STEGE SANITARY DISTRICT FINANCIAL PLAN AND RATE REVIEW

Transcription

1 STEGE SANITARY DISTRICT FINANCIAL PLAN AND RATE REVIEW June 2014 BARTLE WELLS ASSOCIATES Independent Public Finance Advisors 1889 Alcatraz Avenue Berkeley CA Tel. 510/

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3 TABLE OF CONTENTS Executive Summary... 1 Introduction... 4 Overview... 4 Customer Base... 7 District Finances... 8 Operating Fund... 8 Capital Fund... 9 Other Post Employment Benefits Fund... 9 Revenues... 9 Operating Expenses Capital Expenses Revenues and expenses Reserves Capital Improvement Plan Cash Flow Projections Operating Fund Cash FLow Capital Fund Cash Flow Service Charge Recommendations Appendix A: Sewer Service Charge Ordinance Code... 23

4 LIST OF TABLES Table 1: Financial Plan And Rate Review... 2 Table 2: Recommended Sewer Service Charges... 3 Table 3: Estimated Sewer Main Rehabilitation... 6 Table 4: Inflow and Infiltration Control Lines... 7 Table 5: Summary of Sewer Service Units (EDUs) FY Table 6: Historical Sewer Service Charges Table 7: Revenues Table 8: Operating Expenses Table 9: Capital Expenses Table 10: Annual Debt Service Payments Table 11: Revenues and Expenses Table 12: Reserves Table 13: 10-Year Capital Improvement Plan Table 14: Projection of Operating Revenues and Expenses Table 15: Projection of Capital Revenues and Expenses Table 16: Recommended Service Charge Increases Table 17: Bill Comparison to Other EBMUD Satellite Sanitation Agencies LIST OF FIGURES Figure 1: Monthly Sewer Bills of EBMUD Satellite Sanitation Agencies... 3 Figure 2: History of Regulatory Action through April Figure 3: Monthly Sewer Bills of EBMUD Satellite Sanitation Agencies... 22

5 EXECUTIVE SUMMARY STEGE SANITARY DISTRICT FINANCIAL PLAN AND RATE REVIEW DRAFT The (District) has contracted with Bartle Wells Associates (BWA) to conduct a comprehensive update of the District s finances and to recommend new sewer service charges. The District implemented Bartle Wells Associate s recommended rate increases from the April 2010 study and is in need of an adjustment to fund upcoming capital costs. To establish funding policies going forward, the District maintains the following financial goals: 1) Fund capital improvements on a pay-as-you-go basis 2) Maintain reasonable and adequate operating and capital reserves 3) Minimize rate impacts on customers The most significant source of on-going capital costs is the Sewer Rehabilitation Program. The program was initiated in response to an Administrative Order from the Environmental Protection Agency (EPA) to reduce inflow and infiltration. The District is currently negotiating with the EPA to determine the extent of annual sewer pipeline replacements to comply with the EPA s Consent Decree. Preliminary estimates indicate that the District will be required to replace about two miles of sewer pipelines per year. The rehabilitation program will be conducted in conjunction with the District s other planned capital projects such as vehicle replacement, interceptor cleaning, pump station rehabilitation, and others. The District s primary source of revenue is the sewer service charges which are collected annually with the Contra Costa County property taxes. Other revenue sources include property taxes, connection fees, interest earnings, permit fees, and contracted services. Current rate revenue for FY2014 is $4.2 million. This amount of revenue is adequate to cover O&M and debt service expenses but is not adequate to fully fund the District s capital improvement plan (CIP). District revenues and expenditures are summarized in Table 1. 1 P age

6 Table 1: Financial Plan And Rate Review Revenues and Expenses Audit Budget FY 2013 FY 2014 Revenue Sewer Service Charges 3,741,984 3,716,000 All Other Revenues 414, ,000 Total Revenue 4,156,824 4,226,000 Expense Operations, Maintenance, Administration 1,949,827 2,396,000 Debt Service 306, ,000 Capital Projects 1,575,739 1,752,000 Total Expenses 3,832,105 4,371,000 Net Annual Revenues $324,719 ($145,000) To fund the CIP, the District will utilize a combination of existing capital reserves and sewer service charge increases. As of June 30, 2013, the capital reserve balance was estimated at about $1.3 million. Reserve targets have been established for the Operating Fund and the Capital Fund and are accounted for separately due to the magnitude of the cost of the CIP. For the Operating Fund, the District maintains a reserve target consisting of 60 percent of annual O&M costs. This target is intended to equal the O&M expenses incurred each year between May and December, the gap in time each year when the District has limited revenues before the sewer service charges are collected with the property taxes. For FY2014, the operating target fund balance is approximately $1.4 million. A reserve target of $1.5 million is currently utilized for the Capital Fund, which, if fully funded, would provide $1 million for emergency capital costs and $500,000 for other capital costs. This level of reserve may be inadequate. BWA recommends that the capital reserve target is equal to a 3-year average of the annual capital cost (i.e. average of the previous, current, and future year capital cost) plus the annual debt service cost. The ultimate goal of increasing the capital fund target is to ensure that the District will have adequate funds available on an annual basis to conduct the sewer pipeline replacements required by the EPA. The District s current sewer service charge for residential customers is $195 annually and $4.01 per 1,000 gallons for non-residential customers. To fund operating expenses, the 10-Year CIP, debt service costs, and meet reserve targets, it is proposed that the District implement service 2 P age

