must hcpaid. Purchases of capital ueecie are also excluded from the definition of "operating cxpcumee" because they represent capital investment activity rather than operating activity. Generally, budgeted line-item expenditures in the City's P,y 2013/14 Operating Budget served as the basis for forecasting future operating expenses. These costs were forecasted on u line-item hoaie using one ofthe following factors: Exhibit 7: Cost Escalation Factors This rate B in the i forecast, and considers the Consumer Price Index (All Urban Consumers, West Region). Although the annual CPT value has ranged from as low as -0.4% to as high as General Cost Inflation 3.7% over the last 10 years, the average annual CPT value for the same period has been about 2.5%". To be conservative, the forecast for this study assumes an annual inflation rate of 3.0%through the entirety of the financial forecast. This rate was established to account for the fact that labor costs generally increase at a different rate than general inflation. It applies to labor-related expenses such as salaries, benefits, and professional services (on the premise Labor Cost Inflation that the rates charged by firms providing those services would likely reflect increases to their labor costs). Based on discussion with City staff on current and expected staffing, labor inflation was assumed to be 2.0% through FY 2014/15 and 4.0%thereafter. A separate inflationary rate is applied to construction expenses, which are generally included in the capital budget instead of the operating budget (there are exceptions though, such as minor asset maintenance expenses). Capital cost inflation is commonly linked to the Engineering News Record (ENR) Construction Cost Inflation Construction Cost Index (CCI). Our review of the historical increases in the ENR 20-city index suggests that costs have roughly increased at a rate between 3 — 4% over the last 10 years. Therefore, the rate analysis assumes a long-term historical average of 4.0% for all years. Given the data provided and the cost cmcaJuto,e discussed above, projections of operating cxpcumee were developed for future years. Exhibit summarizes the near-term forecast ofoperating expenses. Exhibit 8: Operatinj! Expense Forecast (FY 2013/14—FY 2018/19)/z Payments to Metro for Treatment Se ice 19,383,028 $ 19,964,519 $ 20,563,455 $ 21,180,359 $ 21,815,769 $ 22,470,242 $ 3,087,214 Other Operating EVenses 8,501,188 8,681,867 9,014,426 9,359,923 9,718,863 10,091,774� 1,590,586 /' United States Department ofLaboc Bureau ofLabor Statistics .July 2010. oExcludes non-operating expenditures such oarate funded capital,reserve funding, etc. �1*]����� G"ROUP City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 25 /\.4.2 Capital Requirements Aapart ufthe Chn`m ongoing capital program, projects are assigned tuvarious funding sources that generally reflect the type or purpose ufthe project. For example, projects designed turehabilitate or rop|uoc components of the existing system are funded through the City's Sewer FuoiUbee I<opluoenncni (SFR) Fee. Likewise, u portion of annual capital projects are funded using rate revenue.13 For forecasting and planning purposes, if capital expenditures exceed uvui|ub|c non-rate resources, rates would heused io nocei the funding deficiency. However, it is important to uoic that while current City policy ieioadjust capital outlays iuthe event ofufunding deficiency, the financial forecast aamnnoca any funding deficiencies are met with rate revenues or debt financing. This assumption makes sure that available resources will bcavailable for planned capital projects. The fiuuuoiu| p|uu utilizes the City's five-year capital improvement p|uu (ClP) to determine mzuuu| capital expenditures. The [1P defines the funding source for each capital project. l,obetter forecast fo1orc capital oumh flow needs, the uuu|yaia caou|u1cm oupdu| expenditures by capital inflation; oupdu| inflation is assumed to be 4.0Y6 per year, as discussed above. The following provides the different funding sources and types of capital projects identified in the City's capital plan. � Operations — These capital projects include general upkeep ofsystem assets and are relatively low-cost projects. Tbcmcp, jccteurcfuudedueiugao`voroporu1ing,evcnucm. + Trunk Scwur — Theaeprojects are related to the expansion or improvement of the system. These projects tend tuhe larger in aou|e and umajor oompuncnt of the C1P. These projects are funded through the Trunk Sewer Fund which is funded by the ouUeodon of Sewer Capacity Charges that are imposed ounew development. + Sewer Facilities Replacement (SFR) — Capital projects related to the rehabilitation and replacement of the City's ouUcodon aymtcnn oouadtotc the largest capital obligation. These projects are integral to o well-functioning aymtcrn that provides aevvcr ooUeodun service to City residents. These projects are funded through the Sc`vor Facilities I<epluccrneui Fund, which is funded by u portion of monthly rate revenue (the Sewer Facilities Replacement Fee). The Scvrc, Puoi|diea Ilep|ooenoeut fond is tracked in the rate analysis as u "restricted" uoounut of ouah resources dedicated to ongoing reinvestment in the utility's infrastructure and fixed omeeim. It is designed to aiubiUme the impacts to rates caused hythe natural peaks in the spending patterns of the capital replacement program. [uah uoounou|a1oa in the fund when spending is low; the balance is drawn down during periods of more intense capital investment. Additionally, there is no nniuinounn or maximum cash balance toheheld iuthe replacement fund. The City has developed its VVuatcvvo1cr Asset Management Program (VVAMP), which acrvca as the basis for determining the annual capital rcp|uocrncnt needs. Exhibit 9 aornrnurizem the projected replacement needs over the next hundred years: /sltioimportant tonote that the standard sewer rate includes the Sewer Facilities Replacement Fee—the fee ia currently set o/$O.|8/hcfofestimated sewer discharge. ��^l����� ��U���� TY� ��� �a�r��� c�mm w�* � ���� ���"�����m ` ` City of Chula Vista Sewer Cast-of-Service Rate Study November 2013 page 26 Exhibit 9: Collection System Renewal Needs per WAMP $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $3,581,812 r- 00 r O M a, a, N C' W r- r__ r- 00 00 00 01 01 01 01 O O_ O_ _ OO O O O O O O O O O O O O O O O O O O O O O O O O O O O O -+ N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N N MiUiUUU1 Replacement nniii Rehab —100-yr Average The Sewer Facilities Replacement (SFR) Fee revenues are used to fund a portion of the system's replacement needs based on depreciation expense. While the City currently funds only about 30% of full system depreciation, it could fund a larger percentage of system depreciation over time and provide funding for the costs designated by the WAMP. Based on preliminary WAMP drafts, the City estimates annual WAMP project costs on the order of $3 million in current dollars (when adjusted for inflation, the annual expenditures are expected to increase to almost $7 million over the next 20 years); For FY 2013/14, SFR Fees are expected to generate $1.8 million in annual funding.14 This analysis uses projected sewer flows to estimate future SFR Fee revenue. Replacerrler)t Funding As asset rehabilitation and replacement is the largest component of the City's capital program, replacement fund contributions are an integral component of the financial plan. As previously noted, these contributions are collected through the SFR Fee and represent the City funding future replacement needs based on a portion of the sewer utility's annual depreciation expense. Funding replacement allows the City to actively reinvest in the collection system and to continue providing reliable service to the City's residents. The City currently uses replacement funding to pay for the "replacement" portion of the utility's CIP. However, the City wishes to boost replacement funding in order to meet expected WAMP project costs. To enhance the stability and adequacy of future replacement funding, this analysis developed a strategy to progressively shift the SFR Fee from a volumetric rate to a flat rate and increase the amount of depreciation funding over time. This strategy is outlined in further detail in the Section IV of this report. It is important to note that while the SFR Fee provides a source of cash funding for future replacement needs, it is not intended to fully fund those needs — the City's long-term financial L4 FY 2012/13 estimated SFR Fee revenue as stated in the Amended FY 2012/13 Budget. I� ' Su �sss�s.t`a^rgmrnu� .trnmtm City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 poAo27 strategy will involve funding infrastructure rcp|uocrncnt through u combination of cash and debt financing. + Sewer Development Infrastructure Fund (Sewer DIF) — These are capital projects ,e|otcdto specific developments within the City. These projects are fully funded through the utility's ib,cc DIF funds, with each fund related tu uparticular trunk sewer. For the purposes of this study, all DIF funds are considered usingle fund. + Storm Drainage — For the purposes of this study, all projects related to storm drainage are aoaunncd to be fully funded through the 3iurno Drain Fund and are not included as part of this analysis. + Othur — The five-year ClP also assigned oupiiu| projects to the Special Sewer Fund. Given that the City is considering removing orconsolidating the Special Sewer Fund, it is expected that uo fo1orc oupdu| projects will he paid for out of the Special 5cp/cr Fund. Also, no capital projects were assigned tuthe Special Sewer Fund inthe five-yearClP. Exhibit 10provides detail onthe magnitude ofcapital costs planned for the City's sewer utility. Exhibit 10: Capital Improvement Plan (FY 2012/13 —FY 2017/18) Operations 57,300 53,248 55,378 57,593 223,519 Trunk Sewer - 520,000 - - 520,000 Replacement 1,500,000 1,808,000 2,116,320 2,424,973 2,500,000 3,649,959 13,999,252 In addition to the City-defined funding sources, utilities often utilize debt financing for |ur&cr capacity projects. The City's five-year ClP does not require the use of debt fiuuuoiug but out-year capital needs will likely require debt financing—specifically, the City's share of PLWTP upgrade costs. The full ouat of the PLVV7P upgrade oUoou1cd to the City is estimated to total $97.3 million. The recommended financial eccuudo uses odce to fund m portion of this cost with oumb; however, the remaining $77.1 million will require additional funding sources, namely debt. In addition to debt, the City believes grants will be obb: to offset uportion ufthe upgrade costs; however, as of the writing of this report the City has not secured grant money. While not within the five-year rate fbrccuaL fully funding $77.1 million in debt using u 3O-yeurbond d an assumed 6.0% interest rate would require uuuuu| debt service payments of $6.3 million. These omuou| debt payments n/uu|d be made primarily with Sewer Service Charge revenues, though City staff could also use available Sewer Capacity Charge revenue as needed. For fiuunoiu| planning, FCS (;K()lIP recommends limiting the reliance on Sewer Capacity Charges to pay debt service and meet bond coverage requirements due tuthe unpredictable nature of growth—however, itmay beappropriate tuassume the use ofapercentage ofprojected omuou| rcvcnocm to offset or phase inthe rate impacts ofnew debt service. Additionally, in order to meet future growth the City will need to purchase additional capacity at the PL7YVP in the future. Based on current sewer flows and capacity projections, the City would [uoc u ireu1nocni capacity deficit of roughly i M(]I} in P,/ 2024/25 —tbe Dov/projections mhov/u in Table 3- 1 of the 2007 Sweetwater Authority Membrane E|iorcociorFeuaibi|iiy Study suggest that this deficit could increase by another 1.5 MGD by buildout (expected to occur in 2030). The cost of this additional capacity has been vu|ncd at $14.38 per gallon per day (gpd) of sewer Dup/. Bmou|udng the uamunned capacity unit cost to future dollars, the total cost of the additional capacity would hc roughly $32.8 million in FY 2024/25. This additional capacity cost is included as u long-term capital �1*]����� G"ROUP City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 28 expenditure that would bepaid for using the funds deposited inthe City's Trunk Sewer Capacity I<omorve Fund. Based oucurrent growth forecast and system capacity charges, the Trunk Sewer Fund would have sufficient funds to fully fund the purchase of an additional iMGC) of capacity in FY 2024/25. Aapreviously noted, dim important tunote that growth forecasts are subject to change and capacity purchases may berequired sooner urlater than forecasted. A,5 Poky Requirements In addition to the operating and capital cxpcuacm discussed above, there are also expenses related to the City's policy decisions. The City recently completed draft fiuuuciu| reserve policies for the acvvcr utility. The policies are designed to keep the sewer utility in u financially viable and fieouUy healthy position byproviding adequate reserves for daily operations as well as emergencies. A review of the City's policies found that the draft policies provide the needed level of reserves and are appropriate given the utility's operating uccda. The following section discusses each reserve in further detail. /\.5.1 Minimum Working Capital & Rafe Stabilization �Re5e[Ye The vvuddng oupdu| and rate atohUizu1iou reserve represent the absolute minimum bu|unoc in the total ouah reserve for the Sewer Service Revenue [und—thc 5cvvcr Service Revenue Fund uo\m as the ud|iiy"a operating fund, vvbc,c ,cvcuuee are deposited and expenditures are paid. Combined, the reserves are designed to accommodate the natural variability iurevenues and expenditures, including potential disruptions of cash flows due to varied billing methodologies, ahun-tcrrn Dnotuu1iuna, and uuuuul cycles./5Addressing each reserve separately, i. The working capital reserve intends to protect the City from natural fluctuations in revenue and expense cycles, which imprudent given that the City bills customer bimonthly but incurs expenses continuously throughout the year. 2. The rate stabilization reserve intends to provide the City with ugreater degree offlexibility to "smooth" rates and phase increases in over nro|dp|c years, which is prudent given the potential variability iuthe City's payments toMetro. The City's draft policy proposes a target reserve balance equal to 180 days of operating expenditures. This level of reserves is appropriate given the pattern of the City's cash flow. FCS GROUP reviewed the City's noundh|y ouah Dovva to determine the magnitude of ouah Uovv variations. The City's quarterly payments to Metro account for large variations in monthly oueh Do"/a; each puyn/cui is equal to roughly 75% of total expenditures in each three-month quarter. Additionally, o majority of the City's revenues are collected iubi-noundh|y installments, creating additional need to have romcrvco on hand during months of minimal revenue ou||oodon. Given these findings, |QO days is u prudent level of reserves to cncc( operating obligations, specifically the quarterly payments to Metro. Based on the City's reserve policies and review of monthly oumh Uovvm, the unu|ymia ummnnnem u working capital and rate stabilization reserve cgnu| to \QO days of operating expenditures, each reserve being set ui 90 days of operating expenditures. At these levels the annual working capital and rate stabilization ,eec,vc requirement equates to roughly $13.8 million in FY 2013/14. In order to /5 City ofChula Vista Draft Financial Reserve Policies ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 29 minimize impacts to ratepayers, the City may oboomc to incrementally n000h the targeted 180-duy reserve over multiple fiscal years. A.5.2 Sewer Emergency Reserve The proposed Sewer Emergency Reserve is designed to provide uvui|uh|c cash to repair or replace major failures of fixed assets and/or equipment. /\uasset failure might include ufire otufacility oru localized break urdamage to infrastructure. The emergency reserve would provide the needed funds immediately in order to quickly respond tothe event and io facilitate the speedy restoration ofnormal operations without