HomeMy WebLinkAbout05/01/2007, BUS 2 - PRESENTATION OF VOLUME BASED SEWER RATE STRUCTURE � I
council May 1,2007
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CITY OF SAN LUIS OBISPO
FROM: John Moss, Utilities Director
Prepared By: Kathe Bishop, Senior Administrative Analyst ?
SUBJECT: PRESENTATION OF VOLUME BASED SEWER RATE STRUCTURE
CAO RECOMMENDATION
Consider the final recommended sewer rate structure and implementation schedule to be included
as part of the 2007-09 Financial Plan in the May 31, 2007 sewer fund review, with final adoption
of new sewer rates and proposed volume based sewer rate structure on June 19, 2007.
REPORT-IN-BRIEF
This is the fifth report to Council on the multi-year, multi-objective study of the City's water and
sewer rate structures. The goal of this study was to develop a master plan for long-term
improvements to water and sewer customer services based on .a review of current industry trends,
Council rate structure goals and objectives, and community input. On May 17, 2005, the Council
approved an agreement with HDR Engineering for financial and engineering services to assist in
the evaluation of the City's water and sewer rate structures.
On April 18, 2006, the Council directed staff to return to Council with the final, recommended
sewer rate structure based on a small fixed fee plus volume rate and an implementation schedule,
allowing adequate time for community information and outreach prior to a proposed July 2007
implementation. This report delivers the final recommended volume based sewer rate structure
consistent with previous direction, for Council consideration.
Impact of the Proposed Changes on Our Customers
The proposed change will not have any impact on the "average" customer — up or down. The
recommended rate structure is revenue neutral compared with our current one: based on
underlying usage assumptions (which we have been developing over the past two years, and
refined with the most recent `winter use' information from December 2006 to February 2007),
this rate structure will generate the same amount revenue as our current one.
So who will be affected? The "non-average" customer. With the proposed rate structure,
customers who use less water (and thus discharge less effluent to our sewer system) than
"average" will pay proportionately less than they do now; and customers who discharge more
will proportionately pay more. Statistically, in varying degrees, we can expect that about half of
our customers will pay less and about half will pay more under the proposed rate structure. For
customers that discharge just a little more or less than average to our sewer system, the difference
will be small. On the other hand, for those customers who discharge a lot more or less to our
system, the difference will be larger.
Presentation of Volume Based Sewer Rate Structure Page 2
However, this is the goal for the new rate structure: to provide greater equity between customers
based on their use of the sewer system — like we do for our water customers —while at the same
time providing the same revenue adequacy as our current rate structure.
Smaller impact on non-residential customers. Non-residential customers will be affected less
by the change than residential customers, since their billings are already based largely on water
usage. And as discussed below, we are not proposing any changes to the rate structure for
schools.
The Downsides. While we believe that are a number of positive benefits to this change, there are
three possible downsides:
1. At least initially, we can expect that there will be some customer confusion over the new rate
structure. However, given our communication efforts to date, combined with the positive
feedback we have received regarding this change (largely from lower-using water customers),
we believe that this will be a manageable problem (and we are prepared for it). Moreover, it
should be resolved within six months after implementation, as it becomes the `-`new normal."
2. Some of our customers will see large increases in their sewer bills. However, this is an
intended consequence of the new rate structure: in order for lower discharging customers to
pay less, higher discharging customers will have to pay more.
3. Residential customers account for about 65% of our sewer fee revenues. Given our current
fixed fee rate structure for residential customers, this provides a high level of revenue
stability to the sewer system. With the move to a more volume-based rate structure, we will
be introducing a higher level of revenue instability to our sewer revenues. We believe this is
offset by our detailed analysis of usage by a wide range of customer types, and our successful
experience in moving to all volume-based water rates 15 years ago. Nonetheless, the fact is
that we will not know if the proposed rate structure is as revenue neutral as our model
predicts for several years.
DISCUSSION
Moving from a fixed (flat rate) residential sewer rate structure to a rate structure that better
reflects individual customer sewer use has long been an express desire of many of our residential
customers. In order to make this transition, a number of steps and/or changes to how we do
things were required, including:
1. Establishing an estimate of individual customer's wastewater generation.
2. Moving to a monthly billing cycle
3. Modeling various volume based rate structure options to ensure conformance with rate
structure goals, equity between customers and customer classes.
4. Collecting actual customer use information, and then validation of the proposed rate
structure.