7 charge increases. The recommended service are shown in Table 2. A Proposition 218 notice and hearing will be required for the increases for FY2015 to FY2019. Table 2: Recommended Sewer Service Charges Current 5-Year Planning Horizon (Prop 218) 10-Year Planning Horizon Service Charges FY 14 FY15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 FY 23 FY 24 Annual Residential $195 $220 $242 $264 $284 $294 $294 $294 $300 $311 $323 Non-Residential $4.01 $4.52 $4.97 $5.43 $5.84 $6.04 $6.04 $6.04 $6.17 $6.39 $6.64 (per 1,000 gal) % Increase 12.8% 10.0% 9.1% 7.6% 3.5% 0.0% 0.0% 2.0% 3.7% 3.9% Even with these potential increases, the District s rates will remain competitively priced compared to other East Bay Municipal Utility District (EBMUD) satellite sanitation agencies, see Figure 1. Figure 1: Monthly Sewer Bills of EBMUD Satellite Sanitation Agencies 3 P age

8 INTRODUCTION The (District) contracted with Bartle Wells Associates (BWA) to conduct a sewer service charge update. This report provides recommended service charge adjustments for the next ten year period (FY2015 through FY2024). STEGE SANITARY DISTRICT OVERVIEW District facilities include 147 miles of collection lines and two pump stations. The District is responsible for maintaining sewer lines in the public right of way and District easements; property owners are responsible for maintaining their individual sewer laterals. Wastewater collected throughout the District flows to the Special District #1 Interceptor sewer and is then conveyed to the East Bay Municipal Utility District (EBMUD) Wastewater Treatment Facility in Oakland. To manage its sewer system and reduce sanitary sewer overflows, the District initiated a collection system management program in Over the past several years, the District has worked closely with the Bay Area Clean Water Agencies (BACWA) and the San Francisco Bay Regional Water Board (Regional Board) to develop the requirements of sewer system management plans (SSMP), which were mandated by a Regional Board Resolution in A history of the regulatory events that have impacted the District over the last twenty-seven years is shown in Figure 2. 4 P age

9 Figure 2: History of Regulatory Action through April State Regional Water Quality Control Board (Regional Water Board) issues a Cease and Desist Order (CDO) to the Cities of Albany, Berkeley, Emeryville, Oakland, Piedmont, Alameda, Stege Sanitary District (collectively known as the Satellite Agencies ) and East Bay Municipal Utility District (EBMUD) Permission to continue to discharge treated wastewater to the SF Bay conditioned upon each agency adopting a Sewer Compliance Plan administered under the National Pollutant Discharge Elimination System (NPDES). The NPDES permit requires participation in regionally administered Infiltration and Inflow Correction Program (I/ICP). Satellite Agencies start to reduce inflow and infiltration by making capital expenditures and plans to rehabilitate their systems, spending upwards of $335 million collectively, and reducing inflow and infiltration reaching the EBMUD interceptors by 29% prior to EBMUD, based on regulatory guidance from the United States Environmental Protection Agency (EPA) and the Regional Water Board, starts construction of three wet weather facilities (WWFs) at a cost of hundreds of millions of dollars to provide treatment in the form of solids removal and disinfection. October 2003 Regional Water Board passes a resolution that states its intent to implement new regulations that would uniformly address sanitary sewer overflows (SSOs). The resolution includes a reference to a requirement that all agencies prepare a sewer system management plan (SSMP). June 2005 Lateral testing upon the sale of property provision added to the District Ordinance Code in June Over 26% of all District laterals have demonstrated compliance since the implementation date of September July 2005 Regional Water Board transmits Water Code Section request to the District, and all other collection systems in the region, that formally requires the preparation of SSMPs. May 2006 California State Water Resources Control Board (State Water Board) adopts Statewide General Waste Discharge Requirements (WDRs) for Sanitary Sewer Systems, Order No DWQ Requires development and implementation of Sewer System Management Plan (SSMP). May 2007 State Water Board remands NPDES permit to the Regional Water Board for revision after concluding the regulatory guidance issued back in 1986 was erroneous. WWFs are considered publicly owned treatment works ( POTW ) and their discharges require secondary treatment. December 2009 Regional Water Board issues an amended NPDES permit prohibiting discharges from the WWFs and adopts a CDO with requirements and time schedules to cease discharging from the WWFs. EPA issues Stipulated Order (SO) requiring EBMUD to take certain interim steps to address the alleged violations. 5 P age

10 Figure 2: History of Regulatory Action through April 2014 Continued September 2011 January 2013 Reduction of inflow and infiltration requires the active participation of the Satellites Agencies. EPA issues Stipulated Order (SO) requiring Satellite Agencies to take certain interim steps to address alleged violations. The Cities of Albany, Berkeley, Emeryville, Oakland, Piedmont, Alameda, Stege Sanitary District and EBMUD start Consent Decree negotiations with EPA. The work required by the Consent Decree represents a comprehensive regional asset management approach which includes an aggressive schedule for collection system rehabilitation. In response to a pending Consent Decree from the Environmental Protection Agency, the District has accelerated the replacement schedule for its sewer mains to approximately two miles per year, see Table 3. The categories and prioritization of the collection system lines are shown in Table 4. To reduce inflow and infiltration on private property, the District participates in the East Bay Regional Private Sewer Lateral (PSL) Program which requires owners to obtain a certificate from East Bay Municipal Utility District (EBMUD) indicating their PSLs are without defects and have proper connections when buying or selling a property, building or remodeling in excess of $100,000, or changing water meter size. Table 3: Estimated Sewer Main Rehabilitation Fiscal Year Required Footage Miles , , , , , , , , , , , , , , , , , , , , , , One half fiscal year 6 P age