impeding opc,uboum c|aevvberc iuthe utility. Additionally, litigation or settlement ouato urununexpected liability may also bc covered bythe reserve. The reserve amount iaplaced in the Scvvcr Service Revenue Fund and is funded through net cash flow from operations. Unlike the working capital and ,uic stabilization ,cecrvc, the IInoe,geuoy I<cmc,vc represents unrestricted resources available for appropriations bythe City Council. lfthe Emergency Reserve is used, the funds should be replenished in the subsequent flmou| year. Based on the City's financial policies, the uuu|yaim ummunoem u reserve level equal to 5% of operating expenditures — this eguuice to u target balance of$i.4million for F./ 20i3/\4. Policy Consideration YVhUc the draft reserve policy provides adequate rcauoroco to meet potential emergencies, it ducm not directly account for u growing asset base. To orco1c u closer nexus with asset costs and their potential failure, the City should consider adjusting the reserve to equal u percentage of gross fixed umeci value (original ooai of plant-in-service, not adjusted for depreciation). This would be especially prudent if the City were to own upodion of the expanded recycled water network orown and operate its own treatment plant as each would represent u significant cost if emergency repairs were needed. An industry miuudurd is to met u ,cmc,vc io,gct of 2% of gross fixed uaaeia. Given that the City's fixed asset records indicate u total historical investment of $403 million in existing uameta/^, this reserve amount p/uu|d equate to roughly $0.1 million. If the target reserve bu|unoc is oo|on|utcd on depreciated umecim, i(would hc $3.3 million based ou $164 million in depreciated fixed assets. These alternative methodologies and target reserve levels respectively reflect increases of$6.3 million and $\.5million over the $|.Qmillion required pursuant tothe City's draft policy. A.5.3 Vehicle Replacement Reserve The City's draft policy establishes u \/chio|e Rcp|uocnncnt Reserve in which money is set aside to fund the replacement ofaging utility vehicles. The allocation imdesigned ioprovide level funding of the cyclical vehicle replacement aobedu|c from revenues accumulated in the Sevvc, Service Revenue Pond. The City's Operations Vehicle Replacement Schedule requires more vehicles tohereplaced in certain years than in oibc, years; the resulting spikes in expenditures can negatively affect the rates charged to oumionne,m. To minimize the impact torates, an uuuuu| uUooubou offunds based ouu rolling average cost ofreplacing all vehicles over the lifespan ofthe existing fleet is employed. The resulting aUuoudon is ouUeotcd through 5cvvcr Service Charges and uoournu|utca in the Sewer Service Revenue (Operating) Fund with unuuu| vehicle rop|uocnneui costs debited against the accumulated bu|unoc. It is inq`udurK to note that, unlike u standard reserve, there is no nnininronn balance for the Vehicle }lcp|ooenncrt Reserve — funds can be drawn to or bc|up/ zero, with the balance restored in years with rniuinool vehicle replacement needs. The unuuu| allocation for FY 16 Based on City's fixed asset replacement schedule asset values—as of 3/5/2012. ��^l����� ��U���� TY� ��� �a�r��� c�mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 30 2013/14 is $556,548, and is expected to increase to $614/474 hvP./ 2O\0/\9based onthe Chn`m vehicle replacement schedule and an assumed fleet lifespan of 15 years. Policy Consideration /\ Vehicle Kep|uoenocnt Allocation based on m fixed ropluoenncni schedule uUovvm the City to plan accordingly within the time fiunoc of the rcp|ucezucni schedule. However, as the City moves closer to the end year ofthe schedule, the o||uoution does not update to account for replacement ouatm in the yoo,a afterward. Given this, reviewing and updating the unuuu| allocation amount will support the City's goal of adequately funding its vehicle fleet. Given that vcbio|c replacements tend to fb||ovv a cyclical pattern, an uunuu| review and update may prove burdensome and unnecessary. As such, it would be effective to review and update the allocation with each five-year financial plan developed by the City o, its oonau|iuuL The assumed reserve policies are summarized below: Reserve Purpose Minimum Balance Maximum Balance • Manage differences - 90 days of - 125% of minimum Working Capital in revenue and operating expenses balance ($8.6 expense cycles ($6.9 million in million in 2014) 2014) • Protect against m 90 days of m 125% of minimum Rate Stabilization unforeseen operating expenses balance ($8.6 fluctuations in ($6.9 million in million in 2014) revenues or 2014) expenses • Provide funding for 5% of operating 125% of minimum Emergency emergency asset expenses ($1.4 balance ($1.7 replacement and million in 2014) million in 2014) insurance deductibles • Levelize cost Vehicle replacement allocation ($556,548 in Vehicle Replacement impacts of vehicle 2014) replacement needs EPA Permit - Accrue funding for Annual transfers of about $1.8 million from Renewal Liability PLWTP upgrade 2015 —2025 (recommended scenario only) A.6 Resources & Revenues With the City's expenditures defined, the next step iuthe revenue requirement analysis is to define (and forecast) the sources ufrevenue available tomeet those needs. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 31 /\.6.1 Operating �ReVenUeS � Qmv+mr Rates — This revenue is derived from the monthly sewer rates paid by oumturnera for use of the City's acp/cr ouUeoiiun aymienn, and represents the City's primary source of controllable revenue. As defined by the revenue requirement, sewer rates must meet all financial obligations not covered byother revenue sources. For forecasting purposes, this fbnn of revenue is uaaunoed to vary based on changes in the ouaiurner base, changes in demand (amount of sewer Duvv generated), and udiva\noenta to rates. Assuming on annual reduction of 1.50% in demands, uuuuul ouaionne, growth of 1.05Y6, and that approximately 81Y6 of rate revenues are generated through variable obo,gcm, collected revenues (at existing rates) are expected to decrease by 0.18% annually over the five-year planning hodzun./r If no rate increases were adopted, rate revenues would decrease by u cumulative 0.90% over the five-year forecast. Given the ever-changing economic landscape, this assumption should be revisited with staff um economic conditions in the region change. � Interest &IurnUogo — The City derives this revenue from the ouah held in its various funds. P.y 2012/13 uotuo1 revenue rupuda indicate that the 8c`vcr Service Revenue Fund earned $90,296 in investment interest, given u 7/|/2012 balance of $18,410,021 — this auggomim an effective in(crcmi earnings rate of about 0.5%. Based on reported interest earnings for the previous two years and current market interest rates, future interest earnings are projected uaing an assumed earnings ru10 of 1.0%. � MinocOmouomn — MiacoUuneuum revenues (for the purpose of this unuhmia, any revenue other than sewer rates or interest earnings) fall into this category — examples include late fees, activation fees, and other miscellaneous service fees. It is assumed that miscellaneous fees would increase hyeither development growth (for oueionne,~,elutcd fees such as late fees) or general cost inflation (for nnimoeUuucoum revenues that are not directly attributable to customers, such as insurance policy rcindbormcnecAm). &IzhUbUt 11 summarizes the near-term [urcouat of operating revenue for the utility prior to any future rate increase:m Exhibit I I: Operatinj! Revenue Forecast with No Rate Increase (FY 2013/14 —FY 2018/19) 11i I=� fiii 1111111111 Sewer Service Charges(At Existing Rates) 29,143,238 29,090,68) 29,038,227 28,985,863 29,052,467 $ (143,419) Other Operating Revenue 441,529 444,590 447,684 450,809 453,968 468 Revenue Fund Interest Earnings 226,044 224,845 218,603 224,560 234,502 20,353 Total Revenues 29,863,535 29,810,811 29,760,120 29,704,513 29,661,232 29,740,936 $ (122,599) u|Revenue figures are as"/Septe"a",zo//^and are subject mfuture adjustments aspart"/th"City's annual financial reporting process. Storm [}rain Fee The City's acp/cr rate structure ino|ndoa o 3turrn Drain [cc of $0.70 per month for single-family residences and $0.06 per hoffbr all other customers. Storm Drain [cc revenue is not used to fund the /rSewer rate revenue escalator of'O.lD%=(l+|.05%)^(l |.5%*81%)'1 /« Given the variability ofrevenues generated under each scenario(detailed later in this memo),the operating revenues in this table do not reflect any rate increases,and are presented to show the magnitude of revenues currently generated 6ythe utility. 17 C, ��U���� TY� ��� �a�r��� c�mm w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 32 sewer utility's operations, and is not considered in the rate revenue analysis or any other portion of this study. A.6.2 Capital Revenues Capital revenues are revenues derived from, o, for, copdu| uoth/ bee and are often ,cetdotcd accordingly. These revenues are directly excluded from the revenue requirement analysis; however, they may indirectly affect the revenue requirement ifthey du not provide adequate revenues to fund all capital projects, rates could he used to meet any unfunded project costs. Bxunop|ee of these revenues include: � Qmv+mr Capacity Charges — Sewer Capacity Charge (SCC) revenues are used to fund capacity- expanding capital projects uudorcdonoadcdiotothc7rnnkScvvcrCupita|IlemervePond. Theuno|yaia draws from existing reserves when capital projects ouoto exceed available SCC revenues. As these revenues come from new development, they are relatively volatile and subject to changes in the housing and commercial real oatu1e markets. This has been evident in recent years with nduimu| growth and SC[ revenue. For this analysis, future capacity charge revenues are forecasted based on projected growth assuming u growth ru(c of 1.05Y6./9 Based on this forecast, SCC revenues are expected to fully fund capital projects p|uuucd for the Trunk Sewer Capital Reserve during the five- year financial planning horizon. It is important to note that the City is inthe process ofupdating its Wastewater Master Plan and the five-year financial planning horizon is auhicoi to change hoecd on updated costs o,infrastructure needs stated iuthe updated Wastewater Master Plan. � Sewer Facilities Replacement(SFR) Fees—The sewer rate structure includes an SFR Fee (currently $0.18 per hof) that is used to fund the rep|uoerneod portion of the City's C[P. These revenues are deposited into the Sewer Facilities Replacement Fund and are used tufund the nearly$|4.0million in rop|uoenocni capital projects that are planned to occur between Fl, 2013/14 and Fl, 2018/19. SFR Foe revenue is fb,eouatcd based on projected mevvcr Dovvm — aovvcx flo`va are projected based on u oundbinu1iun of development growth and sewer demand or changes in customer-related sewer Duvvm. Based on an assumed uuuuu| customer growth ndc of 1.0596 and an assumed uuuuu| per-capita demand growth rate of -1.50Y6, this uuu|ymie assumes an uuuuul growth ode of -0.47Y6 in total vvaetcvva1cr Oun/m during the five-year planning horizon. Doc to |ovv development and hiatudoo| and continued conservation, unego1ive escalation will provide aoonmcrvudve estimate of future customer usage and SFR Fee revenue. SFR Fees are expected to be sufficient to cover the planned capital rcp|uoenecA projects over the study period. Boouomc SFR Fee revenues have been set to equal czpcnaca during this time, the 5PIl Reserve balance is expected to remain relatively consistent over the study period. As the balance increases in the future, ucounn/|o1ed SFR Fund reserves will he used iomeet any unmet needs. � Sewer Rates—As previously noted, the City designates a certain percentage of the CIP to be funded through utility rates. This unu|yaia uaaurnoa that any unfunded C|P projects would bcmet using mevvcr rates.20—bovvever, the five-year financial forecast does not indicate uneed for additional rate funding of the C[P to occur inthe five-year planning period. /vGrowth assumption ixbased oothe City's own fivo'ycazfinancial forecast. c«ltshould 6enoted that general City policy ietoadjust ClPexpenditures ifunderfunding were tooccur,toavoid potentially adverse impacts torates. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 33 � Grants — Grants are most often linked to u specific project with u specific purpose (such as complying with state mfederal regulations). The City currently does not have any projectsidentiUcd as grant-funded projectsduring the five-year planning period. � Debt Proceeds — Tbe City will likely need io issue debt in the future to fund major oupi(u| projects (i.e., City owned treatment plant). In doing so, debt proceeds will be available to fund these projects. � Investment Xmdereot — Thc City derives this revenue fruminvoakedfuuda — aa previously noted. Interest earned onthe cash balances in the capital-related funds is assumed tuhe available for use toward project expenses and other capital revenue needs. This uuu|yaia separately forecasts SCC and SFR Fee revenues. SCC revenues are projected hyumiug growth assumptions to determine how many new oua\onncro are connecting to the mya\enn each year. This forecast umaunnea the current SCC of$3,478 and an annual customer growth rate of 1.05% for each year inthe study period. Alternatively, SFR Fee revenues are forecast hydetermining the level of replacement funding (based on u percentage of depreciation expense) to gcncruic through SFR Peca each year. To meet the Ldy`a guu| of funding u higher level of system reinvestment as well as meeting expected YV/\MP-defined replacement costs, the uuuuu| replacement funding |cvc| is increased over the fbreoum( period. By FY 2018/19, the unu|yaim funds $4.0 million of depreciation, anincrease ufabout $2.2million from projected F,/ 2O|3/|4SPl{Fccrcvcnucm. &IzhUbUt 12 displays the amount offorecasted SCC and SFR Fee revenues that are eligible for capital uses. Exhibit 12: SCC and SFR Fee Revenue Forecast SFR Fee Revenue 1,827,430 1,958,000 2,266,320 2,574,973 2,85010 3,971,551 2,144,121 Note that the rate udinatnnerKa discussed in this report only apply to the SFR Fee—um previously stated, SCC revenue is forecasted based on the existing SCC and umaunncd growth in the oua\urner base. B. FORECASTED RATE REVENUE REQUIREMENTS Various rate revenue requirement aoouudua were developed for the City to consider for the utility. 7hcac aocnnziom were developed in collaboration with City staff and considered the long-term viability ofthe utility, the feasibility ofrate increases, and the goal ofmaintaining the necessary level and quality ufservice for the system. Given the City's potential long-term oupdu| uocdm, the oupdu| funding mbo1cgy is ukey part of the revenue requirement uuu|yeim. Vyhi|c these projects are beyond the five-year planning horizon, it is prudent to adequately plan ahead to limit or smooth inopuotm to ratepayers. The eccuo,ioe consider potential capital expenditures and the financing rnoohanimrnm for funding oopdu| needs. The developed at,u1cgy can potentially affect the utility's cuab hulunoca, dchi iemuuuoe and related obligations, and future revenue etreunne from rates (including SFR Feem), and SCCa. The revenue requirement unu|yaea also u000urK for recommended financial policies described in QmcUoo UXU.A.5. Specifically, unless otherwise noted, each of the oocnuriva target u rnininronn unrestricted working capital and rote stabilization reserve hu|unoc equivalent to u minimum of 180 ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 34 dxva 50%) of annual operating expenses and a bond coverage ratio of 125 drnca onnou| debt service hvthe time ofthe first debt issuance. Three scenarios were evaluated: �ij, Qcmoarlw X—Baseline: This scenario uamurnea that operations ourKiuoe at present levels. It is assumed that this scenario is not viable under a longer-term horizon but will adequately fund short-term needs. �ij, Qcmoarlw UU—U»wlnt Loma Upgrade: This aocnudo develops ufinancial plan inwhich the PLYVTP is upgraded tosecondary treatment following the expiration ofthe EPA 3O\(h)waiver. � Scenario UUU — Membrane Bioreactor (MBR) Plant Construction: This scenario develops u financial plan (o fund the construction ofaCity-owned treatment plant and reduce reliance on Metro. SCenariD | — BaSeline This scenario ummunuem that operations continue at normal levels, and does not consider potential inorcuaca inMetro-related treatment oumtm and/or the purchase of the City's own treatment plant. YVhUc this option best represents the sewer utility's ooncnt uperuduna, it does not adequately plan for the future. This scenario best represents the inopuoim ofudecision hythe City topostpone planning-related rate iuoreumca. &Izhlbd 13 bc|uvv outlines the rate impacts of the scenario. ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City of Chula Vista Sewer Cash'-of-Service Rate Study November 2013 page 35 Exhibit 13: Near-Term Financial Forecast(Baseline Scenario) EM= In=8 b 4 Projected Operating Costs: Metro $ 19,383,028 $ 19,964,519 $ 20,563,455 $ 21,180,359 $ 21,815,769 $ 22,470,242 $ 3,087,214 Other 8,501,188 8,681,867 9,014,426 9,359,923 9,718,863 10,091,774 1,590,586 Total $ 27,884,216 $ 28,646,386 $ 29,577,881 $ 30,540,282 $ 31,534,633 $ 32,562,016 $ 4,677,800 Projected Capital Costs Operating Reserve $ 57,300 $ 53,248 $ 55,378 $ 57,593 $ $ SFRReserve 1,500,000 1,808,000 2,116,320 2,424,973 2,500,000 3,649,959 Other Funds 916,300 520,000 324,480 - - - Total $ 2,473,600 $ 2,381,248 S 2,496,178 $ 2,482,566 $ 2,500,000 $ 3,649,959 Aggregate Rate Revenue Adjustment 0.0% 4.5% 4.5% 4.5% 4.5% 4.5% 24.6% Monthly Single-Family Bill @ 10 hef121 $40.16 $43.80 $46.05 $48.36 $50.81 $53.01 $12.85 Projected Rate Revenue After Rate Adjustments: Sewer Service Charges $ 29,195,886 $ 30,397,454 $ 31,486,923 $ 32,646,768 $ 33,915,524 $ 34,561,132 $ 5,365,246 SFRFees $ 1,827,430 $ 1,958,000 $ 2,266,320 $ 2,574,973 $ 2,850,000 $ 3,971,551 2,144,121 Total $ 31,023,316 S 32,355,454 $ 33,753,243 $ 35,221,740 $ 36,765,524 $ 38,532,683 $ 7,509,367 Ending Operating Reserve Balance 131 $ 22,604,355 $ 24,323,125 $ 25,555,856 $ 28,027,192 $ 30,915,653 $ 33,516,470 $ 10,912,115 Targeted Minimum Balance: Working Capital Reserve $ 6,875,560 $ 7,063,492 $ 7,293,176 $ 7,530,480 $ 7,775,663 $ $028,990 $ 1,153,430 Rate Stabilization Reserve 6,87.5,.560 7,063,492 7,293,176 7,530,480 7,775,663 8,028,990 1,153,430 Emergency Reserve 1,394,211 1,432,319 1,478,894 1,527,014 1,.576,732 1,628,101 233,890 Total $ 15,145,331 $ 15,559,304 $ 16,065,246 $ 16,587,975 $ 17,128,057 $ 17,686,081 $ 2,540,750 Net Available Operating Reserve Balance $ 7,459,023 $ 8,763,821 $ 9,490,610 $ 11,439,217 $ 13,787,596 $ 15,830,388 $ 8,371,365 Ending Sewer Facilities Replacement Reserve Balance $ 3,005,037 $ 3,035,087 $ 3,065,438 $ 3,096,093 $ 3,327,054 $ 3,531,916 $ 526,879 Total Ending Reserve Balance 141 $ 25,609,392 $ 27,358,212 $ 28,621,295 $ 31,123,284 $ 34,242,706 $ 37,048,386 $ 11,438,994 Vehicle Replacement Allocation $ 556,548 $ 567,679 $ 579,032 $ 590,613 $ 602,425 $ 614,474 $ 57,926 Ending Vehicle Replacement Reserve Balance 151 $ 686,093 $ 607,149 $ (122,572) $ 187,240 $ 566,154 $ 1,019,205 $ 333,112 [11 Excludes Storm Drain Fee revenues and expenses. [21 Assumes that 90%of usage enters the sewer system and is subject to the sewer volume rate(see Fxhihit 1) 131 Ending Operating Reserve balance reflects funding ofvehicle replacements net ofthe annual vehicle replacement allocation. 141 Includes Operating Reserve and SFR Reserve. Excludes Trunk Sewer Capital Reserve. 151 Included in the ending Operating Reserve balance. Scenario II Paint Lorna Upgrade Metro's EPA waiver is up for renewal in FY 2015 and is not expected to be renewed by the EPA. Under this scenario, Metro would need to add secondary treatment to the PLWTP within 10 years at a significant cost. As a contributing member to the regional treatment plant, Chula Vista would share in the cost of the upgrade through the annual rate that it pays to Metro for treatment service. It is expected that Metro will have 10 years after the expiration of the EPA waiver to institute secondary treatment. Under this scenario, during the 10-year period the City is building a dedicated reserve that will offset the City's share of capital related costs as well expected increases in treatment rates. Current estimates place the cost of upgrading to secondary treatment at $1 billion, with Chula Vista's share being $97 million. By actively planning for the PLWTP upgrade, the City will be in a strong financial position to afford such costs while mitigating impacts to ratepayers. + � $sss%1JC S rrnUJ).0011I City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 page 36 As noted, a major component of this scenario is the funding of a reserve to be used to mitigate Metro costs related to the upgrade of the PLWTP. The EPA Permit Renewal Liability Reserve is funded through annual contributions of$1.8 million into a separate account, with the intent being to reach a target balance of$20.2 million (20% of Chula Vista's share of the upgrade cost) by FY 2024/25 (10 years after the expiration of the waiver). If substantial increases in Metro-related costs occur sooner than expected, the can City draw down reserve levels prior to FY 2024/25 to manage impacts to ratepayers. To be consistent with the City's policy for managing balances for its other utility reserves, if funds are appropriated from the reserve before its intended use, the funds should be replenished in subsequent fiscal years. If the magnitude of the withdrawal is material, the City should develop a plan to incrementally replenish the reserve to its previous or scheduled level. Exhibit 14 outlines the major findings of Scenario 11. Exhibit 14: Near-Term Financial Forecast (Point Loma Upgrade Scenario) Projected Operating Costs: Metro 19,383,028 $ 19,964,519 $ 20,563,455 $ 21,180,359 $ 21,815,769 $ 22,470,242 $ 3,087,214 Other 8,501,188 8,681,867 9,014,426 9,359,923 9,718,863 10,091,774 1,590,586 Total 27,884,216 $ 28,646,386 $ 29,577,881 $ 30,540,282 $ 31,534,633 $ 32,562,016 $ 4,677,800 Projected Capital Costs Operating Reserve $ 57,300 $ 53,248 $ 55,378 $ 57,593 $ - $ - SFR Reserve 1,500,000 1,808,000 2,116,320 2,424,973 2,500,000 3,649,959 Other Funds 916,300 520,000 324,480 - - - Total $ 2,473,600 $ 2,381,248 $ 2,496,178 $ 2,482,566 $ 2,500,000 $ 3,649,959 Aggregate Rate Revenue A4jushnent 0.0% 4.5% 4.5% 4.5% 4.5% 4.5% 24.6% Monthly Single-Family Bill g,10 hcf'121 $40.16 $43.73 $45.96 $48.25 $50.68 $52.87 $12.71 Projected Rate Revenue After Rate Adjustments: Sewer Service Charges $ 29,195,886 $ 30,397,454 $ 31,486,923 $ 32,646,768 $ 33,915,524 $ 34,561,132 $ 5,365,246 SFR Fees $ 1,827,430 $ 1,958,000 $ 2,266,320 $ 2,574,973 $ 2,850,000 $ 3,971,551 2,144,121 Total $ 31,023,316 $ 32,355,454 $ 33,753,243 $ 35,221,740 $ 36,765,524 $ 38,532,683 $ 7,509,367 Ending Operating Reserve Balance 131 $ 22,604,355 $ 22,484,515 $ 21,860,251 $ 22,456,020 $ 23,450,160 $ 24,137,712 $ 1,533,357 Targeted Minimum Balance: Working Capital Reserve $ 6,875,560 $ 7,063,492 $ 7,050,070 $ 7,279,464 $ 7,516,474 $ 8,028,990 $ 1,153,430 Rate Stabilization Reserve 6,875,560 7,063,492 7,050,070 7,279,464 7,516,474 8,028,990 1,153,430 Emergency Reserve 1,394,211 1,432,319 1,478,894 1,527,014 1,576,732 1,628,101 233,890 Total $ 15,145,331 $ 15,559,304 $ 15,579,035 $ 16,08.5,943 $ 16,609,680 $ 17,686,081 $ 2,540,750 Net Available Operating Reserve Balance $ 7,459,023 $ 6,925,211 $ 6,281,216 $ 6,370,077 $ 6,840,480 $ 6,451,630 $ (1,007,393) Ending Sewer Facilities Replacement Reserve Balance $ 3,005,037 $ 3,035,087 $ 3,065,438 $ 3,096,093 $ 3,327,054 $ 3,531,916 $ 526,879 Ending EPA Permit Renewal Liability Reserve Balance $ - $ 1,838,610 $ 3,677,220 $ 5,515,830 $ 7,354,439 $ 9,193,049 $ 9,193,049 Total Ending Reserve Balance 141 $ 25,609,392 $ 27,358,212 $ 28,602,909 $ 31,067,942 $ 34,131,653 $ 36,862,677 $ 11,253,286 Vehicle Replacement Allocation $ 556,548 $ 567,679 $ 579,032 1 $ 590,613 $ 602,425 $ 614,474 $ 57,926 Ending Vehicle Replacement Reserve Balance 151 $ 686,093 $ 607,149 $ (122,572) $ 187,240 $ 566,154 $ 1,019,205 $ 333,112 [11 Excludes Storm Drain Fee revenues and expenses. [21 Assumes that 90%of usage enters the sewer system and is subject to the sewer volume rate(see FxhiNt 1) [31 Ending Operating Reserve balance reflects funding of vehicle replacements net ofthe annual vehicle replacement allocation. 141 Includes Operating Reserve and SFR Reserve. Excludes Trunk Sewer Capital Reserve. 151 Included in the ending Operating Reserve balance. Note that the sample single-family bills shown in Exhibit 14 are slightly different from those shown in Exhibit 13 because of the addition of the EPA Permit Renewal Liability Reserve funding transfers to the functional cost allocation discussed in Section W.C.1 of this report. +***1* FC1Sk1 1"ROUP City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 page 37 Scenario III - Membrane IBioreactar (MBR) Plant- Construction In this scenario, the City builds its own treatment plant in order to avoid purchasing additional capacity from Metro when the City's current capacity is exceeded by growth. Adjusting for future cost inflation at 4% per year, the longer-term forecast projects that the utility would need to spend around $121 million in the mid-2020s for Phase I and an additional $35 million in the early 2030s for Phase 2 of the MBR Plant. Projected SCC revenues and other resources in the Trunk Sewer Capital Reserve are expected to be able to fund about 36% of this future cost. If the City were to issue a total of$100 million in 30-year bonds (assuming an interest rate of 6%) to fund this cost, the future annual debt service impact would be around $8.0 million. Although the MBR Plant would not be a "replacement project" per se, the City could consider using SFR Fee revenues as a source of funding for its construction because it would benefit existing customers as well as growth. The corresponding five-year financial plan is displayed below in Exhibit 15. Because the majority of these costs are assumed to occur in the mid-2020s, Scenario III is identical to Scenario I during the study period. Due to the relative uncertainty of this scenario, this scenario is not recommended. Exhibit 15: Near-Term Financial Forecast (MBR Plant Construction) Projected Operating Costs: Metro19,383,028 $ 19,964,519 $ 20,563,455 $ 21,180,359 $ 21,815,769 $ 22,470,242 3,087,214 Other 8,501,188 8,681,867 9,014,426 9,359,923 9,718,863 10,091,774 1,590,586 Total 1,$ 27,884,216 $ 28,646,386 $ 29,577,881 $ 30,540,282 $ 31,534,633 $ 32,562,016 4,677,800 Projected Capital Costs Operating Reserve $ 57,300 $ 53,248 $ 55,378 $ 57,593 $ - SFRReserve 1,500,000 1,808,000 2,116,320 2,424,973 2,500,000 3,649,959 Other Funds 916,300 520,000 324,480 - - - Total 2,473,600 $ 2,381,248 $ 2,496,178 $ 2,482,566 $ 2,500,000 3,649,959 Aggregate Rate Revenue Ailiustment 0.0% 4.5% 4.5% 4.5% 4.5% 4.5% 24.6% Monthly Single-Family Bill @ 10 hel'[2] $40.16 $43.80 $46.05 $48.36 $50.81 $53.01 $12.85 Projected Rate Revenue After Rate Adjustments: Sewer Service Charges 29,195,886 $ 30,397,454 $ 31,486,923 $ 32,646,768 $ 33,915,524 $ 34,561,132 $ 5,365,246 SFRFees 1,827,430 $ 1,958,000 $ 2,266,320 $ 2,574,973 $ 2,850,000 $ 3,971,551 2,144,121 Total 31,023,316 $ 32,355,454 $ 33,753,243 $ 35,221,740 $ 36,765,524 $ 38,532,683 $ 7,509,367 Ending Operating Reserve Balance 131 22,604,355 $ 24,323,125 $ 25,555,856 $ 28,027,192 $ 30,915,653 $ 33,516,470 $ 10,912,115 Targeted Minimum Balance: Working Capital Reserve $ 6,875,560 $ 7,063,492 $ 7,293,176 $ 7,530,480 $ 7,77.5,663 $ 8,028,990 $ 1,153,430 Rate Stabilization Reserve 6,875,560 7,063,492 7,293,176 7,530,480 7,77.5,663 8,028,990 1,153,430 Emergency Reserve 1,394,211 1,432,319 1,478,894 1,527,014 1,576,732 1,628,101 233,890 Total $ 15,145,331 $ 15,559,304 $ 16,065,246 $ 16,587,975 $ 17,128,057 $ 17,686,081 $ 2,540,750 Net Available Operating Reserve Balance 7,459,023 8,763,821 9,490,610 11,439,217 13,787,596 15,830,388 $ 8,371,365 Ending Sewer Facilities Replacement Reserve Balance 3,005,037 3,035,087 3,065,438 3,096,093 3,327,054 3,531,916 $ 526,879 Total Ending Reserve Balance 141 25,609,392 27,358,212 28,621,295 31,123,294 34,242,706 37,048,386 $ 11,438,994 Vehicle Replacement Allocation 556,548 567,679 579,032 590,613 602,425 614,474 $ 57,926 Ending Vehicle Replacement Reserve Balance 151 686,093 607,149 $ (122,572), $ 187,240 566,154 1,019,205 $ 333,112 111 Excludes Storm Drain Fee revenues and expenses. 121 Assumes that 90%of usage enters the sewer system and is subject to the sewer volume rate(see Exhibit I [31 Ending Operating Reserve balance reflects funding of vehicle replacements net ofthe annual vehicle replacement allocation. [41 Includes Operating Reserve and SFR Reserve. Excludes Trunk Sewer Capital Reserve. [51 Included in the ending Operating Reserve balance. +* JCSgrqnUJ).0011I**1* FC1Sk1 G"ROUP NN%1%1 City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 38 The proposed strategy of4.5% annual rate inorcuaca appears to hold for all three moenudua, with the key difference being the projected ending fund balances. For simplicity, all three eceuudoa ueaumc the munoe SFR Fee revenue |cvcle (see Exhibit 12); Scenario l (Baseline) and Scenario Dl (MBR Plant Construction) reflect odinatnneutm to the 5cvvcr Service Charge to arrive at 4.5% annual inorcuaca in the overall sewer rate. 1uboth ufthese scenarios, the City could opt to shift the iuorcumc to the SFR Fee instead ofthe Sewer Service Charge. Because Scenario D (Point Loma Upgrade) amaunncd rate-funded transfers of $|.Q nnU|iun to the BP/\ Permit @enevvu| Liability |{cacrvc, it is expected to end the study period with |caa money in the Operating Reserve and the SFR Reserve — however, the overall difference in the total ending hu|uuoe (including the EPA Permit }leuevvu| Liability Reserve) is only about $186,000. ��]����� ��U���� TY� ���.�a�r���.c�mm City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 39 SECTION ° OST-OF-SERV|CE As described above, the revenue requirement ouo|yaia determines the amount of revenue that ecvvc, rates must generate. The cost-of-service ouu|ymim is intended to provide an unu|}tioo] basis for recovering the forecasted revenue requirement from customers according to the unique dcrnundm they place on the mymieno. These dcrnuudm are defined by biaioriou| oueionocr sewer flovvm by customer o|uaa uaprovided byCity staff. This cost-of-service unu|yaim is u four-step process: (|) ouatm are allocated to vodona funoduuu| components of the aymtccn; (2) unique customer demands are defined through u oumionne, data analysis; (3) ouatm are uUooutod to onatonncr o|uamcm based on their demands; and (4) rates are designed turecover costs based onthe previous three steps. /\ unique component of the City's ecvvcr ,uic structure is the incorporation of two other fees; the Storm [)ruiu Fee and SFR Fee. For the purposes of setting the sewer rates, the Storm Z),uiu Fee is netted from the calculation and excluded from this unu|yaim and report. The SFR Fee is ou|on|o1ed separately, umdiscussed iugreater detail below. A. ��VV�� � ���� BACKGROUND /`. �� vv �/� /�r` " �� Section 6 (2)(b)(1) of Proposition 218 requires that agencies providing "property-related aerviocm" (including utility service) set rates and charges that are based unthe cost ufproviding those services. California |u*' also requires that agencies conduct u cost-of-service study at |cuet once every ten yoo,a so that their ruice are recovering costs equitably from customers, given their relative service requirements and demand characteristics. In 2003, Chula \/iaiu"m aevve, rates were changed from u flat-fee eiruo(u,c, where all bonoce paid the same fee, to u consumption-based fee structure which huaea bills on the amount of water usage. Under the new structure, uamurned sewer usage was based onthe lowest average water consumption for two consecutive months during the previous ycur`a winter season ofNovember through April. Winter months are used humcd on the assumption that irrigation usage tends to be noininoo| during those months, and that water usage records more accurately represent the Oovvm that enter the sewer ayotcrn. The 2007 Cost-of-Service Study applied return-to-sewer factors of 90% to single-family and commercial/industrial water usage, 84% to rnohi|c home usage, and 79% to multi-family water usage. As theme factors are gcue,uUy consistent with industry aiuudurda (return-to-aewer factors varying from 00Y6 to 90%), this