HomeMy WebLinkAbout15 - Sewer Rate Study Results o�aEW�Re CITY OF
NEWPORT BEACH
City Council Staff Report
October 13, 2015
Agenda Item No. 15
TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: George Murdoch, Municipal Operations Director
949-644-3011, gmurdoch@newportbeachca.gov
PREPARED BY: Rachel Wilfert, Management Assistant
TITLE: Sewer Rate Study Results
ABSTRACT:
The Municipal Operations Department retained the consulting services of HF&H
Consultants, LLC ("HF&H") to prepare a sewer and recycled water rate study. The
recycled water report was completed in June of 2014, and ended with the establishment
a recycled rate structure in September of 2014.
The sewer rate 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) Review the results and proposed recommendations of the sewer rate study;
b) Direct staff to send rate notices to customers in compliance with Proposition 218
and Resolution 2009-58; and
c) Set the date of January 12, 2016, for tabulation of protests and public hearing of
proposed rates pending results of protests.
FUNDING REQUIREMENTS:
There are no funding requirements required for this action. This action directs staff to
notice customers of the rate study in compliance with Proposition 218.
DISCUSSION:
Background
The Municipal Operations Department operates and maintains approximately 197 miles
of 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 Rate Study Results
October 13, 2015
Page 2
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.
Funding for operations, maintenance and replacement activities associated with the
City's sewer system are collected from ratepayers through their municipal services bill.
Salaries, maintenance, operations, and internal service expenditures for FY 2015-16
are estimated to be $3.2 million. Capital Improvement Projects (CIP) associated with
maintaining and replacing the sewer infrastructure are based upon the Sewer Master
Plan which was last updated in 2010. Funding for master plan projects is based upon
the implementation cost of the facilities, 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
approximately $1.3 million annually by FY 2019-20 with the additional revenue
generated from the recommended rate increases.
The estimated revenue for FY 2015-16 is approximately $3.1 million. With the increase
in outsourced services, reduced staff, and the amount of capital replacement projects,
rates have not been increased in almost nine years. Rate increases are now necessary
to maintain adequate reserve levels based on City policy of 50% of budget operations,
coupled with increased capital needs based on the results of the 2010 Sewer Master
Plan.
Rate Study:
In 2013, the City entered into an agreement with HF&H to conduct a Sewer and
Recycled Water Rate Study, the first priority was to address the recycled water rates.
The recycled rates were adopted by City Council on September 9, 2014, lowering the
overall cost to our recycled water customers by 50%. The next phase of the study was
to address the sewer rates. Attachment "A" is a draft report that includes details of the
proposed sewer rates.
Current sewer revenues do not provide adequate funding for operations. While current
reserve balances are above the minimum balance, without rate increases, the fund
balance dips below the minimum in FY 2016-17 and is negative by FY 2017-18. For
more information of the fund balance impacts with and without the recommended rate
increases, please refer to 'Figure 1' of this report.
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.
(Note: Sewer connections are typically the same size, therefore, water connection size
is used to determine the amount of sewer demands on the system.)
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October 13, 2015
Page 3
The proposed rates include:
• Fixed charge - a monthly sewer service charge based on size of water
connection. (Note: Sewer connections are typically the same size, therefore,
water connection size is used to determine the amount of sewer demands on the
system.)
• Sewer use charge - a consumption charge per unit based on each customer's
actual metered water use. (Note: The City does not measure or meter sewer use.
Water use is used to determine sewer flow into the system)
Current
Structure FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
Monthly Sewer Use Charge
5/8" or 3/4" $4.50 $6.04 $6.71 $7.44 $8.26 $9.17
1" $4.50 $6.04 $6.71 $7.44 $8.26 $9.17
11/2" $4.50 $6.65 $7.38 $8.19 $9.09 $10.09
2" $14.50 $9.06 $10.06 $11.17 $12.40 $13.76
21/2" $14.50 $9.67 $10.73 $11.91 $13.22 $14.68
3" $14.50 $10.27 $11.40 $12.66 $14.05 $15.59
4" $14.50 $12.08 $13.41 $14.89 $16.53 $18.34
6" $14.50 $13.59 $15.09 $16.75 $18.59 $20.64
8" $14.50 $15.11 $16.77 $18.61 $20.66 $22.93
10" $14.50 $19.33 $21.46 $23.82 $26.44 $29.35
Monthly Sewer Use Charge (Sewer Only Customers)
Rate per Account $6.25 $10.51 $11.66 $12.94 $14.37 $15.95
Consumption Charge
Rate per HCF $0.35 $0.39 $0.43 $0.48 $0.53 $0.59
Sewer Surcharges
Multi Unit surcharge
(per DU) $2.00 Note 1 Note 1 Note 1 Note 1 Note 1
Note 1: The surcharge has been incorporated into the Monthly Sewer Use Charge under the revised structure
For a comparison of how the new rate structure will affect sample residents, please see
Attachment B.
How do we compare?
The chart presented in Figure 2 Neighboring Agency Comparison compares recent
charges for sewer service among similar Orange County agencies, specifically ones
that couple a fixed monthly use charge with a flow-based commodity charge (Costa
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October 13, 2015
Page 4
Mesa and Huntington Beach charge a fixed charge only). Figure 2 indicates that the
City's current and proposed sewer rates track the trend line along with its neighbors.
Since the Sewer Rate Study was presented at the June 9 study session, two agencies
(Costa Mesa Sanitary and Irvine Ranch Water District) have increased rates per a
previously approved rate schedule, with a third agency (Huntington Beach) in the midst
of a Proposition 218 noticing period to increase sewer rates.
Study Session
At the study session on June 9, 2015, the Municipal Operations Department presented
the findings of the Sewer Rate Study to Council with assistance from HF&H
Consultants. Following the presentation, staff was directed by Council to provide an
operational analysis that analyzed the cost of outsourcing, and an assessment of
potential increased efficiencies that could mitigate a rate increase.
Finance Committee
At the August 13, 2015, Finance Committee meeting, staff presented an overview of the
services provided by the City's Sewer Division as well as the cost for operating and
maintaining the sewer system. This overview also included the potential cost to
outsource the services and the liability for maintaining a wastewater system. Options
presented to the Committee included:
• Keep the Wastewater Division as an in-house municipal function.
• Engage a consultant to review the efficiency and effectiveness of the Division.
• Consider outsourcing the maintenance function to a third party through a
Request for Proposal Process (RFP).
• Consider annexation of the system to another governmental entity such as a
special district.
