Office of the City Manager WORKSESSION March 17, 2015

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1 Office of the City Manager WORKSESSION March 17, 2015 To: From: Honorable Mayor and Members of the City Council Christine Daniel, City Manager Submitted by: Andrew Clough, Director, Public Works Subject: Sanitary Sewer Rate Study SUMMARY The purpose of this Worksession is to discuss the status and capital needs of the City s Sanitary Sewer Management System, and the options and process for a Sewer Services Rate increase. Current revenues in the Sanitary Sewer Fund (Fund 830) are insufficient to fund the capital improvements, operations, and maintenance needed to properly manage our Sewer Collection System, and maintain compliance with the new requirements imposed by the Consent Decree (CD) the City of Berkeley and other East Bay jurisdictions entered into with the Environmental Protection Agency in July As Public Works reported in a March 2013 Capital Improvement Program Worksession, while the City had not raised Sewer fees since FY 2006, the Fund maintained a healthy balance primarily through salary and other cost savings. At the same time, projections indicated the need to consider a rate increase in FY However, negotiations were still underway with the United States Environmental Protection Agency (EPA) and the Department of Justice on the final Consent Decree, and as we know now, significant additional capital improvements are required. The CD was finalized in July 2014, and the City must meet a tightly scheduled and monitored increase in Sewer Collection System capital improvements and maintenance activities. In order to meet the expenses of these requirements, Council needs to consider a sewer rate increase. Our consultant, Bartle Wells Associates, has prepared a sustainable Sanitary Sewer rate study and outlined the steps required to conduct a Proposition 218-compliant rate setting process. Without new revenue, the Sanitary Sewer Program will need to defer capital expenditures or substantially reduce maintenance activities. Reducing capital expenditures would result in noncompliance with the Consent Decree; and reducing maintenance will likely result in increased sanitary sewer overflows (SSOs). CURRENT SITUATION AND ITS EFFECTS The last increase in Sewer rates was approved for FY 2006 and these rates were continued in FY 2007; in July 2007 Council approved Resolution No. 63,775-N.S. to clarify that the sewer service fee continues [at FY 2007 levels] until changed. Meanwhile, the California Supreme court ruled in July 2006 that Proposition 218 applied to water rates, and by extension, wastewater rates. Under Proposition 218, the City must 2180 Milvia Street, Berkeley, CA Tel: (510) TDD: (510) Fax: (510) manager@cityofberkeley.info Website:

2 Sanitary Sewer Rate Study WORKSESSION March 17, 2015 follow a set of procedures and requirements to levy any property-based assessment or fee. As reported to Council in September 2014, the Consent Decree was finalized, and EBMUD and its seven satellite collection system agencies 1 reached a settlement with the EPA regarding the excess wet weather flows and wet weather facility discharges. Each agency has developed plans and programs to reduce inflow and infiltration (I&I), reduce sanitary sewer overflows, and repair and replace aging sewer pipelines. Under the final CD requirements, Berkeley will: replace an average of 4.2 miles of sewer pipeline annually for the next 12 years; replace noncompliant manholes; and perform regular condition assessment, spot repairs, and increased required maintenance activities. Anticipating the need to revise sewer fees, the City executed a contract with Bartle Wells Associates in September 2014 for a sustainable Sanitary Sewer rate study and Proposition 218 process. As noted in the resolution at that time: The last rate study for the City s sanitary sewer services was conducted in Since then, there have been major changes to the sewer program, including the recent Consent Decree with the EPA requiring the City to reduce wet weather flow to the EBMUD treatment facility, and to eliminate sanitary sewer overflows. The work required by this Consent Decree represents a comprehensive asset management approach to the City s sanitary sewer infrastructure, and is expected to generate substantial amounts of new repair and replacement work. The intent of this study is to independently assess and evaluate the City s existing sewer rates, and establish a sustainable rate structure that will adequately fund sewer operations and capital improvement costs to be complaint with the CD. After evaluating the full impact of CD compliance on the revenues and expenses of the Sanitary Sewer Program, the consultants project an FY 2016 Sanitary Sewer Fund revenue shortfall of $6.9 million. The conclusion is that rate increases are needed to balance the Fund, and three options have been advanced to balance Sanitary Sewer Fund finances within three years, and begin restoring Fund reserves within five years. The table below shows the impact to the Sanitary Sewer Fund without a rate increase. Sanitary Sewer Fund 5-Year Forecast to Meet CD Compliance Without Rate Change (all amounts in millions; amounts in parenthesis are negative) FY 2015 Projected FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Beginning Fund Balance $12.63 $7.42 $0.49 ($7.41) ($16.90) ($26.48) Total Revenues Total Expenditures Surplus/Shortfall (5.21) (6.93) (7.89) (9.49) (9.58) (10.35) 1 The agencies to which EBMUD provides sewage treatment are known as Satellite agencies. They are: Alameda, Albany, Berkeley, Emeryville, Oakland, Piedmont, and the Stege Sanitary District (which serves parts of El Cerrito and Kensington). Page 2

3 Sanitary Sewer Rate Study WORKSESSION March 17, 2015 FY 2015 Projected FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 Ending Fund Balance $7.42 $0.49 ($7.41) ($16.90) ($26.48) ($35.83) Note: Projection assumes no outside support to Sanitary Sewer fund. Berkeley s Sanitary Sewer System The City of Berkeley s current sanitary sewer collection charges are low in comparison with comparable satellite collection agencies that connect to the EBMUD for treatment and disposal of their wastewater flow. All of the satellite collection agencies are party to the EPA Consent Decree and have individual compliance agreements. The table below provides a comparison of current bills for an average Berkeley single-family residence to comparable bills in surrounding communities. The Berkeley Sanitary Sewer Program has rehabilitated or replaced 80% of the system since 1986; certified replacement or repair of 24% of the City s 7,600 Private Sewer Laterals; and the entire sewer system has been cleaned, and is being monitored to prevent Sanitary Sewer Overflows (SSOs) caused by fat, oil and grease clogs. Data driven sewer maintenance Is being used to maximize effectiveness of our Asset Management Program. The 3-year rolling average of SSOs has decreased 76% in the last 6 years: from 48.7 SSO events per year for , to 11.7 per year for Rate Increase Options Bartle Wells has worked closely with Public Works and other City staff to evaluate all relevant information that would support a sustainable and transparent rate structure for the Sanitary Sewer Program. They provided 3 rate proposals that were developed to meet the following objectives: Page 3