analysis retained the 2007 assumptions. The City's current sewer ,uic structure was |uet updated in 2007 and oonmiaia of flat per-account charge varying bywater meter size and uvolumetric charge per hundred cubic feet (hc0 varying by ooaturncr o|uma. Because the rnucth|y volume-based charge uacm a constant Uovv assumption for u given year, the City improtected from nnouth-to-nnunthvolatility inwater consumption. However, the City is still exposed to longer-term trends in customer vvuier oouaunopdou behavior. /\ utility's czp000rc to changing consumption puKcrua has beournc increasingly relevant in recent years. For example, due to wetter weather and modest economic conditions, the City and the greater region have vvituemmod failing water demands, which has reduced the amount of revenue collected. FY 2009/10 ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 40 actual sewer rate revenues (including Montgomery Sewer Charges and accounts reoeb/uh|o) were about $30.4million (based ontotal receipts of$33.1 million, net ofu $2.7 million refund from Metro for prior-year overpayments). The P./ 2013/14 Budget projects that the City will collect u total of $30.5 nnU|iun in sewer rate revenue during FY 2013/14, which is only slightly above Pl, 2009/10 revenue levels. Due to changes in customer consumption patterns, omajor concern for utilities is revenue stability. Therefore, some utilities have utilized uDu1-Dcc structure or collect ohigher percentage of revenues through fixed rates. Most commonly, fixed rates are assumed to generate revenue sufficient to meet ud|iiy"a fixed ooeim o, oomie that do not vary nnutoriuUy with the unoouui of flow placed into the system (in fact, most utility costs are fixed). lnorder to enhance the stability of its revenue stream, the City has decided to increase the amount of revenue collected through fixed charges by shifting the SFR Fee from volumetric rate io ufixed rate. /\ phase-in approach ia recommended for shifting the SFR Fee in order to nuidgutc fiuouciu| impacts tothe City's customers. Based on a review of the City's current rate structure and input from City staff, o|tonnu1ivc ruic structures were not explored. An audit ofutility billing data was conducted separately to confirm full revenue recovery and the accuracy ofbilling data as uhuaim for rate aicuoiu,e evaluation. /\ munonoory of these results is found in Appendix A. The cost-of-service rate structure is based on an allocation of costs across functional oompoucu(e to accurately deie,nniuc the cost of service, with costs related to providing billing and other customer service, collecting and conveying sewer flows, and treating influent to remove chemical oxygen demand (COD) and total suspended solids (TSS). B. ��N�������T ��Wj��� RATES ��. ����nv/`�n � / �� , ~ �n� n�' �x �� Exhibit 16 aunnnnurimem the sewer rate structure currently in place for the City's customers: Exhibit 16: Existing Sewer Rates wimill, ill I Mr 1" I", -MO., 1111i.............IN MM7 790%. Single-Family $8.03 Residential All Others: Single-Family $3.39 $0.18 $3.57 1-1/2"Meter $26.76 Non-Residential 6"Meter $267.59 Special Users Varies $0.18 Varies 90% 8"Meter $428.14 111 Fxcludes StonnDrain Fee of$0.70per month for single-family customers and$0.06 perhcf for other customers. 121 The assumed percentage of waterusage entering the sewer systemand subject to volurne charges,as published in the City's MasterFee sou,00le. The City ou,,cndy offers rate ummimiuuce to low-income single-family customers. These cueionocre pay 70% (30% discount) ofthe normal single-family fixed and volumetric rates. There are currently ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 41 361 single-family customers receiving u reduced rate, which represents roughly 0.0% of the total number of single-family accounts and u loss of roughly $40,000 in uuuuu| ode revenue.z/ While there is unocueurub|e |ome of revenue due to this program, late-payment penalties have mitigated any impacts to other ratepayers. However, due to the unreliable nature of income derived from these penalties and other noiaoe||uneuua sources, we have recommended that the City discontinue this program to comply with the requirements of Proposition 218. See Section 11X,A,3 for additional information regarding the low-income discount program. C. RATE [DESUGN The rate design analysis uses myaieno planning and utility billing data to develop an allocation of costs to customer classes and define uuequitable cost-based rate burden. While not uuexplicit goal, performing u cost-of-service unu|yaia can rcank in a shift of cost burdens between customer o|uaaea as the utility's costs and customer usage patterns change over time. As previously noted, the allocation process coueie(m of two components. First imthe functional allocation which allocates costs (revenue requirement) to different functions of service. Second, ouatm assigned to each functional component are allocated to customer classes based onthe dcrnunda that they place on the system. As previously noted, FCS GROUP considered several aoenuriom — bumed on input from City staff, the ensuing discussion of cost allocations and ,uic design use the revenue requirement ouolyeie for Scenario U (Point Loma[Jngrude). CA Functional Allocation The American Water Works Amaooiudun defines atwo-step process for recovering oumtm. First, capital and O&M oumtm should be allocated to applicable functional categories. For this study, four functional categories were assumed as fb||ovve: + Customer costs are uamociu1cd with utility billing and other functions that are equally attributable to all ouatunncra, rcgord|cam of Dovvm or vvuotcvva1cr strength. This unu|ymim aUuouAem utility billing costs, 50% of other ouaturncr service ouata, and the vehicle rop|uoenneui allocation to this category. These costs are uUoouied hctvveeu customer classes based outhe number ofaccounts served. � QmrvU«m ouato are uamooiuAed with customer service fonoduna that might reasonably be allocated based on capacity rcqoircnncrtm (as defined by rnctcr size). This nuu|yaim uUuou1em 50% of customer service oomie and General Fund transfers to this category. These ooeie are allocated between cumiorne,m based on the nunohc, of meter equivalent units (MEl]m) served. � Flow costs are ummooiuAed with the ouUoodon, pumping and treatment of sewage, based on vu|ornc and regardless of strength. Theme costs are uU0001ed between customer o|umaca based on oatinou1cd acv/er flovvm — as the City does not meter most cuaionue,m" sewer discharges, Dovva by each o|uma are estimated using water consumption and u,eiuco-io-mcvvc, factor. � Chemical Oxygen Dmomyodo (COD) ouata are associated with treating vvuatcvvo1cr for dissolved organisms. COD ouata are allocated between customer o|uaaem based onestimated CO[) loadings (based ouestimated flows and assumed COD concentrations inthe wastewater generated by each o|oam; the uaannncd [OI) concentrations are based on Table 9 of the 2007 c' Assumes omedian usage of|OUCF. ��^l����� ��U���� TY� ��� �a�r��� c�mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 42 Cost-of-Service Rate Study). The treatment component is primarily embedded in the City's payments toMetro. + l[wtul Suspended Solids (7[S8) costs relate to treating vvumievvuier to remove solids. TSS costs are uUoouied hctvvccu customer c|ueeca based on estimated TSB loadings (huecd on cotinou(ed Dovvm and umaunoed 753 concentrations in the wastewater generated by each o|uaa; the umaunoed TSS oouocniru1ioue are based on Table 9 of the 2007 Cost-of-Service I<uic Study). The treatment component ieprimarily embedded iuthe City's payments to Metro. Once the functional categories have been defined, each operating and capital cost ia allocated onu line item basis to one or more of these functional categories. The functional costs are then allocated to cuaionue, o|umaca based on the dcrnundm that they place on the myaicnn. licrne that cannot be reasonably allocated between these functional outcguricm are allocated proportionally based unthe allocation ufall other items. /\uuuu| expenditures and offsetting non-rate revenues are allocated ouuUuc-hy-Uucbasis between the functional components outlined above. /\nexample iathe allocation oftreatment costs. The City is billed byMetro based unMetro's allocation ofcosts. Mebu`a fee is designed torecover costs related to Flow, CO[), and TSS. Based on Metro's charges, 48% of the City's puynneui to Metro is related to the unoouui of sewage (flow), 27% for amount of suspended solids (TSS), and 25% for the amount ufchemicals (COI)) inthe sewage. This percentage breakdown imused toallocate the annual payment toMetro, which is the City's single largest annual expenditure. As noted in Exhibit 14, the recommended mccuo,io (Scenario D— Point Loma Upgrade) abovva that u total of $304 million nroat be ooUcotcd through rates in FY 2014/15. These costs have been allocated to each of the functional categories; the results of this analysis are shown in Exhibit 17: Exhibit 17: Functional Allocation of FY 2013/14 Revenue Requirement "11 1 M31 E NWITZ11 In", 'In,1 121 IV,.231111112==11111 In,.ME,M11112 1111111111 M. 6=11111111111111111,1=, 11111111111111 119,11=11 1111111111111111a.=1 SIM= Allocation Units Accounts MEUs hcf lbs lbs Number of Units 51,019 62,238 6,425,088 25,992,655 7,831,833 These unit costs are then used to develop rates for each customer class based outheir customer data characteristics. The customer data analysis determines these characteristics. C.'} CYJStorner, Data AMCJ|VS^s The customer data analysis provides the basis by which costs can be allocated to effectively recover ouato from the various customer o|oaaem. The unu|yaia begins by performing u "price out" of the customer data provided bythe City. The price out is used to calibrate the customer statistics used in the analysis, adjusting them eothat they generate revenues that are consistent with actual reported revenues when the corresponding rate etcuobne is applied to ihcnn. For this analysis, the City provided summary-level records containing the number of accounts, vvo1er meter size, and umeucncd mcvvc, Dovv for Fl, 2008/09 through FY 2010/11. However, given that the data was aunonoury-|cvc| only and that there were concerns regarding the accuracy of the data, a supplementary unu|yaim of detailed data from the City's third-pony n/n1er purveyors was performed. Since the City does not provide vvu\er service to its customers, this data had tuhe obtained from local ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 43 water purveyors in order to verify the revenue the City collects. There are three water purveyors that provide `vutc, service to Chula \/ietu mcwc, customers - 0tuy \Vu1c, [)imhjoi (CKuv), 8vveebvu(c, Authority(Sweetwater), and California American Water (Cal nVu1cd. The purpose of the supplementary uno|yaia was to establish that revenues billed are rcumouub|y consistent with adopted rates and charges, and to determine u breakdown of customer base, sewage volumes and related ,cvcuuem that can be relied on to analyze potential changes to rote |cvc|a and structure. The exercise ianot intended tuvalidate the accuracy ofevery bill, although investigation uf major discrepancies may offer such opportunities. The analysis successfully defined urepresentative customer base that provides ureliable basis for evaluating and testing sewer rate revisions and was used in the rate mcUiug process. Appendix /\ provides further detail regarding the supplementary billing audit and its findings. The Fl, 2010/11 customer data was used for oulcu|ubug rates. Applying the Fl, 2010/11 ,utc structure to ihcac statistics produced o ,otc ,cvcuuo emtinou1c of $28.0 million, compared to actual reported rate revenues of $28.1 million (u difference of $59,425 or roughly 0.21%). To prevent overestimating the City's ouaturnor huae and maintain a conservative rate-setting pruooaa, the customer mtu1iadoe were not adjusted based on this variance. /\tic, performing the price out, fuiurc- yoa, cuaionoc, counts, demands, and loadings were fbrooumied using the uemunncd oueionne, growth and demand growth rates discussed inthe O&M fbreooaL /\ "combined growth fuoio," was used to forecast mcvver Dov/m and loadings vvbilc the development growth escalator was used to fbreoumi customer accounts. The combined growth factor combines the demand growth and development growth eaou|o1ora into a single forecasting metric. Annual demand and development growth for the five-year ro1c period is aaaorncd to be -1.50% and 1.05%, respectively; combined, mevvc, Dovve are escalated using an uuuuu| ,utc of -0.47%. /\maunniug that conservation gains only impact customer Duvva and do not materially uDtot the overall loadings of COD and TSS (uvcrngcCOD/TSS concentrations increase due to conservation), estimated COD and TSS loadings are uaaunoed to increase with development growth. Additionally, ocduin cueionoc, c|ummea were forecast with uo growth as they represent unique oumionne,m that will not be growing at the same rate as other oua\urncr o|uaaea. All high-volume users, variance accounts, and industrial customers are assumed tohave zero account and flow growth.zz The forecasted oueionocr statistics are used in the rate-setting p,00cmm as well as the functional allocation. The units used to develop unit ouatm in Exhibit 17 above are derived from the onatonncr data analysis and forecast. C.3 Rates As noted, the sewer rates are developed using unit costs. These unit costs are calculated by dividing the uUoouied costs of each functional component by the related oueionoc, cbu,ocicdatic they are linked to providing service for. For example, the ^^Dovv" component of the functional allocation includes ouatm related to providing capacity and conveyance of sewage. As such, these uU0001cd ouata are divided by total estimated Duu/ to develop u cost per unit of flow. These unit oua\m are displayed in Exhibit 17 above, and are used for setting Sewer Service Charges but not the SFR Fee (which is developed iuuseparate process discussed hclovv). 22 High-volume and variance accounts are customers charged a unique rate by the City based on a yearly analysis of sewer discharges. ��^l����� ��U���� TY� ��� �a�r��� c�mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 44 Sewer Service Charge As previously noted, the City does not wish to adjust the current sewer rate structure as it rnectm |cuu| requirements and industry standards while recovering costs equitably and efficiently. As such, the rate structure was updated(oreflect the City's current operations and planning. Exhibit 10 shows the updated fb,eoumt of Sewer Bc,vioc Charges, excluding both Storm [)ruin Fees and SFR Fees. Exhibit 18: Sewer Service Charl!e Forecast I IN W1 `111 Effim All Others: I WE: Residential Special Users Varies Varies Varies Varies Varies Varies Sewer Facilities Replacement Fee The Sewer Facilities I<cpluccnoeut (SFR) Fee is designed to provide ongoing funding to maintain and rop|uoc the City's physical mcvvc, eye(cnn, homed on the needs defined by the City's Vy/\MP and summarized in &Izhlbd 10. By providing ureouning oumh resource for capital projects, the City can better plan and fund capital projects. Bcouoac the current fee is u volumetric rate, unnou| variations in water consumption may negatively impact the amount of revenue oo||cotcd. Consequently, the City wished to explore u shift in the 3PIl Pee structure from u vu|unnekio charge to u fixed charge that would provide unnore stable revenue auuroc for future rcp|uoennert funding needs. To mitigate impacts to ratepayers, u phase-in approach was used that progressively shifts revenue ooUcobon uvvuy from the volumetric rate to u fixed rate, eventually reaching u fully fixed nooutb|y rate byPl/ 2O|7/|0. The amount of ,epluccrneui funding is calculated based on u percentage of annual depreciation expense. The City collected about $|.8million in SFR Fees during Fl, 2Oi2/i3, which equates io roughly 30% of the mcp/cr utility's depreciation expense ($6.2 nnU|iun). In addition to shifting replacement funding to ofixed rate, the City also wishes tu increase the level ufreplacement funding ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 45 provided bythe SFR Fee structure. By doing so, the City will increase the resources available to fund future system rehabilitation and replacement. Currently, the City estimates ouuuu| Vy/\NIP costs to be roughly $3 million or roughly 163% of the rcp|uccnocut funding currently generated through the SFR Pec. This annual oumt is expected to increase over time — assuming an nunuu| ouna\ruodun ouat inflation rate of 4%, the onnoo| outlay for VVAMp infrastructure replacement would increase to almost $3.8million hyF./ 202O, and around $5.6million hyFl, 203O. The auu|ymim umaunnea that the sewer utility's depreciation expense (the key benchmark for establishing annual replacement funding |cvc|a) iuorcuoco by 3.0% annually to account for new umaetm being booked to the City's ummei records and u portion of the older (|cem expensive) uemcie being rop|uocd with new (cno,c expensive) umecim. This is also consistent with the City's own fiuuuciu| records that show mcvvcr related depreciation increasing 2.25% from Fl/ 2000/09 to [l/ 2009/1 0.23 This analysis uses reported depreciation of$5.5 million iuFl, 2009/\Oumthe base year. In FY 2013/14 the uuu|yaia uamunuem the City retains the existing SFR Fee of$0.18 per hof, and will fond about 30% of total depreciation expense for u replacement funding |cvc| of $1.8 million. Beginning in FY 2014/15, the SFR Fee revenue target is allocated between ovolumetric and fixed rate component. In Fl, 2014/15, 72% is allocated iothe volumetric component with the remainder to the fixed rate. The volumetric revenue portion is divided by total forecasted mcvvc, flovvm of iO.