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Presentation of Volume Based Sewer Rate Structure Page 3
All of these steps have been completed and this report presents the final recommended volume
based sewer rate structure for Council consideration.
Since it is not possible to accurately measure wastewater generation from most individual homes
and businesses, estimating wastewater generation based on metered water use is the most
accurate means available today. To do this requires that we consider means to effectively
eliminate the customer's outdoor water use from the equation. This is accomplished in one of
two ways:
1. Installing a separate meter for landscape irrigation.(which is generally not feasible for single
family residential accounts).
2. Using the customer's winter water use, when little or no irrigation should occur, to establish
the individual customer's indoor water use.
Monthly Utility Billing
On June 6, 2006, as part of the water and sewer fund reviews, the Council approved a request to
move from a bi-monthly water and sewer billing cycle to a monthly billing cycle. This change to
monthly utility billing provides:
1. Billing frequency that is easier for customers to budget for
2. Timely consumption information for customers wishing to conserve water and control their
costs
3. Monthly billing consistent with other utilities and service providers..
4. .Accurate and timely consumption information necessary to provide for a volume based sewer
rate structure.
On October 1, 2006, the Utilities, and Finance & Information Technology departments
implemented monthly utility billing for all 14,300 customer accounts. Logistically, moving from
bi-monthly to the monthly read/billing cycle was a significant undertaking, and credit for the
successful transition goes to the implementation team which includes staff from Water Customer
Service, Finance Utility Billing, Water Conservation, and Water Distribution sections.
Monthly utility billing provides the monthly consumption information necessary to implement
the volume based sewer rate structure, which as recommended is based on an individual
customer's average winter water consumption (AWWC) as measured during the winter months
of December, January and February to establish an AWWC "sewer cap"for sewer billing.
Single Family Residential (SFR)Volume Based Sewer Rate Structure
On April 18, 2006, the Council conceptually approved a volume based sewer rate structure for
SFR customers that includes a small $5.00 fixed charge per account plus a volume (per unit)
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Presentation of Volume Based Sewer Rate Structure Page 4
charge. With the implementation of monthly meter reading/billing and collection of average
winter water consumption data, the preliminary volume based sewer rate structure was further
analyzed and validated, with assistance from HDR Engineering and financial rate analyst Shawn
Koom, for equity and fairness between customer classes and to ensure revenue adequacy to fully
meet system operating and capital needs.
The final recommended residential sewer rate structure provides equity and fairness between
customer classes and ensures revenue adequacy. The recommended final SFR sewer rate
structure for 2007-08 is outlined below.
Table 1. Recommended Final Residential Volume Based Sewer Rate Structure
Recommended Sewer Rate
Effective July 1,2007
Monthly Base Charge(2) $5.00
Volume Charge per Unit(3) $5.05
1�1 Includes sewer rate increase assumption for 2007-08 of 11%
Fixed base charge per month,per account
(3)One unit of water or wastewater equals 100 cubic feet or 748 gallons
Moving from a fixed residential sewer rate structure to a volume based sewer rate structure was a
key component of our customer service enhancements. In addition, the number one request from
our customers was for the City to provide a residential sewer rate billing structure that is based
on individual usage as opposed to the current fixed billing rate. Benefits of the proposed volume
sewer rate structure include:
1. Encourages conservation.
2. Provides equity and fairness between classes of customers.
3. Allows customers choice and control of their utility costs.
4. Ensures revenue adequacy to fully meet system operating and capital needs.
S. Delivers improved customer service responding to the number one utility billing request from
our customers.
The proposed sewer rate structure will more accurately represent individual usage and provide
customers with greater control of their sewer bills. As indicated in Table 2, the recommended
rate structure includes a small fixed charge of$5.00 per month, plus a volume charge of$5.05
per unit and measures an individual customer's average winter water consumption during the
months of December,January and February,when outdoor irrigation would be at its lowest.
During this average winter water consumption (AWWC) period, water consumption is most
reflective of indoor water use. The average winter water consumption is applied to the sewer rate
structure as a"sewer cap". The volume based sewer billing is based on the individual customer's
water consumption, not to exceed their AWWC "sewer cap". Should a customer's water
consumption be less than the "sewer cap", the customer will be billed based on actual usage.
Conversely, should a customer's water consumption be greater than their established "sewer
cap", the sewer billing will be based on the customer's AWWC "sewer cap".
