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14 - Proposed Sewer Rates
TO: FROM: CITY OF NEWPORT BEACH City Council Staff Report July 25, 2017 Agenda Item No. 14 HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL George Murdoch, Municipal Operations Director - 949-644-3011, gmurdoch@newportbeachca.gov PREPARED BY: Joshua Rosenbaum, Senior Management Analyst, josenbaum@newportbeachca.gov PHONE: 949-644-3057 TITLE: Proposed Sewer Rates ABSTRACT: The Municipal Operations Department retained the consulting services of HF&H Consultants, LLC ("HF&H") to prepare an updated sewer rate study. The study analyzes the cost of service and makes recommendations regarding the rate and structure in compliance with State law. The study concluded that a rate increase is recommended to ensure adequate funds are available to continue to maintain a safe and healthy sewer infrastructure. RECOMMENDATION: a) Determine this action is exempt from the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) and 15060(c)(3) of the CEQA Guidelines because this action will not result in a physical change to the environment, directly or indirectly; b) Review the results and proposed recommendations of the sewer rate study; c) Direct staff to send rate notices to customers in compliance with Proposition 218; and d) Set the date of September 12, 2017, for tabulation of protests and conduct a public hearing of proposed rates. FUNDING REQUIREMENTS: There is no fiscal impact related to this item. This action directs staff to notice customers of the rate study in compliance with Proposition 218. 14-1 Proposed Sewer Rates July 25, 2017 Page 2 DISCUSSION: Background The Municipal Operations Department operates and maintains approximately 197 miles of wastewater sewer mains, 4.7 miles of force mains, 4,922 manholes and cleanouts, 25,525 sewer laterals, and 21 sewer lift stations. Operations, maintenance and repair activities include: sewer line cleaning, root removal, manhole maintenance and repair, lift station operation and maintenance, sewer line video inspection, as well as sewer lateral maintenance, repair and replacement. All revenue and expenditures related to wastewater service provided by the City of Newport Beach is contained in the Wastewater Enterprise Fund. The Enterprise Funds are separate from the General or any other fund the City uses to operate the City. Funding for maintenance and replacement activities is collected from rate payers through the Municipal Services bill. There are three main components of the fund that are important to providing sewer service: Operations includes day to day operations and maintenance and is comprised of salaries, contract maintenance, repair materials, permits, outside agency fees, professional services and internal service charges to the General Fund. In Fiscal Year (FY) 2017-18 the operations budget is $3,592,976. Replacement includes the annual replacement of aging infrastructure as well as capacity issues and recommended improvements per the Sewer Master Plan completed in 2010. The Master Plan estimated approximately $29,017,451 in total projects to be completed over a 30 -year period. Projects are proposed and approved through the annual Capital Improvement Projects (CIP) section of the fiscal year budget. The Public Works Department manages the CIP process. Reserves are established by City Council Policy F-2 where the minimum level is set annually at a dollar amount equal to fifty percent of the operations budget. The intent is to provide rate stabilization and funding for a catastrophic failure of the infrastructure. In FY 2017-18 the reserve target is $1,796,488. Rate Study: In 2013 the City retained the services of HF&H to conduct a wastewater and recycled water rate study. Staff proposed the recycled rates to City Council in July 2014 which were adopted. In January 2016, staff proposed new wastewater rates, however, the ordinance that would establish the rates failed at the second reading. The City Council elected to contribute $3.5 million from the General Fund to the Wastewater Enterprise Fund which provided sufficient funds to continue to operate and replace the system and maintain reserves. 14-2 Proposed Sewer Rates July 25, 2017 Page 3 Due to the long term structural deficit of insufficient revenues to support expenditures, staff again retained the services of HF&H to revise the wastewater rate study. This was necessary to comply with Proposition 218 requirements as too much time had passed between the previous study and proposing new rates. The Sewer Rate Study (Attachment A) looks at a ten-year financial projection and proposes a five-year incremental rate increase. Multi-year increases reduce the rate shock of implementing a one-year adjustment and reduce the cost and efforts to study and notice increases annually in compliance with Prop 218. In summary the new study concluded the following: The estimated revenue for the FY 2017-18 budget is $2,571,186. Operations and replacement expenditures are estimated to be $4,592,976. Estimated FY 2016-17 Year - End Fund Balance Reserve levels are $2,756,470 and are being used to fund the shortfall between estimated revenues and expenditures. Current sewer revenues do not provide adequate funding for operations. Without the City Council's action to contribute $3.5 million from the General Fund to the Sewer Fund during FY 2016-17, the fund reserve would have been in the negative at the start of FY 2017-18. Table 1 illustrates the reserve target, reserves with and without an increase. Table 1 Wastewater Enterprise Fund Balances In regards to CIP, historically, the City has invested approximately $500,000 annually. In FY 2017-18 this was increased to $750,000. In order to meet the 30 -year Master Plan estimates, it is proposed to increase the investment to $1,000,000 and continue to increase by three percent per year. It should be noted that Master Plans are typically reviewed every five years and estimates could change. 14-3 Year End Fund Balances - Fund 711 (Operations) $4.0 $3.5 o _ $3.0 `• $2-5 Reserves With Rate Increases cc $2.0 m ` 5 Target Reserve Balance` LL $1 (Operations) ` $1.0 5 O Reserves Without a` Ratelncreases% $0.5 $0.0 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 In regards to CIP, historically, the City has invested approximately $500,000 annually. In FY 2017-18 this was increased to $750,000. In order to meet the 30 -year Master Plan estimates, it is proposed to increase the investment to $1,000,000 and continue to increase by three percent per year. It should be noted that Master Plans are typically reviewed every five years and estimates could change. 14-3 Proposed Sewer Rates July 25, 2017 Page 4 Proposed Rates: The recommended structure of the rates remains fairly unchanged and includes a fixed and a variable rate. Currently the sewer rates include a fixed fee, sewer use charge and two additional surcharges of $2.00/month for each additional dwelling unit and $10.00/month for customers with two-inch or larger water meters, respectively. The - proposed rate structure eliminates these surcharges and adds the costs to the monthly fixed charge. This provides a fairer distribution of the revenue assuming a larger water meter also means a larger need for sewer service. Inequities were found in the revenue collected from non -water customers where the City only provides sewer service. The current and proposed rate structure includes a component that uses water use to set the variable rate. Since the City does not serve water to some sewer customers it is not possible to establish a rate based on their water use. The study concluded that an average water use by meter size could be established and used to set rates for our sewer -only customers.. The proposed sewer rates for customers that receive water and sewer service from the City of Newport Beach include: Fixed charge - a monthly sewer service charge based on size of water meter. (Table 2) Sewer Use charge - a monthly consumption charge based on each customer's actual metered water use. (Table 2 Bottom) Table 2: Monthly Sewer Service Fixed Charge (City Water and Sewer Customers): Newport Beach Water and Sewer Customers Monthly Sewer Service Charge Meter Size Current 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 5/8" $ 4.50 $ 6.46 $ 7.07 $ 7.74 $ 8.39 $ 8.55 3/4" $ 4.50 $ 6.46 $ 7.07 $ 7.74 $ 8.39 $ 8.55 ill $ 4.50 $ 6.46 $ 7.07 $ 7.74 $ 8.39 $ 8.55 1.5" $ 4.50 $ 7.11 $ 7.78 $ 8.51 $ 9.23 $ 9.41 2" $ 14.50 $ 9.70 $ 10.61 $ 11.61 $ 12.58 $ 12.83 3" $ 14.50 $ 10.99 $ 12.02 $ 13.15 $ 14.26 $ 14.54 4" $ 14.50 $ 12.93 $ 14.14 $ 15.47 $ 16.77 $ 17.11 6" $ 14.50 $ 14.55 $ 15.91 $ 17.41 $ 18.87 $ 19.25 8" $ 14.50 $ 16.16 $ 17.68 $ 19.34 $ 20.97 $ 21.39 10" $ 14.50 $ 20.69 $ 22.63 $ 24.76 $ 26.84 $ 27.37 12" $ 14.50 $ 25.86 $ 28.29 $ 30.95 $ 33.55 $ 34.22 Sewer Use Charge (HCF) Current 1/1/2018 1/1/2019 1/1/2020 1/1/2021 1/1/2022 $ 0.35 $ 0.38 $ 0.42 $ 0.46 $ 0.50 $ 0.54 14-4 Proposed Sewer Rates July 25, 2017 Page 5 The proposed sewer rate for customers that receive sewer service only from the City of Newport Beach include: Sewer Use Charge - a monthly charge that combines a charge based on water meter size and a consumption charge based on average use for that meter size. (Table 3) Table 3: Monthly Sewer Charge - Sewer Customers Only (These fees include both the monthly sewer service fixed charge and the estimated monthly use per meter size) Newport Beach Sewer Customers Only Monthly Sewer Service - No Water Charge Meter Size Monthly Flow (HCS Current Service Charge Current Flow Charge Meter Size Current Proposed Flow Charge 1 1/1/2018 1/1/2019 1/1/2020 5/8" -1" 1/1/2021 $4.50 1/1/2022 $5.53 5/8" $ 6.25 $ 9.90 $ 10.83 $ 11.85 $ 12.84 $ 13.10 3/4" $ 6.25 $ 9.90 $ 10.83 $ 11.85 $ 12.84 $ 13.10 1 " $ 6.25 $ 11.59 $ 12.68 $ 13.87 $ 15.04 $ 15.34 1.5" $ 6.25 $ 34.87 $ 38.15 $ 41.73 $ 45.24 $ 46.14 2" $ 6.25 $ 35.92 $ 39.30 $ 42.99 $ 46.60 $ 47.54 3" $ 6.25 $ 92.27 $ 100.94 $ 110.43 $ 119.70 $ 122.10 4" $ 6.25 $ 163.41 $ 178.78 $ 195.58 $ 212.01 $ 216.25 6" $ 6.25 $ 287.97 $ 315.04 $ 344.65 $ 373.60 $ 381.07 8" $ 6.25 $ 289.58 $ 316.80 $ 346.58 $ 375.70 $ 383.21 10" $ 6.25 $ 294.11 $ 321.75 $ 352.00 $ 381.57 $ 389.20 Table 4 illustrates the impacts of the proposed rates for a Single Family Residential home that has a 5/8", 3/4, or 1" meter at different monthly flow rates (low, average and high). The table also illustrates commercial impacts of varying meter size and average flow rates. As example: an average Single Family home with a one -inch meter using about 12 HCF per month, you will see an increase of $2.35 per month. Table 4: Proposed Rates Impact on Current Monthly Sewer Bills Customer Type (Low, Avg, High Flow) Meter Size Monthly Flow (HCS Current Service Charge Current Flow Charge Current Monthly Bill Proposed Service Charge Proposed Flow Charge 1 Proposed Monthly Bill Monthly Bill Change Single Family Residential (low flow) 5/8" -1" 3.0 $4.50 $1.03 $5.53 $6.46 $1.13 $7.60 $2.06 Single Family Residential (avg flow) 5/8" -1" 11.8 $4.50 $4.13 $8.63 $6.46 $4.52 $10.99 $2.35 Single Family Residential (high flow) 5/8" -1" 23.6 $4.50 $8.27 $12.77 $6.46 $9.05 $15.51 $2.74 Sewer-only(noadditional DUs) 3/4" 9.0 $6.25 $0.00 $6.25 $6.46 $3.44 $9.90 $3.65 Commercial 1.5" 29.7 $4.50 $10.40 $14.90 $7.11 $11.38 $18.49 $3.59 Commercial 2" 118.9 $14.50 $41.61 $56.11 $9.70 $45.52 $55.21 ($0.89 Commercial 3" 237.7 $14.50 $83.21 $97.71 $10.99 $91.03 $102.02 $4.31 14-5 Proposed Sewer Rates July 25, 2017 Page 6 Finance Committee At the June 29, 2017, Finance Committee meeting, MOD staff presented a general overview of the services provided by the City's Sewer Division, the cost for operating and maintaining the sewer system, including the capital improvement component, the revenue requirements, and discussed the Sewer Fund's reserve target policy. The .consultant, HF&H, presented their study's findings and recommendations for a proposed new sewer rate structure and new rate tables for the water and sewer customers and sewer -only customers, respectively. At the conclusion of the presentation, following some discussion, the Finance Committee unanimously recommended that the Sewer Rate Study be moved to City Council for discussion. Next Steps: Upon incorporation of the City Council's recommendations and direction to send Proposition 218 notices, pursuant to California Constitution Article XIII D, Section 6, staff will prepare and send notices to all property owners and customers that receive sewer service from the City. There will be a 45 -day public notice period at which time property owners and customers may send written protests for consideration of the City Council. Protests from property owners will be tallied at the public hearing tentatively set for September 12, 2017. Notwithstanding a majority protest, City Council can consider verbal testimony from anyone and written protests from non -property owners and decide to approve the rates. At the September 12, 2017 City Council meeting, staff will present an ordinance change removing the existing rates from the Municipal Code and propose a resolution amending the Master Fee schedule to include the new rates. If the rates are approved, and the ordinance and amended fee schedule adopted, the proposed sewer rates would become effective on January 1, 2018 and for every year thereafter with the final adjustment occurring January 1, 2022. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this action is not subject to the California Environmental Quality Act (CEQA) pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential for resulting in physical change to the environment, directly or indirectly NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENT: Attachment A — Draft Sewer Rate Study 14-6 CITY OF NEWPORT BEACH Sewer Rate Study HF&H Consultants, LLC CITY OF NEWPORT BEACH 592 Superior Avenue Newport Beach, CA 92663 tt is Z! 'Cj� VL SEWER RATE STUDY July 25, 2017 HF&H CONSULTANTS,, LLC 201 North Civic Drive, Suite 230 Walnut Creek, CA 94596 © HF&H CONSULTANTS, LLC All rights reserved. This document is printed on 100% recycled, post -consumer content paper 14-8 a HILTON FARNKOPF & HOBSON 201 North Civic Drive, Suite 230 Walnut Creek, California 94596 Tel: (925) 977-6950 Fax: (925) 977-6955 hfh-consultants.com July 25, 2017 Mr. George Murdoch Municipal Operations Director City of Newport Beach 100 Civic Center Drive Newport Beach, CA 92660 HF&H CONSULTANTS, LLC Managing Tomorrow's Resources Today Subject: Sewer Rate Study - Revised Administrative Draft Dear Mr. Murdoch: Robert D. Hilton, CMC John W. Famkopf, PE Laith B. Ezzet, CMC Richard J. Simonson, CMC Marva M. Sheehan, CPA Robert C. Hilton, CMC HF&H Consultants, LLC, is pleased to submit this draft Sewer Rate Study to the City of Newport Beach (City). The report summarizes the analysis that was conducted to develop the recommended rates. A copy of the rate model is included in the appendix. Your comments will be incorporated into a final draft. Very truly yours, HF&H CONSULTANTS, LLC r iD John W. Farnkopf, P.E., Senior Vice President Geoffrey Michalczyk, Associate 14-9 City of Newport Beach TABLE OF CONTENTS Sewer Rate Study Table of Contents 1. EXECUTIVE SUMMARY................................................................................. 1 Findings And Recommmendations.........................................................................1 2. INTRODUCTION........................................................................................... 5 Study Purpose And Objectives..............................................................................5 Background.........................................................................................................5 3. PROJECTED REVENUE INCREASES.............................................................. 6 Revenue Requirement Projections.........................................................................6 Salaries..........................................................................................................7 Benefits..........................................................................................................7 Operations & Maintenance...............................................................................7 Internal Services Allocation..............................................................................8 Operating Reserve Expense.............................................................................8 Capital Reserve Expense..................................................................................8 RevenueIncreases...............................................................................................8 FundBalance.....................................................................................................10 4. RATE DESIGN............................................................................................. 12 CurrentRate Structure.......................................................................................12 Proposed Rate Structure.....................................................................................12 Sewer Service Component of Rate Structure...................................................12 Sewer Use Component of Rate Structure........................................................14 Balanced Rate Design.........................................................................................16 ProjectedRates..................................................................................................18 Current and Proposed Customer Bill Comparisons................................................19 Comparison with Neighboring agencies...............................................................19 APPENDIX A. SEWER RATE MODEL TABLE OF FIGURES Figure 1-1. Projected Revenue Increases...................................................................1 Figure 1-2. Current and Proposed Monthly Sewer Rates.............................................3 Figure 1-3. Current and Proposed Monthly Sewer Rates — Sewer -Only Customers ........ 3 Figure 1-4. Current and Proposed Average Monthly Sewer Bills (FY 2017-18) ..............4 Figure 3-1. Annual Escalation Factors........................................................................6 Figure 3-2. Annual Revenue Requirement Components..............................................7 Figure 3-3. Capital Projects.......................................................................................8 Figure 3-4. Projected Revenue Increases...................................................................9 HF&H Consultants, LLC Page i July 25, 2017 14-10 City of Newport Beach Sewer Rate Study Table of Contents Figure 3-5. Operating Fund Balance With and Without Rate Increases ......................10 Figure 4-1. Monthly Sewer Service Charges (FY 2017-18 Before Rate Increase) ......... 13 Figure 4-2. Monthly Sewer Service Charges (FY 2017-18 With Rate Increase) ............ 14 Figure 4-3. Monthly Sewer Use Charges (FY 2017-18 Before Rate Increase) ..............15 Figure 4-4. Monthly Sewer Use Charges (FY 2017-18 With Rate Increase).................15 Figure 4-5. Monthly Sewer Charge — Sewer -Only (FY 2017-18) .................................16 Figure 4-6. Fixed and Variable Revenue...................................................................17 Figure 4-7. Five -Year Sewer Rate Projections............................................................18 Figure 4-8. Five -Year Sewer Rate Projections — Sewer -Only Customers ......................18 Figure 4-9. Monthly Customer Bill Comparison (FY 2017-18) ......................................19 Figure 4-10. Neighboring Agency Comparison...........................................................19 ACRONYMS CIP Capital Improvement Plan EDU Equivalent Dwelling Unit; an average single-family residential customer EMU Equivalent Meter Unit FY Fiscal Year GPD Gallons Per Day HCF or CCF Hundred Cubic Feet of metered water; 748 gallons; a cube of water 4.6 feet on edge I&I Inflow and Infiltration; stormwater runoff that enters collection systems through surface or subsurface connections, cracks, or other openings IRWD Irvine Ranch Water District O&M Operations and Maintenance OCSD Orange County Sanitation District OCWD Orange County Water District OPEB Other Post -Employment Benefits PAYGo Pay -As -You -Go, in reference to funding capital improvements from cash rather than from borrowed sources of revenue PERS Public Employees Retirement System SFR Single Family Residential HF&H Consultants, LLC Page ii July 25, 2017 14-11 City of Newport Beach ACKNOWLEDGEMENTS City Council Kevin Muldoon, Mayor Duffy Duffield, Mayor Pro Tem Diane Dixon, Council Member Brad Avery, Council Member Jeff Herdman, Council Member Scott Peotter, Council Member Will O'Neill, Council Member City Finance Commission: Diane Dixon, Council Member Kevin Muldoon, Council Member Will O'Neill, Council Member William Collopy, Citizen Advisor Patti Gorczyca, Citizen Advisor Joe Stapleton, Citizen Advisor Larry Tucker, Citizen Advisor City Staff George Murdoch, Municipal Operations Director Dan Matusiewicz, Finance Director Joshua Rosenbaum, Senior Management Analyst HF&H Consultants, LLC John Farnkopf, Sr. Vice President Geoffrey Michalczyk, Associate Sewer Rate Study Table of Contents HF&H Consultants, LLC Page iii July 25, 2017 14-12 City of Newport Beach Sewer Rate Study Table of Contents HF&H Consultants, LLC Page iv July 25, 2017 14-13 SEWER RATE STUDY 14-14 City of Newport Beach 1. EXECUTIVE SUMMARY Sewer Rate Study 1. Executive Summary This report summarizes the analysis of the City's sewer rates. The analysis represents a collaborative effort of the City's Staff and consulting team. HF&H prepared the financial plan model using the City's FY 2017-18 operating budget. The financial model forecasts expenditures and revenues for the next ten years; a copy is included in the appendix to this report. For rate adoption purposes, five-year projections are presented. FINDINGS AND RECOMMMENDATIONS 1. Key Assumptions. Rates were set to generate revenue sufficient to fund the City's collection system expenses, to fund local capital improvements, and to fund the Sewer Fund's reserves at targeted levels. The proposed rate structures reflect current legal standards and industry practices. 