\ million hoftu generate ovolumetric rate of$0.|4per hofofsewer flow — this is udeoreume of$0.04 compared to the current SFR Fee. Similarly, the fixed revenue portion is divided by total nunohc, of MEL]a to generate u fixed oho,gc of $0.73 per MEL]. The MED is used as the basis for the fixed charge as a representative measure of a customer's share of system capacity. Over the five-year financial plan, the SFR Fee is shifted from being exclusively volumetric to being exclusively fixed. Exhibit 1wsummarizes the forecast ofSFR Fees over the study period. Exhibit 19: Sewer Facilities Replacement (SFR) Fee Forecast All Others: csBoaedooreportcdScnmroodBen/crDlFdeprccintiouof*5.4oiOioonod$5.5nuU|iooiuFY2OO8/89oudPY 2889/|0`respectively. Source: 2OOv&28|8CAFDe. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 page 46 Exhibit 20 summarizes the combined sewer rate structure, which includes both the Sewer Service Charge and the SFR Fee. Consistent with the other sections of this report, it excludes Storm Drain Fees. Exhibit 20: Combined Sewer Rate Forecast rigill Mill, I iii �lil� : II 11 Single-Family $8.03 $8.97 $10.23 $11.62 $12.97 $14.53 All Others: 5/8"Meter $8.03 $8.97 $10.23 $11.62 $12.97 $14.53 3/4"Meter $8.03 $8.97 $10.23 $11.62 $12.97 $14.53 1"Meter $13.38 $15.60 $18.48 $21.66 $24.72 $28.49 1-1/2"Meter $26.76 $26.64 $32.23 $38.41 $44.32 $51.77 2"Meter $42.81 $39.89 $48.72 $58.49 $67.82 $79.68 3"Meter $80.28 $75.23 $92.71 $112.07 $130.52 $154.15 4"Meter $133.79 $114.98 $142.20 $172.34 $201.05 $237.91 6"Meter $267.59 $225.40 $279.67 $339.76 $396.97 $470.61 8"Meter $428.14 $446.24 $554.61 $674.61 $788.83 $936.01 Residential Single-Family $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Multi-Family $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Mobile Homes $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Non-Residential Commercial-Low $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Commercial-Med $4.88 $5.40 $5.56 $5.73 $5.92 $6.02 Commercial-High $7.49 $8.54 $8.82 $9.11 $9.43 $9.59 Special Users Varies Varies Varies Varies Varies Varies Exhibit 21 provides a forecast of average monthly bills for three hypothetical customers: +***1* F'C1Sk1 1"ROUP City of Chula Vista Sewer Cast-of-Service Rate Study November 2013 page 47 Exhibit 21: Sample Bill Calculations V B II aB B Bo Single-Family Resid@hcf Fixed Charge $8.03 $8.97 $170.23 6B 00 ! 68 09 $11.62 $12.97 $14.53 Volume Charge: Total Usage [1] 10 hcf 10 hcf 10 hcf 10 hcf 10 bet 10 het X Rate of Return 90% 90% 90% 90% 90% 90% Usage Subject to Volume Charge 9 hcf 9 hcf 9 hcf 9 hcf 9 bet 9 hcf Volume Rate $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Volume Charge $32.13 $34.74 $35.73 $36.63 $37.71 $38.34 Total Bill(Fixed Charge+ Volume Charge) $40.16 $43.71 $45.96 $48.25 $50.68 $52.87 1"Multi-Family @ 35 hcf Fixed Charge $13.38 $15.60 $18.48 $21.66 $24.72 $28.49 Volume Charge: Total Usage 35 he 35 hcf 35 hcf 35 hcf 35 he 35 hcf X Rate of Return 79% 79% 79% 79% 79% 79% Usage Subject to Volume Charge 28 hcf 28 hcf 28 hcf 28 hcf 28 bet 28 hcf Volume Rate $3.57 $3.86 $3.97 $4.07 $4.19 $4.26 Volume Charge $98.71 $106.73 $109.77 $112.54 $115.85 $117.79 Total Bill(Fixed Charge+ Volume Charge) $112.09 $122.33 $128.25 $134.20 $140.57 $146.28 2"Medium-Strength Commercial @ 70 hcf Fixed Charge $42.81 $39.89 $48.72 $58.49 $67.82 $79.68 Volume Charge: Total Usage 70 hcf 70 hcf 70 hcf 70 hcf 70 hcf 70 hcf X Rate of Return 90% 90% 90% 90% 90% 90% Usage Subject to Volume Charge 63 hcf 63 hcf 63 hcf 63 hcf 63 bet 63 hcf Volume Rate $4.88 $5.40 $5.56 $5.73 $5.92 $6.02 Volume Charge $307.44 $340.20 $350.28 $360.99 $372.96 $379.26 Total Bill(Fixed Charge+ Volume Charge) $350.25 $380.09 $399.00 $419.48 $440.78 $458.94 [1] For single-family customers,"total usage"is based on the lowest two-month average water usage from November-April; for other customers,it is based on actual water usage. As shown in Exhibit 1, the rate of return (return-to-sewer factor) varies by customer class. Exhibit 21 shows how usage is adjusted for the assumed rate of return prior to applying the volume rate. Exhibit 22 provides a survey of single-family residential bills for a variety of local jurisdictions, prepared by Otay Water District. 1 � Nsss%sJC S roaJ .t0mtm City of Chula Vista Sewer Cash-of-Service Rate Study November 2013 page 48 Exhibit 22: Monthly Sewer Bill Comparison 2013 Sewer Bill Comparison in San Diego County (3/4"Residential Meter,7 hef of Water Use) Valley Center-WV Valley Center-MP Del Mar Rancho Santa Fe Encinitas Buena Oceanside Rainbow Olivenhain Padre Dam Ramona Valley Center-MG S48 I Solana Beach S48.30 I Poway Fallbrook Lemon Grove San Diego S4q.52 Vista Vallecitos Chula Vista(2014/15) Imperial Beach National City Escondido L.a Mesa Chula Vista(2013/14) County of San Diego El Cajon Carlsbad Otay Leucadia $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 Compared to other jurisdictions in San Diego County, single-family residences in Chula Vista pay a relatively moderate sewer bill for single-family residences. Even with the $2.77 increase resulting from the proposed FY 2014/15 rate structure shown in Exhibit 20, the monthly bill is expected to remain below the 5oth percentile of single-family bills in San Diego County. Note that the bills shown for Chula Vista in Exhibit 22 exclude the Storm Drain Fee. + � Nsss%sJC S rorJ:.00111 City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 49 SECTION °° ONCS|ON Upon review of the City's current sewer rate etnucizoo and discussion with City miutf, the current rate structure was |e0 unchanged in regard to the uvcruU structural components. Basing the variable charge for single-family residences off each previous year's lowest ivvo-nnouib average uUovvm the City to heai eadnnute mcvve, flovve without individually metering all cumionocrm — furthermore, the cotinou(ed sewer flow im held constant throughout the year tureduce the City's exposure to monthly variations inwater demands. The SFR Fee currently provides roughly $1.8 million in ouah resources for replacing aging infrastructure within the City's collection myatcnn — however, additional funding will he needed in order to meet expected increased funding needs from the VVAMP. The amount ofrevenue collected through the SFR Fee is projected to increase by $2.2 million byF`/ 2018/19, corresponding to u (otu| uuuuul funding level of$4.0 million. Additionally, to decrease poieubu| revenue volatility and uaeiat the City in planning for capital projects, the SFR Fee is being converted into u fixed charge. This conversion is planned to iukc place from FY 2014/15 through FY 2018/19 in gradual iuo,cnneu(m, with the intention of nnibgubug financial impacts to customers. We recommend that the City consider implementing the SFR Fee phasing strategy shown inExhibit 19. In addition to planning for increased rcp|uocrncnt needs, the finouoiu| plan uaaunnea that Metro's 301(h) waiver will expire in FY 2014/15 and it will have to upgrade the Point l.ornu YVomievvuic, Treatment Plant to full secondary treuinncut within \O ycoom of the waiver's expiration. With on expected cost of$| billion, Chula Vista would be responsible for roughly $97 million of the upgrade cost. To help meet this obligation, it iarecommended that the City begin funding udedicated reserve that will fund 20% or $20.2 million ofthe $97 nnU|iun. Byplanning for the PLVV7pupgrude, the City is actively guarding against large rate spikes for its ratepayers. Based onthe recommended scenario, the City will fund the first $1.8-noiUiou transfer to the IIP/\ Permit Keuevvu| Liability I<cac,vc by 2014/15 — if Metro's waiver is renewed in FY 2014/15, the City has the flexibility to either reduce future rate adjustments tureflect the avoided cost urtransfer the funds tuthe SFR Reserve to apply toward future replacement needs. The reserve funding is part of the recommended financial plan, which is outlined in Exhibit 14. In addition to developing u financial plan for the City's sewer utility, this study analyzed oziadug rates and updated the City's cost allocation. The cost allocation is the hueim for setting ruice uc,oaa the multiple oueionoc, c|uemcm and rate components. The City's current rate structure is based on u ouat allocation performed in 2007. The 2007 allocation assigned roughly 16Y6 ufthe revenue requirement tothe fixed charge component ufthe rate abooturc —this has since risen io |9Y6uaconsumption has dropped. The updated allocation remains consistent with the current trend, recovering 10% of the revenue requirement through fixed charges (by allocating customer and service costs to the fixed rate components). The remaining 02% of the revenue requirement was uUocuicd to the vurioh|c rate components; that is, the P|ovv, CO[), and TSS functional components of the eymieno. /\ major opc,otiug cost allocated toFlow, COI], and TSS is the ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 50 payments made to Metro for treatment — as the City pays Metro based on the amount of sewer discharge sent for bruin/cnL Lbcme Duyn/cnta are roughly 65% of the total FY 2013/14 revenue requirement. The forecast ofproposed rates based onthe updated cost allocation im displayed iuExhibit 20. The City has the flexibility to adopt only the proposed 2014/15 rates, or the rates ahuvvn for the entire study period— in ciihc, case, the City should consider re-evaluating its rates once the outcome of the 30\(h) waiver iaknown. ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City of Chula Vista Sewer Cost-of-Service Rate Study November 2013 page 51 APPENDICES A. SEWER BILLING MEMO R P I�'C'S' City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 52 To: Rohedo `/uuo Date: October, 2012 From: FCS GROUP CC: Luis Pelayo, Robert Grantham RE Customer Data Analysis and Billing Audit �TN[��� ���� �����U\/� � / ���� , �������� " " v � The City of Chula \/imtu (the City) provides sewer service to residential and commercial onatonncrm within the City limits. Luaturnora are charged ufixed sewer fee, based onthe customer's meter size, and uvolunuetdo sewer charge based on the amount of water consumption over the billing period. Since the City does not provide water service to its customers, this data had iohe obtained from local water purveyors in order to verify the revenue the City collects. There are three water purveyors that provide `vute, service to Chula \/ietu mcvvc, customers - 0tuy \Vu1e, [)imtdoi (Oiuy), 8vveebvu(c, Authority (S`veetv/u1cd, and California /\nocricun Water (Cul nVutcd. The City's mevvc, revenue structure relies on the 000nruoy of utility billing, and the concurrent sewer rate study required o reasonable estimate and breakdown of sewer rate revenues in order to complete u cost-of-service allocation and establish cost-based rates. The purpose of this study is to establish that revenues billed are reasonably consistent with adopted rates and charges, and to determine u hreukduvvu of 000turncr base, sewage vu|nnnea and related revenues that can hcrelied on to analyze potential changes to rate |cvclm and structure. The exercise is not intended to vu|iduic the accuracy of every bill, although investigation ofmajor discrepancies may offer such opportunities. Instead, u auoocaafu| uotoonne of the study is to: |) establish whether current mcp/cr utility billings are ouuaiatert with established rates and charges and related onmtonncr demands; 2) identify and document any systemic discrepancies that may require further investigation and resolution; and 3) define u rcprcacrto1ivc onmtonncr base that provides u reliable basis for evaluating and testing sewer ro10 revisions. This billing undd uses data provided by the water purveyors and the City of Chula \/ieiu in order to verify the amount of revenues collected in fiecu| year 2011 and detail uh,cukdovvn ofhow those revenues are generated relative to adopted rates and charges. This process and findings are discussed ingreater detail below. [��T� ��V��V|�VV ��r` /r� OVERVIEW �_/� , /�_ vv In order to perform u billing audit, there are several data fields that noumi be present. Most importantly there needs to be ocustomer class identifier that distinguishes one customer class from another. For example, single funnUy residences are oohicot to different charges as compared to high strength oonunne,oiul accounts. Furthermore, this classification myaienn must by synonymous with the City's billing structure. For example, vvbi|c the water purveyor may provide u oueionoc, classification for its uvvn billing purposes, this is of little vu|oc if it does not nnu\oh the City's onatonncr c|ummifiou1iou. This was an initial issue with both the Otuy and Svveetv/utc, data sets. Additionally, since the uuulyeie rcgui,ce matching vvotc, consumption from the purveyor's data to the City's customer base, there needs to be unniqno identifier to rc|uAe the two data sets. The onu|ymia used the Assessor Parcel Number (APN) to rc|a1c customer data from the water purveyor\o the City's. Lastly, the data should include ubilled amount generated from the entity responsible for billing. This is used tobenchmark calculated billed amounts from the onn|ymim to billed unnourta recorded bythe billing entity. All of these components, in addition to others, were used to perform the billing audit. It is important ionote that the level ofaccuracy iuthe billing audit iehighly dependent onobtaining these ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 53 key variables. The following bullet points highlight the water consumption data from the three water purveyors used to conduct the billing audit, and the relationship to the nocooe of billing for ecvvc, service. * Montgomery: Coaturncra (Southern Chula Vista) within the Montgomery acmioe area are billed through aline item ontheir annual property tax bill. * Otuy Water District: Customers (Eastern Chula Vista) are billed noou(h|y through the Oiuy \Vute, [)imt,ioL * Sweetwater Authority: Customers (Western Chula Vista) receive o bi-monthly bill from the City's Finance Department. Montgomery The City of Chula \/imtu provides sewer service to customers residing in the moodbeon portion of the City. The users are o|uaaifled as "Mun\gonnery" accounts. Coaturncra located inthis region are billed on their uunuu| property tax bill. The City nomiutaiva u database of these oueionocm, which was provided in order to perform the billing audit. The primary focus for this ouaionne, euhmei was the accurate translation of water volumes from water purveyor records to City sewer billing accounts. Process The City of Chula \/iatu nnointuiva the billing information for the u000un\a residing in the Montgomery service area. As previously mentioned, these customers are billed on their uuuuu| property tux bill. Additionally, these customers receive v/utc, service from either the 8vveebvutcr Authority or Cal Water. Since the [dy`a sewer rate structure charges customers based on Duvv, vvu\er consumption data provided bythe Sweetwater Authority and Cal Water was used to ou|ou|utc Duvvm and associated billings for each customer. FCS Group worked closely with City eiuf[ the Svveekvuic, Authority, and Cal Water to obtain the necessary data io complete the billing audit. Limitations YVhUc the City's billing records for MurKgunoe?y ouatunocra contain u water consumption field, the guu| was to nnutoh water consumption from the vvu1cr purveyor's databases (5vvcctp/uAer Authority and Cul VVuted to the City's. In order to do this, uuuigue identifier must exist between the data ecta in order to appropriately match consumption to the correct account. The /\PN number is the unique identifier that exists between both data Uc|da and was used to relate Uop/m from the 3p/eetvvu\er Authority and Cal Water to the Montgomery accounts. However, through this process only 91% of the accounts were nnuiohcd to ciibc, Svvcetvvate,`a o, Cal \Vu1c,`m v/utcr consumption. Since the consumption field provided by the City had been determined to be reliable based on the matching accounts, the remaining 9% unmatched consumption was obtained by using the ounaunpdun provided bythe City. Given that the matched consumption was in line with the City's consumption, this step does not materially affect the accuracy ofthe billing audit. ��f ~� .aV The Oiuy VVu1er [)ieido( provides vvutc, service to the majority of the City's sewer customers; these ooaturncra are |uou\ed in the Eastern region of the City. Additionally, O\uy directly bills all mcv/cr ooaturncra within its service area and ronnda ooUcotcd sewer revenues to the City— u service the City pays Otuytoprovide. The primary focus ofreview for 0tuycustomers was resolving the linkage of water usage, billed sewer volume and appropriate City sewer charges. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 54 Pn]Ce55 ()tm'provided water consumption dutuknflaoo| ycuro2OO9 through 2011 (FY 2OO9 — F,/ 2U\|). The initial data set presented challenges which did not allow the data \uhe accurately audited. While the data provided dcmodpbonm used to identify different o|umaea of customers, the descriptions did not provide u o|co, link to the City mevve, ,otcm. Specifically, the ibrcc commercial c|uaece were indistinguishable from one other; therefore the correct volumetric ro1c could not be applied to any of the City's oonnnne,oiul customers. Additionally, the first data met did not provide recorded bill unoouuia which, if the data were uh|c to he priced-out, did not uUovv the calculated revenues to be verified. Based onthese findings, FCS GROUP contacted Otoy inorder to gather the missing data points. FCS GI<0l]P discussed the need for data points that would allow the correct volumetric sewer rate to be applied to each customer in addition turecorded bill amounts to verify calculated revenues. From this discussion Otayprovided u second data set containing recorded bill unnourta which, coupled with the consumption data provided in the fi,mi data set, could uUov/ for the different cuetonoc, c|oaaee to be identified hy "back culcu|otion": calculating the volumetric rate used to generate the total bill amount and matching this to the City's rates. This would be done by dividing the monthly bill amount (net of the monthly fixed charge based on meter size) for each customer by the corresponding uaaunned sewer flow. However, this identification method did not work adequately, as calculated volumetric rates varied widely and did not rcDoot any of the City's volumetric sewer charges. Further czanoino1iun determined that the bill unoourKe within this data act represented ounoiug|ed vvo1cr and sewer charges causing the variance in the calculated volumetric rates. FCS GROUP reviewed this issue with the City followed by u joint review with Oiuy. The reviews concentrated on further outlining and defining the need to gather the missing data in addition to providing suggestions of what vuduh|c o, variables could he used to complete the billing audit, mpooifiouUy u cuetonoc, c|oea identifier and sewer bill amount. In the third attempt to gather the data, Otuypruvidcd an additional data set containing three additional vuduh|ea uUuvving the data to be priced-out. A fee code, u fee oudc description, and the monthly sewer bill ornuurK were listed for each customer. These variables allowed the correct volumetric rate iohe applied to each customer. The monthly sewer bill amount uUuvved the ou|ou|utod revenue urnuuntm to he verified, an integral component ufany customer data analysis. Limitations The data collection process proved tobethe most onerous and time-consuming task inthe billing audit. The need to rnutcb data from two acpa,mtc databases and incrementally work toward u complete data act may act as u disincentive for future billing audits or related customer data analyses. At the same time, it is also indicative of a potential risk related to accurate billing, which argues for periodic monitoring o, review, pczbupm by review of random samples. In this study, all required and correct data fields were ultimately obtained and the data provided the required information for the billing audit to be completed. SVVeefVVC%fer The Sweetwater data set is comprised of customer accounts located in the YVemic,u DuU of the City. YVhUc these oumturnera receive water service from 8vvcctp/a1er, the sewer billing for these uoouuntm is maintained by the dcpodnoeot of finance within the City. The Sweetwater oueionne,m are billed on o bi-monthlyhumia. As with Montgomery, the primary focus of review for Sweetwater was reconciling water volumes contained in Sweetwater accounts with billed sewer volumes inCity accounts. ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChu|oVista Sewer Cost-of-ServiceRate Study November2Ol3 page 55 Pn]Ce55 The City of Chula \/iato rnuintoiva billing records and ounoompbun data for oumturnera |uoutcd in YVcmtcrn Chula Vista. Theme ouaiurncra receive vvutcr service from the Sweetwater Authority and the sewer service bill is charged on u hi-monthly hueia. The City nouiniuinm u record of accounts, vvutc, consumption, ouaionne, olume, and meter eimc — vvbich are used to ou|oulu(e the sewer bill. Since the vva1cr consumption from 3vveetvvu\er matched the consumption provided by the City in the Montgomery data met, the consumption number provided hythe City was used. This decision was re- visited at the end of our ,ceu|tm to dcic,rninc if there was any nou1cdul difference in billed amounts versus calculated bills. Given that the difference between total billed unnonnta and calculated billed arnunntm was extremely mnnuU, it can be determined that the City is correctly uoounudng for water consumption for ouaionoc,m located in Western Chula Vista served by Sweetwater Authority. Limitations Since the City directly ohioiue the hiUuh|c consumption and generates u billable onoouuL it is very cumy to audit this data. The volumetric acvvcr rates can be applied to the City's record of billable consumption and appropriate meter charges can bcapplied. This calculated amount imbenchmarked against the City's record ofbilled amounts io determine if there is u muhmiuntiu| disparity between the two amounts. STUDY JDJGS The abndv findings presented hclovv are the results of analyzing each of the ib,cc mcpu,ote customer data files —Montgomery, Sv/eeivvu(c,, undOtuy. Each of these data files were evaluated and analyzed on unindividual basis. This was dune inorder \u isolate data discrepancies to each respective data acL Once these individual data sources were evaluated onustand-alone basis, the unu|yaia combined the results to form an aggregate level of comparison. This aggregate level was compared to the summary level data vvereceived from the City a1the beginning ufthe rate study. Montgomery The Montgomery service area consists of customers that receive vvu1er service from the Svvcctvvoter Authority and Cal Water. They represent |caa than 10Y6 of the City's mcvvcr customer base. The "New Data" column shown be|uvv represents the findings obtained from the detailed billing [l|c received from the City, while the ^^Odgiuu| Z)utu" oo|unou represents munonoury level data previously provided by the City. As you can see from the comparison below, the number of customer u000urta from the new data set is very o|uae to the number of accounts from the murnrnury level data (original data column). Some variation is u|vvoya expected in such u comparison for u variety of reasons, including new accounts, u000uoi closures, podio| period billings, volume udium(rneuie o, corrections, billing oyo|em and time period used for each data run, and other factors. Given these results, it can be reasonably concluded that the City is ouneody accounting for the number of accounts located within the City's southern region. Exhibit 1: Montj!omery Customer Account Comparison Accounts: New Data Orig Data Single Family 2.715 2.777 Multi-Family 372 371 Commercial Low 354 350 Coruruorrixl Med 44 44 Coruruorrixl High 37 37 ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChu|oVista Sewer Cost-of-ServiceRate Study November2Ol3 page 56 In addition to the number ofaccounts, the |mc| of billable consumption derived from analyzing the "Now [)utu" was compared to the "OrigiuuJ I]o1o" It is important to note that hiUoh|c consumption represents consumption after i( ie adjusted for rate of return (ROK) factor and consumption Urnita on residential ouatonnermz+ As demonstrated in the table bc|uvv, there is not a significant difference bctvvccn the two data sets, indicating that the City is ouncot|y tracking ounaunpdou for the Montgomery accounts. It is also inopoduui to note that the consumption figures in the table hc|ovv contain the usage for 100% of the customer base. As discussed earlier, 91% of the customer accounts were matched to consumption data provided by Sweetwater orCal Water. The ouuaunq»don for the remaining 9% of unmatched accounts was obtained from the City's record of billable consumption. Exhibit 2: Mont2omery Flow Comparison Billable Flow Single Family 218'707 227.104 Multi-Family 302'477 379.011 Coruruorrixl Low 129'008 127.432 Commercial Med 24.024 24.816 Commercial High 21.844 28.811 Of{3V As noted above, the Otuy unu|yaim required the combination of data me\a from the O\oy`a billing and consumption databases. Monthly water consumption values were matched to each customer based un the unique /\PN. Following the iuibu| price-out of the Otuy, Montgomery, and Svvccivvuier data it was discovered there was u large discrepancy between reported ou|ou|n1ed revenues. The Montgomery and Sweetwater bill records were assumed to be accurate because they were ouUcotcd directly from the City while the Oiuy data did not pass through the City billing and receipting myaienoa. To identify the ouuec of the revenue discrepancy, the dciui|cd records provided for the billing audit were compared against summary |cvc| data initially provided for the rate analysis. Total accounts and water consumption statistics were compared with those findings summarize below. 24 The ROR factor for Multi-family consumption is 79%. Single-family and all commercial classes bave a ROR factor of 90%. SFR consumption incapped m20cofper billing period. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 57 Exhibit 3: Otay Customer Account Comparison Accounts New Data Orig Data GpD 23.433 29,549 D80] 382 520 CL 240 316 CM 43 48 CB 36 46 The above table illustrates that the data provided by Oiuy is nniaaiug u muhmiuutiu| amount of customers that are currently within its service area. \Vbi|c the above tuh|c identifies roughly 7,150 missing accounts, it is also important to compare reported Uovvm under the new (billing audit) and original data (rate study). The tuh|c he|ovv contains the comparison of reported sewer flo`vm for customers within Oiuy"mservice area. Exhibit 4: Otay Customer Flow Comparison Usage New Data Orig Data GpD 1.788.800 2,695,669 D8N] 451.037 662.444 CL 155.118 210.470 CM 68.753 69.577 CB 50.091 49.205 The table above confirms that the data sets obtained from Otuy for the purpose of conducting u billing audit are missing roughly 24% ofthe total u000uutm and 32% ofsewer flows within its ac,vioc area. The unu|ymim is taken one step further hyidentifying the corresponding difference in revenue due to the large discrepancy of customer atutimdom. The table he|ovv outlines the findings of this uuu|yaim. Exhibit 5: Otay Revenue Difference Fixed Revenues Missing Accounts New Data Orig Data Difference Revenue Sewer SFR Storm Volumetric Revenues Missing Usage New Data Orig Data Difference Revenue Sewer SFR Storm CH 50,091 49,205 886 6,689 477 159 53 r"^"z As illustrated inthe above \oh|o, there is roughly $5.0 million in unverifiable revenue directly related to the nnimaiug data in the Oiuy service area. It is important to note that this is revenue that is both reported and received by the City, and does not result in an inappropriate shortfall. Instead, it indicates that the data record rcrnuinm incomplete and that u data set consistent with the full acvvcr customer base was not obtained. The $5.0 million is roughly equivalent to the total unaccounted for revenue identified when comparing calculated revenues from the three service u,coe (Montgomery, ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChu|oVista Sewer Cost-of-ServiceRate Study November2Ol3 page 58 Otuy, and Sweetwater). This finding is discussed further in the Combined Reconciliation mcodon below. SVVee-tmafer The City of Chula \/iatu provides sewer service to residents located on the western portion of the City. These rcmidcuie also receive vvutc, service from the Sweetwater Authority. In addition, ibeec customers are charged ouuhi-noouth|ybasis. The City maintains ucomprehensive database ofsewer accounts that receive water service from the 8v/cctwa1cr Authority and receives the level of water consumption directly from the vvuier Dn,vcyoc Roecd on this iufbnnu1iou, we proceeded with analyzing the City's database. The following toh|c compares the count of accounts from the City's sewer database (New Data) versus the murnrnury level data we received at the onset of the study (Original Data). Since the difference between the accounts inthe new data and the original data are not muhmtuuiiu|, it can be concluded that the City is accurately accounting for the number ofaccounts served bythe Sweetwater Authority. Exhibit 6: Sweetwater Customer Account Comparison Accounts: New Data Orig Data Single Family 12.492 u| 12.052 Multi-Family 1.287 1.280 Conznzorrixl Low 600 589 Cororoorrixl Med 157 148 Commercial High 108 118 [z] Inclusive vraccounts matching Montgomery file The exhibit below characterizes the difference between the City's Uovvm, obtained from the City's comprehensive database (new data) for each respective customer class, against the original aurnrnury level data we received. As demonstrated hythe ernuU differences hcivvccn the two data sources, it can be determined that the City is maintaining an uoou,u1e account offlows for customers receiving water service from the Sweetwater Authority. Exhibit 7: Sweetwater Flow Comparison Flow(hcf) New Data Orig Data Single Family 900'307 962.507 Multi-Family 722.302 839.255 Cororoorrixl Low 213'035 205.164 Cororoorrixl Med 107'756 101.272 Commercial High 06.975 62.257 ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November 2013 page 59 ����&��|���F� �������W/�!l ! ���|��KU ����/v`��// ��-�� n�-����x ���nm��n /��/ � Consistency of �DC]ta Records with CaUcuUC]ted Revenues This first n000noi|iudoo is structured to teat whether the customer records generate revenues consistent with expectations from rates and findings. hdoes not address consistency ufcalculated revenues with total reported revenues. To test the accuracy of the billing data, total calculated hi||cd unoouuim are compared to the billed arnunntm provided by the billing entity. The following table summarizes the calculated revenue in the first ou|unn and the total billed revenue in the second column. This oonpnzimun suggests that the methodology used iuthe price-out is correct given the mnouU difference hctvvecu calculated revenue and