In order to provide a basis for decision-making on outsourcing the Sewer Division, staff
presented an overview of the services currently provided by the Division and the
associated cost, and compared the Division's cost to the cost of outsourcing. It was
noted in the presentation that the cost for outsourcing has been significantly impacted
by the requirement to comply with prevailing wage. Three quotes were obtained from
companies in the area to estimate the cost to maintain and repair the sewer
infrastructure. By continuing to provide services through the City's Sewer Division, the
City of Newport will save approximately $234,621 per year based on the comparison of
costs outlined below.
Sewer Rate Study Results
October 13, 2015
Page 5
Hourly Hours AdministrativellFbta Annuat
Contractor Rate Per Year Annual Cost Fee wCost
City Cost $ 187.30 3,120 $ 584,379 N/A $ 584,379
Propipe $ 250 3,120 $ 780,000 $ 39,000 $ 819,000
National Plan
Services $ 300 3,120 $ 936,000 $ 46,800 $ 982,800
Downstream $ 342 3,120 $ 1,067,040 $ 53,352 $1,120,392
Additionally, the Finance Committee inquired about the cost to annex the wastewater
infrastructure, maintenance, and repair to another sanitation district. Unfortunately,
these other districts also pay into the Public Employees Retirement System (PERS), so
there would be little savings if any for salaries and benefits, the infrastructure would still
need to be maintained, and the City would lose the ability to control rates. The City
would also lose the ability to decide how it wishes to maintain the infrastructure. City
Council adopted a Sewer Master Plan in 2010 which outlines how the City will maintain
its sewer infrastructure.
City staff will continually evaluate sewer services for efficiencies and cost effectiveness
as ultimately the rates charged to recover the costs of these services are charged to the
residents and businesses of Newport Beach.
At the conclusion of the presentation, Finance Committee members made the following
comments: 1. Staff is to continue to look for cost efficiencies including outsourcing; 2. If
the City wants to control the rates and infrastructure maintenance, City Council should
not consider annexation; 3. The City should continue to implement the Sewer Master
Plan. Following some discussion the Finance Committee recommended that the Sewer
Rate Study be moved to City Council for approval.
Next Steps
Following incorporation of the Finance Committee's comments and recommendations,
staff presents and recommends the proposed sewer rate and structure to the City
Council for final review and approval to move forward with adoption. Upon
incorporation of the City Council's comments and recommendations, staff will be
required to issue a Proposition 218 notice to the owners of parcels that are subject to
the sewer rate pursuant to California Constitution Article XIII D, Section 6. There will be
a 45-day public notice period.
Following the public notice period, written protests will be tabulated at the January 12,
2016, City Council meeting. City Council may then conduct a public hearing on the
proposed rate and proceed with rate establishment unless written protests against the
proposed rate are presented by a majority of owners of the parcels subject to the rate.
Sewer Rate Study Results
October 13, 2015
Page 6
Notwithstanding a majority protest, the rate structure will become effective upon
adoption with the annual rate increase occurring on January 1 for every year thereafter
and with the final adjustment occurring January 1, 2020.
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).
Attachments:
Attachment A— Draft Sewer and Recycled Water Rate Study
Attachment B — Sample Cost to Average Customer
Figure 1 — Projected Fund Balance
Figure 2 — Neighboring Agency Comparisons
CITY OF NEWPORT BEACH
Sewer and Recycled Water Rate Study
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HF&H Co ants, LLC
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CITY OF NEWPORT BEACH
592 Superior Avenue
Newport Beach, CA 92663
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SEWER AND RECYCLED WATER RATE STUDY
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October 13, 2015
HF&H CONSULTANTS, LLC
201 North Civic Drive, Suite 230
Walnut Creek, CA 94596
®tff&H CONSULTANTS,LLC All rights resemal.
This document is printed on 100%recycled,post-consumer content paper
15-9
P
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E Managing Tomorrow's Resources Today
201 N.Civic Drive,Suite 230 Robert D.Hilton,CMC
Walnut Creek,California 94596 John W.Farnkopf,PE
Telephone:925/977-6950 Laith B.Ezzet,CMC
Fax:925/977-6955 Richard J.Simonson,CMC
www.hfh-consultants.com Marva M.Sheehan,CPA
Robert C.Hilton,CMC
October 13, 2015
Mr. George Murdoch
Utilities General Manager
City of Newport Beach
592 Superior Avenue
Newport Beach, CA 92663
Subject: Sewer and Recycled Water Rate Study
Dear Mr. Murdoch:
HF&H Consultants, LLC, is pleased to submit this Sewer and Recycled Water 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.
The recycled water revenue increases and recycled water rate design sections presented
in this report summarize the analysis that was previously submitted as a staff report
and presented to City Council on April 29, 2014. The City Council subsequently
adopted, by Resolution 2014-78 on September 9, 2014, the recommended Recycled
Water rates in compliance with Proposition 218, effective October 9, 2014, and updated
each January 1 thereafter.
The City has demonstrated leadership in improving rate payer equity during a time
when costs are increasing in compliance with regulatory mandates. It has been a
privilege to assist the City with this step forward.
Very truly yours,
HF&H CONSULTANTS, LLC
John W. Farnkopf, P.E.