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Presentation of Volume Based Sewer Rate Structure Page 5
An example of the recommended residential volume based sewer billing calculation is outlined
in Table 2,based on an "average" SFR customer's usage.
Table 2.
Billing Period for Winter Water Consumption Assumed Water Consumption
December 2006 8 units
January 2007 6 units
February 2007 7 units
AWWC"Ca "
Average Winter Water Consumption "Cap" 7 units
Using the example above, the average 2006-07 winter water consumption would equal 7 units,
which means the annual AWWC "sewer cap" for sewer billing starting in July 2007 equals "7".
With this example, on the August 2007 bill (which represents the July service period), the sewer
charges outlined below would appear.
Table 3.Example o Recommended.Residential Volume Based Sewer BillingCalculation at or above AWWC "Cap '
Sewer Rate Structure Recommended Sewer Rate l l Assumed Example
Effective.July 1,2007 August 2007 Sewer Billing
Monthly Base Charge $5.00 $5.00
Volume Charge per Unit $5.05 $35.35(sewer cap of"T'x$5.05)
Total Sewer Charge $4035
Includes sewer rate change assumption for 2007-08 of 11%
As reflected above, assuming this customer used more than 7 units in the summer (which is
likely: the "average" SFR customer would use about 11 units in the summer), the sewer fee is
"capped" at $40.35. If usage was less than 7 units, the bill would be lower. For example,
regardless of which month, if 5 units were used, the sewer bill would be$25.25.
By comparison, under the same revenue assumptions for 2007-08 (which assume an 11% rate
increase), the SFR flat rate would be $39.47. For the summer months, this represents a 2%
difference from our current rate structure. And with modest water savings, it could represent a
decrease in other months.
The AWWC cap will be re-calculated.for each customer annually based on their Winter usage.
New customers without a past profile will be assigned a cap based on"average"customer usage.
Multi-Family Residential (MFR) Sewer Rate Structure
For master-metered MFR accounts without a separate irrigation meter, sewer billing will also
include similar AWWC "sewer caps"as SFR accounts.
On the other hand, we recommend that master-metered MFR accounts with irrigation meters
(approximately 5% of all MFR accounts) be charged the non-residential sewer rate structure.
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Presentation of Volume Based Sewer Rate Structure Page 6
MFR customers with an irrigation meter receive a separate billing for each meter, providing
separate consumption information for indoor and outdoor water use. For all MFR accounts, the
proposed sewer rate includes a base charge of$5.00 per account (not per housing unit behind the
meter, which is the current basis for assessing fixed monthly rates),plus the same volume charge
of$5.05 per unit as SFR customers. The distinction is that MFR customers without an irrigation
meter will have a "sewer cap"based on their AWWC; and those with an irrigation meter— since
their outdoor usage is separately accounted for—will not.
In both cases, the $5.00 minimum fee would apply on a "per account" basis, not "per unit"
behind the meter. For example, the fixed monthly fee of$5.00 would be the same for a ten-unit
apartment house as a 100-unit one: the cost of meter reading, bill preparation and payment
processing are the same. However, the bill for the 100-unit account is likely to be much higher;
assuming higher water usage.
Lastly, this same proposed rate structure would also apply to mobile home accounts
Non-Residential (NR) Sewer Rate Structure
The existing sewer rate structure for NR customers (retail, office, service commercial, hotels,
manufacturing, business park, goverment and other institutional users like churches) is largely
volume-based: it includes the residential fixed rate for the first 5-units and a volume charge per
unit thereafter. In order to ensure equity between customers, we recommend that all customers
(residential and non-residential) have the same rate structure (which is currently the case for
water service, with the exception of a third tier commodity charge for very high SFR customers).
Accordingly, the proposed NR rate structure includes the same monthly base charge of$5.00 per
account, plus a volume charge of$5.05 per unit. However, no AWWC caps are proposed for NR
accounts. If they believe that a significant portion of their water usage is for outdoor uses, they
have the option of installing a separate irrigation meter, which 19% of our NR customers have
already done.
As discussed above, since the existing NR rate structure is already largely volume based, there
should be less of an impact on NR customers under the proposed rate structure. However, the
same policy calculus will apply to them as well: low NR water users will see a decrease in their
sewer bills; and high NR water users will see an increase.
Schools Sewer Rate Structure: No Change
Sewer service charges for public and private schools are currently based on average daily
attendance, as determined annually in October for the following year. No changes are
recommended to the rate structure for schools.