billed revenue. Exhibit 8: Bilfin$! Audit Summary Total Billing Records Service Area Calculated Total Diff Diff(%) 0tay 12.417.241 12.740.270 (323.029) '2.5Y4 Sweetwater 9.978.601 9.958.502 20.098 0.2% Total In addition tototal revenues, the billing audit takes ucloser look utthe revenue collected from each of the City's various fee components. This revenue breakout for each service area is summarized in the table below. The relative proportion of revenues generated by each fee component is provided below the table. The proportion of revenues is compared against revenues for each fee components as stated in the City's accounting records. The comparison suggests that there are minor differences between the City's accounting of revenue from fee components and the results of the billing audit. Exhibit 9: Revenue Source Summary Total Service Area Storm Fees SFR Fees Sewer Fees Calculated 0tay 224.932 481.976 11.710.333 12.417.241 Sweetwater 177.523 390.335 9.410.743 9.978.601 Total $ 457,810 $ 1,006,596 $24,211,769 $25,676,175 %of Calculated Revenue 1.8% 3.9% 94.3% Reported %ofAdjusted Revenue/z/ 2.7916 3.9% 94.4% Reported %of Un-Adjusted Revenue[2] 1.8% 5.7% 92.5% [1]Split between revenues was adjusted based on calculated differences from original price-out [2] Un-adjusted revenues reference omf-vf-Bom'revenue reports from City's finance team Completeness and Accuracy of Data Sets This reconciliation tests whether the data mcta fully and accurately explain total mcu/cr revenues. Calculated revenues from the billing data acte were compared against io(u| ,evcuuca as reported in the City's accounting records. As noted above, there was u large discrepancy between oo|on|utcd revenues and revenues reported in the City's uoounuting records. Upon o|uacr examination, the discrepancy was predominantly ouuecd by Oiuy providing iuconqp|cic data. The noiaeiog data accounted for roughly $5.0 million in sewer utility revenue. By applying the calculated revenue gap to the total calculated revenue from the billing audit, calculated revenues from available data closely nnutoh the City's accounting records. This suggests that the previously provided eunonoury level data ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 60 was accurate and while incomplete, the data provided for the billing audit is also uoomute. The table below summarizes these findings. Exhibit 10: Consolidated Bilfln2 Audit Summary 8rndce Area Revenue Montgomery $ 3,280,333 0tay 12'417'241 Sweetwater 9'978'601 Total Calculated Revenue $ 25'670'175 Adjustment for Missing Otay Data 4,966,782 Adjusted Total Calculated Revenue $30,642,957 Total Reported Revenue $ 30,287,167 Difference($) $ 355,790 0iffermmcmrq 1.2% This step involves generating orepresentative customer base in terms ofcustomer classes, number of accounts, and billed volumes that are consistent with the reported and confirmed sewer revenues. The resulting customer base then provides uhueie for forecasting revenues and most importantly for evaluating sewer cost-of-service and creating cost-based sewer rates. While the missing Otuy data requires upro rn1u generation of representative accounts, in aggregate ucustomer base is defined that can heused with reasonable confidence for those exercises. The following tables munonourime the City's aevvc, customer base as reconciled to reported revenues. The customer base consists of the number of accounts and the total hiUob|c ouuaumpdun by each customer class. Exhibit 11: Customer Account Base Customer Type Montgomery Otay ` Sweetwater Gio@yr'Faozly 2.715 29.349 12.492 Multi-Family 372 520 1.287 Commercial Low 354 316 600 Cororoorrixl Med 44 48 157 CommercialHigh 37 46 108 Total 3522 30,279 14,644 Exhibit 12: Billable Water Consumption Base (ccf) Customer ` Sweetwater 8bzXr'Faozdy 218.707 2.695.669 960.307 Multi-Family 362.477 602.444 722.362 Commercial Low 129.068 210.470 213.035 Cororoorrixl Med 24'024 09'577 107'756 CommercialHigh 21,844 49,205 66,975 Total 756,120 3607365 2,070435 ��]����� ��U���� TY� ���.�a�r���.c�mm City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 61 Exhibit 13: Calculated Revenue and Comparison Total Service Area Storm Fees SFR Faao Sewer Fees Calculated Otay ' 293,139 693,218 16,397,666 17,384,024 Sweetwater 177,523 390,335 9410743 9,978,601 Accounting Records $ 528,404 $ 1'177,277 * 28,587,486 * 30'387,267 Difference($) (I306) 46,561 321'625 355,790 Difference(016) '0.5% 4.0% 1.1% 1.2% �����J��| U |�U��hJ ����/ ������.�"��on The goal of the billing audit is to caioh|ieb u cueionoe, base that can be used for ,uic planning. In addition to establishing this ouaturnor base, the billing audit also analyzed the amount of revenue collected from each ofthe City's fee components (sewer facility replacement fee, storm drainage fee, and sewer fees). The results of this uuu|ymie, presented iuthe iuhlc above, suggest that the City may be shifting revenues heivvcen the different revenue sources since there is not an insignificant difference between oo|on|utcd revenue and reported revenue by different fees. However, on an aggregate level, it is important to note that revenues generated from the billing audit closely noutoh the reported accounting revenue for fieco| year 2011. This result suggests that the customer base established inthe tables above provide urcumonub|c estimate for rate setting purposes and developing ouat-of-acrviocbased rates. The data sets were munncnurimed and structured to match the City's ,u1e structure. The number of accounts are grouped by meter size and consumption values by customer o|umm. The City's rates were reapplied to the summarized atu1imdom to calibrate the data to reported revenues. Using the summarizing data and calibrating to reported revenues, Exhibit 14 below provides the proposed customer data set that conforms to reported revenues and the results ofthe billing system audit.z5 As intended by this effort, this data set can be relied on for ouat uUooudon and rate design uaca within the separate sewer ooei-of-mcrviccrate study. 25 See Appendix/\.| for further detail regarding the calibration ofthe summarized customer statistics. ��^l����� ��U���� TY� w�� � ���� ���"�����m ` ` City ofChula Vista Sewer Cost-of-ServiceRate Study November2Ol3 page 62 Exhibit 14: Customer Statistics for Rate Settinj! Meter Size Accounts Account Type Usage (HCF) SFD 1 44,892 Single-Family 3,894,837 0.625 1,523 Multi-Family 1,824,684 0.75 74 Commercial - Low 552,521 1 1,009 Commercial - Med 201,338 1.5 631 Commercial - High 139,783 2 723 3 27 4 34 10 0 Total 48,922 Total 6,613,164 Fixed Fees Volumetric Fees Meter Fee $ 5.326.278 Sewer Service $ 23.230.327 StocmDnziu 377'092 GFR 1.190.369 Gtoon0roio 103.100 Total $ 5,703,371 Total $ 24583,796 [l] Includes 321 Low Income Residential Accounts Upon City direction, we are now prepared to revise the sewer rate study by introducing this data set as the basis for cost uUooubon and rate design. This final update can he completed within the ouncut rate study budget by redirecting budget initially moupcd for public process. The City can then acpazn1c|y determine, as o pod of its revised mohcdu|c for rate implementation, how best to utilize the study and our team for the review and adoption process. /\mmunning that remaining budget is dedicated to this update, an appropriate consultant role in u new, extended public review and adoption process can be established via o supplemental moupc of work, which could address preparation and presentation of summary nnutcriu|a, further updates as new budgets or oupiiu| p|oua are produced, orother support activities desired hythe City. ��^l����� ��U���� TY� ��� �a�r��� c0mm w�* � ���� ���"�����m ` ` F� d D CD CD CD Lu _ £ in c'`� 2 �? > O • (M as N �?V triE O C CD E G 4 £ a ° o 'c Q L `Q) R '� ^� C-11 En uj E y In O • G a. .n V G � ti r^ -C • aG Vv y C v G V — - 2 ZE M aZE'a z� '� � = c °_� c�=� 5 Com. a�= ti = y- to c =� -6, gun `vu c� � ; -- a m "g`�E_ Qc� Z V papa {'• 05 �� � G - 3s 33 ag �c _mac.:, �� _ Cc, a304�4 E e�_ti 'u:� -�Ec �rR� ft a°e � c5 � - C � cv� M� i a CL a�L -:c 'c i -�. c vc yr M a. - •'3s i Vj �ca� `5��c5 ��` O E`c° cc R ~ a '� � �� W �1V� o DEQ O yo�g �NVLi ='v vJ- gY c i a' �� Z c`E^cv c voce SEH 4 05 =~"e°,� °C=^� acs �Eacc y � � aua s - �� ' _�oSry 2S _ wgE Lo- CLCL ct c yy O � sEa SCC ° ° qtc ta_vga "��'�Tc o a� O G £ c ro �„ � \� `E�o� .. E c My C 2 u 3 u Z. v �r�E� a.E G; zcY C� `= o= ~£�sc O E�' o 2ot°ii w VL n ^O —72, a d N `Y Q) .Vri O V O 0�� O Q. c = o a v?v£ E. o - IC v rn� V 2e � ; cc - a=uv� — acEvc My z E E.3 = e e N C13 LI v 1 -c�� 3 m cZ ��_ �= O- �' oc E r^tip zz L Ci.O�m Z 3 aG.i o -`i�'� "te=e c xO£�°. E`- T'ccc E v� - ` $ oma 'tiJ =��o� �rcai �\ •� Y�'aocc K n a d v= v u =c ° co �tw. a IL win air-. -� t:�p .�`c o .;c.: go E E1- 'Cr`. �. G7 a - a M o �•�•••._•c ���4 f L 3 R C -C riycy_.�4d y = 1!^��o fi�a'srta.a'c R d > G to �rS._UJr}5551EiuY��'r.:a`� 2 hy Cn :y g a . i7741� � -� ,ar ,'fir tJ _ 3��f, .+ � ,_a.r,,mV r. � :11((lli� }} r�r7 m m�m�H$. m 7mi b s t».a. rL Qt'�•• WAS=..=iC If '�s J - •� fy _ .�_ m In 'm - -1 �i T_C E,. -y'y t""7'1. ••:KI ,i N a_�.��'.m �.�'� log Th r k'� N X` 15 S� _ �� ',�K: L " .ti �.4+:.�. r. a - •3�T I�:. '�i• �Ti:W,S ;"S'b ,•fit i i1AtIV6y� mot �-X�, + c ti's+ local v CL n h if ti QR.+� .. • 1 J�4 � CF : .Od OM � r "tlj�� r�l • • +s. �;�4 �if �Y��1 :'.m�, A »�•fir. S S 0 +; oil `' $ _fir _aL • '�i��.�F�'' �,• `SIN��; i'i�v A��!._ _ i < mgym r l _-�?-M - - - �lI s - t•�-�O ai cri ��� iii=' ��,== _ ___• - - _ �1� rr��> _ � ��-_ ��_ - - •n�FGT -C3C- VQ •.V_q 1 `t v�4tE�C�''^C3 vV �/� - VI O civ.-� �3� p_o A ���^,� y7♦ vI " `oy`z c��`?� c�� - c•-=� c � Or=�n°c n�v� T_jC���]+^~L�vy �� v� � � ;�VO� •o''a e` vaMA- `Ec c�cm x c� a Ee-- ec ems¢ III � ¢��L.�ii�� ^Q^ter_ °o YtJ•rti 4 � V�yQ�`,'���-.l!'1-moi lJ��� CVNL 1•Y M '. v O rn •L �1r a V O a 9 Al V C L, Q M w= - ['n •� 'i 170 W Z .Jit _ /�� rs m ¢ m 'a O O W : N Q a Q N 0 7 z (DV - o$ y c u ' n M ri q b m i m t m O w .. 0 Q. 'L /�/��� t; a y o Z E G c v 'IFd 7 m N O W e' 3 07 0 o o: f� f1, u c w n c e y ` • m Y.� C V ° •�� .ohm Q4ry 3? a = O 41 0 zz `I•,e � �= rR CCiry pCal CL a AM 3u nE � �v� �`" '� = •!e ��cca� � a nc &�z$v - ° _ -°•��EmL u�n3 °o a.N�-uv �� ' c ��ok,o,� v��C o�L VE C L _ 9^.4 e t c r¢ 'cc, r 'c c c'u-CdCet tj=� V_V,i`Ci�>• V G �u L ?V V•V^M� OV� � >'.V-Cc �O�V`..•q i� °C C� �x...��xx - . V D h O v,°.-. "-' c86- eN '?�� uoE M�•^ � N�� rci� .y `�v�, 3 c �yr� '>����i� L' _aciti ��'E� :.=��T'°� �`15 t a� vE 8Eo3 Q �c o E�=y ~_���� LN 't N-' �? Ma vc � =c~a` p' ccz u=G � Ezt'e v�Z=AL �--,,y �°?�•_ a - oo�Q n�� �.'.=_-"Er C��'^ '°a„ �•�_`c oaoc` oxo= 'S ` "'�� �'..-�v •�' °ca _a.i 'r.3i"' Aou� uV E� -..Tn �;,�^ xaei V �v mR4 zz— ¢+ .” ZCy C? r � V V 3 v�•^� j�3 C�31 : Ot% 7L'1aroO C��C D�� � � _�` ¢�C,:6 � C _Q C `N-'m Iiv=M snv°� cA ra• `�'v^r- `v �-,��c 4°0= 4° ,Qa 'n °-•�j; oEr ��X~c r,Emov �Lv..0 v;,�5 w-_c��A _ - gym=_ Q. °c5 Rcc n r,C „ gz ° X v�v 3a:q 3i °N x=o '"c� ak o^=� `a�E cg_-'k N a u S o �.x ti� `v v ` C;zVy?° _ y. -V r C R n V O O C V C p AC LJ C° ;`u m.� v y a r�,c Lice � v �:a•t •� V ai 1„1 �_E o�Oc � � � `ate ��� �O c�� == VLi U ao-n -c_ Ql � x-c oG n ��E w �N`u aEm �s�Lv, -;j - v° tri _9 '_°y�-a� oy `c A a-2 '_��m .• O.M o _=�cc.� •`0j ,cx c- °ate'. 4 QJ -L_3v_ = M= -� a°�=_ v C C;v e +--' L 7+ = ivy = ojo ��a° 0 = cv�mc_ cow � v° �, �i -�_� _^ ^� °vim= = --�E "" �a� '-'� `� ° c°�� c`a., c�� •Q _ c>.M_x V =•c cc c °� � � J��'L� - VIS 7j e�'- moi= •M1 �.. �^ •CC �o ^ a.u� ^�u•c X v� _ � -83 Z� LL 3r zz°3� p ca - h tr CP 0 + appo ll CNvc II a ASG 33 N ti T 3 VF e M .O Rg"g. G- a 0 my[n o y�'d M b"roE X33= a ; a � a Eaite ai o„'q � _ y„c co MMm C`C + O o�2 + o.^ ova: N s ya $ CmQ ao� 5° aa-o a + L.` v❑ip % g o q m a m a� rn of O cam”' % a7>A� L�L� W O� OYq qOF bOCG}}p C y �OC� N S C_ M O YVN - N 2 :i ~ \ ° x !ti` c' x C C 9 UCL�V w`2 ° V tig CC �' C� rlrf 7.9 -,�¢ C 3�� y d TL.r y �� SAN � y OVA s �^�N° r• LFp �a 7f� x •x3°3 O N x y�ON7 % a ummv. yoa;= rs3 '. �N'm c -co �� o rn o� cae .017 k a C3 r � a bac o` Ol� u°0_ Tch qCa�O O cn aqo� v� T b�' N°iE p+ yy 3; O S , an o a mac yv l--N v y E o c E o q •�`a'a'a, CgLN rw c� 1! a �+0 11 �� cyco tl m- II p`^O II `-0c a�`y •� o dro o 4i yt a oq �Z a� d aV s- oA- ro v� npm- am�c YY moci_ �Y oa 3' v� 0doc aY w=a� E«'°o y o, a s a A E d r 9' ° a4 a C L 91'�� yo d']i Vv 7._d do a':q.N E O Ci`q. atr�`�.O adL E dV•C an QUM �� VN9� vO C Vvin� v v'�O" VHS: O y¢cL H wti U a[ v1�n V v VY h V V p_ 51 p y L C1 Y C a .cy OLy _E IJa�HM W d��Q LL �H � Tq q.CT H LLr} W R a>t �ccc -E S7oPo o ro �E°�v °oa o pg, = a, r. m N- ovc"Ga�o �;�� IgL'iZ o yaro ,n'c_ca 3� -2 oc- aQO n_E �� am3rE o =`L-'.'-o- N N .aiN;»��„ca^'a a N1imO cqV E a��E�vs +-+ Y = � � >°`-.L'✓`G°�_b �:° b- b � ��_ m q i]a��vJE~yC _ ,'e o N g� s� a m ,`a�” �.^���a-• q My crv.. q Q a b�tr rodSo�C v �S o 31c Y o3- Rci'c..ee pp �� 3 V N a N�O q n ° < �� Y L dI E ��`Y V 'f b ���_C�°,y•..ro C '=^�� o £•n �� a fQ m °+emv'y�yaciy�� �•= _ ado N _ chctiroy v�,.., o z'`aoE a io- a= �4 V -oy" arnL E,v` L 5->- v , - °$ g V a5wd� oN�v `nE=3o3N12••o�, �grso i3p, yk{�z bo"tv- a °�# �-�� � ash a`c�'�'A Z � v1 = v,ov,b�oho dE s D,o o g M�° p� E m 5 a rn� a a G - 3aaoE„»o p ', � ba v-0zcao=Z,o� a +e. c- 3o�-ro E-cy E > r E C N.o o f C 41 01 :-} 'S L ° V tw •O a C v C e E-4Ya � cqo me v' N ° ?ai�ooct=i- �tac � �_ FH3 S a o a e AZO ,^ow�a F i3 �5� OJT c oovroov-aMvc° o� c E Q, i; H "O gcro6� pga a� °5"Sr �tiS� icor to U� ,^••c000�.��3�' �� `-' off �a 3 �” � �� � ' v c �E� oma + ' E $ L o o„oco„'t i w�3x 7 ud rno�NoE^'a 3n �oM� c Go oo�"aE�Gov �so ��� � E fia -� U V °iN $ c oc�vvv,c c _ �d 4�3�3�u 3a«E aiu.,E .oa 7a, � '�r1 w7 --�a° tr�v,ou� �3 v"'i �. a P Pmi...` . r•�r+.r• ��aie � �_� o. al c�'.al nl,+i m ?��Pp'm �n rn r+ r` ala V rv�ry N'rv[v v wi.� Ivl�4.ry �� y o 0 0 o_M1 5 3 w qu 1s m 1A rz ry LZ 4y w 'N N a�'rs N w,VT Vivi - �N N •4 �1` € �;� Hi NDN ah-VT Vl - io - P'in't w,IV, NVQ V j ' d �I �� �.ol ima�mlµ d •y LL `m^ .m-.'vo0iiw v.v�+.m.� ra.�`� waw..++ N i 4 E wlw L a I �v v µ ;� Lei d ae - i I ! } 'E• E c -_ Q O C E I::I i' I U N S b q.;�i to y yl yi d O A.� 'b rvl A Q� alt . . rir - = _ a LZ E[E"E ` � �; a`,.•„ •'[� i ¢-=i C � C � =7-, E;o-o O o a �t^i�;�[f ��� 'i a [� E Et C a 5 e J. CL - w c� ° Ev y-°a`rn�AL o'ia buo wtra ao$ a�a'c oc, N a E 'c C a 3 >c�amL o a ? `3 E o+ v 3 M -q q A M^rn c o a a s v Ems'$:' _'^ vc on _ �..°Noo r a^�� m c � p ro alc v ti -"'n o a� Lia, 5 y d aL E y•. a-�o f o 'c°o ° �v a v V. a q�'c�'”�'a o �ov � p tea,`c��ao^-�+ yL o a er ti Q�w a E v Y a h n c z a u c^d^2RZ °. Uc� =5aq 3y, c ¢ baa Ea ti v o�a - o[ mao3 -•-"oma -e �c c"F Y roo �v�� � :a a o�v cMpaaonvS o C LE aq L ^NG,G` �n C C...'�C^ b °'Q,C C� EE �`^' a �N4,V Gn aEd^� c 'L:T 4[C o Uy �cv��sn OEC d 4C0 C �.