Senior Vice President
15-11
P
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City of Newport Beach Sewer and Recycled Water Rate Study
Table of Contents
TABLE OF CONTENTS
1. EXECUTIVE SUMMARY................................................................................. 1
Findings And Recommmendations.........................................................................1
Sewer ............................................................................................................1
RecycledWater...............................................................................................2
2. INTRODUCTION........................................................................................... 4
StudyPurpose .....................................................................................................4
Rate Making Objectives........................................................................................4
Background .........................................................................................................4
Sewer ............................................................................................................4
RecycledWater...............................................................................................4
3. SEWER PROJECTED REVENUE INCREASES .................................................. 6
Revenue Requirements.........................................................................................6
Salaries ..........................................................................................................6
Benefits..........................................................................................................6
Operations & Maintenance...............................................................................6
Internal Services Allocation..............................................................................7
Operating Reserve Expense.............................................................................7
Capital Reserve Expense..................................................................................7
Miscellaneous Costs ........................................................................................7
Revenue Increases...............................................................................................7
FundBalance.......................................................................................................8
MinimumFund Balance ...................................................................................9
TargetFund Balance .......................................................................................9
4. SEWER RATE DESIGN ................................................................................. 10
Current Rate Structure .......................................................................................10
Proposed Rate Structure.....................................................................................10
Current and Proposed Customer Bill Comparisons ................................................ 12
Comparison with Neighboring agencies ...............................................................13
S. RECYCLED WATER PROJECTED REVENUE INCREASES .............................. 15
Revenue Requirements.......................................................................................15
Operating Expenses ......................................................................................15
Purchased Recycled Water.............................................................................15
Pump Station Operating and Maintenance ......................................................15
Depreciation .................................................................................................15
6. RECYCLED WATER RATE DESIGN ............................................................... 17
Current Rate Structure .......................................................................................17
Proposed Rate Structure.....................................................................................17
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City of Newport Beach Sewer and Recycled Water Rate Study
Table of Contents
CustomerBill Comparisons .................................................................................20
APPENDIX A. SEWER AND RECYCLED WATER RATE MODEL
TABLE OF FIGURES
Figure 1-1. Current and Proposed Sewer Rates...........................................................2
Figure 1-2. Average Current and Proposed Monthly Sewer Bills....................................2
Figure 1-3. Current and Proposed Recycled Water Rates .............................................3
Figure 3-1. Annual Revenue Requirement Components ..............................................6
Figure 3-2. Capital Projects.......................................................................................7
Figure 3-3. Projected Revenue Increases...................................................................8
Figure 3-4. Fund Balance With and Without Rate Increases........................................9
Figure 4-1. Fixed and Variable Revenue....................................................................10
Figure 4-2. Calculation of Monthly Fixed Charges ......................................................11
Figure 4-3. Calculation of Sewer Consumption Charge...............................................11
Figure 4-4. Five Year Sewer Rate Projections............................................................12
Figure 4-5. Customer Bill Comparison.......................................................................13
Figure 4-6. Residential Customer Bill Impacts ...........................................................13
Figure 4-7. Neighboring Agency Comparison.............................................................14
Figure 5-1. Revenue Requirement Projections...........................................................15
Figure 6-1. FY 2014-15 Revenue Requirement by Cost Category................................18
Figure 6-2. Calculation of Monthly Fixed Charges ......................................................19
Figure 6-3. Calculation of Commodity and Pump Station Charges...............................19
Figure 6-4. Five Year Recycled Water Rate Projections ..............................................20
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
O&M Operations and Maintenance
OCSD Orange County Sanitation District
OCWD Orange County Water District
PAYGo Pay-As-You-Go, in reference to funding capital improvements from
cash rather than from borrowed sources of revenue
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City of Newport Beach Sewer and Recycled Water Rate Study
Table of Contents
SFR Single Family Residential
ACKNOWLEDGEMENTS
City Council
Edward Selich, Mayor
Diane Dixon, Mayor Pro Tem
Kevin Muldoon, Council Member
Tony Petros, Council Member
Duffy Duffield, Council Member
Scott Peotter, Council Member
Keith Curry, Council Member
City Finance Commission:
Diane Dixon, Mayor Pro Tem
Keith Curry, Council Member
Tony Petros, Council Member
Larry Tucker, Appointed Finance Commission Member
City Staff
George Murdoch, Utilities General Manager
Dan Matusiewicz, Deputy Finance Director
Rachell Wilfert, Management Assistant
HF&H Consultants, LLC
John Farnkopf, Sr. Vice President
Sima Mostafaei,Senior Associate
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City of Newport Beach Sewer and Recycled Water Rate Study
Table of Contents
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SEWER AND RECYCLED WATER RATE
STUDY
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City of Newport Beach Sewer and Recycled Water Rate Study
1. Executive Summary
1. EXECUTIVE SUMMARY
This report summarizes the analysis of the City's sewer and recycled water 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 2015-16 preliminary operating
budget for sewer, and the FY 2014-15 preliminary operating budget for recycled water.
FINDINGS AND RECOMMMENDATIONS
Sewer
1. Key Assumptions. Rates were set to generate revenue sufficient to fund the
City's collection system expenses, local capital improvements funded from cash,
and to maintain the City's reserves.
2. Revenue Projections. The revenue increases enable the City to address
collection and pump station improvement projects that were identified in the
City's Sewer Master Plan. These increases enable the City to ramp up PAYGo
funding for capital projects over the next five years; by the fifth year, the rates
will enable the City to fund $1,300,000 per year on a pay-as-you-go cash basis
without issuing debt.
3. Rate Design. The City's current sewer customers pay the sum of the following: a
fixed monthly sewer use charge that is the same for all customers and a
commodity charge based on metered water use during the monthly period. In
addition, for meters 2-inch or larger, a $10.00 monthly surcharge is assessed, and
for connections servicing two or more dwelling units on the same connection, a
$2.00 per unit per month surcharge is assessed for any additional dwelling units.
We recommend combining the two surcharges into the monthly use charge, and
maintaining the commodity charge. Under the revised rate structure, customers
will pay the sum of only two charges: a monthly sewer use charge, graduated
based on the capacity of the connection, and the commodity charge.
4. Projected Rates. Figure 1-1 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 service charges were
graduated using an EMU multiplier that was based on the ratio of$4.50 to $14.50
(the current rate ratio), the effect of which is to increase the service charges for
the larger services. The revised rate structure maintains the consumption charge,
but includes the larger meter and additional dwelling unit surcharges as part of
the monthly sewer use charge.
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City of Newport Beach Sewer and Recycled Water Rate Study
1. Executive Summary
Figure 1-1. Current and Proposed Sewer Rates
Current Revised
Structure Structure FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
Monthlv Sewer Use Charge
5/8"or 3/4" $4.50 $5.44 $6.04 $6.71 $7.44 $8.26 $9.17
V $4.50 $5.44 $6.04 $6.71 $7.44 $8.26 $9.17
1 1/2" $4.50 $5.99 $6.65 $7.38 $8.19 $9.09 $10.09
2" $14.50 $8.16 $9.06 $10.06 $11.17 $12.40 $13.76
21/2" $14.50 $8.71 $9.67 $10.73 $11.91 $13.22 $14.68
Y $14.50 $9.25 $10.27 $11.40 $12.66 $14.05 $15.59
4" $14.50 $10.89 $12.08 $13.41 $14.89 $16.53 $18.34
6" $14.50 $12.25 $13.59 $15.09 $16.75 $18.59 $20.64
8" $14.50 $13.61 $15.11 $16.77 $18.61 $20.66 $22.93
10" $14.50 $17.42 $19.33 $21.46 $23.82 $26.44 $29.35
Monthly Sewer Use Charge(Sewer Onlv Customers)
Rate per Account $6.25 $9.46 $10.51 $11.66 $12.94 $14.37 S15.95
Consumption Charge
Rate per HCF $0.35 $0.35 $0.39 $0.43 $0.48 $0.53 $0.59
Sewer Surcharges
Mufti Unit surcharge(per DU) $2.00 Note 1 Note I Note 1 Note 1 Note 1 Note 1
Note 1:The surcharge has been incorporated into the Monthly Sewer Use Charge under the revised structure.