11 Table 4: Inflow and Infiltration Control Lines Type Priority Number of Lines Linear Feet High I/I Sub-basin Lines High 1, ,787 Remaining Root Foam Lines Middle ,735 Remaining Lines Crossing Storm Drains Middle ,972 Remaining Structural Defects, Smoke Test, Maintenance Issue Lines Middle 74 16,998 Remaining Easement Lines Low ,510 Total 2, ,002 CUSTOMER BASE The District serves 13,157 parcels throughout its service area in the Cities of El Cerrito and Kensington as well as the portion of the Richmond Annex that is west of El Cerrito and south of Potrero Avenue. The majority of customers are single family and multi-family residential units. The service area is approaching build-out with little growth expected in the coming years. Growth is estimated at the rate of two additional single-family equivalents dwellings per year. Additional growth may occur through the development of remaining vacant parcels and commercial economic development. The District s customer base is shown in Table 5. The customer base is expressed in terms of single-family equivalent dwelling units (EDUs). For FY 2014, each EDU is equivalent to 48,660 gallons of wastewater flow per year. EDU flow is based on the annualized metered water consumption for the winter period of December, January, and February for single-family dwelling units. The District re-evaluates the average flow per single-family dwelling periodically so the number of EDUs changes slightly from year to year. For FY 2014, the total number of EDUs is estimated at 19,324 units. Table 5 shows the relationship between the parcel count and EDU count, see the following page. 7 P age

12 Table 5: Summary of Sewer Service Units (EDUs) FY2014 Customer Class 1 Number of Parcels Number of EDUs Revenue % of Revenue Residential 11,336 11,308 $2,205,000 59% Multi-Family Residential 993 4, ,000 21% Commercial 365 2, ,000 12% Industrial ,000 3% Institutional ,000 4% Miscellaneous ,000 0% Hand Billed Customers ,695 1% Total 13,157 19,324 $3,768, % 1 - The District's single agricultural parcel is not billed and is not included in this table. Source: FY 2013/14 Sewer Service Charges Summary for Contra Costa County Tax Rolls Most customers are billed annually with the Contra Costa County Property Tax rolls. A small percentage of District customers do not receive annual property taxes assessments and are hand billed by the District. DISTRICT FINANCES The District maintains several funds to meet operational and capital spending targets and to provide a quality level of service for its customers. District funds are described below. OPERATING FUND The Operating Fund is used to fund operational expenses such as costs incurred from employee salaries and benefits, repairs, maintenance and engineering, and other operational costs. Operating costs are projected to increase by 2% annually. The Operating Fund also contributes annually to the Other Post Employment Benefits Fund (see below). Revenues of the Operating Fund include sewer service charges, interest earnings, property taxes, and miscellaneous fees collected from permitting and inspections. The current sewer service charge is $195 per year per EDU; $126 of this annual service charge is allocated to fund operating costs and $69 is allocated to fund capital costs. Service charges are the majority revenue source for both the operating and capital funds. 8 P age

13 A target minimum fund balance for the Operating Fund has been developed to encompass 60 percent of the annual operational, administrative, and repair costs. This target is intended to equal the O&M expenses incurred each year between May and December, the gap in time each year when the District has limited revenues before the sewer service charges are collected with the property taxes. Any operating revenues collected in excess of the target minimum fund balance are transferred to the capital fund to support capital improvements. CAPITAL FUND Revenues for the Capital Fund include connection fees, interest earnings, and the capital component of the service charge. The Capital Fund expenses include both the funding of the District s Capital Improvement Plan and annual debt service payments. The current target minimum fund balance is $1.5 million ($1 million for emergency replacements and $500,000 for other capital reserves). OTHER POST EMPLOYMENT BENEFITS FUND The Other Post Employment Benefit (OPEB) Fund is designated to cover the District s costs associated with providing benefits to current and future retired employees. As part of the Government Accounting Standards Board (GASB) Statement 45, the District records its liability associated with providing these employee benefits. The District chooses to self-fund this liability by designating funds to OPEB and through direct health payments for retirees. OPEB funds are included in the budget as a maintenance/engineering expense and as a general administrative expense through the Operating Fund. The District recently completed an actuarial study and is currently funding its liability at 39.95%. For FY2014, the District has budgeted about $22,000 for retiree medical expenses and health care premiums. REVENUES The District s budgeted total revenue for FY 2014 is approximately $4.2 million and nearly 88% of the District s revenues are collected from sewer service charges. Residential customer rates have been increased in the past three years by 19.5%, 16.3%, and 14% respectively from FY 2011 to FY Non-residential customer rates were increased 29.6%, 16.2%, and 14.3%, respectively, during the same period, see Table 6. The District s current Sewer Service Charge Ordinance Code is shown in Appendix A. To fund rehabilitation and other capital needs on a 9 P age