Rate Structure Summary
Attached is a summary comparing the proposed rate structure with the current one on an "apples
to apples" basis. While it assumes an 11% general purpose rate increase effective July 1, 2007,
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Presentation of Volume Based Sewer Rate Structure Page 7
comparing the rate structures is not dependent on this. If the Council adopts a different rate
increase (or no increase at all), the relative differences between the current and proposed rate
structure will be the same.
Implementation of Volume Based Sewer Rate Structure
1. Implementation Schedule
May 2, 2007—Proposition 218 rate change notification will be mailed to all water and sewer
customers informing rate payers of the proposed water and sewer rate changes for July 2007
and July 2008. Proposition 218 requires rate change notification at least 45-days prior to
public hearing on rate change adoptions.
May 31, 2007 — Utilities staff presents water and sewer fund reviews to Council in a public
hearing to include recommended sewer rate structure changes and recommended water and
sewer rate changes for review and consideration.
June 19, 2007 —Public Hearing for final adoption of sewer rate structure changes and water
and sewer rate setting, to be effective July 1,2007.
July 1, 2007 — Sewer rate structure changes and water and sewer rate changes become
effective.
August 2007 — Utility.billings for the July service period will be issued in August reflecting
the individual residential customer's "sewer cap" as established by their average winter water
consumption(AWWC).
Z Utility Billing Adjustments
Disputes regarding the new rate structure will be handled by our existing utility billing
adjustment process. Routine water and sewer billing questions regarding billing adjustments
are often responded to by the Finance Utility Billing staff. Requests for water/sewer
consumption and billing adjustments, which may result from a leak, are responded to by the
Utilities Conservation Coordinator who chairs the City's Utility Billing Adjustment
Committee (VBAC). The Committee was established in 1992 to assist customers with
billing questions and concerns, to resolve billing problems that may arise.
The City's website at www.slocity.org/utilities includes information regarding the utility
billing adjustment request process, including an adjustment request form for submittal of the
customer's billing adjustment request. In terms of winter water consumption and resulting
AWWC "sewer caps", customers will be provided with a window of opportunity to request
adjustments for the prior winter water consumption "sewer cap" that will be implemented
July 2007.
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Presentation of Volume Based Sewer Rate Structure Page 8
3. New Customer Accounts
It is proposed that new accounts for customers, who did not established winter water
consumption, will start their sewer billing on a volume based rate structure assuming an
average winter water consumption "cap" of 8-units. The 8-units volume rate reflects a flat
fee comparable charge. This provides a volume based rate structure for all customers and
provides new customers with a window of time to become educated on the level of control
they have on their current water consumption and the conservation value associated with the
establishment of their first full winter water consumption period.
Community Information and Outreach
Community information and outreach is an on-going component of the multi-year, multi-
objective study of the City's rate structures. As,directed by Council on April 18, 2006, Utilities
staff has continued to provide information and outreach to our customers on the proposed volume
based sewer rate structure changes. Outreach has been provided through a variety of means,
including the citywide mailing of the Utilities Department Resource newsletter in the Summer
2006, Fall 2006 and Winter/Spring 2007 issues; and through separate postcard mailers, each
delivered to all 14,300 customers. For those customers who prefer to use the Internet for
business, the Resource newsletter plus utility billing information in greater detail is available and
updated regularly on the City's website at www.slocity.org/utilities.
Winter Water Conservation
The recommended volume based sewer rate structure ("capped" for residential customers based
on the average winter water consumption) encourages water conservation year-round, and
particularly during the winter months, when outdoor irrigation should be at its lowest.
There is a customer educational component to any rate structure change, and though many
customers follow the public information the City provides and proactively conserve water to
establish a lower AWWC "cap", other customers are reactive and will wait to see the outcome on
their actual sewer billings. Given the City's move from a bi-monthly billing period to a monthly
billing period, it is difficult to accurately measure water conservation compared to same period
last year. However, we do know, based on customer inquiries and feedback, that many
customers have proactively adjusted water usage. Industry trends demonstrate that in "Year
Two" of a rate change,from fixed to volume, the water conservation outcome will be much
greater than during the implementation period. Staff will continue to evaluate water conservation
outcome and report results.