5. Customer Bills. Figure 1-2 shows an average monthly residential and non-
residential bill at the current rates, and the average bills over the five year
projection period. In addition to paying the monthly sewer use charge based on
the size of the connection, each customer's monthly bill includes a consumption
charge that is determined by multiplying the consumption charge times the
average monthly residential flow of 11.49 HCF and non-residential flow of 64
HCF, respectively.
Figure 1-2. Average Current and Proposed Monthly Sewer Bills
Monthly
Flow Current
(HCF) Structure FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
Single Family Residential 11.49 $8.52 $10.52 $11.65 $12.96 $14.35 $15.95
Non-Residential 64.00 $36.90 $34.02 $37.58 $41.89 $46.32 $51.52
Recycled Water
1. Key Assumptions. Rates were set to generate revenue sufficient to fund the
City's recycled water system's operations and maintenance expense, the cost of
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City of Newport Beach Sewer and Recycled Water Rate Study
1. Executive Summary
purchasing recycled water from OCWD, and capital replacement expense related
to pump stations and meters.
2. Rate Design. The City's current recycled water customers pay the sum of two
charges: a monthly fixed charge that is based on the size of the connection, and a
commodity charge based on metered water use during the monthly period. The
fixed and commodity charges are based on 80% of the potable water rate. We
recommend unlinking the recycled water rate from the potable water rate and
aligning the recycled fixed and commodity charges with the fixed costs and the
cost of purchased water from OCWD, respectively. In addition to the fixed and
commodity charges, pump station users will be charged a pump station charge
based on the cost to operate and maintain the stations and convey recycled
water.
3. Projected Rates. The rate projections are shown in Figure 1-3.
Figure 1-3. Current and Proposed Recycled Water Rates
Current FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
Monthly Service Charge
5/8"or 3/4" $13.82 $18.91 $19.29 $19.68 $20.07 $20.47
1" $23.03 $31.53 $32.16 $32.80 $33.46 $34.13
1 1/2" $46.06 $63.05 $64.32 $65.60 $66.91 $68.25
2" $73.70 $100.88 $102.90 $104.95 $107.05 $109.19
3" $138.18 $189.15 $192.94 $196.80 $200.73 $204.75
4" $230.30 $315.25 $321.56 $327.99 $334.55 $341.24
6" $460.61 $630.50 $643.11 $655.98 $669.10 $682.48
8" $736.98 $1,008.81 $1,028.99 $1,049.57 $1,070.56 $1,091.97
Monthly Commodity Charge
Rate per HCF $2.46 $0.86 $0.87 $0.89 $0.91 $0.93
Monthly Pump Station Charge
Rate per HCF none $0.36 $0.37 $0.38 $0.38 $0.39
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City of Newport Beach Sewer and Recycled Water Rate Study
2. Introduction
2. INTRODUCTION
STUDY PURPOSE
The purpose of this study is to update the City's rates to ensure that they generate
sufficient revenue and that the rate structures for sewer and recycled water reflect the
City's current rate-making objectives. The study was commissioned by the City to
evaluate the effect of certain rate structure modifications in response to input from its
customers.
RATE MAKING OBJECTIVES
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 of providing recycled water and funding the City's Sewer fund.
• 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 execution of utility billing.
• Minimize "rate shock" overall and to any specific customer class.
• Rates should be clear and understandable to the customers.
• The rates must comply with Proposition 218 and applicable State codes.
BACKGROUND
Sewer
The City provides sewer service to approximately 64,465 customers. The City's existing
sewer collection system consists of a network of force main and gravity sewers. This system
is composed of approximately 197 miles of mainline gravity pipes, 4.7 miles of force mains
with 4,922 manholes and cleanouts, and 25,525 sewer laterals with an approximate length of
121 miles in the public-rights-of-way. The City's service area lies within the OCSD who is
responsible for treating the City's sewer. The City also owns and operates 21 pump stations
in various areas which lift sewer from the lower areas and several island communities for
treatment at OCSD's treatment plant.
Recycled Water
The City currently has five recycled water customers totaling 14 water connections. The
customers include Big Canyon and Newport Beach Country Club golf courses; East
Bluff School, Our Lady Queen of Angels School, and the City which uses recycled water
for irrigation of medians and parks.
In 1991, the City entered into an agreement with OCWD for the distribution and sale of
Green Acres Project water. The agreement stipulates the rules and regulations for the
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City of Newport Beach Sewer and Recycled Water Rate Study
2. Introduction
City to provide recycled water. Included in this agreement is the stipulation that
recycled water rates may not exceed 80% of the potable water rate. The agreement term
is for 25 years with five 5-year automatic extensions, with an estimated ending term
year of 2041.
The City subsequently entered into "End User Agreements' for the sale of recycled
water to large customers in 1996 for a 10-year term. These agreements, now expired,
included provisions that OCWD and the City would provide funding to modify golf
courses and construct pump stations to facilitate the use of recycled water. However, in
2011, the City and the Big Canyon Country Club entered into an agreement that
provided for the delivery and sale of recycled water, and a pump station license
agreement.
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City of Newport Beach Sewer and Recycled Water Rate Study
3. Sewer Projected Revenue Increases
3. SEWER PROJECTED REVENUE INCREASES
REVENUE REQUIREMENTS
Rate analysis begins by determining the revenue requirements that must be met by
rates. For purposes of this study, a ten-year rate projection period was developed using
a spreadsheet model (see Appendix A). However, only the first five years are shown in
Figure 3-1 for rate-setting purposes. Figure 3-1 summarizes the major categories
comprised in the revenue requirements, indicating the annual change.
Figure 3-1. Annual Revenue Requirement Components
FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
Salaries $ 947,547 $ 975,973 $ 1,005,253 $ 1,035,410 $ 1,066,472
Benefits 575,693 604,478 622,612 641,290 660,529
Operations & Maintenance 995,721 989,549 1,006,668 1,024,084 1,041,800
Internal Services Allocation 670,581 682,182 693,984 705,990 718,203
Operating Reserve Expense 1,580 (145,880) (74,251) 39,254 149,401
Capital Reserve Expense - 500,000 750,000 1,000,000 1,300,000
Miscellaneous Costs 13,477 13,710 13,947 14,188 14,434
Total Revenue Requirement $ 3,204,599 $ 3,620,012 $4,018,213 $4,460,216 $4,950,840
Salaries
This cost category includes regular and overtime pay and is projected to increase
gradually at about 3% per year during the projection period. 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 Employment (PERS) retirement benefits. During the projection
period these costs are projected to increase at about 5% per year. The cost trend is
driven primarily by increases in health care benefit costs set in labor agreements.