14 pay-as-you-go basis (i.e. without issuing debt and incurring interest costs), the District must increase its service charges further. For FY2014, the District expects to collect about $100,000 in connection fees from developments near the El Cerrito Plaza and Del Norte BART stations, parcels near El Cerrito City Hall, elderly housing on Portola Drive, and the lumber yard on Central Avenue. This level of development is unusual for the District and the District expects to collect only minimal connection fees in subsequent years. The FY2013 actual revenues and the FY2014 budgeted revenues are shown in Table 7. Table 6: Historical Sewer Service Charges Year Sewer Service Charge % Increase from Previous Year Residential Annual Charge (Per EDU) FY 2006 $ FY 2007 $ % FY 2008 $ % FY 2009 $ % FY 2010 $ % FY 2011 $ % FY 2012 $ % FY 2013 $ % FY 2014 $ % Non-Residential (Per 1,000 gallons) FY 2006 $ FY 2007 $ % FY 2008 $ % FY 2009 $ % FY 2010 $ % FY 2011 $ % FY 2012 $ % FY 2013 $ % FY 2014 $ % Source: Ordinance Code, Section P age

15 Table 7: Revenues Audit Budget Revenue FY 2013 FY 2014 Property Tax $333,230 $339,000 Sewer Service Charges 3,741,984 3,716,000 Connection Fees 19, ,000 Permit Fees and Contracted Services 29,950 40,000 Interest 7,203 10,000 Other 24,875 21,000 Total Revenue $4,156,824 $4,226,000 OPERATING EXPENSES The District s total operating expenses are budgeted at $2.4 million for FY The majority of the District s operating expenses are expected to increase at 2% per year throughout the next ten years. Table 8 shows the actual and budgeted operating expenses for FY 2013 and 2014, respectively. Table 8: Operating Expenses Audit Budget Operating Expenses FY 2013 FY 2014 Maintenance/Engineering $1,512,091 $1,700,595 Pump Stations 4,209 15,924 Contracted Repairs 44,362 56,000 General and Administrative 513, ,013 Total Operating Expenses $2,073,828 $2,395, P age

16 CAPITAL EXPENSES The major expenses of the Capital Fund are capital improvement projects and debt service payments. A summary of the FY2013 actual and FY2014 budgeted capital expenses are shown in Table 9. The classification of capital improvement projects is discussed in more detail in a subsequent section. Table 9: Capital Expenses Audit Budget Capital Expenses FY 2013 FY 2014 Debt Service $306,539 $223,000 Construction 1,237,409 1,452,000 Capital Equipment 338,330 25,000 Other Capital Costs 0 275,000 Subtotal Capital $1,882,278 $1,975,000 The District is currently making payments on three outstanding State Revolving Fund debt issuances, which are shown in Table 10. Project 9301 was retired January 2014, which is reflected as a decrease in the annual debt service payments in FY2015. It is anticipated that future capital projects will be cash funded and that no new debt will be issued. Table 10: Annual Debt Service Payments Fiscal Year Principal Interest Total 2014 $187,726 $35,547 $223, ,979 30, , ,980 27, , ,058 24, , ,214 21, , ,019 54, , ,733 6, ,816 Total $1,385,709 $199,074 $1,584,783 Source: FY2013 Independent Auditors' Report FY2014 debt service allocated by District 12 P age

17 REVENUES AND EXPENSES Table 11 shows the District s actual and budgeted results of operation for FY 2013 and 2014, respectively. The District s 2014 budgeted revenues fall short of covering combined O&M and Capital Projects by about $145,000. This deficiency will be covered via a transfer from reserves. Table 11: Revenues and Expenses Audit Budget FY 2013 FY 2014 Revenue Property Tax $333,230 $339,000 Sewer Service Charges 3,741,984 3,716,000 Connection Fees 19, ,000 Permit Fees and Contracted Services 29,950 40,000 Interest 7,203 10,000 Other 24,875 21,000 Total Revenue 4,156,824 4,226,000 O&M, Administration Expense 2,073,828 2,396,000 Prior Period Adjustment 1 (124,001) 0 1,949,827 2,396,000 Capital Expense 1,882,278 1,975,000 Total Expenses 3,832,105 4,371,000 Net Annual Revenues $324,719 ($145,000) 1 - Adjustment to the Other Post Employment Benefit investment in the Calpers trust. RESERVES District cash reserves are comprised of the Operating Reserve, the Capital Reserve, and the Retiree Health Care Trust Fund, see Table 12. BWA recommends that the Operating Reserve remain at its current level equal to 60% of operating and maintenance costs. This level of funding adjusts annually to equal the District s actual costs from May to December, reflecting the lag in the collection of taxes. BWA proposes an increase to the Capital Reserve Fund minimum fund balance target. The current target is $1.5 million reflecting a reserve of $1 million for capital projects and $ P age

18 million for emergency repairs. The current target may be inadequate because there is no mechanism to adjust for inflationary cost increases and the EPA Consent Decree requires a higher level of capital improvements than $1.5 million annually. In an emergency, $1.5 million would not cover the cost of the approximately 2 miles of annual pipeline replacements that are expected to be required by the EPA. BWA recommends that the capital reserve target is equal to a 3-year average of the annual capital cost (i.e. average of the previous, current, and future year capital cost) plus the annual debt service cost. The ultimate goal of increasing the capital fund target is to ensure that the District will have adequate funds available on an annual basis to conduct sewer pipeline replacements or to fund other emergency needs. The reserve recommendations for the District s funds are summarized in the table below. Table 12: Reserves Current Reserves Estimated Fund Balance 1 Reserve Target Policy Operating Reserve $1,286,000 $1,437,000 60% of annual O&M to account for break in tax revenue collection from May to December; target increases as operating costs increase Capital Reserve 1,305,000 2,029,000 3-year rolling average of capital improvements (average of past, current, and future years) 2 plus the annual debt service cost Retiree Health Care Trust Fund 160, ,000 Actuarial recommendation Total $2,751,000 $3,626, Source: FY2014 Budget; estimated as of June 30, For FY2014 (shown in table), the target is the average of the current year (FY2014) and future year (FY2015) capital costs and the FY2014 debt service cost. 14 P age