2. Revenue Projections. The projected annual revenue increases enable the City to address collection and pump station improvement projects that were identified in the City's Sewer Facilities Master Plan. These increases enable the City to ramp up funding for capital projects to $1,000,000 per year on a pay-as-you-go cash basis without issuing debt. The annual revenue increases for the next five years are shown in Figure 1-1. Note that the Sewer Fund is currently operating at a significant deficit. The revenue increases proposed during the next five years steadily reduce the deficit. By FY 2021-22, the Sewer Fund will be operating at a slight surplus with revenue increases at inflationary levels. Figure 1-1. Projected Revenue Increases FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 (Eff.1/1/18) (Eff.1/1/19) (Eff.1/1/20) (Eff.1/1/21) (Eff.1/1/22) Revenue from Current Rates $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 Increase in Revenue from Rates 9.4% 9.4% 9.4% 8.4% 2.0% Revenue from Rate Increases FY17-18 (effective 1/1/18) $166,599 $333,198 $333,198 $333,198 $333,198 FY19-20 (effective 1/1/19) $0 $182,259 $364,519 $364,519 $364,519 FY20-21 (effective 1/1/20) $0 $0 $199,392 $398,784 $398,784 FY21-22 (effective 1/1/21) $0 $0 $0 $194,929 $389,858 FY21-22 (effective 1/1/22) $0 $0 $0 $0 $50,310 Subtotal - Revenue Increases $166,599 $515,458 $897,109 $1,291,429 $1,536,668 Total Rate Revenue with Increas $3,711,261 $4,060,119 $4,441,770 $4,836,091 $5,081,330 Net Revenue Requirements $4,579,977 $4,684,594 $4,791,719 $4,901,415 $5,013,746 Surplus/(Deficit) after Increase ($868,716) ($624,474) ($349,949) ($65,324) $67,583 Source: Model Tab 8. HF&H Consultants, LLC Page 1 July 25, 2017 14-15 City of Newport Beach Sewer Rate Study 1. Executive Summary 3. Rate Design. The City's current sewer customers pay the sum of the following: a fixed monthly sewer service charge that is the same for all customers and a sewer use charge based on monthly metered water use. In addition, for meters 2 -inch or larger, a $10.00 monthly surcharge is assessed. For connections servicing two or more dwelling units on the same connection, a monthly $2.00 per dwelling unit surcharge is assessed for any additional dwelling units. For customers receiving only sewer service from the City, a $6.25 flat charge per account is charged plus a $2.00 charge per additional dwelling unit, if any. We recommend combining the two surcharges into the monthly sewer service charge and maintaining the uniform sewer use charge. Under this proposed rate structure, customers will pay the sum of only two charges: a monthly sewer use charge, graduated in proportion to the size of the water meter, and the uniform sewer use charge. For customers receiving only sewer service from the City, the proposed structure would comprise the same sewer service charge per account plus a sewer use charge based on the average flow per meter for the City's water customers. It is recognized that the sewer use charge, which is based on year-round monthly water use, has the effect of billing most residential customers for irrigation flow that is not discharged to the sewers. This is a long-standing practice of the City that will continue with the proposed rates. The benefit of this form of flow -based rate structure is outweighed by the benefit customers receive over being charged a flat rate that does not reflect any differences in flow, which is a common alternative structure. The amount of irrigation water that may figure into the bill can be reduced by using winter water use, rather than year-round water use. However, the City's current customer billing system is unable to calculate winter water use for estimating sewered water use. The City is evaluating the future capabilities of its billing system to determine winter water use. 4. Projected Rates. Figure 1-2 shows the sewer rates that are needed to cover the projected revenue requirements, and compares the revised structure to the current structure. In the revised rate structure, the sewer service charges are graduated from the smallest to the largest meters, rather than charging a flat amount and adding surcharges, as is presently done. This gradation recovers almost 60% of the revenue, which is consistent with the current rates. The proposed rate structure maintains the sewer use charge, which is based on metered water use. Because the City's facilities only collect and convey wastewater and do not also treat wastewater, there is no need to differentiate flow charges to account for differences in wastewater strength among customer classes. HF&H Consultants, LLC Page 2 July 25, 2017 14-16 City of Newport Beach Sewer Rate Study 1. Executive Summary Figure 1-2. Current and Proposed Monthly Sewer Rates Source: Model Tab 8. Figure 1-3 shows the rates for sewer -only customers. The proposed rates include the same sewer service charges in Figure 1-2 plus a sewer use charge based on the average flow per meter for the City's water customers. Comparing the current rates with the proposed rates for large meters can be misleading. In some cases, such as hotels, the current bill would include the surcharge per dwelling unit. Figure 1-3. Current and Proposed Monthiv Sewer Rates - Sewer -Only Customers Current FY 2016-17 FY 2017-18 (Eff.1/1/18) FY 2018-19 (Eff.1/1/19) Proposed FY 2019-20 (Eff.1/1/20) FY 2020-21 (Eff.1/1/21) FY 2021-22 (Eff.1/1/22) Sewer Service Charges 5/8" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 3/4" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 1" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 1.5" $4.50 $7.11 $7.78 $8.51 $9.23 $9.41 2" $14.50 $9.70 $10.61 $11.61 $12.58 $12.83 3" $14.50 $10.99 $12.02 $13.15 $14.26 $14.54 4" $14.50 $12.93 $14.14 $15.47 $16.77 $17.11 6" $14.50 $14.55 $15.91 $17.41 $18.87 $19.25 8" $14.50 $16.16 $17.68 $19.34 $20.97 $21.39 10" $14.50 $20.69 $22.63 $24.76 $26.84 $27.37 12" $14.50 $25.86 $28.29 $30.95 $33.55 $34.22 Surcharge Per Dwelling Unit $2.00 $0.00 $0.00 $0.00 $0.00 $0.00 Sewer Use Charge (per HCF) $0.35 $0.38 $0.42 $0.46 $0.50 $0.51 Source: Model Tab 8. Figure 1-3 shows the rates for sewer -only customers. The proposed rates include the same sewer service charges in Figure 1-2 plus a sewer use charge based on the average flow per meter for the City's water customers. Comparing the current rates with the proposed rates for large meters can be misleading. In some cases, such as hotels, the current bill would include the surcharge per dwelling unit. Figure 1-3. Current and Proposed Monthiv Sewer Rates - Sewer -Only Customers Source: Model Tab 8. HF&H Consultants, LLC Page 3 July 25, 2017 14-17 Current FY 2016-17 FY 2017-18 (Eff.1/1/18) FY 2018-19 (Eff.1/1/19) Proposed FY 2019-20 (Eff.1/1/20) FY 2020-21 (Eff.1/1/21) FY 2021-22 (Eff.1/1/22) Flat Charges Per Account 5/8" $6.25 $9.90 $10.83 $11.85 $12.84 $13.10 3/4" $6.25 $9.90 $10.83 $11.85 $12.84 $13.10 1" $6.25 $11.59 $12.68 $13.87 $15.04 $15.34 1.5" $6.25 $34.87 $38.15 $41.73 $45.24 $46.14 2" $6.25 $35.92 $39.30 $42.99 $46.60 $47.54 3" $6.25 $92.27 $100.94 $110.43 $119.70 $122.10 4" $6.25 $163.41 $178.78 $195.58 $212.01 $216.25 6" $6.25 $287.97 $315.04 $344.65 $373.60 $381.07 8" $6.25 $289.58 $316.80 $346.58 $375.70 $383.21 10" $6.25 $294.11 $321.75 $352.00 $381.57 $389.20 Surcharge Per Dwelling Unit $2.00 $0.00 $0.00 $0.00 $0.00 $0.00 Source: Model Tab 8. HF&H Consultants, LLC Page 3 July 25, 2017 14-17 City of Newport Beach Sewer Rate Study 1. Executive Summary However, in cases where there are no additional dwelling units, the customer could have been paying a very low sewer bill. The proposed rate structure recovers approximately twice as much revenue from the sewer -only customers, who in some cases were receiving heavily subsidized sewer service. 5. Customer Bills. Figure 1-4 shows typical monthly residential and non- residential bills at the current and proposed rates (excluding current dwelling unit surcharges). Fiaure 1-4. Current and Proposed Averaae Monthly Sewer Bills (FY 2017-18) Source: Model Tab 8. HF&H Consultants, LLC Page 4 July 25, 2017 14-18 Current Current Current Proposed Proposed Proposed Proposed Monthly Service Flow Monthly Service Flow Monthly Minus Customer Type Meter Size Flow (HCF) Charge Charge Bill Charge Charge Bill Current Single Family Residential (low flow) 5/8" - 1" 3.0 $4.50 $1.03 $5.53 $6.46 $1.13 $7.60 $2.06 Single Family Residential (avg flow) 5/8" - 1" 11.8 $4.50 $4.13 $8.63 $6.46 $4.52 $10.99 $2.35 Single Family Residential (high flow 5/8" - 1" 23.6 $4.50 $8.27 $12.77 $6.46 $9.05 $15.51 $2.74 Sewer -only (no additional DUs) 3/4" 9.0 $6.25 $0.00 $6.25 $6.46 $3.44 $9.90 $3.65 Commercial 1.5" 29.7 $4.50 $10.40 $14.90 $7.11 $11.38 $18.49 Commercial 2" 118.9 $14.50 $41.61 $56.11 $9.70 $45.52 $55.21 Commercial 3" 237.7 $14.50 $83.21 $97.71 $10.99 $91.03 $102.02 Source: Model Tab 8. HF&H Consultants, LLC Page 4 July 25, 2017 14-18 City of Newport Beach Sewer Rate Study 2. Introduction 2. INTRODUCTION STUDY PURPOSE AND OBJECTIVES The purpose of this study is to update the City's sewer rates, which have not been adjusted since 2006. The City's current rate -making objectives include the following: Provide revenue sufficiency and financial stability to cover the projected capital and O&M costs. Meet the City's operations and capital funds reserve targets for the sewer enterprise fund. Rates should reflect equity of costs in proportion to the level of service. Provide for efficient administration and customer billing. Minimize "rate shock" to customers by smoothly moderating annual rate increases. Rates should be clear and understandable to the customers. The rates must comply with Proposition 218 and applicable State codes. BACKGROUND The City provides sewer service to a population of approximately 86,700 residents. The City's sewer collection system consists of 197 miles of gravity sewers, 4.7 miles of force mains, 4,922 manholes and cleanouts, and 21 lift stations. Most of the City's 27,100 sewer accounts also receive water service from the City. As a result the City has ready access to metered water data, which enables the City to include a component in the sewer rate structure that bills customers bases on their individual water. However, approximately 500 accounts only receive sewer service; their water service is provided by either Irvine Ranch Water District (IRWD) or Mesa Water District; these customers cannot be billed based on their individual metered water use. The City's service area lies within the Orange County Sanitation District (OCSD), which is responsible for treating the City's wastewater. OCSD is responsible for setting its charges and bills customers on the tax rolls. The City plays no roll in setting OCSD's rates. Customers are therefore billed for wastewater collection service on the City's monthly utility bills and for wastewater treatment service on the annual Orange County tax rolls. HF&H Consultants, LLC Page 5 July 25, 2017 14-19 City of Newport Beach Sewer Rate Study 3. Projected Revenue Increases 3. PROJECTED REVENUE INCREASES The City's Sewer Fund is an enterprise that is funded for the most part from revenue from sewer rates paid by residents and businesses located within the City. The City does not serve customers outside the city limits. The General Fund provided $3.5 million to the Sewer Fund to avert the need for a rate increase proposed in 2016. This form of funding from the General Fund is very unusual. Because the Sewer Fund is an enterprise that can set its rates to cover its costs, it is preferable to set rates that will allow the Sewer Fund to be financially self sufficient. The purpose of a rate study is to determine how much and when rates need to be increased to cover its costs and maintain adequate reserves. REVENUE REQUIREMENT PROJECTIONS Rate analysis begins by determining the revenue requirements that must be funded by rates. For purposes of this study, a ten-year rate projection period was developed using a spreadsheet model (a copy is provided in the Appendix ). For rate -making purposes, however, only the first five years are presented. The City can adopt annual rate increases for as many as the next five years. Those five years have been set within the context of a ten-year projection. The projections are based on the draft budget for FY 2017-18. The future years were projected based on a number of escalation factors that are summarized in Figure 3-1. Fiaure 3-1. Annual Escalation Factors Factors FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 Interest on Reserve Balance 0.75% 0.75% 0.75% 0.75% General inflation 1.73% 1.73% 1.73% 1.73% Personnel Increases 2.5% 2.5% 2.5% 2.5% Benefits cost increases 2.5% 2.5% 2.5% 2.5% Percent of Bad Debt 0.4% 0.4% 0.4% 0.4% Utilities Increases - electricity 1.73% 1.73% 1.73% 1.73% Increase in Sewer Accounts 0.00% 0.00% 0.00% 0.00% Increase in Water Consumption 0.00% 0.00% 0.00% 0.00% Increase in Recycled Water Use 0.00% 0.00% 0.00% 0.00% Construction cost