Operations & Maintenance
This cost category includes non-personnel related operating and maintenance expenses,
such as electrical utility costs, fuel, and non-capital materials and equipment. During
the projection period, these costs are expected to increase gradually at about 1.73% per
year, based on the five-year historical average of inflation for the Los Angeles area.
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3. Sewer Projected Revenue Increases
Internal Services Allocation
The City has historically transferred funds from the Sewer Enterprise Fund to the
General Fund as reimbursement for governmental costs incurred by the General Fund
on behalf of the Enterprise. 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 about 1.73% per year,
based on the five-year historical average of inflation for the Los Angeles area.
Operatina Reserve Expense
The City transfers rate revenue to its Operating Reserve during the projection period to
smooth out the annual revenue requirements and meet the minimum fund balance
requirement. Please refer to the section titled 'minimum fund balance' in this report for
further discussion of the fund policy.
Capital Reserve Expense
The City's 30-year capital improvement program planned expenditures are
summarized in Figure 3-2.
Figure 3-2. Capital Projects
Project
CIP Project Description Cost
Collection System Capacity
Improvements $1,281,391
Collection System Condition
Improvements $16,648,060
Pump Station Improvements $11,088,000
Total $29,017,451
The City plans to fund these capital improvements with cash from rate revenue. To
accomplish this goal, the program is phased based upon the implementation cost of the
facilities, 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 approximately $1.3 million annually by FY
2019-20 with the additional revenue generated from the recommended rate increases.
Miscellaneous Costs
This cost category includes non-capital office and shop equipment. During the
projection period,these costs are expected to increase gradually at about 1.73% per year,
based on the five-year historical average of inflation for the Los Angeles area.
REVENUE INCREASES
To determine how much additional rate revenue is required, the projected revenue
requirements are compared to the revenue from current rates. The revenue from
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3. Sewer Projected Revenue Increases
current rates also reflects the impact of reduced water demand required of the City's
customers to comply with the State Water Resources Control Board's emergency
regulations. For the City's consumption charges, sewer flows from individual City
customers are not metered; therefore water use data is the closest representation of
flows that customers discharge to the City's system for conveyance and treatment.
Estimating current rate revenue took into account 23,100 currently active meters whose
flow equaled 4,320,000 HCF. We also included the annual surcharge revenue for meters
2" or larger, as well as the surcharge for multiple dwelling units serviced by the same
meter. The resulting rate revenue for FY 2014-15, prior to rate increases, but net of 0.4%
of bad debt, was estimated at $3,092,000. Based on this estimate, annual revenue
increases were projected as shown in Figure 3-3.
Figure 3-3. Projected Revenue Increases
FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
Increase in Revenue from Rates 11% 11% 11% 11% 11%
Revenue from Current Rates" $3,091,253 $3,091,253 $3,091,253 $3,091,253 $3,091,253
Revenue from Rate Increases
FY14-15 (effective 1/1/15) $113,W $340,038 $340,038 $340,038 $340,038
FY15-16(effective 7/l/15) �� $188,721 $377,442 $377,442 $377,442
FY16-17 (effective 7/1/16) $209,480 $418,961 $418,961
FY17-18 (effective 7/1/17) $232,523 $465,046
FY18-19 (effective 7/1/18) $258,101
Subtotal-Revenue Increases $113,346 $528,759 $926,960 $1,368,964 $1,859,587
Total Rate Revenue $3,204,599 $3,620,012 $4,018213 $4,460,216 $4,950,840
Net Revenue Requirements $3204,599 $3,620,012 $4,018,213 $4,460,216 $4,950,840
Surplus/(Deficit) after Increase $0 $0 $0 $0 $0
"Includes bad debt allowance of 0.4% of existing revenue and cutbacks to consumption charge revenue
based on conservation efforts
FUND BALANCE
The FY 2014-15 estimated year-end fund balance is projected to be $2,790,000, which is
higher than the minimum operations balance of $1,593,000. Figure 34 shows the fund
balance is above the minimum balance throughout the five year rate projection period,
however, the ten-year outlook shows the fund balance meeting the target in FY 2024-25
based on the projected revenue increases. 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.
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3. Sewer Projected Revenue Increases
Figure 3-4. Fund Balance With and Without Rate Increases
$3.50
(Operations+Capital)
$3.00
N
C
O
$2.50 Keservesw
ith Kate
Increase
$2.00
m
O00
c $1.50
Minimum Balance
(Operations)
0 $1.00
d �
8
Reserves without
$0.50
1. Rate Increase
$0.00
FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
Minimum Fund Balance
The minimum balance (red line) is the balance that is required to meet the City's
operating expenses during the year. If this minimum balance were maintained, the
Sewer Fund should be able to fund its monthly cash flow over this extended period
without relying on the General Fund for a short-term loan. When the Operations
Reserve balance is below the minimum balance, the likelihood increases that temporary
funding from the General Fund will be required to meet cash flow needs. The City's
reserve policy dictates that the minimum Operations Reserve balance be set equal to
50% of annual O&M expenses.
Target Fund Balance
The proposed revenue increases move the fund balance (solid green line) upward
toward the target balance (blue line). The target balance is the sum of the minimum
balance for operations (red line) plus an allowance for capital projects. This allowance
provides liquidity to fund construction for projects on a pay-as-you-go basis. With
adequate capital reserves, the City is able to pay construction contractors without
encroaching on the Operations Reserve. The allowance is based on the average annual
budgeted capital improvement projects.
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4. Sewer Rate Design
4. SEWER RATE DESIGN
CURRENT RATE STRUCTURE
The City currently has 23,100 active accounts who 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 to the charges specified above, 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 serviced by the same connection pay a surcharge of
$2.00 for each additional dwelling unit. Lastly, the City's 485 sewer customers who do
not purchase potable water from the City are charged $6.25 per account per month.
PROPOSED RATE STRUCTURE
The proposed rate structure is based on the revenue generated by the current rate
structure and categorizes the revenue into two categories: fixed revenue and variable
revenue. Fixed revenue is considered fixed because it does not vary based on flow,
while variable costs vary because they are based on the amount of water purchased, or
sewage produced and therefore, are solely comprised of the sewer consumption charge.