� a6OidO pOOW a-;5o �;�Y ao+d am� AC Ewa _ VE L' o "o�rn� �a'a a aE=LE �, a�rn vEa., .v ° '> -�� tiv�c.o v�oo oo- d ,{ rnNvana3 mEE� o` a'�-•^=� yovv o Nc .va,� a i-c9 oo cv a�� o a� gmih a `^c -� „ =E� co Y o,� ado ac, c aob as EE.Epp- V-1 :5o 5 a'va m�aQ v e n a E a cL c_ u E vro ° o.a oe >oa °.. � - - ov °v2 oZ= yov E; > rmL`s1.LEMN a ��1 rocv� va�° o Mdg ��UV cc�Zwo �� u¢4�',°vv c°¢¢ a� RESOLUTION NO. 2013- RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA APPROVING AN INCREASE IN SEWER SERVICE RATES FOR FISCAL YEARS 2014/15 THROUGH 2018/19 AND AMENDING THE MASTER FEE SCHEDULE ACCORDINGLY WHEREAS, on February 5, 2008, the Cit` Council. through Resolution 2008-043, adopted the first three years of a five-year rate plan for Fiscal Year (FY) 2007/08 to FY 2011/12: and WHEREAS, on June 8, 2010, the City Council adopted Ordinance 3155 stating that serer service rates for FY 2009/10 would remain in effect until the City Council takes action to increase. or otherwise adjust the rates; and WHEREAS: staff evaluated the sewer rates for FY 2010/11 and FY 2011/12 and recommended no rate increases, and WHEREAS, in December of 2011, the City retained FCS Group to prepare the sewer rate study completed in November 2013 (Study), and WHEREAS, the purpose of the review was to ensure that sewer rates will continue to provide adequate funding for (1) the cost of wastewater treatment services outsourced to the City of San Diego's Point Loma Wastewater Treatment Plant (PLWTP); (2) the cost of operating and maintaining the City's sewer collection system; and (3) investment in the infrastructure needed to provide service consistent with applicable federal, state, and local laws, and WHEREAS, the Study established the annual revenue needed to meet the utility's existing and projected obligations for the next five years (FY2014/15 to FY2018/19) and developed a plan to provide for the continued fiscal health of the utility; and WHEREAS, California Government Code section 53756 permits agencies that provide sewer services to adopt a schedule of fees or charges authorizing automatic adjustments for a five-year period that "passes through" inflationary_ adjustments and/or increases in wholesale charges, and WHEREAS, the Environmental Review Coordinator has reviewed the proposed activity (se„ver rate update) for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity does not constitute a "Project” as defined under Section 15378 of the state's CEQA Guidelines, and WHEREAS. the adoption of the proposed sewer rate structure, as presented to the City Council and reflected in the attached Exhibit A. will ensure that the City recovers the revenues necessary to meet projected expenditures for the maintenance and operation of the City's sewer collection and treatment system for Fiscal Year 2013/14 through 2018119; and J:IArtomevlFr AL RESOS AND 0RDI\ANCESU013112 17 131RESO-P R'-Sewer Rate Update 2013-R4-JDSN1 Redline3.doc 12/112013 12:12 PM 10-85 Resolution No. Page 2 WHEREAS. the City Council finds that the City has complied With the requirements of California Constitution Article 13D,Section 6 (proposition ), and vided written notice by mail of the WHEREAS, the City Council finds that the c rd owners of each identified parcel upon proposed increase in sewer service charges to the record which the increased charge is proposed for imposition andot the e notice charge ed tion amount the charge increase, the basis upon which the amount p p calculated, the reason for the proposed charge increase; together with the date, time, and location of the public hearing on the proposed charge increase; and WHEREAS, the City Council held a public hearing on December 17, 2013 to consider the proposed increase in sewer service charges; and WHEREAS, the City Council considered all protests to the proposed increase in sewer service charges; and WHEREAS. the City Council finds that the revenues derived rtro t he e in r�creasea sewer service charges will not exceed the funds required to provide the property WHEREAS, the City Council finds that the revenuesderived hatf orom the increased which the chargeewas wer service charges shall not be used for any purpose other imposed; and WHEREAS, the City Council finds the amountall not exceed thee sewer ce proportional ncost of upon any parcel as an incident of property ownership s the service attributable to the parcel; and WHEREAS, the City Council finds that the.seer 'service er of the property; d ed are for a service actually used by, or immediately available to, theWHEREAS, the City Council finds that written protests against the proposed serer service charge increases have not been presented by the owners or rate payers of a majority of the identified parcels, and WHEREAS, the City's existing sewer service charges are set forth in the City's Master Fee Schedule, in Chapter 12, "Sewer Fees, and sary to WHEREAS, the Master Fee Schedule shall be 018119,amended as presented sto the City i ect the adopted sewer rates for Fiscal Years 2014115 through and contained on the attached Exhibit A, and effective as of July 1, 2014. NOW, THEREFORE, BE IT RESOLVED by the City Council ofcteed City in the {ached Vista, that it approves an increasein sewerervice f Chula ates in the amounts refl Exhibit A for Fiscal Years 201411 through 2018119 JAAttomeNVINAL RESOS AND ORDINAINCES12013112 17 131RES0-PW-Sewer Rate Update 2013-R4-]DSM Redline3.doc 12/11/2013 12:42 PNI 10-86 Resolution\o. Page 3) BE IT FURTHER RESOLVED, that it approves the amendment of Chapter 12 of the Master Fee Schedule, as necessary. to reflect the newly adopted sewer rates for Fiscal Years 2014/15 through 2018119. effective July 1; 2014, as presented to the City Council and as contained on Exhibit A. and directs the Finance Director to amend the Master Fee Schedule accordingly. Presented by Approved as to form by Richard A. Hopkins Gle Director of Public WorksCi : Attorr�e{ JAAnorne,AFINIAL PESOS AND 0RD1NANCESQ013112 17 131RES0-P%v-Seiner hate Update 2013-R4-JDSN4 Redlineldoc 12/11/2013 12:42 PDE 10-87 COUNCIL RESOLUTION NO. RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CHULA VISTA SETTING THE AMOUNT TO BE DEPOSITED INTO THE SEWER FACILITIES REPLACEMENT FUND, FOR FISCAL YEARS 2014/15 THORUGH 2018119, AND CONTINUING AT THE 2018119 AMOUNTS UNTIL THE CITY COUNCIL TAKES ACTION TO INCREASE, OR OTHERWISE ADJUST THE AMOUNT WHEREAS, on June 16, 1987, the City Council created a sewerage facilities replacement fund (Fund) to pay the cost of refurbishment and/or replacement of structurally deficient sewerage facilities, including related evaluation, engineering, and utility modification costs; and WHEREAS, pursuant to Municipal Code section 3.18.010, the monies deposited into the Fund shall be derived from the revenue collected from the monthly sewer service charge set for forth in Municipal Code section 13.14.110; and WHEREAS, pursuant to section 3.18.010, the City Council shall set by resolution or ordinance the amount to be deposited into the sewerage facilities replacement fund; and WHEREAS, on July 19, 2005, Council approved Ordinance No. 3015 which set forth, in an uncodified section of the ordinance, a table showing how the sewerage facilities replacement fund would be funded for Fiscal Years 2005-06 through 2009-10; and WHEREAS, on February 5, 2008, Council approved Resolution No. 2008-044 which set forth a table showing how the sewerage facilities replacement fund would be funded; and WHEREAS, the City has recently completed a comprehensive review of its sewer rates, conducted on behalf of the City by Financial Consulting Solutions Group, Inc. and determined that the funding for the sewerage facilities replacement fund needed to be adjusted; and WHEREAS, the Environmental Review Coordinator has reviewed the proposed activity for compliance with the California Environmental Quality Act (CEQA) and has determined that the activity does not constitute a "Project" as defined under Section 15378 of the state's CEQA Guidelines; and NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Chula Vista that the Sewage Facilities Replacement Fund shall be funded according to the following table. JAAttome%,\FrNAL RESOS AND ORDINAA'CES12013112 17 131RESO-PW-Replacement Fund Deposit-JDSAI Redline.doc 12/10/2013 3:11 PAI 10-88 Resolution No. Pane 2 Single-Fairtiv_ 50,00 50.73 51.67 S2.72 53.70- 55.10 AA Others: _ IT Meter SD.00 50.73 S1.67 S2.72 53.70 S5.10 3/4"Meter 50.00 50.73 51.67 S2.72 $3.70 S5.10 1'Meter $0.00 S1.82 54.18 56.80 $9.25 512.75- 1-117'deter 50.00 - S3.64 S8.35 513.60 518.49 525.50 3'Meter $0.00 55.82 513.36 521.76 529.59 S40.80 3'deur 50.00 511.64 S26.72 543.52 559.17 S81.60 4"A4cter $0.00 $18.19 541.76 S68.00 $92.46 5127.50 6'Meter 50.00 536.37 $83.51 $136.00 Si8491 S255.00 S'Meter 50.00 572.74'- 5167.02 $272.01_ 5369.83 S510.01 All Customers 50.18 50.14 50.10 S0.05 50.00 50.00 BE IT FURTHER RESOLVED by the City Council of the Cite of Chula Vista, that the amount to be deposited into the Sever Facilities Replacement Fund shall remain in effect after FY 18/19; at the proposed 2018/19 amount, until the City Council takes action to increase, or otherwise adjust the amount to be deposited in said fund. Presented by Approved as to form by Richard A. Hopkins ,� IGIenR Goan is1, Director of Public Works Cit Attorne} MAttome,AFINA1.RESOS A--,\'D ORDINANCES12013112 17 131RES0-PVN-Replacement Fund Deposit-JDSM Redline.doc 12/10/2013 3:11 PIA 10-89 Sheree Kansas i From: Donna Norris Sent: Tuesday, November 12, 2013 3:06 PM To: Maria Kachadoorian; Phillip Davis Cc: Sheree Kansas Subject: FW:Item Regarding Proposed Change In Billing for Sewer-- Anticiapted Date of Council Action -- 12-17-2013 Do*.vu;- leo-rrEc ,, GMS. City Clerk City of Chula Vista 619-691-5041 Connect with us! _ y1ou. CH�i!_"AWgAc „ erre _ at ` Sign up for our monthly Community Connection newsletter! i From: Mitchell Thompson ] Sent: Tuesday, November 12, 2013 2:47 PM To. Patricia Aguilar; Cheryl Cox; Rudy Ramirez; Pamela Bensoussan; F2MS; Donna Norris Cc: Jim Sandoval; Rich D'ascoii Subject: Item Regarding Proposed Change In Billing for Sewer-- Anticiapted Date of Council Action -- 12-17-2013 Council Members: I am a member of Pacific Southwest Association of Realtors(PSAR). I attended their Government Affairs (GA) Committee meeting this morning where we discussed the potnetial change in City billing for sewer. I was very much a part of the discussion and the formulation of the position on the matter. I am NOT representing the Otay Water District in any way with this correspondence nor m i commenting from the perspective of being a member of the Board of Directors of otay Water Board. The PSAR GA committee voted unanimously to recommend that you not move the sewer billing for any properties to the property tax roll and that you investigate other methods of reducing billing costs besdies using the County property tax collection system. You will receive official correspondence from PSAR regarding the position. Rationale: Why is PSAR concerned? Adding any costs to the property taxes statements increases the total "housing related costs" which determine loan underwriting for singe-family homes. Roughly speaking,borowers will be limited in housing payments (principal and interest plus property taxes and insurance)to about 40%of income. Therefore, if you make this change, all persons trying to purchase homes affected by this will need more income to-qualify for the same home. It will --on a long-term basis --reduce the value of those horses because of the higher "property tax payments" and lower borrowing power that each homebuyer will have i because of the higher payments. Values will be suppressed on a ong-term basis due to this and the City's share of property taxes will be reduced with the slight decrease in home value. The slight long-term decrease in property vlaues wil lin all liklihood render the change revenue neutral even if the City has a slight decrease in collection costs. Conclusion: 1. We support the City's efforts to reduce collection costs. 2. Please consider methods other than the County's property tax collections system to find such savings. Thank you for considering this commentary in your decision. Mitch Thompson,RE Agent Mitch Thompson Neighborhood Real Estate Services Thompson Consulting 5780 Chesapeake Corot,Suite 23 Cell:619-271-3251 1 San Diego,CA 92123 DRE#01753601 Cell:619-274-3251 CONFIDENTIALITY NOTICE:This email message,including any attachments,is for the sole use of tlic intended recipient(s)and may contain in€omiation that is confidential, privileged and/or otherwise protected by la-w. Any unauthorized review,use,disclosure or distribution is prohibited. Donna Norris From: Maria Kachadoorian Sent: Wednesday, November 13, 2013 10:29 AM To: 'Mitchell Thompson' Cc: Rich D'ascoli;Jim Sandoval; Donna Norris Subject: RE: Sewer Charge Impact for typicalmodestly priced home in Chula Vista M itch, I will forward the e-mail string to Donna Norris to be included in the written public testimony. Thanks again for the additional information. Maria K. From: Mitchell Thompson [ Sent: Wednesday, November 13, 2013 10:17 AM To: Maria Kachadoorian Cc: Rich D'ascoli; Jim Sandoval Subject: Re: Sewer Charge Impact for typicalmodestly priced home in Chula Vista Maria, That appears to be too much for them--to distinguish between the various fees on the property tax bill--Mello Roos vs. school dist costs vs. County taxes vs. mosquito control fees, etc. --All negativelyijmpact underwriting. That is as exact as it appears they get. Confirm the number on the property tax bill and compute affordability is the methodology as I understand it. I personlally confirmed this with with my lender that they get the proepty tax profile, look at what you are actually paying and underwrite against that amount without distinguishing between the various cost items on the prop tax bill. In the PSAR Policy Committee, we discussed this specific issue and no one disagreed on the methodology--granted this is a group of realtors--not lenders. You could go ahead and confirm with another lender if you would Pike to. Whatever might be decided on the issue, at least you will have knowledge of the impact--on the homebuyer and the local real estate market. Rich, i and possibly some other members of PSAR are planning to likely attend the 12-17 meeting to provide verbal testimony. I would appreciate these several emails being forwarded to the City Clerk to be included as part of the written public testimony on the matter. As always,thanks for your thoughtful consideration of the commentary. Mitch On Wed,Nov 13, 2013 at 9:58 AM, Maria Kachadoorian<mkachadoorian(cci.cbula-vista.ca.us> wrote: Hi Mitch, 1 So the banks don't distinguish between true property tax and other items listed on the tax bill. When we calculate the 2% max assessed value for our CFD's we do adjust for those variances. I am surprised that the banks don't break it out. i 3 i Thanks for the follow up. We will certainly take this into consideration. Maria K. From: Mitchell Thompson Sent: Wednesday, November 13, 2013 8:55 AM To: Maria Kachadoorian Cc: Rich D'ascoli; Jim Sandoval Subject: Sewer Charge Impact for typicalmodestly priced home in Chula Vista Maria, I received your phone call requesting a clarification. Hopefully this example below will clarify. If it is on the tax bill, it becomes part of the "housing cost " qualifying equation. Typical $400,000 home with 80% loan $320,000 mortgage @5.5%, 30 years $1,816.92 monhly payment Example Monthly costs With Sewr intax Bill Without Sewr in tax bill Mortgage (P&I) $1,817 $1,817 Insurance @$800/yr $ 67 $ 67 Prop Tax Estimate at 1.1% of value-- $ 367 $ 367 Addl Sewer on tax statement $540/yr) $ 45 $ 0 $2,296 $2,251 2 i I With a qualifying Income at a 40% income test, min. income to qualify $68,880 $67,530 A buyer needs 2%higher income to qualify for the same loan. Put another way, the home provides a buyer with$8,000 less in purchasing power due to the increased average sewer charge being added on to the property tax bill. As the sewer bill is increased the lost buying power increases as well. If the sewer bill is $70 per month,the difference becomes $12,000. Anything that adds to the property tax bill will ultimately result in lower housing values as it shrinks the available pot of money including homebuyer equity and available loan proceeds,with which to purchase. Higher property taxes (incl ancillary items on the tax bill) causes lower borrowing ability. the lender basically pulls the info from the property profile and uses that overqall property tax number in underwriting. If you have additional questions, please call. It really is a very bad idea to add anythying to the property tax rolls unless you absolutely have to. It affects our real estate markets! And we have really needed any and all mechanisms to cause that market to rebound because city revenues via proerpty taxes are inexorably tied to that market. Mitch Mitch Thompson,RE Agent Mitch Thompson I Neighborhood Real Estate Services 'Hampson Consulting 5780 Chesapeake Court,Scute 23 Cell:614-274-3251 San Diego,CA 92123 DRE#f 01755601 Cell:619-274-3251 CONPTDENTIALITY NOTICE:This email message,including any attachments,is Ibr the sole use of the intended recipient(s)and may contain information that is confidential, privileged and/or othenvise protected by lay. Any unauthorized review,use,disclosure or distribution is prohibited. 3 Mitch Thompson,RE Agent Mitch Thompson Neighborhood Real Estate Services Thompson Consulting 5780 Chesapeake Court,Suite 23 Cell:619-274-3251 San Diego,CA 92123 ARE W 01759601 Cell:619-274-3251 CONFIDENTIALITY NOTICE:This email message,including any attachments,is for the sole use of the intended recipient(s)and may contain information that is confidential, privileged and/or otherwise protected by law. Any unauthorized review,use,disclosure or distribution is prohibited. I i i I 4