Sewer Treatment Rate Increase

Friday, October 14th, 2011 News

East Valley Water District Board of Directors will hold a public hearing on the proposed rate pass through on Tuesday, November 22 at 6 p.m. in the East Valley Water District Board Room, 3654 E. Highland Ave., Highland, California.

Read the details of the proposed rate increase.

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Staff Report

Subject:

On October 19, 2010, the Board of Water Commissioners (BOWC) conducted a sewer rate workshop to review the Sewer Treatment Rate Study Model (model) performed by R. W. Beck, Inc., a nationally recognized engineering and rate consulting firm.  This study analyzed cost of service, developed revenue requirements, and designed new rates to meet the financial requirements of the sewer treatment facilities operated by the Water Department.  The BOWC authorized submission of the model to Mayor and Common Council for adoption of a two-step rate adjustment, approximating a system average of ten percent (10%) each, to be implemented February 1, 2011, and January 1, 2012, respectively.

 

Background:

The sewer treatment facilities are owned and operated by the Water Department.  Sewer fees and charges were last adjusted January 1, 2009 and January 1, 2010, through a 2008 Sewer Rate Study conducted by R. W. Beck.  That study proposed:

1. a series of rate increases over a five-year period;
2. coverage of debt service through rates;
3. wastewater strength samples and discharge flows analysis by January 2011; and
4. cost-based adjustments between classes based upon the additional sampling.

Given the volatile economic conditions at that time, Department staff recommended two five percent (5%) across-the-board adjustments to sewer treatment rates effective January 2009 and January 2010, respectively. This offered the Department the opportunity to address any cost-of-service issues in January 2011. On June 15, 2010, the Department retained Beck to update the 2008 Sewer Rate Study, develop revenue requirements, and cost allocation studies.

Financial Impact:

Beck’s model (attached) summarizes projected sewer revenue requirements for Fiscal Years 2011 through 2015, documents fiscal policy issues that affect revenue requirements, and provides detailed supporting calculations.   The model identifies four primary reasons the Department must increase rates:

1. Preliminary audit findings for Fiscal Year 2009/2010 indicate that the sewer treatment debt coverage ratio may be in violation of the bond covenant requirements.  Section 6.12 of the Installment Purchase Agreement in connection with the 1998 sewer treatment financing states, “The City shall fix, prescribe and collect rates, fees, charges and connection fees for sewer service which will be at least sufficient to yield during each Fiscal Year Net Revenues equal to one hundred ten percent (110%) of Debt Service for such Fiscal Year.”
2. The Department requires additional capital funds to meet increasing state and federal regulatory requirements.  It is estimated that an amount in excess of $20 million in funding will be necessary to meet regulatory compliance issues over the next five years.
3. The Department must continue to meet ongoing fixed obligations during the economic downturn.
4. The Department must adjust commercial rates by class to more accurately charge cost of service and eliminate subsidies.

Beck reviewed historical operating expenses, existing assets, existing debt service, projected expenditures, potential financing strategies, required capital improvements, local economic factors, and system flow and loading information.  Revenue requirements are established utilizing an iterative process that reviews various projected impacts of proposed rates.

Beck then functionalized, classified and allocated costs among various customer classes based upon usage characteristics of each class. The model analyzed the results over a five-year period and arrived at rates that meet the needs of the utility at the lowest possible cost to the consumer.

The proposed rates (listed in Table COS-10 of the attached model) are rounded to the nearest five cents to simplify the calculation for our customers. This rounding has no significant impact on the percentage increase.  Residential customers will see a $1/month and a $1.50/month increase in their sewer treatment bills in 2011 and 2012, respectively. The increase in commercial customer bills will vary according to consumption and the classification in which the account resides.

The Department has developed the following calendar for implementation of the adjustment for sewer treatment fees:

November 15, 2010	Mayor and Common Council review/set public hearing
November 18, 2010	Public notification of rate adjustment
January 10, 2011	Public hearing/rate adoption
February 1, 2011	Rate implementation

 

Recommendation:

Set public hearing for January 10, 2011, at 4:00 p.m. in the Council Chambers of City Hall to adjust sewer treatment rates as defined in the Sewer Treatment Rate Study Model for implementation February 1, 2011, and January 1, 2012, respectively.
 

Attachments: Department Presentation

R. W. Beck Sewer Treatment Rate Study Model – Fiscal Years 2011 – 2015