4 Sanitary Sewer Rate Study WORKSESSION March 17, Fund sewer pipeline replacements and other capital improvements to comply with EPA Consent Decree. 2. Maintain adequate operating and capital emergency reserves. 3. Fairly allocate costs to ratepayers and mitigate bill impacts. A number of assumptions were developed to inform the Sanitary Sewer Fund s cash flow projections, including: 1. Changes in the Customer Base. 2. Inflationary Factors: Operating costs are projected to remain the same for FY2015 and FY2016, and thereafter increase by 3% annually reflecting inflationary cost increases in materials and supplies. Capital costs are projected to increase by 4% annually. For the sewer pipeline replacement projects, the 4% annual escalation factor is applied to the fully encumbered construction cost of $2.0 million per mile. 3. Financing Mechanism: Historically, the City has funded its sewer operating and capital expenses via sewer service charge revenue and available cash reserves, referred to as pay-as-you-go (pay-go) financing. Pay-go financing has the benefit of avoiding the issuance and financing costs associated with issuing debt. Disadvantages include higher rate increases, rate shock to the customers, and income volatility due to potential customer conservation from the rapid spike in rates. The rate change options provided in the rate study reflect pay-go financing. 4. Minimum Fund Balance: The consultant recommends that the City target a minimum fund balance of 2 months of average service charge revenues. The absolute minimum fund balance is $0. If the fund balance were to become negative, the Sewer Fund would be insolvent. Following these guidelines, the consultant proposed 3 rate change options. These options, indexed to a typical example and proportionate to all proposed rate increases, are set forth below: Proposed Rates: Average Single Family Residential Rate Change Options 5-Year Projection: Average Single Family Residential Bi-Monthly Bills Cumulative Increase Current FY2016 FY2017 FY2018 FY2019 FY2020 Option 1 $40.43 $51.48 $63.96 $72.93 $78.00 $80.86 $40.43 Option 2 $40.43 $51.48 $61.36 $72.54 $76.18 $79.95 $39.52 Option 3 $40.43 $49.66 $59.93 $72.28 $79.56 $82.29 $41.86 Presentations were made to the Public Works Commission in January and February 2015 concerning the results of the analysis and the corresponding recommendations. At its February 5, 2015 meeting, the Commission approved the motion that: The Public Works Commission has heard staff's presentation on the sanitary sewer rate study. We understand and support the need to increase sewer use rates. The Commission does not support option 3 as presented by staff due to the resulting low reserve levels in Page 4

5 Sanitary Sewer Rate Study WORKSESSION March 17, 2015 (M/S/C Schueler/Swift; Ayes: Schueler, Swift, Neal, Henry, Kelley, Elgstrand; Noes: None; Abstain: Le; Absent: Yep) Rate Comparison with Other Cities Under all proposed rate options, the City s collection system charges will remain low in comparison with the other sanitation agencies that connect to EBMUD for treatment and disposal of wastewater. The table below provides a comparison of projected bills for an average Berkeley single family residence against comparable bills in surrounding communities by FY 2020, the end of the 5-year Proposition 218 window. BACKGROUND The City of Berkeley owns and operates a wastewater (sanitary sewer) collection system that collects and transports wastewater generated within the City to the EBMUD interceptor system, which conveys the flow to EBMUD s Main Wastewater Treatment Plant. The City s collection system includes approximately 254 miles of pipelines, 7,200 manholes, 7 sewage pump stations, and over 31,000 service laterals. The system serves approximately 30,230 wastewater collection accounts. Approximately 92% of accounts are residential, with the remainder commercial and industrial service connections. Customer Category Number of Accounts Single Family 23,283 Duplex 2,082 Triplex plex 617 Multiple Family 1,180 Total Residential 27,732 Total Non-Residential 2,498 System Total 30,230 Page 5

6 Sanitary Sewer Rate Study WORKSESSION March 17, 2015 The original sewers in Berkeley were primarily clay pipe and installed between 1885 and 1913, with major expansions in 1928 and The City s sewer rehabilitation and replacement work includes sewer mainlines, manholes, and associated lower laterals. While the City takes responsibility for replacement of the lower portion of the lateral when the public sewer main is rehabilitated, replaced or if the lower lateral fails, the property owner is responsible for the repair and maintenance of the private sewer lateral from the building drain to the City s lower lateral or, if the sewer is located in a backline or easement, the property owner is responsible for the repair and maintenance of the entire lateral from the building drain to the City s sewer main. In FY 2005, the City conducted a Proposition 218 process to adjust sanitary sewer rates as of FY However, the Sanitary Sewer Fund is still projecting a deficit. ENVIRONMENTAL SUSTAINABILITY Compliance with the Consent Decree goals of reducing wet weather discharges and sanitary sewer overflows will significantly increase the quality of water discharging into San Francisco Bay and Berkeley s watershed. POSSIBLE FUTURE ACTION If Council approves moving forward with a rate increase, the following schedule would allow new rates to be in place for FY 2016: April 7, 2015 Council considers proposed rate structure and Prop 218 process. April 14, 2015 Mail notices to Berkeley property owners. June 9, 2015 Public hearing on rate increases; protests tabulated; rates adopted if no majority protest. July 1, 2015 New rates go into effect. FISCAL IMPACTS OF POSSIBLE FUTURE ACTION Projected cost increases from CD compliance, routine infrastructure maintenance, repair and replacement, continued water conservation, and increased demand for contractor work exceed the sewer program s current revenue generating capacity. Adoption of a new, sustainable rate structure provides Fund management the resources to conduct all routine, emergency, and compliance System activities, and re-establish a healthy Fund balance and revenue stream. CONTACT PERSON Bryan Quevedo, Administrative and Fiscal Services Manager, Public Works, Sean Rose, City Engineer, Public Works, Attachments: 1: Sanitary Sewer Rate Study Page 6