For the purpose of rate design, the sewer use charge for customers who do not purchase
water from the City was analyzed separately. Figure 4-1 presents the breakdown of the
current revenue by revenue category:
Figure 4-1. Fixed and Variable Revenue
Current Revenue
Fixed Revenue
Sewer Use Charge (per account) $1,179,651
Surcharge (2"meters or greater) $61,586
Surcharge (per additional DU) $314,371
Total Annual Fixed Revenue $1,555,608
Variable Revenue
Consumption Charge (per HCF) $1,511,712
Total Annual Variable Revenue $1,511,712
Subtotal $3,067,320
Sewer Use Charge (per account)* 36268.00
Grand Total** 53,103.588
*Sewer Revenue from customers who do not purchase potable
water from the City of Newport Beach
**Gross revenues; does not account for bad debt
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4. Sewer Rate Design
In order to determine the monthly charge by size of connection, we first converted the
number of active meters to equivalent meter units (EMU) as shown in Figure 4-2. The
EMU multiplier by meter size is the same multipliers used to determine the fixed
charge by meter size for the current sewer rates; in other words, it is the ratio between
$4.50 to $14.50, or 1 to 3.2. The monthly charge for an EMU of 1.00 is derived by
dividing the total fixed revenue of $1,556,000 by the total number of EMUS, or 23,815.
This quotient was then divided by 12 to convert from an annual charge of $71.59 to a
monthly charge of $5.44. The service charges were then graduated using the EMU
multipliers, the effect of which is to increase the service charges for the larger services.
Note the total annual revenue of $1,556,000 from fixed charges in Figure 4-2 is equal to
the total annual fixed revenue presented in Figure 4-1.
Figure 4-2. Calculation of Monthly Fixed Charges
Total
Total Monthly Annual
Active EMU Total Service Fixed
Meter Size Accounts Multiplier EMUS Charge Revenue
a b a*b c a*c*12
5/8"or 3/4" 15,357 1.00 15,357 $5.44 $1,003,119
V 6,276 1.00 6276 $5.44 $409,948
1 1/2" 364 1.10 400 $5.99 $26,154
2" 886 1.50 1,329 $8.16 $86,810
2 1/2" 1 1.60 2 $8.71 $105
3" 34 1.70 58 $9.25 $3,775
4" 119 2.00 238 $10.89 $15,546
6" 54 2.25 122 $12.25 $7,936
8" 11 2.50 28 $13.61 $1,796
10" 2 3.20 6 $17.42 $418
23,104 23,815 $1,555,608
The sewer consumption charge was derived using the monthly meter readings in HCF
for all customers. Figure 4-3 presents the derivation of the proposed sewer consumption
charges.
Fi ure 4-3. Calculation of Sewer Consumption Charge
Current Usage Charge
Cost Category Revenue (HCF) per HCF
Variable Revenue $1,511,712 4,320,000 $0.35
For sewer customers who do not purchase potable water from the City, and therefore,
do not have a proxy for their sewer flows, an average flow per account was derived by
using average water use per single family residential account. The 11.49 HCF average
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4. Sewer Rate Design
use was determined using FY 2011-12 customer billing data and dividing total single
family consumption by the number of single family accounts. Next, using the revised
rate structure, the $9.46 charge shown in Figure 4-4 represents the average single family
bill per month. It was calculated as the monthly sewer use charge of $5.44 per account
plus the product of the $0.35 consumption charge times 11.49 HCF.
Using the fixed and variable rates as calculated in Figure 4-2 and Figure 4-3, a five-year
rate plan was prepared based on the City's Sewer revenue requirements as presented in
Figure 3-1. The rates included in the 5-year plan reflect annual rate increases starting in
FY 2015-16 to keep pace with the increase in the revenue requirements. The proposed 5-
year rate plan is shown in Figure 4-4.
Figure 4-4. Five Year Sewer Rate Projections
Current Revised
Structure Structure FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
Monthly Sewer Use Charge
5/8"or 3/4" $4.50 $5.44 $6.04 $6.71 $7.44 $8.26 $9.17
1" $4.50 $5.44 $6.04 $6.71 $7.44 $8.26 $9.17
11/2" $4.50 $5.99 $6.65 $7.38 $8.19 $9.09 $10.09
2" $14.50 $8.16 $9.06 $10.06 $11.17 $12.40 $13.76
2 1/2" $14.50 $8.71 $9.67 $10.73 $11.91 $13.22 $14.68
3" $14.50 $9.25 $10.27 $11.40 $12.66 $14.05 $15.59
4" $14.50 $10.89 $12.08 $13.41 $14.89 $16.53 $18.34
6" $14.50 $12.25 $13.59 $15.09 $16.75 $18.59 $20.64
8" $14.50 $13.61 $15.11 $16.77 $18.61 $20.66 $22.93
10" $14.50 $17.42 $19.33 $21.46 $23.82 $26.44 $29.35
Monthly Sewer Use Charge (Sewer Only Customers)
Rate per Account $6.25 $9.46 $10.51 $11.66 $12.94 $14.37 $15.95
Consumption Charge
Rate per HCF $0.35 $0.35 $0.39 $0.43 $0.48 $0.53 $0.59
Sewer Surcharges
Multi Unit surcharge(per DU) $2.00 Note 1 Note 1 Note 1 Note 1 Note 1 Note I
Note h The surcharge has been incorporated into the Monthly Sewer Use Charge under the revised structure.
CURRENT AND PROPOSED CUSTOMER BILL COMPARISONS
Figure 4-5 presents a comparison of monthly customer bills using the current rate
structure and the recommended revised rate structure. The rates used to calculate the
revised bills are the FY 2015-16 charges presented in Figure 44. It is notable that current
customers who are subjected to the multiple dwelling $2.00 monthly surcharge will
experience a decrease in their monthly bill. This occurs based on the revisions to the
monthly sewer use charge. The graduated rates, based on meter capacity, better reflect
associated flow assumed per dwelling unit, and its equivalent.