19 CAPITAL IMPROVEMENT PLAN The District s Capital Improvement Plan includes over $27.8 million in expenditures over the next 10 years (FY2015-FY2024). The projects are organized into the funding groups: System Rehabilitation, Capital Equipment, and other capital. The District s 10-year Capital Improvement Plan is shown in Table 13. The System Rehabilitation funding group was developed to comply with the EPA Consent Decree and is comprised of the annual pipebursting project, see Table 3. The cost of the pipeline is estimated $200 per linear foot and is estimated to increase at 3.5% per year. Over the next 10 years, approximately 21 miles of pipeline are projected be replaced at a total cost of $26.3 million. The pipebursting project represents 94% of projected capital improvement projects over the next 10 years. The Capital Equipment funding group includes smaller value capital items including flow meters, diesel engine retrofits, sewer inspection cameras, vehicle replacement, manhole smart covers, and other miscellaneous items. The other capital funding group includes manhole adjustments and pump station rehabilitation. 15 P age

20 Table 13: 10-Year Capital Improvement Plan Budget FY Year Planning Horizon (Proposition 218) 10-Year Planning Horizon 10-Year Projection FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 Total Sewer Rehabilitation Project Required Footage (LF) 8,627 10,053 10,360 10,667 10,993 11,320 11,660 12,013 12,373 12, ,806 Cost per LF $200 $207 $214 $222 $230 $238 $246 $254 $263 $273 Total Project Cost* $1,452 $1,725 $2,081 $2,220 $2,365 $2,523 $2,689 $2,867 $3,057 $3,259 $3,473 $26,259 Capital Equipment Flow Meters Vehicle Replacement Manhole Covers ("Smart") Rodders Video Van Misc. Other Total Capital Equipment* Other capital costs Manhole Adjustments Administration Building Pump Station Rehabilitation Interceptor Cleaning Total Other Capital Costs* Total Capital Projects* $1,752 $1,860 $2,176 $2,300 $2,625 $3,023 $2,829 $2,982 $3,127 $3,329 $3,578 $27,829 LF - linear feet *Costs shown as $1,000s 16 P age

21 CASH FLOW PROJECTIONS Using the assumptions detailed in the previous sections, a hypothetical cash flow was calculated for the Operating Fund and the Capital Fund. The District s current sewer service charge for residential customers is $195 annually and $4.01 per 1,000 gallons for nonresidential customers. To fund the 10-Year CIP, debt service, and meet the reserve target, it is proposed that the District implement service charge increases. The portion of the sewer service charge needed to meet O&M expenses and maintain the O&M reserve target is included in the Operating Fund cash flow. The portion of the sewer services charges needed to fund the CIP, debt service, and to maintain the capital reserve target is included in the Capital Fund cash flow. Property taxes have been included in the Operating Fund cash flow and connection fee revenues have been included in the Capital Fund cash flow. These revenues are collected from ratepayers with the intent that they will be used to maintain the long-term value of the system. To be financially conservative, it is assumed that property taxes will remain at their current level for the next ten years. For FY2014, the District is expected to collect an unusually high amount of connection fees, $100,000. In subsequent years, the District expects only minimal development at the rate of two EDUs per year. The current connection fee is $1,790 per EDU for residential customers and $12.52 estimated per gallon per day use for commercial customers (Ordinance Code ). BWA estimates connection fee revenue $3,000 per year. OPERATING FUND CASH FLOW Table 14 shows the Operating Fund cash flow with the target minimum balance of 60% of operations and maintenance costs. At the current annual operating service charge of $126 per EDU, BWA projects that the Operating Fund will generate adequate revenues to cover operating costs and exceed the target minimum balance through FY2021. Projected excess net revenues are transferred to the Capital Fund to cover system improvements. Beginning in FY2022, BWA projects that the current operating service charge revenue will no longer be adequate to meet expenses and maintain the fund target. BWA recommends annual operating service charges increase to $127 per EDU in FY2022, $130 in FY2023, and $132 in FY P age

22 Table 14: Projection of Operating Revenues and Expenses 5-Year Planning Horizon (Proposition 218) 10-Year Planning Horizon Budget Projected Projected Projected Projected Projected Projected Projected Projected Projected Projected FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Number of EDUs 19,324 19,326 19,328 19,330 19,332 19,334 19,336 19,338 19,340 19,342 19,344 O&M Service Charge $ $ $ $ $ $ $ $ $ $ $ Beginning Fund Balance 1 $1,286 $1,439 $1,467 $1,496 $1,526 $1,556 $1,587 $1,620 $1,651 $1,685 $1,718 Sources Operating Service Charge 2,435 2,435 2,435 2,436 2,436 2,436 2,436 2,437 2,456 2,514 2,553 Property Taxes Interest Earnings Permit Fees & Contracted Services Other Total Sources 2,840 2,840 2,840 2,841 2,841 2,841 2,841 2,842 2,861 2,919 2,958 Uses Maintenance/Engineering 1,701 1,735 1,769 1,805 1,841 1,878 1,915 1,953 1,993 2,032 2,073 Pump Stations Contracted Repairs General and Administrative Total Uses 2,396 2,443 2,492 2,542 2,593 2,645 2,698 2,752 2,807 2,863 2,920 Net Sources and Uses "Transfer" to Capital Fund (291) (369) (319) (268) (218) (165) (111) (58) (21) (23) 0 Operations Ending Fund Balance 1,439 1,467 1,496 1,526 1,556 1,587 1,620 1,651 1,685 1,718 1,757 Target Minimum Balance 2 1,437 1,466 1,495 1,525 1,556 1,587 1,619 1,651 1,684 1,718 1,752 Does it meet target? YES YES YES YES YES YES YES YES YES YES YES 1 - Total fund balance of Sewer Operations Fund as of 06/30/2013 (est.) 2 - Minimum balance 60% of O&M 3 - Operating cost inflation estimated at 2% 18 P age