Next Steps
As part of the 2007-09 Financial Plan process, the proposed volume based sewer rate structure
changes will be included in the budget workshop on the sewer fund review scheduled for Council
consideration on May 31, 2007. On June 19, 2007, the Council will consider final adoption of
the new sewer rates and sewer rate structure changes.
Presentation of Volume Based Sewer Rate Structure Page 9
Summary
The proposed volume based sewer rate structure has been developed to achieve the objectives of
the Council and the desires of the community for equity and fairness. It has undergone extensive
technical analysis in its development to ensure that it also meets the revenue requirements of the
sewer fund. The community has received considerable information on the move to a volume
based sewer rate and individual AWWC "sewer caps" have been established this past winter.
With adoption of the proposed rate structure on June 19, 2007 we will be able to move forward
with this long requested community objective of a volume based sewer rate structure.
FISCAL IMPACT
There is no fiscal impact to the Sewer Fund. As stated previously, the recommended rate
structure is revenue neutral. The average customer will see essentially no change in their sewer
billing amount. However, many customers will realize a change in their sewer billing amount,
which will more accurately reflect that individual customer's choices and resulting usage and
impacts to the City's wastewater collection and water reclamation facility systems. The fiscal
impact to customers is designed to provide equity and fairness and encourage conservation.
ALTERNATIVES
As part of the rate structure review and analysis process that began in May 2005, staff has
previously considered and discussed alternative rate structures with Council. On April 18, 2006,
Council conceptually approved a volume based sewer rate structure to include a small fixed
charge,plus a volume per unit charge, with a proposed July 2007 implementation.
Retaining the current fixed sewer rate structure is not recommended, as the fixed rate does not
address customer needs or achieve goals for equity and fairness between customer classes. And
while other variations on the proposed structure are possible in terms of fixed versus variable
charges, and approaches to accounting for outdoor water uses (which the Council has previously
considered in a comprehensive way), the proposed rate structure is consistent with prior Council
direction.
ATTACHMENT
Comparison of Current and Proposed Rate Structure
AVAILABLE FOR REVIEW IN THE COUNCIL OFFICE
.1. Proposition 218 Notifications of Water and Sewer Rate Changes and Proposed Sewer Rate Structure
2. April 18, 2006 Council Agenda Report Regarding Utility Billing System Review
GAU IDCAR-CAO Reports\2007 Council Agenda Reports\Coasideradon of Final Volume e Based Sewer Rate Structure.CAR.doe
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NMINT
PROPOSED •
The following compares the current sewer rate structure with the proposed one. For an "apples to
apples" comparison, both are based on an 11% general purpose rate increase effective July 1, 2007.
However, even if the Council approves a different rate increase (or none at all), the relative difference
between the two rate structures will remain the same. In short, this chart is for solely for comparison
purposes in evaluating the proposed rate structure: it is not to recommend any specific rate increases
(this will be considered by the Council at the May 31 budget workshop and June 19 public hearing). .
Account Type I Current Proposed
Monthly Sewer Rates: Residenti-al Customers
Single family $39.47 per dwelling unit Minimum charge:$5.00 per dwelling unit
dwelling, Volume charge per unit:$5.05
including single meter
condominiums and Total monthly fee capped based on average
townhouses winter water consumption(AWWC)
Master-metered multi- $31.09 per dwelling unit Minimum charge:$5.00 per account
family dwellings in Volume charge per unit:$5.05
any
duplex,apartment Accounts without separate irrigation meter:
house or rooming
house Total monthly fee capped based on AWWC
Accounts with separate irrigation meter:
No cap
Mobile home or $23.47 per dwelling unit Minimum charge:$5.00 per account
trailer park Volume charge per unit:$5.05
Accounts without separate irrigation meter:
Total monthly fee capped based on AWWC
Accounts with separate irrigation meter:
No cap
Nionthly Sewer Rates; Non-Resideritial Customers
Public,private,or $4.46 per ADA $4.46 per ADA
parochial No Change No Change
school,average daily
attendance(ADA)at
the school
All Other Accounts Minimum charge:$39.47 per account Minimum charge: $5.00 per account
Excludes irrigation Additional charge for every 100 cubic feet in Volume charge per unit:$5.05
accounts:there are no excess of 500 cubic feet of metered water
sewer service charges consumption: $4.76 per unit
for these
Each Vehicle-Discharging Sewer into City System
Minimum charge $130.05 $130.05
Additional charge per $7.83 $7.83
100 gallons in excess No Change No Change
of 1,500 gallons
discharqed
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