7 Attachment 1

8 February 9, 2015 City of Berkeley 2180 Milvia Street Berkeley, CA Re: Sanitary Sewer Rate Study Bartle Wells Associates is pleased to submit to the City of Berkeley the attached Sanitary Sewer Rate Study. The study presents BWA s analysis of the capital and operating costs of the City s sewer collection system and provides a ten year cash flow projection. The report recommends updating rates and charges to more accurately recover the costs of providing service to the City s sewer customers. Recommendations were developed with substantial input from City staff. BWA finds that the sewer rates and charges proposed posed in our report to be based on the cost of service, follow generally accepted rate design criteria, and adhere to the substantive requirements of Proposition 218. BWA believes that the proposed rates are fair and reasonable to the City s customers. We enjoyed working with you on the rate study and appreciate the assistance and cooperation of City staff throughout the project. Please contact us if you ever have any future questions about this study and the rate recommendations. Yours truly, Doug Dove, CIPFA Principal Alison Lechowicz Vice President

9 TABLE OF CONTENTS SECTION 1: EXECUTIVE SUMMARY Introduction Objectives Approach Rate Change Options... 2 SECTION 2: INTRODUCTION Description of City s System Consent Decree Overview of the Sewer Customer Base... 7 SECTION 3: CURRENT SEWER SERVICE CHARGES Billing Procedures Discharge Factors Current Sewer Service Charges Revenue Collection by Service Charge Category Revenue Collection by Customer Class SECTION 4: REVENUE REQUIREMENT Revenues Current Revenues Impact of Water Conservation Projected FY2016 Revenues Expenses Operating Expenses Capital Expenses Conclusions SECTION 5: Fund Reserve Targets Purpose of Reserves Near-Term Reserve Recommendations Long-term Reserve Recommendations SECTION 6: CASH FLOW ANALYSIS Financial Projection Assumptions Inflationary Factors Financing Mechanism Minimum Fund Balance Ten Year Capital Plan No Rate Change Cash Flow Rate Change Option Rate Change Option Rate Change Option Summary of Rate Change Options SECTION 7: RATE SETTING LEGISLATION AND PRINCIPLES Proposition Rate Development Principles SECTION 8: RATE DESIGN CONSIDERATIONS Volumetric vs. Fixed Rate Structures Volumetric Rate Structure Fixed rate structure City of Berkeley Sanitary Sewer Rate Study

10 8.2 Wastewater Flow Capping Frequency of Capping Financial Impact of Capping Public Agency Rates Berkeley Unified School District University of California Rates Vacant Public Agency Residential Rate Categories SECTION 9: COST ALLOCATION Estimated Water Use Discharge Factors Proposed Cost Allocation SECTION 10: Rate Design Bimonthly Wastewater Flow Cap Rates Based on Proposed Allocation Year Rate Changes Typical Bills Survey APPENDICES APPENDIX A: Drought Impacts APPENDIX B: Calculation of Discharge Factors APPENDIX C: FY2015 Billing Units and Proposed Rate Design APPENDIX D: 5-Year Cost Allocation Rate Change Option 1 APPENDIX E: 5-Year Cost Allocation Rate Change Option 2 APPENDIX F: 5-Year Cost Allocation Rate Change Option 3 APPENDIX G: 5-Year Schedule of Rates Option 1 APPENDIX H: 5-Year Schedule of Rates Option 2 APPENDIX I: 5-Year Schedule of Rates Option 3 TABLE OF TABLES Table 1: Executive Summary of Proposed Single Family Residential Bimonthly Bills... 3 Table 2: Executive Summary of Rate Change Options... 3 Table 3: Number of Accounts... 7 Table 4: Current Discharge Factors... 9 Table 5: Volumetric Sewer Service Charges Table 6: Capped and Fixed Bimonthly Sewer Service Charges Table 7: Equivalent Flow Associated with the Bimonthly Cap Table 8: Prorated (Daily) Sewer Service Charges Table 9: FY2013 and FY2014 Billing Units Table 10: Revenue Collected from Each Customer Class Table 11: FY2014 Sewer Fund Revenues Table 12: Estimated Revenue Impacts Due to Drought Table 13: Projected FY2016 Sewer Fund Revenues (No Rate Change) Table 14: Projected FY2016 Operating Costs Table 15: Projected FY2016 Capital Costs City of Berkeley Sanitary Sewer Rate Study