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4. Sewer Rate Design
Figure 4-5. Customer Bill Comparison
Average
Numberof Monthly Current FY 15-16
Dwelling Flow Monthly Monthly Difference
Customer Name Meter Size Units (HCF) Bill Bill M
Single Family Residential(low flow) 5/8"- V 1 2 $ 5.20 $ 6.82 $1.62
Single Family Residential(avg flow) 5/8"- V 1 11 $ 8.35 $ 10.32 $1.97
Single Family Residential(high flow) 5/811- 11, 1 16 $ 10.10 $ 12.26 $2.16
Multi Family Residential 3" 55 243 $ 209.55 S 104.68 ($104.87)
Commercial 4" 1 595 $ 224.75 $ 243.24 $18.49
Commercial 8" 141 2,074 $1,022.40 $ 820.85 ($201.55)
Commercial 6" 1 1,584 $ 568.90 $ 628.98 $60.08
RESIDENTIAL CUSTOMER IMPACTS
Using the City's FY 2011-12 customer billing data, Figure 4-6 illustrates the distribution
of monthly billed sewer customer flow. It is important to note that the FY 2011-12
customer billing data is considered a snapshot in time and does not reflect continuous
changes in customer behavior; additional factors (economic, climate) may impact
consumption patterns in the future. Figure 4-6 indicates that customers who are billed
10 HCF or less on a monthly basis comprise 50% of total bills. Moreover, 90% of
monthly bills are 27 HCF or less. This indicates that 90% of customers will not see
more than an increase of$2.00 per month, per year, over the five year projection period.
Figure 4-6. Residential Customer Bill Impacts
100%
90%
80%
70%
'm
z 60%
c
0
� 50%
`o
C 40%
d
u
a 30%
20%
30%
0%
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 90 85 90 95 100
HCF per Bill per Month
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4. Sewer Rate Design
COMPARISON WITH NEIGHBORING AGENCIES
Based on available sources, Figure 4-7 shows the recent charges for sewer service
among similar Orange County agencies, specifically ones that charge a fixed monthly
use charge coupled with a flow-based commodity charge. Larger agencies tend to have
lower rates because they can take advantage of economies of scale and have a larger
base of customers over which to distribute fixed costs. Figure 4-7 indicates that the
City's current and proposed sewer rates track the trend line along with its neighbors
(identified with red diamonds in Figure 4-7).
Figure 4-7. Neighboring Agency Comparison
$20
■ Buena Park
$15 0 Seal Beach
■ Garden Grove SD
m Huntington Beach
$10 ew o e
vine Ranch WD M
■ La Habra Newport Beach-Current
Costa Mesa SD
Fullerton
$5
$0
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000
Population of Service Area
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City of Newport Beach Sewer and Recycled Water Rate Study
5. Recycled water Projected Revenue Increases
S. RECYCLED WATER PROJECTED REVENUE INCREASES
REVENUE REQUIREMENTS
The City's FY 2013-14 revenue requirement served as the basis for determining the
revenue requirement projections through FY 2018-19. Figure 5-1 summarizes the
sources and assumptions for the data as well as the projected expenditure trends:
Figure 5-1. Revenue Requirement Projections
FY 13-14 FY 14-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
Operating Costs $ 40,488 $ 41,188 $ 41,901 $ 42,626 $ 43,363 $ 44,114
Purchased Recycled Water 167,598 173,417 179,438 182,810 186,245 189,745
Pump Station Operating&Mainte 39,408 47,218 48,104 49,007 49,927 50,864
Depreciation 17,500 17,543 17,587 17,632 17,678 17,724
Total Revenue Requirement $ 264,994 $ 279,366 $ 287,030 $ 292,075 $ 297,213 $ 302,446
Operating Expenses
This cost category includes administration and overhead expenses that are calculated as
10% of the total recycled water revenue requirement and 1% of the budgeted general
fund overhead charged to the water fund, respectively. During the projection period,
the City's operating expenses are projected to increase gradually at about 1.73% per
year, based on the five-year historical average of general inflation for the Los Angeles
area.
Purchased Recycled Water
This cost category for FY 13-14 was based on the actual water purchases in FY 12-13
multiplied by the cost of purchased water from OCWD of $360 per acre foot. During the
projection period, the City's purchased water costs are projected to increase gradually
at about 1.88% per year, based on the five-year historical average of OCWD purchased
water charges per acre foot.
Pump Station Operating and Maintenance
This cost category for FY 13-14 was based on the actual cost of inspections, scheduled
and corrective maintenance, source changeovers and pump station rehabilitation and
maintenance as provided by the city. During the projection period, the City's pump
station operating and maintenance costs are expected to increase gradually at about
1.73% per year, based on the five-year historical average of general inflation for the Los
Angeles area.
Depreciation
This cost category includes replacement costs for pump station facilities and water
meters. The annual pump station facility replacement cost was based on $600,000 in
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City of Newport Beach Sewer and Recycled Water Rate Study
5. Recycled water Projected Revenue Increases
construction costs, amortized over 40 years. The annual meter replacement cost was
based on the American Water Works Association's standard cost of $259 per meter per
year, amortized over 15 years. During the projection period, the City's pump station
facility replacement costs are held constant at $15,000 per year, while the meter
replacement costs are projected to increase gradually at about 1.73% per year, based on
the five-year historical average of inflation for the Los Angeles area.
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6. Recycled Water Rate Design
6. RECYCLED WATER RATE DESIGN
The following section was previously submitted as a separate report dated April 24,
2014. The City Council subsequently adopted the recommended rates in compliance
with Proposition 218, effective October 9, 2014. The following text summarizes the rates
documented in the April 2014 report and subsequently adopted by the City Council.
CURRENT RATE STRUCTURE
The City currently has five recycled water customers totaling 14 connections. These
customers pay the sum of two charges every month for water service: a basic service
charge based on the size of the service connection plus a commodity charge based on
metered water use during the billing period. In 1991, the City entered into an agreement
with OCWD for the distribution and sale of recycled water. The agreement stipulated
that the recycled water rate may not exceed 80% of the potable water rate. It is the City's
current practice to charge customers 80% of the potable water rate based on that
agreement.