23 CAPITAL FUND CASH FLOW Table 15 shows the Capital Fund cash flow with the minimum fund target set to equal the 3- year rolling average of the capital improvement costs plus the annual debt service expense. The 3-year average is defined as the average of the past year, current year, and future year capital improvement costs. As shown in Table 15, BWA projects that the District will meet the Capital Fund minimum target in FY2020. The Capital Fund cash flows include some repair expenses for the Administration Building. The District could consider funding additional reserves for the eventual replacement of the Administration Building. With a value of $3 million and a useful life of 60 years, the District would need to collect $75,000 per year plus construction cost inflation. Spread over a customer base of about 19,000 EDUs, the annual cost per EDU would be about $4 per year. 19 P age

24 Table 15: Projection of Capital Revenues and Expenses Budget 5-Year Planning Horizon (Proposition 218) 10-Year Planning Horizon FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 Number of EDUs 19,324 19,326 19,328 19,330 19,332 19,334 19,336 19,338 19,340 19,342 19,344 Capital Service Charge Available from Existing Charge Annual Increased Capital Charge Total Capital Service Charge O&M Charge Total Charge (O&M + Capital) % Increase over previous year 0% 13% 10% 9% 8% 4% 0% 0% 2% 4% 4% Beginning Fund Balance 1 $1,305 $1,059 $1,244 $1,489 $1,984 $2,492 $2,742 $3,132 $3,317 $3,416 $3,575 Sources Capital Service Charges 1,333 1,817 2,242 2,667 3,054 3,248 3,248 3,249 3,346 3,501 3,695 Interest Earnings Connection Fees Total Sources 1,438 1,825 2,250 2,675 3,062 3,256 3,256 3,257 3,354 3,509 3,703 Uses Sewer Rehabilitation 1,452 1,725 2,081 2,220 2,365 2,523 2,689 2,867 3,057 3,259 3,473 Capital Equipment Other capital costs Debt Service Total Uses 1,975 2,008 2,324 2,448 2,773 3,171 2,977 3,130 3,275 3,373 3,622 Net Sources and Uses (537) (184) (74) "Transfer" from Operating Fund Ending Fund Balance 1,059 1,244 1,489 1,984 2,492 2,742 3,132 3,317 3,416 3,575 3,656 Fund Target Minimum Balance 2 2,029 2,078 2,260 2,515 2,798 2,974 3,093 3,127 3,294 3,389 3,622 Does it meet target? NO NO NO NO NO NO YES YES YES YES YES Costs shown as $1,000s 1 - Total fund balances of Emergency Reserve, Equipment Replacement Reserve, and System Rehabilitation Reserve as of 06/30/2013 (est.) 2 - The capital fund target each year is equal to an average of the past year, current year, and future year capital improvement cost plus the annual debt service payment. For FY2014, the target is the average of the current year and future year (FY2015) capital costs. 20 P age

25 SERVICE CHARGE RECOMMENDATIONS The recommended service charge increases are shown in Table 16. The annual residential service charge is proposed to increase to $294 by FY2019. A survey comparing the proposed service charges to other EBMUD satellite sanitation agencies is shown in Table 17 and Figure 3. Even with the proposed increases, the District s service charges are competitive with other local agencies. Table 16: Recommended Service Charge Increases Fiscal Year Capital Service Charge Total Annual Service Charge (Residential) Total Service Charge (per 1,000 gallons) O&M Service Charge 2014 $ $69.00 $ $4.01 0% % % % % % % % % % % % Increase Over Previous Year Table 17: Bill Comparison to Other EBMUD Satellite Sanitation Agencies Monthly Service Charge Agency (Single-Family Residential) City of Emeryville 1 $8.00 (current) City of Berkeley (FY2015) (FY2016) (FY2017) City of Alameda (FY2018) (FY2019) City of Oakland City of Albany City of Piedmont The City of Emeryville has not raised its sewer service charges since The service charge is based upon an estimated residential wastewater flow of 4,055 gallons per month 3 The service charge is a flat rate for lots sized 5,000 sq ft to 10,000 sq ft 21 P age