11 Table 16: Projected FY2016 Sewer Fund Operating Results - No Rate Change Table 17: Ten Year Capital Plan Table 18: Cash Flow - No Rate Change Table 19: Cash Flow - Rate Change Option Table 20: Cash Flow - Rate Change Option Table 21: Cash Flow - Rate Change Option Table 22: Summary of Rate Change Options Table 23: FY2014 Usage Data of Capped Customer Classes Table 24: FY2014 Capped Bimonthly Bills Table 25: FY2014 Hypothetical Lost Revenue Due to Capping Table 26: Estimated FY2015 Consumption (ccf) Table 27: Current and Proposed Discharge Factors Table 28: FY2015 Cost Allocation Factors Table 29: FY2015 Illustrative Revenue Collection Table 30: FY2015 Illustrative Revenue Collection by Customer Class Table 31: Bimonthly Cap Adjustment Table 32: FY2015 Proposed Private Volumetric Sewer Service Charges Table 33: FY2015 Proposed Private Capped and Fixed Bimonthly Sewer Service Charges Table 34: FY2015 Proposed Private Prorated (Daily) Sewer Service Charges Table 35: FY2015 Proposed Public Volumetric Sewer Service Charges Table 36: FY2015 Proposed Public Capped Sewer Service Charges Table 37: FY2015 Proposed Public Prorated (Daily) Sewer Service Charges Table 38: Summary of Private Single Family Residential Bill Impacts TABLE OF FIGURES Figure 1: Executive Summary Typical Bill Survey Under 2015 (Current) Rates... 4 Figure 2: Executive Summary Typical Bill Survey Under 2020 (Proposed) Rates... 4 Figure 3: History of Regulatory Action... 6 Figure 4: No Rate Change Cash Flow Figure 5: Rate Change Option 1 Cash Flow Figure 6: Rate Change Option 2 Cash Flow Figure 7: Rate Change Option 3 Cash Flow Figure 8: Frequency of Capping Amongst Single Family Residential Bimonthly Bills Figure 9: Typical Bill Survey Charts City of Berkeley Sanitary Sewer Rate Study

12 SECTION 1: EXECUTIVE SUMMARY 1.1 Introduction The City of Berkeley (City) provides sanitary sewer collection service to about 30,230 accounts. The sewer collection system is owned and operated by the City and consists of manholes, service laterals, sewer pipelines, and pump stations. Sewer (wastewater) flow generated within the City is conveyed to regional East Bay Municipal Utility District (EBMUD) facilities for treatment and disposal. The City contracts with EBMUD to bill customers for sewer collection service. Sewer customers within the City receive bimonthly bills from EBMUD that include the City of Berkeley s collection system charge and EBMUD s treatment and disposal charge. The City last reviewed its sewer service rates and charges in Fiscal Year (FY) 2006 and has not increased its residential rates since then. Over the past ten years, operating costs have increased and, in September 2014, the City reached a settlement with the Environmental Protection Agency (EPA), which obligates the City to conduct sewer pipeline replacements and other work to reduce wet weather discharges and prevent sanitary sewer overflows. Sanitary sewer overflows are a health hazard that can cause pollution of waterways and beach closures. The EPA settlement agreement, referred to as the Consent Decree, represents a significant financial investment to monitor, assess, repair, and replace the sewer system. The total cost of the EPA Consent Decree mandated activities is estimated at nearly $120 million over the next ten years. If the City fails to meet the terms of the Consent Decree, the City will face an administrative civil liability and penalties. The City of Berkeley contracted with Bartle Wells Associates (BWA) to conduct a comprehensive review of the City s Sanitary Sewer Service Fund (Sewer Fund) budget, current customer usage data, customer billing classes and rate structure, future planned growth, and legislation governing sewer rates. BWA independently assessed and evaluated the City s existing sewer rates and recommends new sewer service charges. Sewer service charges must increase to fund Consent Decree compliance activities, to fund inflationary cost increases, to maintain the financial health of the Sewer Fund, and to continue to provide a high level of sewer service to the City s customers. 1.2 Objectives The current revenues of the Sewer Fund are insufficient to fund the capital costs associated with the Consent Decree. Without an increase in revenues, the Sewer Fund is projected to deplete its reserves in FY2017 and thereafter be unable to conduct required sewer pipeline replacements. This report provides three rate change options that were developed to meet following objectives: 1) Fund sewer pipeline replacements and other capital improvements to comply with EPA Consent Decree 2) Maintain adequate operating and capital emergency reserves 3) Fairly allocate costs to ratepayers and mitigate bill impacts City of Berkeley Sanitary Sewer Rate Study Page: 1

13 1.3 Approach The first step of the Sanitary Sewer Rate Study was to develop a five-year revenue requirement. The revenue requirement projects the revenue needed to fund operating and capital expenses and to maintain reserves (listed as objectives 1 and 2 above). As the second step in the Sanitary Sewer Rate Study process, BWA developed a cost of service analysis, which allocates the revenue requirement to the City s customer classes. Customers take benefit from the sewer system as a means to collection and transport sewer flow. Thus, the cost of service allocation is based on the amount of wastewater flow generated by each customer class. Changes in water consumption patterns and corresponding wastewater flow over the past 10 years trigger the need to adjust the underlying assumptions used to design the sewer service charges. Results of the analysis indicate that residential customers should pay a slightly higher portion of the revenue requirement (total sewer service charge revenue) based on their flow characteristics. BWA proposes to increase the single family residential rate by a slightly higher percentage than the average increase across all customer classes. 1.4 Rate Change Options In consultation with staff, BWA developed the three five-year rate change options. All three options meet the revenue requirement and phase in the service charge increases at a different level. Option 1 includes the highest increases in the first and second years of the five-year projection. Option 2 includes a more moderate phase in of service charges over time. Option 3 includes the lowest first year service charge increase. Option 1 provides the highest level of financial security for the Sewer Fund. Early year rate increases build up the sewer revenue base and provide for higher reserves than option 2 and 3. Reserves are an important financial planning tool. The City can draw upon reserves in emergencies to cover unexpected costs. Option 2 provides a middle ground between options 1 and 3. Option 3 provides the most flexibility to the ratepayers but, as a tradeoff, offers the lowest financial security for the Sewer Fund. Under option 3, the Sewer Fund is projected to nearly deplete its reserve in FY2018 before replenishing the reserve FY2019 and FY2020. Table 1 illustrates the impacts of the rate change options on the average single family residential bimonthly sewer collection bill. The average single family residential customer is billed for 13 hundred cubic feet of wastewater flow per two months and is billed $40.43 under the City s current sewer rate. The average single family residential bimonthly bill is proposed to increase as shown below. City of Berkeley Sanitary Sewer Rate Study Page: 2