inflation 3.00% 3.00% 3.00% 3.00% Source: Model Tab 113. We note the following regarding the escalation factors in Figure 3-1. Although the model allows for annual variations in the factors, it was assumed that they would remain constant during the projection period. The general inflation rate that applies to many costs in the revenue requirement is based on a recent average of inflation in the Los Angeles area based on US Statistics. It was assumed that there would be no growth in customer accounts or estimated wastewater flow. HF&H Consultants, LLC Page 6 July 25, 2017 14-20 City of Newport Beach Sewer Rate Study 3. Projected Revenue Increases Figure 3-2 summarizes the revenue requirements projections for the next five years based on the major cost categories, which are described below. The projection shows a relatively gradual increase in expenditures after an initial increase in FY 2017-18. Figure 3-2. Annual Revenue Requirement Components $6.0 $5.0 0 $4.0 r I_ $3.0 s m $2.0 c m m $1.0 $0.0 � Capital Reserve Expense � Internal Services Allocation � Operations & Maintenance � Benefits � Salaries -Revenue from Current Rates Source: Model Tab 1A. Salaries 1 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 750,000 1,000,000 1,030,000 1,060,900 1,092,727 1,125,509 486,500 475,296 483,519 491,883 500,393 509,050 1,417,443 1,457,443 1,482,657 1,508,307 1,534,401 1,560,946 675,743 708,107 725,810 743,955 762,554 781,618 $1,020,322 $939,130 $962,609 $986,674 $1,011,341 $1,036,624 $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 This cost category includes regular and overtime pay and is projected to increase gradually at 2.5% per year during the projection period. There has been a slight reduction in staffing in recent years and no staff headcount increases are anticipated; the cost trend is driven primarily by cost of living adjustments set in labor agreements. Benefits This cost category includes health, dental, and vision as well as Other Post -Employment (OPEB) and Public Employees Retirement System (PERS) benefits. During the projection period these costs are projected to increase at 2.5% per year. The cost trend is driven primarily by increases in health care costs set in labor agreements. Operations & Maintenance This cost category includes non -personnel related operating and maintenance expenses as well as electrical utility costs, fuel, non -capital materials, and equipment. During the HF&H Consultants, LLC Page 7 July 25, 2017 14-21 City of Newport Beach Sewer Rate Study 3. Projected Revenue Increases projection period, these costs are expected to increase gradually at 1.73% per year, based on the five-year historical average of inflation for the Los Angeles area. Internal Services Allocation The City has historically transferred funds from the Sewer Fund to the General Fund as reimbursement for governmental costs incurred by the General Fund on behalf of the Sewer Fund. Much of this funding reimburses the General Fund for salaries, equipment, and program costs associated with general services. During the projection period, these costs are expected to increase gradually at 1.73% per year, based on the five-year historical average of inflation for the Los Angeles area. Operating Reserve Expense The City contributes rate revenue to its Operating Reserve to provide working capital to cover the cash flow lag between the time that the Sewer Fund incurs expenses and when it receives revenue from customers. The Operating reserve can also be used to smooth out fluctuations in the annual revenue requirements. (Refer to the section titled 'Minimum Fund Balance' in this section infra for further discussion of the fund policy.) Capital Reserve Expense The City conducted a Sewer System Master Plan study in 2010 that identified the 30 - year capital improvement program expenditures, which are summarized in Figure 3-3. The total averages about $1 million per year. rigure s -s. uapitai rrojects CIP Project Description Project Cost Collection System Capacity Improvements $1,281,391 Collection System Condition Improvements $16,648,060 Pump Station Improvements $11,088,000 Source: Model Tab 8. The City plans to fund these capital improvements with cash from rate revenue with the use of bonds, which is appropriate because these projects are largely required to keep up with constant sewer system depreciation rather than for large, periodic capital projects. To accomplish this goal, the program is phased based upon the implementation cost of the sewer system, and the quantity of work the City can reasonably administer each year. The programmed rate increases over the next five years allow the City to ramp up funding for capital projects and provide the City $1.0 million annually; subsequent years are increased to cover construction cost inflation. REVENUE INCREASES Figure 3-2 also indicates the amount of revenue from current rates without any rate increases. It can be seen that rate revenue is not currently covering costs in FY 2016-17. Without the $3.5 million transfer from the General Fund, the Sewer Fund's reserves HF&H Consultants, LLC Page 8 July 25, 2017 14-22 City of Newport Beach Sewer Rate Study 3. Projected Revenue Increases would have dropped well below the amount required by City policy. No further transfers from the General Fund were included in the projections. Only rate increases were considered for eliminating the deficit condition. To determine how much additional rate revenue is required, the projected revenue requirements are compared to the revenue from current rates. The estimated revenue from current rates for FY 2017-18 is derived from FY 2016-17. This may be a conservative (i.e., low) revenue estimate because revenue from the flow component of the current rate structure depends on flow. In FY 2016-17, flow was slightly lower because customer water use was influenced by conservation during the drought. In FY 2016-17, the City estimated that revenue from the flow component of its sewer rates was approximately $500,000 lower due to conservation efforts. For rate -making purposes, it would be imprudent to assume that water use will immediately return to pre -drought levels. The rate at which water use will rebound is highly speculative at this time. If, however, this estimate is too conservative and flow rebounds quickly, thereby generating additional revenue, the City will have the option of not increasing rates as much as currently projected. Hence, rate payers should not experience unnecessary rate increases if wastewater flows increase and generate unplanned additional revenue. Based on this current estimate, annual revenue increases were projected as shown in Figure 34. Figure 3-4. Projected Revenue Increases FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 [Eff. T1+18', (Eff. 111119', (Eff.111120) iEff.1i1i21`. iEff. 111122', Revenue from Current Rates 53.,-44.662 53.544,662 $3,544,662 $3,544,662 $3,544.662 Increase in Revenue from Rates 9W -i 9.4% 9.4'1x. 8A% 20% Revenue from Rate Increases FY17-16CeffedNe111118) $166,599 $333,198 $333,198 $333,198 $333,198 FY19-20 (effedie 111119) $0 $182259 $+364.519 $364,519 $364,519 FY21 (effedNe111124) $0 $0 $199,392 $398,784 $398,784 FY21-22 (effedNe 111121) $0 $0 $0 $194,929 $389,858 FY21-22 (effedNe 111!22) 0 0 0 $50,310 Subtotal - Revenue Increases $166,599 $515,458 $097,109 $1,291,429 $1,536,668 Total Rate Revenue with Increas $3,711,261 $4,060,119 $4,441,770 $4,836,091 $5,081,330 Net Revenue Requirements $4,579,977 $4,684,594 $4,791,719 $4901,415 $5,013,746 Surplusl(Deficit) after Increase ($868,716) ($624,474) ($349,949) ($65,324) $67,583 Source: Model Tab 8. Figure 3-4 projects a series of three 9.4% rate increases and an 8.4% increase that draws the fund balanced down to the target by FY 2019-20. In subsequent years, the rate increases level at out to inflationary increases. Prior to adopting the increases beyond HF&H Consultants, LLC Page 9 July 25, 2017 14-23 City of Newport Beach Sewer Rate Study 3. Projected Revenue Increases FY 2021-22, the City will update the revenue requirement projections to reflect new expense projections, growth in customer accounts and flow, and reserve fund levels. FUND BALANCE Figure 3-5 compares the operating fund balance with (solid green line) and without (dashed green line) rate increases with the target reserve balance (blue line). The steep increase in the fund balance from FY 2015-16 to FY 2016-17 shows the effect of the $3.5 million General Fund transfer. This transfer only increased the fund balance approximately $2.0 million because the fund is operating at a deficit without rate increases. The magnitude of the deficit can be seen in the dashed green line, which drops steeply in subsequent years. By FY 2018-19, the fund balance is projected to drop below the target balance if there are no rate increases. With the proposed revenue increases, the fund balance (solid green line) is above or very near the target balance throughout the five-year rate projection period. Fluctuations in annual flow will affect revenue generation and the resulting fund balance. The City is advised to carefully monitor the fund balance in the event of downward fluctuations in flow. Fiaure 3-5. Ooeratina Fund Balance With and Without Rate Increases Source: Model Tab 1A. The target balance is based on City policy, which requires maintaining at least 50% of budgeted O&M expenses in reserves. This reserve target is intended to provide HF&H Consultants, LLC Page 10 July 25, 2017 14-24 Year End Fund Balances - Fund 711 (Operations) $4.0 $3.5 $3.0 �. ti __ $2.5 Reserves With Rate Increases ' R $2.0 m ` = Target Reserve Balance` LL $1.5 (Operations) d $1.0 Reserves Without CL $o.s Rate Increase9% ` $0.0 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 Source: Model Tab 1A. The target balance is based on City policy, which requires maintaining at least 50% of budgeted O&M expenses in reserves. This reserve target is intended to provide HF&H Consultants, LLC Page 10 July 25, 2017 14-24 City of Newport Beach Sewer Rate Study 3. Projected Revenue Increases sufficient working capital to pay ongoing O&M without the need for supplementary funding from the General Fund. This reserve target does not provide reserves for capital projects. Instead, a capital account is maintained by Public Works out of which the CIP is funded. Although there is no target balance for this account, sewer rates are set to generate revenue that is deposited in the account for use by Public Works in funding the CIP. The projected rate increases show the fund balance (solid green line) gradually climbing above the dashed green line as the annual deficits diminish, which is also shown in Figure 3-5. By FY 2021-22, the Sewer Fund is projected to be in a slight surplus condition. HF&H Consultants, LLC Page 11 July 25, 2017 14-25 City of Newport Beach Sewer Rate Study 4. Rate Design 4. RATE DESIGN CURRENT RATE STRUCTURE The City currently has 27,100 active sewer accounts that pay the sum of two charges every month for Sewer service: a basic service charge of $4.50 per account plus a sewer consumption charge of $0.35 per HCF based on metered water use during the billing period. In addition, customers with a water service connection of 2"or greater pay a $10.00 monthly surcharge. Moreover, customers with more than one dwelling unit that is served by the same connection pay a surcharge of $2.00 for each additional dwelling unit. Lastly, the City's 506 sewer customers who do not purchase potable water from the City are charged $6.25 per account per month regardless of the size of their water service connection. PROPOSED RATE STRUCTURE Our critique of the current rate structure reached the following conclusions: 1. The current set of three fixed charges per account, per dwelling unit, and per large meter is comparatively complex based on industry standards. Simplification that is consistent with the cost of service would improve customer understanding and acceptance. 