26 Figure 3: Monthly Sewer Bills of EBMUD Satellite Sanitation Agencies 22 P age

27 APPENDIX A: SEWER SERVICE CHARGE ORDINANCE CODE CHAPTER 7 FEES, RATES AND CHARGES AND OTHER FINANCIAL MATTERS SECTION 7.1 PURPOSE This Chapter promulgates regulations governing fees, rates and charges imposed and collected by the District as authorized by the Act and other applicable provisions of law. This Chapter also makes provision for other related financial matters affecting the District and its constituents. SECTION 7.2 SEWER SERVICE CHARGES Background Considerations. The District Board has determined that the following considerations are pertinent to the District's sewer service charge system: The average wastewater flow discharged from a typical residential dwelling in the District s territory is 48,660 gallons per year. This is based on the annualized, metered water consumption during the winter period of December, January and February for the average residential dwelling unit It is fair and reasonable to charge residential users for wastewater services based upon a flat rate because the differences in usage between one residential customer have an insignificant effect on the cost of providing service to the users, particularly, and another, when consideration is given to the administrative burden and expense that would be required to conduct a usage-based system. Also, a flat-rate charge system for residential users is reasonable because there is no practical means to directly measure actual sewer use. Therefore, any usage-based system is at best an estimate of actual flows derived from factors which in a residential setting do not ensure that the usage-based charges will be significantly more accurate than a flat-rate charge. The flat-rate charge system achieves substantial proportionality of use on a District-wide basis.

28 7.2.2 Authority. Pursuant to California Health and Safety Code Section , a provision of the Sanitary District Act of 1923, the District elects to impose sewer service charges for the purpose stated in Section below Purpose. The purpose of the sewer service charge is to raise revenue for the costs of maintenance, operation, construction and reconstruction of the District s wastewater facilities used for the collection and conveyance of wastewater, and for other expenditures deemed necessary to conduct the lawful business of the District Customers Subject to Charge. The owners of all premises connected to the District s wastewater system and of all premises that are able to connect to the system are subject to the sewer service charge. Owners of premises that are unable to be connected are exempt from the sewer service charge. It is the sole responsibility of the premise s owner to notify the District of the grounds for any claimed exemption Determination of Annual Charges Residential Customer Sewer Service Charge. Except as provided in Section 7.2.7, each residential customer shall pay an annual sewer service charge established by the District s Board of Directors for one (1) residential dwelling unit, as follows: For Fiscal Year , the sum of $ For Fiscal Year , the sum of $ For Fiscal Year , the sum of $ For Fiscal Year , the sum of $ For Fiscal Year and each fiscal year thereafter unless and until amended, the sum of $ Non-Residential Customer Sewer Service Charge. Each non- residential customer shall pay an annual sewer service charge calculated as follows: The customer s annualized water consumption shall be determined as provided in Section The customer s annual sewer service charge shall be the amount in dollars obtained when the customer s annualized water consumption is multiplied by the applicable annual sewer charge rate established by the

29 District s Board of Directors, except that in no case shall the annual charge be less than the applicable charge for one residential dwelling unit The non-residential annual sewer charge rate shall be equal to the annual sewer service charge established by the District s Board of Directors for one (1) residential dwelling unit divided by the annual residential unit water discharge specified in Section The result shall be expressed in terms of dollars per thousands of gallons, as follows: For Fiscal Year , the rate of $4.52 per 1000 gallons. For Fiscal Year , the rate of $4.97 per 1000 gallons. For Fiscal Year , the rate of $5.43 per 1000 gallons. For Fiscal Year , the rate of $5.84 per 1000 gallons. For Fiscal Year and each fiscal year thereafter unless and until amended, the rate of $6.04 per 1000 gallons Annual Charge. The annual sewer service charge shall be imposed on a fiscal year basis commencing on July 1 of the calendar year in which the fiscal year begins, and ending on June 30 of the next calendar year Water Consumption. Subject to the provisions of Section , annual water consumption shall be determined as follows: Residential. The discharge from each residential dwelling unit is presumed to be 48,660 gallons per year and shall not be based upon measured water consumption or other conditions of occupancy of the dwelling unit. The District may periodically review water consumption figures and update this discharge factor Non-Residential. Water consumption for all other uses, including commercial residential (such as, for example, motels and hotels), shall be based upon actual metered water consumption determined as follows: The average water usage for each premise during the preceding winter period shall be determined by the District from the annual report furnished to the District by the East Bay Municipal Utility District (EBMUD). The winter period is the months of January, February and December of the calendar year preceding the commencement of the applicable fiscal year.

30 In cases where meter readings are found to be inaccurate, the District may use other means of identifying the true water consumption. (Refer to Section ) The water consumption determined under Sections and shall be annualized and calculated in 1000 gallon increments. This is calculated by multiplying the winter period consumption usage by four. The result is the annualized discharge to be used for setting charges for all non-residential uses Additional Non-Residential Provisions. The following provisions apply to water consumption by non-residential users Upon application to the District by customers maintaining extensive irrigated landscaping or in other situations where it can be established that the metered water consumption is not a valid measure of the quantity of wastewater discharged, the quantity of wastewater to be used in determining the customer s annualized water consumption shall be determined by the District. (Refer to Section ) The District may require the installation on the premises of District-approved recording devices or flow meters for use by the District at the customer s expense. Such devices or meters shall be available for inspection at any reasonable time. Recording devices shall be capable of recording instantaneous and accumulated flows as approved by the District. The customer shall be responsible for the maintenance, calibration, repair and replacement of all recording devices and equipment Vacancies. No credit, adjustment or refund shall be made to any customer because the premises or any portion of them are vacant, unless the premises are disconnected from the District wastewater system No Subsidized Users. No premises or customers shall be provided District wastewater services without charge or at a reduced charge Effective Date of Charges. Charges and rates established by this Code are effective upon the date specified by the District and shall apply to all premises connected at that time to the District s wastewater system. Premises that are connected to the system after the