14 Table 1: Executive Summary of Proposed Single Family Residential Bimonthly Bills City of Berkeley Sanitary Sewer Rate Study Rate Change Five Year Projection Average Single Family Residential Bimonthly Bills Cumulative Options Current FY2016 FY2017 FY2018 FY2019 FY2020 Increase Option 1 $40.43 $51.48 $63.96 $72.93 $78.00 $80.86 $40.43 Option 2 $40.43 $51.48 $61.36 $72.54 $76.18 $79.95 $39.52 Option 3 $40.43 $49.66 $59.93 $72.28 $79.56 $82.29 $41.86 For the first year increase proposed in FY2016, the average residential bill would increase by $11.05 per bimonthly period or $5.53 per month under options 1 and 2. The proposed option 3 rates would increase the average residential bill by $9.23 per bimonthly period or $4.62 per month. Table 2 summarizes the average rate increase across all customer classes for each option. Table 2: Executive Summary of Rate Change Options City of Berkeley Sanitary Sewer Rate Study Five Year Projection Sewer Service Fund Revenue Increase Cumulative Rate Change Options FY2016 FY2017 FY2018 FY2019 FY2020 Increase Option % 24.0% 14.0% 7.0% 3.6% 95.9% Option % 19.0% 18.0% 5.0% 5.0% 93.5% Option % 20.5% 20.5% 10.0% 3.5% 99.2% Note: the % revenue increases shown above reflect the average increases across all customer classes. Rate increases for individual customer classes may vary slightly. The City of Berkeley s current collection system charges are low in comparison with the other sanitation agencies that connect to EBMUD for treatment and disposal of their wastewater flow. These other agencies are referred to as the EBMUD satellite collection agencies, see Figure 1. All the satellite collection agencies are party to the EPA Consent Decree and have individual compliance activities. Although the City of Berkeley s service charges must increase to meet costs, the City s average single family residential bimonthly sewer bill would remain competitive in the East Bay region, see Figure 2. The future rate increases of the other satellite collection agencies are unknown and inflationary cost increases were assummed. It is possible that the future sewer bills of the other satellite collection agencies will be higher than the bills shown in Figure 2 due to the cost of compliance with the EPA Consent Decree. Under the proposed increases, BWA projects that the City of Berkeley s average residential sewer bill would be lower than the average bills in the Cities of Oakland, Albany, and Piedmont in FY2020. City of Berkeley Sanitary Sewer Rate Study Page: 3

15 Figure 1: Executive Summary Typical Bill Survey Under 2015 (Current) Rates Figure 2: Executive Summary Typical Bill Survey Under 2020 (Proposed) Rates City of Berkeley Sanitary Sewer Rate Study Page: 4

16 SECTION 2: INTRODUCTION The City of Berkeley contracted with Bartle Wells Associates to conduct a comprehensive Sanitary Sewer Rate Study. This report provides a description of the City s sewer collection system, the capital and operating costs associated with providing service, and proposed sewer service adjustment options for the next five year period (FY2016 through FY2020). This report also provides ten year cash flows of the Sanitary Sewer Service Fund. 2.1 Description of City s System The City owns and operates a wastewater collection system that collects and transports wastewater generated within the City to the East Bay Municipal Utility District interceptor system, which conveys the flow to EBMUD s Main Wastewater Treatment Plant. EBMUD also treats wastewater from six other satellite collection system agencies: the Cities of Alameda, Albany, Emeryville, Oakland, and Piedmont, and the Stege Sanitary District. The University of California owns and maintains its own collection system that serves the University of California, Berkeley campus but discharges its wastewater to the City s sewer system. The Lawrence Berkeley National Laboratory and Golden Gate Fields collection systems operate in the same manner, as well as small adjacent areas of the Cities of Albany and Oakland and the Stege Sanitary District (Kensington). The original sewers in Berkeley were primarily clay pipe and were installed between 1885 and 1913 with major expansions in 1928 and The City s collection system includes approximately 254 miles of pipelines, 7,200 manholes, seven sewage pump stations, and over 31,000 service laterals. The City s sewer rehabilitation and replacement work includes sewer mainlines, manholes, and associated lower laterals. While the City takes responsibility for replacement of the lower portion of the lateral when the public sewer main is rehabilitated, replaced or if the lower lateral fails, the property owner is responsible for the repair and maintenance of the private sewer lateral from the building drain to the City s lower lateral or, if the sewer is located in a backline or easement, the property owner is responsible for the repair and maintenance of the entire lateral from the building drain to the City s sewer main. 2.2 Consent Decree During large storms, wastewater flows from the Satellite agencies can exceed regional conveyance and sewage treatment capacity. When this occurs, EBMUD diverts and directs the excess flow to three wet weather facilities, designed to store and provide partial treatment prior to discharging to the SF Bay. EBMUD and the satellite agencies have recently reached a settlement with the Environmental Protection Agency regarding the excess wet weather flows and wet weather facility discharges. Each agency has developed plans and programs to reduce I&I flows, reduce sanitary sewer overflows (SSOs), City of Berkeley Sanitary Sewer Rate Study Page: 5