2. Consolidating the three fixed charges into a single set of charges that are graduated in proportion to the size of the meter would simplify the structure and improve rate payer equity because the size of the meter is representative of the potential production of wastewater. 3. The current proportions of revenue from fixed and variable charges is in balance with the fixed and variable costs and should be continued as such (i.e., about 60% of revenue should be generated from the fixed charges and 40% from the variable charge). 4. The proposed rate structure will have two components: a "Sewer Service Charge" comprising a single set of fixed charges per meter and a "Sewer Use Charge" comprising a single uniform rate per HCF. The derivation of each component is described below. Sewer Service Component of Rate Structure To give effect to these conclusions, a single set of fixed charges was derived in proportion to the size of the meter as shown in Figure 4-1. The calculation combines the customers that receive both water and sewer service from the City as well as the HF&H Consultants, LLC Page 12 July 25, 2017 14-26 City of Newport Beach Sewer Rate Study 4. Rate Design customers that receive only sewer service from the City.' In this way, the proposed rates for all customers will include a common fixed charge that is proportionate to the meter size regardless of whether they receive only sewer service from the City. Figure 4-1. Monthly Sewer Service Charges (FY 2017-18 Before Rate Increase Meter Size Meters Sewer -Only Meters Total Meters EMU Multiplier Total EMUs Service Charge Per Meter Revenue No Rate Increase 5/8" 16,604 275 16,879 1.00 16,879 $5.91 $1,196,868 3/4" 4 85 89 1.00 89 $5.91 $6,322 1" 7,437 57 7,494 1.00 7,494 $5.91 $531,385 1.5" 552 21 573 1.10 630 $6.50 $44,702 2" 1,465 58 1,523 1.50 2,284 $8.86 $161,958 3" 48 2 50 1.70 85 $10.05 $6,041 4" 253 4 257 2.00 513 $11.82 $36,378 6" 178 1 179 2.25 404 $13.30 $28,623 8" 95 1 96 2.50 239 $14.77 $16,965 10" 3 2 5 3.20 16 $18.91 $1,160 12" 2 - 2 4.00 8 $23.64 $567 26,641 506 27,147 28,642 $2,030,970 Source: Model Tab 7. The "EMU Multiplier' in Figure 4-1 refers to the amount of capacity provided by larger meters compared to the smallest meters. The multipliers used in Figure 4-1 follow a smooth progression from smallest to largest meter without the abrupt increase that occurs in the current rates when the charge for large meters is added for 2" and larger meters. The range from small to large is 4.0, which is considerably less than the full hydraulic capacity of the larger meters. The range was kept low to avoid including the peak capacity of larger meters that is often needed for fire flows or irrigation, neither of which are sewered flows. With these multipliers, the 27,147 meters of various sizes translate into 28,642 equivalent 5/8" meters. The unit charge per EMU (before rate increase) is $5.90. Applyinig the EMU multipliers to the larger meters results in the Sewer Service Charges for the larger meter sizes. The total revenue from these charges is about 58% of the total rate revenue. Figure 4-2 shows the sewer service charges for FY 2017-18 with the rate increase shown in Figure 34. Note that the revenue shown would occur if the proposed rates were effective for twelve months. Because the rates are planned to become effective January 1, 2018, only half of the revenue from the increase will be received. 1 For ease of discussion, customers that receive both water and sewer service from the City will be referred to as "sewer customers". Customers that receive only sewer service from the City will be referred to as "sewer -only customers". HF&H Consultants, LLC Page 13 July 25, 2017 14-27 City of Newport Beach Sewer Rate Study 4. Rate Design Figure 4-2. Monthly Sewer Service Charges (FY 2017-18 With Rate Increase) Meter Size Meters Sewer -Only Meters Total Meters EMU Multiplier Total EMUs Service Charge Per Meter Revenue With Rate Increase 5/8" 16,604 275 16,879 1.00 16,879 $6.46 $1,309,374 3/4" 4 85 89 1.00 89 $6.46 $6,916 1" 7,437 57 7,494 1.00 7,494 $6.46 $581,335 1.5" 552 21 573 1.10 630 $7.11 $48,904 2" 1,465 58 1,523 1.50 2,284 $9.70 $177,182 3" 48 2 50 1.70 85 $10.99 $6,608 4" 253 4 257 2.00 513 $12.93 $39,798 6" 178 1 179 2.25 404 $14.55 $31,314 8" 95 1 96 2.50 239 $16.16 $18,560 10" 3 2 5 3.20 16 $20.69 $1,269 12" 2 0 2 4.00 8 $25.86 $621 26,641 506 27,147 28,642 $2,221,881 Source: Model Tab 7. Sewer Use Component of Rate Structure Sewer service charges are the same for all customers with the same size meter regardless of customer class because the charge does not depend on what type of customer is connected. The sewer service charge is based on the capacity of connections, which is a reasonable approximation of the wastewater that can be discharged. Sewer use charges are uniform charges per HCF that are also independent of the type of customer that is discharging wastewater because the City's sewerage is only related to conveyance and not to treatment. Hence, the same $0.38 per HCF uniform sewer use charge is paid by all customers based on their ongoing, monthly metered water use. In the case of non-residential customers, significant irrigation water use is provided through irrigation accounts that are not charged sewer use charges. For residential customers, the use of ongoing, metered water use will unavoidably include irrigation water. To avoid charging residential customers sewer use charges for irrigation water use, utilities will base the water use on winter water use when irrigation is minimal. In the City's case, its billing system is currently incapable of calculating winter water consumption for its residential customers. Although it has been a long-standing practice by the City to use ongoing water use for calculating residential sewer use charges, the City recognizes the benefit of using only winter water use. The City intends to improve its billing system in the future so that it will be possible to bill residential sewer use charges based on winter water use. For billing sewer -only customers sewer use charges, the City is at a disadvantage because it does not have immediate access to water meter readings; the meters for sewer -only customers are read by their water supplier and not the City. For lack of meter readings, average water use per meter was calculated for the City's water HF&H Consultants, LLC Page 14 July 25, 2017 14-28 City of Newport Beach Sewer Rate Study 4. Rate Design customers and applied to the sewer -only customers. These average flows result in sewer use charges for the sewer -only customers that are fixed for each size meter. Figure 4-3 shows the derivation of the sewer use component of the rate structure for the sewer -only customers. 4-3. Monthly Sewer Use Charges (FY 2017-18 Before Rate Increase) Avg HCF Current Monthly Per Meter Charge Use Annual Meter Size Meters Per Month Per HCF Charge Revenue 5/8" 275 8.97 $0.35 $3.14 $10,37C 3/4" 85 8.97 $0.35 $3.14 $3,20 1" 57 13.39 $0.35 $4.69 $3,20E 1.5" 21 72.49 $0.35 $25.37 $6,421: 2" 58 68.49 $0.35 $23.97 $16,601 3" 2 212.27 $0.35 $74.29 $1,882 4" 4 393.01 $0.35 $137.56 $5,80E 6" 1 714.08 $0.35 $249.93 $4,221 8" 1 714.08 $0.35 $249.93 $2,111 10" 2 714.08 $0.35 $249.93 $6,332 10" 506 714.08 $0.38 $273.42 $60,167 Source: Model Tab 7. Note that the averages for the 6" and larger meters involve very few customers. For these meter sizes, the 8" flow was used for all three meter sizes. Figure 4-4 shows the monthly sewer use charges for sewer -only customers with the rate increase for FY 2017-18 shown in Figure 4-3. Fi ure 4-4. Monthly Sewer Use Charges (FY 2017-18 With Rate Incri Meter Size Meters Avg HCF Per Meter Per Month Charge Per HCF Monthly Use Charge Annual Revenue 5/8" 275 8.97 $0.38 $3.44 $11,344 3/4" 85 8.97 $0.38 $3.44 $3,511 1" 57 13.39 $0.38 $5.13 $3,506 1.5" 21 72.49 $0.38 $27.76 $7,032 2" 58 68.49 $0.38 $26.23 $18,161 3" 2 212.27 $0.38 $81.28 $2,059 4" 4 393.01 $0.38 $150.49 $6,354 6" 1 714.08 $0.38 $273.42 $4,618 8" 1 714.08 $0.38 $273.42 $2,309 10" 2 714.08 $0.38 $273.42 $6,927 506 $65,823 Source: Model Tab 7. ?ase) Figure 4-5 shows the flat charge per account to the sewer -only customers that combine the two rate components. The revenue from these charges is additional revenue that has heretofore not been charged by the City. The sewer -only customers previously paid only $6.25 per account and $2.00 per additional DU, if any. In many cases, particularly HF&H Consultants, LLC Page 15 July 25, 2017 14-29 City of Newport Beach Sewer Rate Study 4. Rate Design the customers with larger meters and no additional DUs, sewer -only customers were receiving a large discount on the cost of sewer service. Although the proposed charges may represent significant increases, the City does not intend to recover lost revenue from past undercharges. Figure 4-5. Monthly Sewer Charge - Sewer -Only FY 2017-18) Meter Size Service Component Use Component Flat Charge 5/8" $6.46 $3.44 $9.90 3/4" $6.46 $3.44 $9.90 1" $6.46 $5.13 $11.59 1.5' $7.11 $27.76 $34.87 2" $9.70 $26.23 $35.92 3" $10.99 $81.28 $92.27 4" $12.93 $150.49 $163.41 6" $14.55 $273.42 $287.97 8" $16.16 $273.42 $289.58 10" $20.69 $273.42 $294.11 Source: Model Tab 7. BALANCED RATE DESIGN Although this rate study recommends several structural modifications, the underlying rate design balanced fixed and variable revenue with fixed and variable costs. Figure 4- 6 compares revenue from fixed and variable sources under the current rates with the proposed rates. HF&H Consultants, LLC Page 16 July 25, 2017 14-30 City of Newport Beach Sewer Rate Study 4. Rate Design Fiqure 4-6. Fixed and Variable Revenue Source: Model Tab 7. Under the current rates, 57% of the revenue comes from fixed charges 41% from variable charges. Those proportions are nearly the same with the proposed rates, with slightly more revenue coming from the sewer -only customers who will start paying a flow component. Those proportions balance well with the fixed and variable costs of providing sewer service, which are at least 80% fixed. The lower part of Figure 4-6 makes an adjustment for the portion of the water use that is nonseasonal and, hence, that also produces fixed revenue. Assuming that half of the revenue from the sewer use charge is related to nonseasonal water use shifts about 20% of the revenue from the flow charges to the fixed charges. As a result, 79% of the revenue comes from fixed revenue sources, which balances well with the fact that at least 80% of the costs are also fixed. HF&H Consultants, LLC Page 17 July 25, 2017 14-31 Revenue Summary (FY 2017-18) Proposed Rates Current Rates With 1/1/18 Increase Fixed Charges Service charge $1,438,614 $2,085,636 DU surcharge $347,076 $0 Large meter surcharge $245,280 $0 $2,030,970 57% $2,085,636 56% Variable Charges Use charge $1,474,238 41% $1,543,527 41% $3,505,208 $3,629,163 Sewer -Only Service charge $37,950 $40,789 DU surcharge $15,648 $0 Use charge $0 $62,995 $53,598 2% $103,784 3% Total $3,558,806 100% $3,732,948 100% Recap Fixed Revenue Service charges $1,476,564 $2,126,425 DU surcharge $362,724 $0 Large meter surcharge $245,280 $0 Nonseasonal Variable Charge $737,119 $834,758.53 $2,821,687 79% $2,961,184 79% Variable revenue Seasonal Variable Charg $737,119 21% $771,764 21% $3,558,806 100% $3,732,948 1000/ Source: Model Tab 7. Under the current rates, 57% of the revenue comes from fixed charges 41% from variable charges. Those proportions are nearly the same with the proposed rates, with slightly more revenue coming from the sewer -only customers who will start paying a flow component. Those