31 effective date shall be subject to the sewer service charge effective as of and pro-rated from the date of connection. The charge shall be billed directly in accordance with Section below Person Responsible. The owner of the premises is responsible for payment of all sewer service charges applicable to the premises. It is the duty of the owner to ascertain from the District the amount and due date of any charge applicable to the premises and to pay the charge when due. It is also the duty of the owner to inform the District immediately of all pertinent circumstances and/or change in any circumstances which will affect the applicability of a charge to the owner s premises or the amount of any such charge Collection of Sewer Service Charges on Tax Roll Collection With Property Taxes. Pursuant to the provisions of Division 5, Part 3, Chapter 6, Article 4 of the Health and Safety Code, but subject to the provisions of this Section, the District elects, as the primary procedure for the collection of sewer service charges prescribed or imposed by the provisions of this Code, to have sewer service charges for each fiscal year collected on the tax roll of the County of Contra Costa in the same manner, by the same persons and at the same time as property taxes, assessments and other charges collected in that manner Sewer Service Charge Report. At the beginning of the District s fiscal year, a written report shall be prepared and filed with the District Secretary setting forth a description of each parcel of real property, inside or outside the District, upon which are situated premises that receive wastewater services of the District and the amount of the charge for each parcel for that year, computed in conformity with the charges prescribed by this Code Public Hearing. The District Secretary shall cause notice of the filing of the report and of the time and place for a public hearing to be published in a newspaper of general circulation within the District. The publication of notice shall be once a week for two successive weeks. Publications shall be made with at least five days intervening between the respective publication dates not counting the publication dates. A minimum of two public notices shall be published in a newspaper circulated more than once a week. In newspapers, which circulate once a week, the public notice shall be published in each circulation for two successive weeks. The period of notice commences on the first day of publication and terminates at the end of the 14 th day, including in that period the first day of publication.

32 Protests and Objections. At the time stated in the notice, the District Board shall hear and consider all objections or protests, if any, to the report and may continue the hearing from time to time. If the District Board finds that protest is made by a majority of separate parcels of property described in the report, the report shall not be adopted and the charges shall be collected separately from the tax roll and shall not constitute a lien against any parcel or parcels of land Board Determinations. Upon the conclusion of the hearing, the District Board may adopt, revise, change, reduce or modify any charge or overrule any or all protests and/or objections, excepting protests or objections from a majority as described above in Section , and the Board shall make its determination upon each charge as described in the report, which determination is final Filing of Report. By August 10 th of each year following the Board s final determination, the District Secretary shall file with the Controller of thecounty of Contra Costa a copy of the report with a statement endorsed over the Secretary's signature stating that the report has been finally adopted by the District in order that the Controller of the County of Contra Costa shall be able to enter the amounts of the charges against the respective lots or parcels of land as they appear on the current assessment roll and in order that the charges may be collected on the tax roll in accordance with the provisions of Sections through of the Health and Safety Code Creation of Lien. Except as provided in Section of the Health and Safety Code, the amount of the charges shall constitute a lien against the lot or parcel of land against which the charge has been imposed as of the lien date prescribed by law for property taxes Direct Billing. If the full amount of any sewer service charges is, for any reason, not collected in accordance with the provisions of Section above, the sewer service charges, or the portion of them not appearing on the tax roll, shall be collected by direct billing of the property owner as provided in this Section. The provisions of this Section shall also apply to sewer service charges accruing after a new connection to the District s wastewater facilities, in which case the annual charge shall be prorated over the period of time from the date of the new connection to the end of the fiscal year.

33 Billing. The District shall ascertain the amount of each sewer service charge applicable to each premise and shall mail to the owner and/or owner and occupant, within sixty (60) days from the date any sewer service charges become due and payable, a bill for the sewer service charges which are then due and payable. The bill shall be mailed to all persons listed as the owners on the last equalized assessment roll of the County of Contra Costa at the address shown on the assessment roll, or to the successor in interest of the owner and/or occupant, if known. Each bill shall contain a statement that a delinquency in payment for sixty (60) days shall constitute a lien against the lot or parcel against which the charge is imposed and that when recorded it shall have the force, effect and priority of a judgment lien for three (3) years unless sooner released or otherwise discharged. Failure of the District to mail a sewer service charge bill or failure of the owner to receive a sewer service charge bill, shall not excuse the owner of any premises from the obligation of paying any sewer service charge for any premises owned by him How Payable. Each sewer service charge to be collected by direct billing shall be due and payable in full at the time of billing; provided, however, if in any fiscal year, a sewer service charge is payable for a period covering eight (8) months, or more, of the fiscal year, the sewer service charge shall be billed in two installments with the first installment covering the period for which a sewer service charge is owed during the first six (6) months of the fiscal year, and the second installment covering the remaining six (6) months of the fiscal year Delinquency Date of Sewer Service Charges. Each sewer service charge shall be delinquent if not paid on or before the thirtieth (30 th ) day of the month following the date upon which such sewer service charge becomes due and payable Where Payable. Sewer service charges collected by direct billing shall be payable at the administrative office of the District, as noted in the billing Penalties for Non-Payment of Sewer Service Charges. Whenever a delinquency shall occur for non-payment of sewer service charges, the provisions of Section 7.7 apply Use of Revenues. In accordance with Health and Safety Code Sections 5471 and and Section above. Revenues derived under this Section 7.2 shall be used only for the acquisition, construction or reconstruction, maintenance and operation of sanitation or sewage facilities of the District and to repay the principal and interest