17 and repair and replace aging sewer pipelines. 1 Under the final Consent Decree requirements, the City of Berkeley will replace 4.2 miles of sewer pipeline annually for the next twelve years based on a three year rolling average. A history of the wastewater regulatory events that have affected the City over the last 27 years is shown in Figure 3. Figure 3: History of Regulatory Action 1987 State Regional Water Quality Control Board (State Board) issued a Cease and Desist Order (CDO) to the Cities of Alameda, Berkeley, Emeryville, Oakland, Piedmont, Albany, EBMUD and Stege Sanitary District - Permission to continue to discharge treated wastewater to the SF Bay was conditioned upon each City adopting a Sewer Compliance Plan, administered under the National Pollution Elimination System (NPDES) Permit - The City's NPDES permit requires participation in regionally administered Infiltration and Inflow Correction Program (I/ICP) 1988 Provision to test private laterals, and repair as necessary, upon property sale was added to the City Municipal Code. Oct 2003 Jul 2005 May 2006 San Francisco Bay Regional Water Board (Regional Board) passed a resolution that stated its intent to implement new regulations that would uniformly address sanitary sewer overflows. The resolution also included a reference to a requirement that all agencies prepare a sewer system management plan (SSMP). The Regional Board transmitted a Water Code Section request to City of Berkeley, and all other collection systems in the region, that formally required the preparation of SSMPs. State Board adopted Statewide General Waste Discharge Requirements (WDR) for Sanitary Sewer Systems, Order No DWQ. WDR required development and implementation of Sewer System Management Plan (SSMP). Jan 2009 May 2009 Sept 2011 Sept 2014 East Bay Municipal District s NPDES permit no longer allowed the discharge of partially treated sewage from three Wet Weather Facilities that are used when sanitary flows surcharge the capacity of the main treatment plant. EPA issued the City an Administrative Order (AO) for maintenance, operations, and data collection. City entered into a Stipulated Order for Preliminary Relief with EPA and the Water Boards to develop measures to address excess wet weather flow and to address unauthorized sanitary sewer overflows. City entered into a Final Consent Decree with seven other defendants (Alameda, Emeryville, Oakland, Piedmont, Albany, EBMUD and Stege Sanitary District), three plaintiffs (EPA and Water Boards) and two intervenors (San Francisco Bay Keeper and Our Children s Earth Foundation). The multi-decade decree defines the programs and work needed to reach the goals of eliminating discharges from the Wet Weather Facilities and of eliminating SSOs. 1 Sanitary sewer overflows from sewer collection systems throughout California cities and communities have often caused beach closures, pollution of creeks and a threat to public health. A consensus has developed among the public regulatory agencies and municipal sewer agencies that there is a need to develop and implement comprehensive Sewer System Management Plans to prevent or significantly reduce SSOs from public sewer systems. City of Berkeley Sanitary Sewer Rate Study Page: 6

18 2.3 Overview of the Sewer Customer Base The City of Berkeley has contracted with EBMUD to bill and collect the City s charges for wastewater collection service. There are approximately 30,230 wastewater collection accounts located in the City of Berkeley, see Table 3. The majority of accounts, approximately 92%, are residential, and the remainder is made up of commercial and industrial service connections. Non-residential service connections are categorized and billed by discharge factor (see the subsequent section). The City of Berkeley distinguishes between public agency and private customer groups. Public agency customers include the Berkeley Unified School District, City of Berkeley buildings, City Parks, and the East Bay Regional Park District. A few large customers have their own rates and charges including the Henkel Corporation, Bayer, and Takara Sake. Also shown in Table 3, a number of the customer categories are not used (i.e. have no active accounts) consisting of the public agency duplex, triplex, quadruplex, and multiple family, and the public agency.60 and.80 discharge factor categories. Table 3: Number of Accounts City of Berkeley Sanitary Sewer Rate Study CUSTOMER CATEGORY Number of Accounts - Number of Accounts - Private Public Agency Total RESIDENTIAL Single Family Dwelling Unit 23, ,283 Duplex Dwelling Unit 2, ,082 Triplex Dwelling Unit Quadruplex Dwelling Unit Multiple Family Dwelling Unit 1, ,180 Subtotal Residential 27, ,732 NON-RESIDENTIAL.60 Discharge Factor Category Discharge Factor Category Discharge Factor Category Discharge Factor Category All Other Non-Residential Rates 1, ,539 Henkel Corporation Bayer Takara Sake Berkeley Horticultural Nursery City Parks East Bay Regional Park District Subtotal Non-Residential 2, ,498 TOTAL Systemwide 30, ,230 Note: Active accounts as of October 31, City of Berkeley Sanitary Sewer Rate Study Page: 7

19 SECTION 3: CURRENT SEWER SERVICE CHARGES Bartle Wells Associates reviewed the City s current sewer service charges and finds them to be fair and equitable to customers. Proposition 218 requires that water, sewer, and refuse charges be proportional to the cost of providing service to each customer class. The Berkeley City Council implemented the current rate structure in FY2006, which is supported by a sewer rate study that developed the cost of service allocation to customers. This 2015 Sanitary Sewer Rate Study recommends continuing the rate structure developed for FY2006, updating the underlying sewer service costs, and updating customer wastewater flow characteristics. Descriptions of the City are billing procedures and current rates are provided below. 3.1 Billing Procedures Water service within the EBMUD satellite agencies service areas is provided by EBMUD via a water meter at each service connection. Wastewater flow generated in EBMUD s service area is collected by the satellite collection agencies and is conveyed to regional EBMUD facilities for treatment and disposal. The majority of customers pay charges for 1) water service from EBMUD, 2) wastewater collection service from a satellite sanitation agency, and 3) wastewater treatment and disposal service from EBMUD. EBMUD customer billing data from the City of Berkeley service area is used in this report to develop wastewater generation rates and billing characteristics. The metered water use of each bimonthly period is used by EBMUD to bill customers for wastewater service. 3.2 Discharge Factors To bill customers for sewer service, the City applies a wastewater discharge factor to the metered water use of each connection. The wastewater discharge factor is the ratio of estimated wastewater flow to metered water use. A portion of the water consumed within the City service area is used for outdoor irrigation and other purposes, which does not flow into the sewer and should not be charged for sewer service. The discharge factor for each type of customer is provided in Table 4. For the purpose of rate design, the City of Berkeley groups non-residential customers into the following discharge factors: 0.60, 0.70, 0.80, 0.90, and 1.00 (all other) categories. The discharge factors were adopted by the City in Ordinance No N.S. City of Berkeley Sanitary Sewer Rate Study Page: 8