proportions balance well with the fixed and variable costs of providing sewer service, which are at least 80% fixed. The lower part of Figure 4-6 makes an adjustment for the portion of the water use that is nonseasonal and, hence, that also produces fixed revenue. Assuming that half of the revenue from the sewer use charge is related to nonseasonal water use shifts about 20% of the revenue from the flow charges to the fixed charges. As a result, 79% of the revenue comes from fixed revenue sources, which balances well with the fact that at least 80% of the costs are also fixed. HF&H Consultants, LLC Page 17 July 25, 2017 14-31 City of Newport Beach PROJECTED RATES Sewer Rate Study 4. Rate Design The FY 2017-18 rates shown in Figure 4-2 and Figure 4-5 are increased by the revenue increases shown in Figure 3-4 for the five-year projection period, as shown in Figure 4-7 and Figure 4-8. Figure 4-7. Five -Year Sewer Rate Projections Source: Model Tab 8. Figure 4-8. Five -Year Sewer Rate Projections - Sewer -Only Customers Current FY 2016-17 FY 2017-18 (Eff.1/1/18) FY 2018-19 (Eff.1/1/19) Proposed FY 2019-20 (Eff.1/1/20) FY 2020-21 (Eff.1/1/21) FY 2021-22 (Eff.1/1/22) Sewer Service Charges 5/8" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 3/4" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 1" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 1.5" $4.50 $7.11 $7.78 $8.51 $9.23 $9.41 2" $14.50 $9.70 $10.61 $11.61 $12.58 $12.83 3" $14.50 $10.99 $12.02 $13.15 $14.26 $14.54 4" $14.50 $12.93 $14.14 $15.47 $16.77 $17.11 6" $14.50 $14.55 $15.91 $17.41 $18.87 $19.25 8" $14.50 $16.16 $17.68 $19.34 $20.97 $21.39 10" $14.50 $20.69 $22.63 $24.76 $26.84 $27.37 12" $14.50 $25.86 $28.29 $30.95 $33.55 $34.22 Surcharge Per Dwelling Unit $2.00 $0.00 $0.00 $0.00 $0.00 $0.00 Sewer Use Charge (per HCF) $0.35 $0.38 $0.42 $0.46 $0.50 $0.51 Source: Model Tab 8. Figure 4-8. Five -Year Sewer Rate Projections - Sewer -Only Customers Source: Model Tab 8. HF&H Consultants, LLC Page 18 July 25, 2017 14-32 Current FY 2016-17 FY 2017-18 (Eff.1/1/18) FY 2018-19 (Eff.1/1/19) Proposed FY 2019-20 (Eif.1/1/20) FY 2020-21 (Eif.1/1/21) FY 2021-22 (Eff.1/1/22) Flat Charges Per Account 5/8" $6.25 $9.90 $10.83 $11.85 $12.84 $13.10 3/4" $6.25 $9.90 $10.83 $11.85 $12.84 $13.10 1" $6.25 $11.59 $12.68 $13.87 $15.04 $15.34 1.5" $6.25 $34.87 $38.15 $41.73 $45.24 $46.14 2" $6.25 $35.92 $39.30 $42.99 $46.60 $47.54 3" $6.25 $92.27 $100.94 $110.43 $119.70 $122.10 4" $6.25 $163.41 $178.78 $195.58 $212.01 $216.25 6" $6.25 $287.97 $315.04 $344.65 $373.60 $381.07 8" $6.25 $289.58 $316.80 $346.58 $375.70 $383.21 10" $6.25 $294.11 $321.75 $352.00 $381.57 $389.20 Surcharge Per Dwelling Unit $2.00 $0.00 $0.00 $0.00 $0.00 $0.00 Source: Model Tab 8. HF&H Consultants, LLC Page 18 July 25, 2017 14-32 City of Newport Beach Sewer Rate Study 4. Rate Design CURRENT AND PROPOSED CUSTOMER BILL COMPARISONS Figure 4-9 presents a comparison of monthly customer bills using the current rate structure and the recommended revised rate structure. Fiaure 4-9. Monthly Customer Bill Comaarison (FY 2017-181 Source: Model Tab 8. COMPARISON WITH NEIGHBORING AGENCIES Based on available sources, Figure 4-10 shows the recent charges for sewer service among similar Orange County agencies. Note that some of these other agencies are currently updating their rates; the amounts of their proposed increases were not known at this time. Figure 4-10. Neighboring Agency Comparison Monthly Sewer Bill (3/4" SFR, 11 HCF) $18.00 $8.00 56, 00 $4.00 $2:00 $0.00 Fullerton Fountain Costa Mesa La Habra Newport Irvine Ranch Newport Huntington Garden Grove Buena Park Valley Sanitary Beach - water District Beach - Beach Sanitary District Current Proposed District ■ Fixed Charge P] Flow Charge Source: Model Tab 9. HF&H Consultants, LLC Page 19 July 25, 2017 14-33 Current Current Current Proposed Proposed Proposed Proposed Monthly Service Flow Monthly Service Flow Monthly Minus Customer Type Meter Size Flow (HCF) Charge Charge Bill Charge Charge Bill Current Single Family Residential (low flow) 5/8" - 1" 3.0 $4.50 $1.03 $5.53 $6.46 $1.13 $7.60 $2.06 Single Family Residential (a\,g flow) 5/8" - 1" 11.8 $4.50 $4.13 $8.63 $6.46 $4.52 $10.99 $2.35 Single Family Residential (high flow 5/8" - 1" 23.6 $4.50 $8.27 $12.77 $6.46 $9.05 $15.51 $2.74 Sewer -only no additional DUs) 3/4" 9.0 $6.25 $0.00 $6.25 $6.46 $3.44 $9.90 $3.65 Commercial 1.5' 29.7 $4.50 $10.40 $14.90 $7.11 $11.38 $18.49 $3.59 Commercial 2" 118.9 $14.50 $41.61 $56.11 $9.70 $45.52 $55.21 -$0.89 Commercial 3" 237.7 $14.50 $83.21 $97.71 $10.99 $91.03 $102.02 $4.31 Source: Model Tab 8. COMPARISON WITH NEIGHBORING AGENCIES Based on available sources, Figure 4-10 shows the recent charges for sewer service among similar Orange County agencies. Note that some of these other agencies are currently updating their rates; the amounts of their proposed increases were not known at this time. Figure 4-10. Neighboring Agency Comparison Monthly Sewer Bill (3/4" SFR, 11 HCF) $18.00 $8.00 56, 00 $4.00 $2:00 $0.00 Fullerton Fountain Costa Mesa La Habra Newport Irvine Ranch Newport Huntington Garden Grove Buena Park Valley Sanitary Beach - water District Beach - Beach Sanitary District Current Proposed District ■ Fixed Charge P] Flow Charge Source: Model Tab 9. HF&H Consultants, LLC Page 19 July 25, 2017 14-33 APPENDIX. SEWER RATE MODEL 14-34 City of Newport Beach Sewer Rate Study Table 1A. Summary Fiscal Year., Revenue Increases -Sewer Cumulative Increase Regular Salaries Special Pays Benefits Lump Sum Pays Other Pays Contract Services Utilities Supplies & Materials Maintenance & Repair Travel & Training General Expenses Internal SVC Premium Insurance Reserve Capital Expenditures Non -Operating Revenue Storm Drain Operating Storm Drain Capital Transfers to Infrastructure Replace Projected FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 9.40% 9.40% 9.40% 8.40% 2.00% 2.00% 2.00% 2.00% 2.00% 2.00% 9.4% 19.7% 30.9% 41.9% 44.8% 47.7% 50.6% 53.6% 56.7% 59.8% $971,539 $889,567 $911,806 $934,601 $957,966 $981,915 $1,006,463 $1,031,625 $1,057,416 $1,083,851 $1,110,947 3,784 4,563 4,677 4,794 4,914 5,037 5,163 5,292 5,424 5,560 5,699 675,743 708,107 725,810 743,955 762,554 781,618 801,158 821,187 841,717 862,760 884,329 45,000 45,000 46,125 47,278 48,460 49,672 50,913 52,186 53,491 54,828 56,199 51,000 91,000 92,574 94,176 95,805 97,463 99,149 100,864 102,609 104,384 106,190 97,700 97,700 99,390 101,110 102,859 104,638 106,449 108,290 110,164 112,069 114,008 19,850 19,850 20,193 20,543 20,898 21,260 21,627 22,002 22,382 22,769 23,163 786,000 785,363 798,950 812,772 826,833 841,137 855,689 870,492 885,552 900,872 916,457 10,260 10,260 10,437 10,618 10,802 10,989 11,179 11,372 11,569 11,769 11,973 412,497 412,497 419,633 426,893 434,278 441,791 449,434 457,209 465,119 473,166 481,351 486,500 475,296 483,519 491,883 500,393 509,050 517,856 526,815 535,929 545,201 554,633 20,773 20,773 21,132 21,498 21,870 22,248 22,633 23,025 23,423 23,828 24,240 33,000 33,000 33,571 34,152 34,743 35,344 35,955 36,577 37,210 37,854 38,508 (13,000) (13,000) (13,225) (13,454) (13,686) (13,923) (14,164) (14,409) (14,658) (14,912) (15,170) $750,000 $1,000,000 $1,030,000 $1,060,900 $1,092,727 $1,125,509 $1,159,274 $1,194,052 $1,229,874 $1,266,770 $1,304,773 4,350,646 $ 4,579,977 $ 4,684,594 $ 4,791,719 $ 4,901,415 $ 5,013,746 $ 5,128,779 $ 5,246,580 $ 5,367,219 $ 5,490,769 $ 5,617,301 5.391. 2.301 2.394 2.301 2.301 2.394 2.301, 2.301. 2.301 2.301 14-35 City of Newport Beach Sewer Rate Study Table 1B. General Factors FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 Interest on Reserve Balance 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% General inflation 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% Personnel Increases 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Benefits cost increases 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% Percent of Bad Debt 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% Utilities Increases - electricity 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% 1.73% Increase in Sewer Accounts 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Increase in Water Consumptioi 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Increase in Recycled Water Usi 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Construction cost inflation 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% 3.00% Reserve Policies Operations Fund Purpose Funding priority Minimum balance Infrastructure Replacement Funds Purpose Funding priority Target balance Working capital for O&M cash flow during the year. Highest. Knot maintained, interfund loans are needed. 50% of annual O&M costs For wastewater master plan construction projects. Second highest. No Minimum or Maximum. Should be reviewed periodically Model Tables Included Table 1A. Summary Table 1B. General Table 2A. Revenue Requirement Projection - Sewer Table 3A. Revenue Increases - Sewer Table 4. Reserves Table 5. CIP Table 7A. Rate Revenue - Sewer Table 8. Sample Customer Bills Table 9. Sewer Agency Comparison Source Notes City Estimate To Table 4 US Statistics, to Area 5 -year average To Table 2 Estimate To Table 2 Estimate To Table 2 Based on City's Fund Worksheet To Table 3A,3B City Estimate To Table 3A To Table 2, 8 To Table 2, 3B To Table 213, 5 14-36 City of Newport Beach Sewer Rate Study Table 2A. Revenue Requirement Projection - Sewer Table 1B Budgeted Projected Factors FY 2016.17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 Notes Reaular Salaries 711001 SALRY MISC c. $ 971,539 $881,540 $903,579 $926,168 $949,323 $973,056 $997,382 $1,022,317 $1,047,875 $1,074,071 $1,100,923 711003 SALRY P/T C. $8,026 $8,227 $8,433 $8,644 $8,860 $9,081 $9,308 $9,541 $9,779 $10,024 Total Regular Salaries 971,539 889,567 911,806 934,601 957,966 981,915 1,006,463 1,031,625 1,057,416 1,083,851 1,110,947 Special Pays 712003 NIGHT DIFF C. - $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 712004 CERT PAY c. 3,784 $4,563 $4,677 $4,794 $4,914 $5,037 $5,163 $5,292 $5,424 $5,560 $5,699 Total Special Pays 3,784 4,563 4,677 4,794 4,914 5,037 5,163 5,292 5,424 5,560 5,699 Benefits 713008 CALLBACK C. 35,000 $35,000 $35,875 $36,772 $37,691 $38,633 $39,599 $40,589 $41,604 $42,644 $43,710 713009 STANDBY C. 26,250 $26,250 $26,906 $27,579 $28,268 $28,975 $29,699 $30,442 $31,203 $31,983 $32,783 721001 CAF ALW FT d. 281,086 $245,814 $251,959 $258,258 $264,715 $271,333 $278,116 $285,069 $292,196 $299,500 $306,988 722001 PERS MBR M d. 101,752 $89,905 $92,153 $94,457 $96,818 $99,239 $101,720 $104,263 $106,869 $109,541 $112,280 723002 PERS ER M d. 56,638 $52,897 $54,220 $55,575 $56,965 $58,389 $59,848 $61,345 $62,878 $64,450 $66,061 723004 RET P/T d. - $301 $309 $316 $324 $332 $341 $349 $358 $367 $376 724001 EE CNTRB M d. ($126,845) ($101,930) ($104,479) ($107,091) ($109,768) ($112,512) ($115,325) ($118,208) ($121,163) ($124,192) ($127,297) 725001 UNFND LB M d. 209,986 $194,103 $198,956 $203,930 $209,028 $214,254 $219,610 $225,100 $230,728 $236,496 $242,408 725003 DISC UAL M d. - $79,895 $81,892 $83,940 $86,038 $88,189 $90,394 $92,654 $94,970 $97,344 $99,778 727003 CELLPHONE d. 6,300 $6,360 $6,519 $6,682 $6,849 $7,020 $7,196 $7,376 $7,560 $7,749 $7,943 727004 RHS $2.50 d. 11,584 $9,458 $9,695 $9,937 $10,185 $10,440 $10,701 $10,969 $11,243 $11,524 $11,812 727007 PAY > ARC d. - $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 727012 LIFE INS d. 1,358 $1,097 $1,124 $1,152 $1,181 $1,211 $1,241 $1,272 $1,304 $1,336 $1,370 727013 EAP d. 326 $239 $245 $251 $257 $264 $270 $277 $284 $291 $298 727016 MEDICARE d. 18,218 $17,796 $18,241 $18,697 $19,164 $19,643 $20,134 $20,638 $21,154 $21,683 $22,225 727019 SURV BEN d. - $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 728001 WC MISC d. 20,068 $20,068 $20,570 $21,084 $21,611 $22,151 $22,705 $23,273 $23,855 $24,451 $25,062 728003 COMP ABS d. 34,022 $30,854 $31,625 $32,416 $33,226 $34,057 $34,908 $35,781 $36,675 $37,592 $38,532 729001 PAYRL ACC d. - $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 729015 PENS EXPCT d. $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Benefits 675,743 708,107 725,810 743,955 762,554 781,618 801,158 821,187 841,717 862,760 884,329 Lump Sum Pam 714001 LUMP SUM c. $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Total Lump Sum Pays - - - - - - - - - - - Other Pays 713001 OTMISC C. 45,000 $45,000 $46,125 $47,278 $48,460 $49,672 $50,913 $52,186 $53,491 $54,828 $56,199 Total Other Pays 45,000 45,000 46,125 47,278 48,460 49,672 50,913 52,186 53,491 54,828 56,199 Contract Services 811004 EQUIP RNTL b. 1,000 $1,000 $1,017 $1,035 $1,053 $1,071 $1,090 $1,108 $1,128 $1,147 $1,167 811008 SVCS PROF b. 20,000 $60,000 $61,038 $62,094 $63,168 $64,261 $65,373 $66,504 $67,654 $68,825 $70,015 841060 OTHR AGNCY b. 30,000 $30,000 $30,519 $31,047 $31,584 $32,130 $32,686 $33,252 $33,827 $34,412 $35,008 Contract Services 51,000 91,000 92,574 94,176 95,805 97,463 99,149 100,864 102,609 104,384 106,190 tlliti 831002 UTL PHONE b. 8,700 $8,700 $8,851 $9,004 $9,159 $9,318 $9,479 $9,643 $9,810 $9,980 $10,152 831003 UTL GAS b. 1,000 $1,000 $1,017 $1,035 $1,053 $1,071 $1,090 $1,108 $1,128 $1,147 $1,167 831004 UTL ELCTRC f. 68,000 $68,000 $69,176 $70,373 $71,591 $72,829 $74,089 $75,371 $76,675 $78,001 $79,351 831005 ULTWATER b. 20,000 $20,000 $20,346 $20,698 $21,056 $21,420 $21,791 $22,168 $22,551 $22,942 $23,338 Total Utilities 97,700 97,700 99,390 101,110 102,859 104,638 106,449 108,290 110,164 112,069 114,008 Supplies & Materials 841007 OFC SUPPLS b. 350 $350 $356 $362 $368 $375 $381 $388 $395 $401 $408 841015 SPCDEPTSUP b. 15,000 $15,000 $15,260 $15,523 $15,792 $16,065 $16,343 $16,626 $16,914 $17,206 $17,504 841043 CONCRETE b. 2,000 $2,000 $2,035 $2,070 $2,106 $2,142 $2,179 $2,217 $2,255 $2,294 $2,334 841044 TOOLS b. 2,500 $2,500 $2,543 $2,587 $2,632 $2,678 $2,724 $2,771 $2,819 $2,868 $2,917 Total Supplies & Materials 19,850 19,850 20,193 20,543 20,898 21,260 21,627 22,002 22,382 22,769 23,163 14-37 Maintenance & Repair 851001 GNRATR M&R b. 18,500 $18,500 $18,820 $19,146 $19,477 $19,814 $20,157 $20,505 $20,860 $21,221 $21,588 851007 AUTO FUEL b. 45,000 $45,000 $45,779 $46,570 $47,376 $48,196 $49,030 $49,878 $50,741 $51,618 $52,511 851010 EQP MNT&RP b. 5,000 $5,000 $5,087 $5,174 $5,264 $5,355 $5,448 $5,542 $5,638 $5,735 $5,835 851016 BLDG MAINT b. 4,662 $4,662 $4,743 $4,825 $4,908 $4,993 $5,079 $5,167 $5,257 $5,348 $5,440 851032 ROOT CUT b. 16,601 $16,601 $16,888 $17,180 $17,478 $17,780 $18,088 $18,400 $18,719 $19,043 $19,372 851035 CCT/ MAINT b. 87,036 $87,036 $88,542 $90,073 $91,632 $93,217 $94,830 $96,470 $98,139 $99,837 $101,564 851036 GREASE DEV b. 79,544 $79,544 $80,920 $82,320 $83,744 $85,193 $86,667 $88,166 $89,691 $91,243 $92,822 851037 MAINT&REP b. 211,007 $211,007 $214,657 $218,371 $222,149 $225,992 $229,902 $233,879 $237,925 $242,041 $246,228 851049 MNTSCADA b. 25,252 $25,252 $25,689 $26,133 $26,585 $27,045 $27,513 $27,989 $28,473 $28,966 $29,467 851050 MANHL LINE b. 75,000 $75,000 $76,298 $77,617 $78,960 $80,326 $81,716 $83,130 $84,568 $86,031 $87,519 851051 MNTPUMPSTA b. 13,000 $13,000 $13,225 $13,454 $13,686 $13,923 $14,164 $14,409 $14,658 $14,912 $15,170 851052 ALLEYRPL b. 43,500 $43,500 $44,253 $45,018 $45,797 $46,589 $47,395 $48,215 $49,049 $49,898 $50,761 851053 MNHL MNT b. 37,601 $37,601 $38,251 $38,913 $39,586 $40,271 $40,968 $41,677 $42,398 $43,131 $43,877 851054 ROOTFOAM b. 85,000 $85,000 $86,471 $87,966 $89,488 $91,036 $92,611 $94,214 $95,843 $97,501 $99,188 851062 UTL FAC MN b. 20,375 $20,375 $20,727 $21,086 $21,451 $21,822 $22,199 $22,584 $22,974 $23,372 $23,776 851066 SWR/PRPFEE b. 18,922 $18,285 $18,602 $18,923 $19,251 $19,584 $19,923 $20,267 $20,618 $20,975 $21,338 Total Maintenance & Repair 786,000 785,363 798,950 812,772 826,833 841,137 855,689 870,492 885,552 900,872 916,457 Travel & Training 861001 TRVL&MTGS b. 1,000 $1,000 $1,017 $1,035 $1,053 $1,071 $1,090 $1,108 $1,128 $1,147 $1,167 861003 TRAINING b. 9,260 $9,260 $9,420 $9,583 $9,749 $9,918 $10,089 $10,264 $10,441 $10,622 $10,806 Total Travel & Training 10,260 10,260 10,437 10,618 10,802 10,989 11,179 11,372 11,569 11,769 11,973 General Expenses 871001 CERTMEMBR b. 5,500 $5,500 $5,595 $5,692 $5,790 $5,891 $5,992 $6,096 $6,202 $6,309 $6,418 871004 PUBS&DUES b. 1,000 $1,000 $1,017 $1,035 $1,053 $1,071 $1,090 $1,108 $1,128 $1,147 $1,167 871006 UNIFORM b. 5,000 $5,000 $5,087 $5,174 $5,264 $5,355 $5,448 $5,542 $5,638 $5,735 $5,835 871017 SFTWR RNEW b. 29,249 $29,249 $29,755 $30,270 $30,793 $31,326 $31,868 $32,419 $32,980 $33,551 $34,131 871022 ADMN SVC b. 371,748 $371,748 $378,179 $384,722 $391,377 $398,148 $405,036 $412,043 $419,172 $426,423 $433,800 Total General Expenses 412,497 412,497 419,633 426,893 434,278 441,791 449,434 457,209 465,119 473,166 481,351 Internal SVC Premium 726002 ANUAL OPEB b. 50,697 $55,932 $56,900 $57,884 $58,885 $59,904 $60,940 $61,995 $63,067 $64,158 $65,268 881001 EQPMNT ISF b. 157,069 $154,868 $157,547 $160,273 $163,046 $165,866 $168,736 $171,655 $174,624 $177,645 $180,719 881003 VEHCL ISF b. 190,435 $193,854 $197,208 $200,619 $204,090 $207,621 $211,213 $214,867 $218,584 $222,365 $226,212 881004 ROP ISF b. 72,358 $48,845 $49,690 $50,550 $51,424 $52,314 $53,219 $54,140 $55,076 $56,029 $56,998 881005 IT REPLC I b. 15,941 $21,797 $22,174 $22,558 $22,948 $23,345 $23,749 $24,160 $24,578 $25,003 $25,435 Total Internal SVC Premium 486,500 475,296 483,519 491,883 500,393 509,050 517,856 526,815 535,929 545,201 554,633 Insurance Reserve 891001 GL INS ISF Capital Expenditures 911001 OFC EQUIP 911004 COMP EQUIP 911023 SHOP EQP 911024 EQUIP NOC b. 20,773 $20,773 $21,132 $21,498 $21,870 $22,248 $22,633 $23,025 $23,423 $23,828 $24,240 Total Insurance Reserve 20,773 20,773 21,132 21,498 21,870 22,248 22,633 23,025 23,423 23,828 24,240 Total Capital Expenditures Non -Operating Revenue 5860 DAMAGE TO CITY PROPERTY 5870 REVENUE, N.O.C. Total Non -Operating Revenue Contribution to Capital Reserve To Replacement Reserves Total Contribution to Replacement Reserves b. 2,000 $2,000 $2,035 $2,070 $2,106 $2,142 $2,179 $2,217 $2,255 $2,294 $2,334 b. 5,000 $5,000 $5,087 $5,174 $5,264 $5,355 $5,448 $5,542 $5,638 $5,735 $5,835 b. 1,000 $1,000 $1,017 $1,035 $1,053 $1,071 $1,090 $1,108 $1,128 $1,147 $1,167 b. 25,000 $25,000 $25,433 $25,872 $26,320 $26,775 $27,239 $27,710 $28,189 $28,677 $29,173 33,000 33,000 33,571 34,152 34,743 35,344 35,955 36,577 37,210 37,854 38,508 b. ($5,000) ($5,000) ($5,087) ($5,174) ($5,264) ($5,355) ($5,448) ($5,542) ($5,638) ($5,735) ($5,835) b. ($8,000) ($8,000) ($8,138) ($8,279) ($8,422) ($8,568) ($8,716) ($8,867) ($9,021) ($9,177) ($9,335) (13,000) (13,000) (13,225) (13,454) (13,686) (13,923) (14,164) (14,409) (14,658) (14,912) (15,170) 750,000 1,000,000 1,030,000 1,060,900 1,092,727 1,125, 509 1,159,274 1,194,052 1,229,874 1,266,770 1,304,773 750,000 1,000,000 1,030,000 1,060,900 1,092,727 1,125,509 1,159,274 1,194,052 1,229,874 1,266,770 1,304,773 Net Revenue Requirement (before Reserve Expense) $ 4,350,646 $ 4,579,977 $ 4,684,594 $ 4,791,719 $ 4,901,415 $ 5,013,746 $ 5,128,779 $ 5,246,580 $ 5,367,219 $ 5,490,769 $ 5,617,301 5.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% $3,049,802 $ 3,600,646 $ 3,579,977 $ 3,654,594 $ 3,730,819 $ 3,808,688 $ 3,888,238 $ 3,969,505 $ 4,052,528 $ 4,137,346 $ 4,223,999 $ 4,312,528 14-38 City of Newport Beach Water Rate Study Table 3A. Revenue Increases -Sewer Revenue from Rates without Rate Increases Revenue from Current Rates Bad Debt Expense Net Revenue Net Revenue Requirements Surplusl(Deficit) before rate increase Revenue from Rates with Rate Increases Increase in Revenue from Rates Cumulative Increase Total Revenue from Existing Rates Revenue from Current Rates Revenue from Rate Increases FY17-18 (effective 1/1/18) FY19-20 (effective 1/1/19) FY20-21 (effective 1/1/20) FY21-22 (effective 1/1/21) FY21-22 (effective 1/1/22) FY23-24 (effective 1/1/23) FY24-25 (effective 1/1/24) FY25-26 (effective 1/1/25) FY26-27 (effective 1/1/26) FY26-27 (effective 1/1/27) Subtotal - Revenue from Rate Increases Total Rate Revenue Net Revenue Requirements Surplus/(Deficit) after Rate Increase Months in 1st FY of Estimated Projected rate increase* FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 Notes $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 $3,558,806 FY13-14 from Table 7A; Table 1B, g. ($14,144) ($14,144) ($14,144) ($14,144) ($14,144) ($14,144) ($14,144) ($14,144) ($14,144) ($14,144) $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $4,579,977 $4,684,594 $4,791,719 $4,901,415 $5,013,746 $5,128,779 $5,246,580 $5,367,219 $5,490,769 $5,617,301 From Table 2 ($1,035,315) ($1,139,933) ($1,247,058) ($1,356,754) ($1,469,085) ($1,584,117) ($1,701,918) ($1,822,558) ($1,946,107) ($2,072,639) To Table 4 9.4% 9.4% 9.4% 8.4% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% From Table 1A 4.3% 14.1% 24.8% 35.9% 42.8% 45.6% 48.6% 51.5% 54.6% 57.6% To Table 1A $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 $166,599 $333,198 $333,198 $333,198 $333,198 $333,198 $333,198 $333,198 $333,198 $333,198 $182,259 $364,519 $364,519 $364,519 $364,519 $364,519 $364,519 $364,519 $364,519 $199,392 $398,784 $398,784 $398,784 $398,784 $398,784 $398,784 $398,784 $194,929 $389,858 $389,858 $389,858 $389,858 $389,858 $389,858 $50,310 $100,620 $100,620 $100,620 $100,620 $100,620 $51,316 $102,633 $102,633 $102,633 $102,633 $52,343 $104,685 $104,685 $104,685 $53,390 $106,779 $106,779 $54,457 $108,915 $55,547 $166,599 $515,458 $897,109 $1,291,429 $1,536,668 $1,638,295 $1,741,954 $1,847,686 $1,955,533 $2,065,537 $ 3,558,806 $3,711,261 $4,060,119 $4,441,770 $4,836,091 $5,081,330 $5,182,957 $5,286,616 $5,392,348 $5,500,195 $5,610,199 FY13-14 from Table 7A $ 4,350,646 $4,579,977 $4,684,594 $4,791,719 $4,901,415 $5,013,746 $5,128,779 $5,246,580 $5,367,219 $5,490,769 $5,617,301 From Tablet ($791,840) ($868,716) ($624,475) ($349,949) ($65,324) $67,583 $54,178 $40,036 $25,129 $9,426 ($7,102) To Table 4 14-39 City of Newport Beach Sewer Rate Study Table 4. Reserves Budgeted Projected FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 FY 2022-23 FY 2023.24 FY 202425 FY 2025-26 FY 2026-27 Notes Sewer Operatina Reserve Funds With Rate Increase (530) Revenue Increase Annual increases 9.4% 9.4% 9.4% 8.4% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% From Table 1A Cumulative increase 9.4% 19.7% 30.9% 41.9% 44.8% 47.751 50.6% 53.6% 56.7% 59.8% Operations Fund Beginning Balance $3,675,000 $2,830,589 $2,225,001 $1,890,428 $1,839,036 $1,920,666 $1,989,452 $2,044,559 $2,085,116 $2,110,216 Surplus/(Deficit) ($868,716) ($624,475) ($349,949) ($65,324) $67,583 $54,178 $40,036 $25,129 $9,426 ($7,102) From Table 3A Transfers (to)/from General Fund Subtotal - Fund Balance $2,806,284 $2,206,114 $1,875,052 $1,825,103 $1,906,620 $1,974,844 $2,029,488 $2,069,687 $2,094,542 $2,103,114 Estimated Interest Earnings $24,305 $18,888 $15,375 $13,933 $14,046 $14,608 $15,071 $15,428 $15,674 $15,800 Ending Balance $3,675,000 $2,830,589 $2,225,001 $1,890,428 $1,839,036 $1,920,666 $1,989,452 $2,044,559 $2,085,116 $2,110,216 $2,118,914 Target balance $1,800,323 $1,800,323 $1,789,988 $1,827,297 $1,865,410 $1,904,344 $1,944,119 $1,984,752 $2,026,264 $2,068,673 $2,111,999 50% of annual O&M Sewer Infrastructure Replacement Account (5401 Beginning Balance $660,231 $1,504,808 $1,890,041 $1,904,216 $1,918,498 $1,932,887 $1,947,383 $1,961,988 $1,976,703 $1,991,528 $2,006,465 Capital Improvement Projects Master Plan Projects ($627,450) ($1,030,000) ($1,060,900) ($1,092,727) ($1,125,509) ($1,159,274) ($1,194,052) ($1,229,874) ($1,266,770) ($1,304,773) From Table 5 Other