PROPOSED RATE STRUCTURE
Under the new rate structure, the recycled water rates will no longer be linked to 80% of
the potable water rates. The proposed rate structure is based on the FY 2014-15 revenue
requirement, and categorizes the expenses into three categories: fixed costs, variable
costs and pump station-related costs. Fixed costs are considered fixed because they do
not vary based on flow, and include the annual cost of meter reading and replacement,
as well as administrative and overhead. Variable costs vary because they are based on
the amount of water purchased, and therefore, are solely comprised of the annual cost
of purchased water from OCWD. Pump station-related costs are comprised of
inspections, maintenance, and rehabilitation & replacement that are directly related to
the pump stations. Figure 6-1 presents the breakdown of the FY 2014-15 revenue
requirement by cost category:
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6. Recycled Water Rate Design
Figure 6-1. FY 2014-15 Revenue Requirement by Cost Cate ory
FY2014-15
Fixed Costs
Administration $25,433
Overhead $12,208
Meter Reading $1,514
Meter replacement $2,543
Other agency fees $2,035
Total Fixed Costs $43,732
Variable Costs
Purchased Water $173,417
Total Variable Costs $173,417
Pump Station Costs
Inspections $7,021
Maintenance $13,109
Rehab& Replacement $42,087
Total Pump Station Costs $62,218
Total Revenue Requirement $279,366
In order to determine the monthly charge by size of connection, we first converted the
number of active meters to equivalent meter units (EMU) as shown in Figure 3-2. The
EMU multiplier by meter size is the same multipliers used to determine the fixed
charge by meter size for potable water rates. The monthly charge for an EMU of 1.00 is
derived by dividing the total fixed costs of $43,732 by the total number of EMUS or
192.70. This quotient was then divided by 12 to convert from an annual charge of
$226.94 to a monthly charge of $18.91. The service charges were then graduated using
the EMU multipliers, the effect of which is to increase the service charges for the larger
services. Note the total annual revenue of $43.732 from fixed charges in Figure 6-2 is
equal to the total fixed costs presented in Figure 6-1.
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6. Recycled Water Rate Design
Figure 6-2. Calculation of Monthly Fixed Charges
Total Monthly FY 14-15
Active EMU Total Service Annual
Meter Size Accounts Multiplier EMUs Charge Revenue
a b a*b c a*c*12
5/8"or 3/4" 0 1.00 0 $18.91 $0
V 0 1.67 0 $31.53 $0
1 1/2" 0 3.33 0 $63.05 $0
2" 8 5.33 42.67 $100.88 $9,684
3" 3 10.00 30.01 $189.15 $6,810
4" 0 16.67 0 $315.25 $0
6" 2 33.34 66.68 $630.50 $15,132
8" 1 53.34 53.34 $1,008.81 $12,106
14 192.70 $43,732
The commodity and pump station charges were derived using the FY 2012-13 monthly
meter readings in HCF for all customers, and FY 2012-13 monthly meter readings for
pump station customers in HCF, respectively. Figure 6-3 presents the derivation of the
proposed commodity and pump station charges for FY 2014-15:
Figure 6-3. Calculation of Commodity and Pump Station Charges
FY12-13 FY14-15
FY14-15 Usage Charge
Cost Category Costs (HCF) per HCF
Variable Costs $173,417 202,793 $0.86
Pump Station Costs $62,218 172,426 $0.36
Using the FY 2014-15 rates as calculated in Figure 6-2 and Figure 6-3, a five-year rate
plan was prepared based on the City's recycled water revenue requirements as
presented in Figure 5-1. The proposed five-year rate plan is shown in Figure 6-4.
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6. Recycled Water Rate Design
Figure 6-4. Five Year Recycled Water Rate Projections
Current FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19
Monthly Service Charge
5/8"or 3/4" $13.82 $18.91 $19.29 $19.68 $20.07 $20.47
P $23.03 $31.53 $32.16 $32.80 $33.46 $34.13
1 1/2" $46.06 $63.05 $64.32 $65.60 $66.91 $68.25
2" $73.70 $100.88 $102.90 $104.95 $107.05 $109.19
3" $138.18 $189.15 $192.94 $196.80 $200.73 $204.75
4" $230.30 $315.25 $321.56 $327.99 $334.55 $341.24
6" $460.61 $630.50 $643.11 $655.98 $669.10 $682.48
8" $736.98 $1,008.81 $1,028.99 $1,049.57 $1,070.56 $1,091.97
Monthly Commodity Charge
Rate per HCF $2.46 $0.86 $0.87 $0.89 $0.91 $0.93
Monthly Pump Station Charge
Rate per HCF none $0.36 $0.37 $0.38 $0.38 $0.39
CUSTOMER BILL COMPARISONS
Figure 6-5 presents a comparison of monthly customer bills using the current rate
structure and the recommended revised rate structure. The rates used to calculate the
revised bills are the Year 1 charges presented in Figure 64. It is notable that all current
recycled water customers will experience no less than a 44% bill decrease with the
recommended structure change.
Figure 6-5. Customer Bill Comparison
Average
Monthly Current Revised
Flow Monthly Monthly Difference Difference
Customer Name Meter Size (HCF) Bill Bill ($) (%)
Newport Beach Country Club 6" 6,650 $16,820 $8,717 ($8,103) --1,X4,,
Our Lady Queen of Angels 2" 151 $446 $230 ($215) -48%
Big Canyon Country Club 8" 5256 $13,668 $5,504 ($8,164) -60%
Big Canyon Country Club 6" 2,463 $6,518 $3,625 ($2,894) -44%
Eastbluff School 3" 321 $928 $464 ($464) -50%
October 13, 2015 Page 20 HF&H Consultants, LLC
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APPENDIX A. SEWER AND RECYLED WATER RATE MODEL
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P
O
0
HF&H Consultants, LLC
201 N. Civic Drive, Suite 230
Walnut Creek, CA 94596
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Attachment B — Sample of Cost to Customer Comparison
Average
Number of Monthly Current FY 15-16
Dwelling Flow Monthly Monthly Difference
Customer Name Meter Size Units (HCF) Bill Bill ($)
Single Family Residential(low flow) 5/8" - 1" 1 2 $ 5.20 $ 6.82 $1.62
Single Family Residential (avg flow) 5/8" - 1" 1 11 $ 8.35 $ 10.32 $1.97
Single Family Residential (high flow) 5/8" - 1" 1 16 $ 10.10 $ 12.26 $2.16
Multi Family Residential 3" 55 243 $ 209.55 $ 104.68 ($104.;
Commercial 4" 1 595 $ 224.75 $ 243.24 $18.49
Commercial 8" 141 2,074 $1,022.40 $ 820.85 ($201.55)
Commercial 6" 1 1,584 $ 568.90 $ 628.98 $60.08
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Figure 1 — Projected Fund Balance
$3.50 - Target Balance
(Operations + Capital)
$3.00
N
C
O
with Rate
Increase
N .
$2.00
41
m �
c $1.50
,i `.� Minimum Balance
v `
(Operations)
$1.00 %,
a Reserves without
$0.50 Rate Increase
$0.00 ``
FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20
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Figure 2 — Neighboring Agency Comparisons
$20
■ Buena Park
$15 ■ Seal Beach
■ Garden Grove SD
m
$10 Newpo seP Huntington Beach
vine RanchWD ■
0 ■ La Habra Costa
Beach - Current
■ Costa Mesa SD
■ Fullerton
$5
$0
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000
Population of Service Area
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