20 Table 4: Current Discharge Factors City of Berkeley Sanitary Sewer Rate Study Discharge Description Factor 0.82 Residential Private Residence Units, Duplex Units, Triplex Units, Quadruplex 0.98 Apartment Bldgs (Multiple Family Dwellings), 5+ Units 0.60 Agricultural Production 0.70 Grain Mill Products Mfg., Beverage Manufacturing, Petroleum Refining, Rubber & Misc. Plastic Products, Misc. Amusement & Recreation 0.80 Ship & Boat Building & Repair, Gasoline Service Stations, Auto Repair not classified, Car Wash/Auto, Laundry 0.90 Building Construction, Plastic & Synthetic Materials, Eating Places, Fast Food, Offices, Coin- Operated Laundries, Funeral Services & Crematories, Auto Repair, Services, Parking, Misc. Repair Services, Amusement & Recreation Services, Commercial Sports, Educational Services, Membership Organizations 1.00 Warehousing, Hotels w/ Food Service, Hotels w/o Food Service, Boarding Houses, Personal Services, Laboratories, Health Services, undefined 3.3 Current Sewer Service Charges The City s current sewer service charge rate schedule includes three types of charges: 1) volumetric rates charged to each hundred cubic foot (ccf) of metered water use (expressed as $/ccf) up to a maximum amount or cap, 2) bimonthly service rates charged to residential customers who exceed the monthly metered use cap, and 3) daily rates on a $/day basis. The City s current volumetric rates are shown in Table 5. Each customer class is charged a unique volumetric rate based on historical system usage patterns and discharge factors. Residential customers are grouped into classes based on the number of dwelling units per account. The majority of nonresidential customers are grouped into classes based on discharge factors. The Henkel Corporation, Bayer, Pyramid Brewery, and Takara Sake are large industrial customers with wastewater flow characteristics that did not fit into the City s existing nonresidential customer categories. The City elected to develop specific rates for each of these customers. The City also distinguishes between private and public agency customers. Public agency rates were designed to recover the operating costs of the collection system and exclude the capital costs of expanding the sewer system. City of Berkeley Sanitary Sewer Rate Study Page: 9

21 Table 5: Volumetric Sewer Service Charges City of Berkeley Sanitary Sewer Rate Study CUSTOMER CATEGORY CHARGE per ccf Private Public Agency RESIDENTIAL Half Single Family Dwelling Unit $1.56 Single Family Dwelling Unit Duplex Dwelling Unit Triplex Dwelling Unit Quadruplex Dwelling Unit Multiple Family Dwelling Unit NON-RESIDENTIAL.60 Discharge Factor Category Discharge Factor Category Discharge Factor Category Discharge Factor Category All Other Non-Residential Rates Henkel Corporation 1.08 Bayer Bayer Bayer Bayer Bayer Bayer Bayer Bayer Bayer Bayer Takara Sake 1.95 To mitigate impacts on large water users, the City caps the wastewater bill of residential customers. Any metered water use above the capped amount is not billed to the customer. For example, the single family residential wastewater cap is equal to 26.8 ccf per bimonthly period. A single family residential customer consuming 27 units of water or more would only be billed for 26.8 ccf per bimonthly period. Most sanitations agencies in California that use a volumetric rate structure also provide customers with a cap and a corresponding maximum bill. It is assumed that large water users most likely use a significant amount of water for outdoor irrigation that does not flow into the sewer system. Table 6 provides the maximum wastewater bills for residential customers. Table 6 also shows the bimonthly charges of the East Bay Regional Park District. The East Bay Regional Park accounts are billed a fixed bimonthly charge regardless of water use. City of Berkeley Sanitary Sewer Rate Study Page: 10

22 Table 6: Capped and Fixed Bimonthly Sewer Service Charges City of Berkeley Sanitary Sewer Rate Study CUSTOMER CATEGORY CHARGE per bimonthly period Private Public Agency RESIDENTIAL Single Family Dwelling Unit $83.32 $74.38 Duplex Dwelling Unit Triplex Dwelling Unit Quadruplex Dwelling Unit Multiple Family Dwelling Unit NON-RESIDENTIAL EBPARKS EBPARKS EBPARKS EBPARKS4 1, The bimonthly residential flow caps were originally set as double the average water use per dwelling unit. Table 7 provides the wastewater flow that is included in the bimonthly residential caps. Since the City last updated its sewer rates in 2005, there have been shifts in water consumption and the bimonthly use per dwelling unit has decreased. Currently the bimonthly caps are higher than twice the average bimonthly use per dwelling unit for private residential single family, duplex, triplex, and quadruplex customers and public agency single family residential customers (compare Table 7 Column E [current] to Column F [goal]). Over the past two years, no multiple family account bills have been capped. BWA recommends that the City eliminate the cap for the private multiple family customer class. In addition, there are no public agency duplex, triplex, quadruplex, and multiple family accounts. City of Berkeley Sanitary Sewer Rate Study Page: 11