Projects $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 From Table 5 Transfers (to)/from Revenue Requirement $1,000,000 $1,030,000 $1,060,900 $1,092,727 $1,125,509 $1,159,274 $1,194,052 $1,229,874 $1,266,770 $1,304,773 (toyfrom above Subtotal -Transfers $1,000,000 $1,030,000 $1,060,900 $1,092,727 $1,125,509 $1,159,274 $1,194,052 $1,229,874 $1,266,770 $1,304,773 Subtotal - Fund Balance $1,877,358 $1,890,041 $1,904,216 $1,918,498 $1,932,887 $1,947,383 $1,961,988 $1,976,703 $1,991,528 $2,006,464 Estimated Interest Earnings $12,683 $14,175 $14,282 $14,389 $14,497 $14,605 $14,715 $14,825 $14,936 $15,048 Ending Balance $1,504,808 $1,890,041 $1,904,216 $1,918,498 $1,932,887 $1,947,383 $1,961,988 $1,976,703 $1,991,528 $2,006,465 $2,021,513 14-40 City of Newport Beach Sewer Rate Study Table 7A. Rate Revenue - Sewer CUSTOMERS WITH CITY WATER AND SEWER SERVICE - CURRENT Current Monthly Sewer Service Charge - Per Meter 2,353,927 $0.35 FY 17-18 FY 17-18 FY 17-18 FY 17-18 FY 17-18 FY 17-18 FY 17-18 FY 17-18 FY 17-18 Customer Class Meter Count Charge/meteinnual RevenL Surcharge nual RevenTotal S/C Rev 5/8" 16,604 $4.50 $896,616 MULTI FAMILY RES 8,477 $896,616 3/4" 4 $4.50 $216 759 $2.00 $216 1" 7,437 $4.50 $401,598 $2.00 $1,008 $401,598 1.5 552 $4.50 $29,808 $22,776 $816 $29,808 2" 1,465 $4.50 $79,110 $10.00 $175,800 $254,910 3" 48 $4.50 $2,592 $10.00 $5,760 $8,352 4" 253 $4.50 $13,662 $10.00 $30,360 $44,022 6" 178 $4.50 $9,612 $10.00 $21,360 $30,972 8" 95 $4.50 $5,130 $10.00 $11,400 $16,530 10" 3 $4.50 $162 $10.00 $360 $522 12" 2 $4.50 $108 $10.00 $240 $348 26,641 $1,438,614 $245,280 $1,683,894 Source: MeterUseConsuptCount-4-4-17 - MainQuery8.3 Current Monthly Supplemental Sewer Service Charge - Per additional DU 2,353,927 $0.35 FY 17-18 FY 17-18 FY 17-18 FY 17-18 Total Customer Class DUs Charge/DU Annual Reve Annual Re\Annual Revenue SINGLE FAMILY RES 81 $2.00 $1,944 $48 $1,992 MULTI FAMILY RES 8,477 $2.00 $203,448 $1,327 $204,775 COMMERICAL 759 $2.00 $18,216 $48,746 $66,962 CITYMETER 42 $2.00 $1,008 $48,746 $49,754 CONSOLIDATED 949 $2.00 $22,776 $816 $23,592 - 10,308 FIRE $247,392 $99,684 $347,076 $347,076 Current Sewer Use Charge With No Increase CY 2016 FY 17-18 FY 17-18 Average Customer Class Flow Charge/CCF Annual Reve Month SINGLE FAMILY RES 2,353,927 $0.35 $823,874 11.81 MULTI FAMILY RES 752,561 $0.35 $263,396 7.40 COMMERICAL 1,082,691 $0.35 $378,942 118.87 CONSOLIDATED - $0.35 $0 POOL 22,930 $0.35 $8,026 4,212,109 $1,474,238 CITY METER 69,583 $0.000 $0 No Consumption Charge - Only Fixed Fee BOAT DOCK 5,178 $0.000 No Sewer Charge SPRINKLER 794,347 $0.000 - No Sewer Charge FIRE 879 $0.000 No Sewer Charge PUMP STATION 16 $0.000 No Sewer Charge 870,003 $0 Source: MeterUseConsuptCount-4-4-17 14-41 CUSTOMERS WITH CITY WATER AND SEWER SERVICE - PROPOSED Proposed Sewer Use Charae With Rate Increase Source: MeterUseConsuptCount-4-4-17 Revised Monthlv Sewer Service Charae Before Rate Increase - Per Meter Meter Size CY 2016 FY 17-18 FY 17-18 Average Customer Class Flow Charge/CCF Annual Reve Month SINGLE FAMILY RES 2,353,927 $0.38 $901,319 2,421.74 MULTI FAMILY RES 752,561 $0.38 $288,156 12.11 COMMERICAL 1,082,691 $0.38 $414,562 0.11 CONSOLIDATED - $0.38 $0 1.00 POOL 22,930 $0.38 $8,780 552 21 4,212,109 1.10 $1,612,817 $6.50 CITYMETER 69,583 $0.00 $0 No Consumption Charge - Only Fixed Fee BOAT DOCK 5,178 $0.00 $161,958 No Sewer Charge SPRINKLER 794,347 $0.00 1.70 No Sewer Charge FIRE 879 $0.00 - No Sewer Charge PUMP STATION 16 $0.00 - No Sewer Charge 6" 870,003 1 $0 2.25 Source: MeterUseConsuptCount-4-4-17 Revised Monthlv Sewer Service Charae Before Rate Increase - Per Meter Meter Size Meters Sewer -Only Meters Total Meters EMU Multiplier Total EMUS Service Charge Per Meter Revenue No Rate Increase 5/8" 16,604 275 16,879 1.00 16,879 $5.91 $1,196,868 3/4" 4 85 89 1.00 89 $5.91 $6,322 1" 7,437 57 7,494 1.00 7,494 $5.91 $531,385 1.5" 552 21 573 1.10 630 $6.50 $44,702 2" 1,465 58 1,523 1.50 2,284 $8.86 $161,958 3" 48 2 50 1.70 85 $10.05 $6,041 4" 253 4 257 2.00 513 $11.82 $36,378 6" 178 1 179 2.25 404 $13.30 $28,623 8" 95 1 96 2.50 239 $14.77 $16,965 10" 3 2 5 3.20 16 $18.91 $1,160 12" 2 - 2 4.00 8 $23.64 $567 2.50 26,641 506 27,147 10" 28,642 2 $2,030,970 vroposea montniy sewer service L;narge witn nate increase - ver meter Service Revenue Sewer -Only Total EMU Total Charge With Rate Meter Size Meters Meters Meters Multiplier EMUS Per Meter Increase 5/8" 16,604 275 16,879 1.00 16,879 $6.46 $1,309,374 3/4" 4 85 89 1.00 89 $6.46 $6,916 1" 7,437 57 7,494 1.00 7,494 $6.46 $581,335 1.5" 552 21 573 1.10 630 $7.11 $48,904 2" 1,465 58 1,523 1.50 2,284 $9.70 $177,182 3" 48 2 50 1.70 85 $10.99 $6,608 4" 253 4 257 2.00 513 $12.93 $39,798 6" 178 1 179 2.25 404 $14.55 $31,314 8" 95 1 96 2.50 239 $16.16 $18,560 10" 3 2 5 3.20 16 $20.69 $1,269 12" 2 0 2 4.00 8 $25.86 $621 26,641 506 27,147 28,642 $2,221,881 14-42 SEWER ONLY CUSTOMERS (WATER PROVIDED BY OTHERS) Current Monthly Sewer Service Charge Revised Monthly Sewer Use Charge With No Increase FY 17-18 FY 17-18 FY 17-18 Customer Class ccounts or DL Charge Annual Revenue Sewer Only - Flat charge 506 $6.25 $37,950 Sewer Only - DU charge 652 $2.00 $15,648 Meter Size Meters Per Month $53,598 Revised Monthly Sewer Service Charge With No Increase 275 FY 17-18 Service Annual Meter Size Meters Charge Revenue 5/8" 275 $5.91 $19,512 3/4" 85 $5.91 $6,038 1" 57 $5.91 $4,042 1.5" 21 $6.50 $1,647 2" 58 $8.86 $6,138 3" 2 $10.05 $254 4" 4 $11.82 $499 6" 1 $13.30 $225 8" 1 $14.77 $125 10" 2 $18.91 $479 1 506 $0.35 $38,958 Proposed Monthly Sewer Service Charge With Increase 2 FY 17-18 Service Annual Meter Size Meters Charge Revenue 5/8" 275 $6.46 $21,346 3/4" 85 $6.46 $6,606 1" 57 $6.46 $4,422 1.5" 21 $7.11 $1,802 2" 58 $9.70 $6,715 3" 2 $10.99 $278 4" 4 $12.93 $546 6" 1 $14.55 $246 8" 1 $16.16 $136 10" 2 $20.69 $524 506 $42,620 Revised Monthly Sewer Use Charge With No Increase Sewer Use Charge Avg HCF Current Monthly Monthly Per Meter Charge Use Annual Meter Size Meters Per Month Per HCF Charge Revenue 5/8" 275 8.97 $0.35 $3.14 $10,370 3/4" 85 8.97 $0.35 $3.14 $3,209 1" 57 13.39 $0.35 $4.69 $3,205 1.5" 21 72.49 $0.35 $25.37 $6,428 2" 58 68.49 $0.35 $23.97 $16,601 3" 2 212.27 $0.35 $74.29 $1,882 4" 4 393.01 $0.35 $137.56 $5,808 6" 1 714.08 $0.35 $249.93 $4,221 8" 1 714.08 $0.35 $249.93 $2,111 10" 2 714.08 $0.35 $249.93 $6,332 $273.42 506 506 $60,167 Proposed Monthly Sewer Use Charge Avg HCF Monthly Per Meter Charge Use Annual Meter Size Meters Per Month Per HCF Charge Revenue 5/8" 275 8.97 $0.38 $3.44 $11,344 3/4" 85 8.97 $0.38 $3.44 $3,511 1" 57 13.39 $0.38 $5.13 $3,506 1.5" 21 72.49 $0.38 $27.76 $7,032 2" 58 68.49 $0.38 $26.23 $18,161 3" 2 212.27 $0.38 $81.28 $2,059 4" 4 393.01 $0.38 $150.49 $6,354 6" 1 714.08 $0.38 $273.42 $4,618 8" 1 714.08 $0.38 $273.42 $2,309 10" 2 714.08 $0.38 $273.42 $6,927 506 $65,823 14-43 Proposed Monthly Sewer Flat Charge (Combined Service and Use components) With Rate Increase Meter Size Service Component Use Component Flat Charge 5/8" $6.46 $3.44 $9.90 3/4" $6.46 $3.44 $9.90 1" $6.46 $5.13 $11.59 1.5" $7.11 $27.76 $34.87 2" $9.70 $26.23 $35.92 3" $10.99 $81.28 $92.27 4" $12.93 $150.49 $163.41 6" $14.55 $273.42 $287.97 8" $16.16 $273.42 $289.58 10" $20.69 $273.42 $294.11 14-44 Revenue Summary (FY 2017-18) Proposed Rates Current Rates With 1/1/18 Increase Fixed Charges Service charge $1,438,614 $2,085,636 DU surcharge $347,076 $0 Large meter surcharge $245,280 $0 $2,030,970 57% $2,085,636 56% Variable Charges Use charge $1,474,238 41% $1,543,527 41% $3,505,208 $3,629,163 Sewer -Only Service charge $37,950 $40,789 DU surcharge $15,648 $0 Use charge $0 $62,995 $53,598 2% $103,784 3% Total $3,558,806 100% $3,732,948 100% Recap Fixed Revenue Service charges $1,476,564 $2,126,425 DU surcharge $362,724 $0 Large meter surcharge $245,280 $0 Nonseasonal Variable Charge $737,119 $834,758.53 $2,821,687 79% $2,961,184 79% Variable revenue Seasonal Variable Charg $737,119 21% $771,764 21% $3,558,806 1001 $3,732,948 100°/ 14-44 City of Newport Beach Sewer Rate Study Table 8. Report Tables WASTEWATER RATES 14-45 Current FY 2016-17 FY 2017-18 (Eff.1/1/18) FY 2018-19 (Eff.111/19) Proposed FY 2019-20 (Eff.1/1/20) FY 2020-21 (Eff.1/1/21) FY 2021-22 (Eff.1/1/22) Sewer Service Charges 5/8" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 3/4" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 1" $4.50 $6.46 $7.07 $7.74 $8.39 $8.55 1.5" $4.50 $7.11 $7.78 $8.51 $9.23 $9.41 2" $14.50 $9.70 $10.61 $11.61 $12.58 $12.83 3" $14.50 $10.99 $12.02 $13.15 $14.26 $14.54 4" $14.50 $12.93 $14.14 $15.47 $16.77 $17.11 6" $14.50 $14.55 $15.91 $17.41 $18.87 $19.25 8" $14.50 $16.16 $17.68 $19.34 $20.97 $21.39 10" $14.50 $20.69 $22.63 $24.76 $26.84 $27.37 12" $14.50 $25.86 $28.29 $30.95 $33.55 $34.22 Surcharge Per Dwelling Unit $2.00 $0.00 $0.00 $0.00 $0.00 $0.00 Sewer Use Charge (per HCF) $0.35 $0.38 $0.42 $0.46 $0.50 $0.51 14-45 Current FY 2016-17 FY 2017-18 (Eff.111/18) FY 2018-19 (Eff.1/1/19) Proposed FY 2019-20 (Eff.1/1/20) FY 2020-21 (Eff.1/1/21) FY 2021-22 (Eff.1/1/22) Flat Charges Per Account 5/8" $6.25 $9.90 $10.83 $11.85 $12.84 $13.10 3/4" $6.25 $9.90 $10.83 $11.85 $12.84 $13.10 1" $6.25 $11.59 $12.68 $13.87 $15.04 $15.34 1.5" $6.25 $34.87 $38.15 $41.73 $45.24 $46.14 2" $6.25 $35.92 $39.30 $42.99 $46.60 $47.54 3" $6.25 $92.27 $100.94 $110.43 $119.70 $122.10 4" $6.25 $163.41 $178.78 $195.58 $212.01 $216.25 6" $6.25 $287.97 $315.04 $344.65 $373.60 $381.07 8" $6.25 $289.58 $316.80 $346.58 $375.70 $383.21 10" $6.25 $294.11 $321.75 $352.00 $381.57 $389.20 Surcharge Per Dwelling Unit $2.00 $0.00 $0.00 $0.00 $0.00 $0.00 14-45 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 (Eff.1/1/18) (Eff.1/1/19) (Eff.1/1/20) (Eff.1/1/21) (Eff.1/1/22) Revenue from Current Rates $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 Increase in Revenue from Rates 9.4% 9.4% Current 8.4% 2.0% Proposed Proposed Proposed Proposed Monthly Flow Service Current Flow Current Service Flow Monthly Minus Customer Type Meter Size (HCF) Charge Charge Monthly Bill Charge Charge Bill Current Single Family Residential (low flow) 5/8" - V 3.0 $4.50 $1.03 $5.53 $6.46 $1.13 $7.60 $2.06 Single Family Residential (avg flow) 5/8" - V 11.8 $4.50 $4.13 $8.63 $6.46 $4.52 $10.99 $2.35 Single Family Residential (high flow) 5/8" - 1" 23.6 $4.50 $8.27 $12.77 $6.46 $9.05 $15.51 $2.74 Sewer -only (no additional DUs) 3/4" 9.0 $6.25 $0.00 $6.25 $6.46 $3.44 $9.90 $3.65 Commercial 1.5" 29.7 $4.50 $10.40 $14.90 $7.11 $11.38 $18.49 $3.59 Commercial 2" 118.9 $14.50 $41.61 $56.11 $9.70 $45.52 $55.21 -$0.89 Commercial 3" 237.7 $14.50 $83.21 $97.71 $10.99 $91.03 $102.02 $4.31 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 FY 2021-22 (Eff.1/1/18) (Eff.1/1/19) (Eff.1/1/20) (Eff.1/1/21) (Eff.1/1/22) Revenue from Current Rates $3,544,662 $3,544,662 $3,544,662 $3,544,662 $3,544,662 Increase in Revenue from Rates 9.4% 9.4% 9.4% 8.4% 2.0% Revenue from Rate Increases FY17-18 (effective 1/1/18) $166,599 $333,198 $333,198 $333,198 $333,198 FY19-20 (effective 1/1/19) $0 $182,259 $364,519 $364,519 $364,519 FY20-21 (effective 1/1/20) $0 $0 $199,392 $398,784 $398,784 FY21-22 (effective 1/1/21) $0 $0 $0 $194,929 $389,858 FY21-22 (effective 1/1/22) $0 $0 $0 $0 $50,310 Subtotal - Revenue Increases $166,599 $515,458 $897,109 $1,291,429 $1,536,668 Total Rate Revenue with IncreasE $3,711,261 $4,060,119 $4,441,770 $4,836,091 $5,081,330 Net Revenue Requirements $4,579,977 $4,684,594 $4,791,719 $4,901,415 $5,013,746 Surplus/(Deficit) after Increase ($868,716) ($624,474) ($349,949) ($65,324) $67,583 CIP Project Description Collection System Capacity Improvements Collection System Condition Improvements Pump Station Improvements Project Cost $1,281,391 $16,648,060 $11,088,000 $29,017,451 iIE01 HF&H Consultants, LLC 201 N. Civic Drive, Suite 230 Walnut Creek, CA 94596 14-47