23 Table 7: Equivalent Flow Associated with the Bimonthly Cap City of Berkeley Sanitary Sewer Rate Study CUSTOMER CATEGORY Maximum Bimonthly Bill ($/month) Volume Rate ($/ccf) Max Bimonthly Equivalent Wastewater Flow (ccf) Avg Bimonthly Flow (ccf) per dwelling unit Ratio of Max Bimonthly WW Flow to Average Flow Column (A) (B) (C) (D) (E) (F) Notes (A/B) (C/D) RESIDENTIAL Single Family Dwelling Unit $83.32 $ Duplex Dwelling Unit $ $ Triplex Dwelling Unit $ $ Quadruplex Dwelling Unit $ $ Multiple Family Dwelling Unit $77.30 $ NA NA NA PUBLIC AGENCY RESIDENTIAL Single Family Dwelling Unit $74.38 $ Duplex Dwelling Unit $ $ No accounts No accounts No accounts Triplex Dwelling Unit $ $ No accounts No accounts No accounts Quadruplex Dwelling Unit $ $ No accounts No accounts No accounts Multiple Family Dwelling Unit $68.96 $ No accounts No accounts No accounts Goal City of Berkeley Sanitary Sewer Rate Study Page: 12

24 EBMUD conducts meter reading and billing on a bimonthly, i.e. 60 day or approximate, basis. Throughout any billing period a small number of customers activate or deactivate their accounts. EBMUD s billing data indicates that residential customer bills with irregular (non-60 day) billing periods (likely irregular due to account activation, deactivation, or non-meter read) are billed a prorated daily rate. The daily rate is equal to 1/60 th of the capped bimonthly charge. The prorated rates are provided in Table 8. Table 8: Prorated (Daily) Sewer Service Charges City of Berkeley Sanitary Sewer Rate Study CUSTOMER CATEGORY CHARGE per day Private Public Agency RESIDENTIAL Single Family Dwelling Unit $1.39 $1.24 Duplex Dwelling Unit Triplex Dwelling Unit Quadruplex Dwelling Unit Multiple Family Dwelling Unit OTHER City Parks Revenue Collection by Service Charge Category Table 9 provides the number of billing units and the revenue collected from each service charge category in FY2013 and FY2014. About 90% of service charge revenues are collected from volumetric rates. Of the volumetric rate revenue, over 60% is attributable to the private residential customer class. Over 9% of service charge revenues are collected from bimonthly fixed charges and less than 1% of revenues are collected from the daily rates. The Sewer Fund collected a total of $12.75 million of service charge revenue in FY2013 and about $12.88 million in FY2014. The FY2014 increase in revenue is due to increased water use by 0.90 discharge factor customers, 1.0 discharge factor customers, and Bayer. 2 2 One of the Bayer Accounts, indicated in Table 9 as Bayer Account 3, was billed for a higher than typical water use in FY2014 due to a delay in billing. Bayer Account 3 was billed October 2012 (FY2013) and was not billed again until July 2013 (FY2014). To project FY2015 annual water usage of Bayer Account 3, BWA estimated a typical monthly water use and extrapolated for 12 months. City of Berkeley Sanitary Sewer Rate Study Page: 13

25 Table 9: FY2013 and FY2014 Billing Units City of Berkeley Sanitary Sewer Rate Study CUSTOMER CATEGORY Volumetric Rates CHARGE Billing Units Revenue Per Ccf FY2013 ccf FY2014 ccf FY2013 $ FY2014 $ RESIDENTIAL Half Single Family Dwelling Unit $ $ % $ % Single Family Dwelling Unit ,289,184 1,283,572 $4,009, % $3,991, % Duplex Dwelling Unit , ,962 $630, % $621, % Triplex Dwelling Unit ,784 76,358 $259, % $258, % Quadruplex Dwelling Unit , ,008 $342, % $333, % Multiple Family Dwelling Unit , ,496 $2,672, % $2,623, % Subtotal Residential 2,468,150 2,441,638 $7,915, % $7,828, % NON-RESIDENTIAL.60 Discharge Factor Category $0 0.0% $0 0.0%.70 Discharge Factor Category ,909 12,722 $42, % $33, %.80 Discharge Factor Category ,886 9,763 $29, % $29, %.90 Discharge Factor Category , ,192 $672, % $722, % All Other Non-Residential Rates , ,146 $2,233, % $2,306, % Henkel Corp $76 0.0% $0 0.0% Henkel Corp ,482 2,673 $2, % $2, % Bayer ,782 2,343 $16, % $5, % Bayer ,799 17,573 $59, % $56, % Bayer ,741 48,555 $58, % $181, % Bayer ,500 3,850 $8, % $13, % Bayer ,407 2,349 $8, % $8, % Bayer ,108 15,515 $10, % $10, % Bayer ,980 1,844 $7, % $6, % Bayer ,809 4,776 $ % $ % Bayer ,916 11,926 $17, % $29, % Bayer ,855 49,373 $179, % $173, % Pyramid Brewery ,299 8,786 $32, % $15, % Takara Sake ,635 22,813 $36, % $44, % Subtotal Non-Residential 980,242 1,038,199 $3,416, % $3,641, % PUBLIC AGENCY RESIDENTIAL Single Family Dwelling Unit $ % $1, % Duplex Dwelling Unit $0 0.0% $0 0.0% Triplex Dwelling Unit $0 0.0% $0 0.0% Quadruplex Dwelling Unit $0 0.0% $0 0.0% Multiple Family Dwelling Unit $0 0.0% $0 0.0% Subtotal Public Agency Residential $ % $1,413 PUBLIC AGENCY NON-RESIDENTIAL.60 Discharge Factor Category $0 0.0% $0 0.0%.70 Discharge Factor Category ,619 5,464 $16, % $11, %.80 Discharge Factor Category $0 0.0% $0 0.0%.90 Discharge Factor Category ,686 49,941 $130, % $136, % All Other Customer Usage Discharge Factor Category ,631 2,289 $7, % $6, % Subtotal Public Agency Non-Residential 57,936 57,694 $154, % $154, % Subtotal Volume Rates 3,506,633 3,538,041 $11,487, % $11,626, % Note: Pyramid Brewery transitioned to the All Other Non-Residential rate category in FY2015 City of Berkeley Sanitary Sewer Rate Study Page: 14