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SR-8-A (176) 5C'~-l7CJ/-oz t.-- ... -' .. ~ A R--A- OCT 1 199; Santa Monica, California .. . ..- GS:SES:FJS:JSH:srwwratejgenserv Council Meeting: october 1, 1991 TO: Mayor and City Council FROM: city staff SUBJECT: Recommendation to Approve Revised Wastewater Rate structure and Introduce For First Reading an Ordinance to Revise Santa Monica Municipal Code sections 7137 and 7143 Relating to Sewer Service Charges INTRODUCTION This staff report recommends that the City council approve a new wastewater rate structure and adopt for first reading the attached ordinance revising Santa Monica Municipal Code Sections 7137 and 7143 Relating to Sewer Service Charges. These changes will- allow the City to fulfill its contractual obligations with the City of Los Angeles to reduce contamination in Santa Monica Bay and ensure the integrity of the City'S wastewater collection system. BACKGROUND In June 1989/ the City Council gave conceptual approval to a long-range financing strategy for the Wastewater Fund. This strategy encompassed a revenue bond issue for payment of the City'S share of the Hyperion System Upgrade capital costs and a , sewer service charge increase. Over the past two years, city staff has worked in close conjunction with outside financial and legal consultants to finalize the structure of the wastewater revenue bond offering. This process has been complicated and delayed by three main factors. First, the estimates from the - 1 - i-A OCT 1 1991 city of Los Angeles of Santa Monica's 'financial obligations as they relate to the Hyperion system Capital upgrade have been revised several times over the past two years: second, the city's future operation and maintenance (O&M) and capital costs, as proj ected in a wastewater master plan currently underway, have significantly increased: and third, the dramatic decrease in ci tywide water usage related to water conservation efforts has severely impacted sewer service revenues which are, at present, driven solely by water consumption. These compounding factors necessitated a thorough review over the past several months of the current and projected fiscal condition of the Wastewater Fund. The results of the analysis have led to a reassessment of the overall financing strategy for the Wastewater Fund. The specific elements of this revised financing strategy as well as an in-depth discussion of the primary cost issues facing the Wastewater Fund are presented below. Discussion Since 1926, the Cities of Santa Monica and Los Angeles have entered into various contractual agreements for the disposal and treatment of sewage. The most recent agreement is dated February 21, 1964, and provides that Santa Monica may discharge a specific permitted level of sewage flows into the Hyperion Treatment System for treatment and disposal. The agreement provides that Santa Monica will pay Los Angeles an annual O&M charge for sewage conveyance, treatment and disposal, and will also pay for a - 2 - proportionate share of the capital improvement, relocation, replacement or Hyperion Treatment Plant and the sewage between Santa Monica and Los Angeles. costs of alteration, reconstruction of the conveyance facilities Los Angeles is currently in the process of constructing a large-scale wastewater system capital improvement program mandated by federal and state upgrade requirements. The program began in 1984 and will continue through 2001 for an approximate total cost of $3.8 billion. Santa Monica, as with other subscribing agencies, is responsible for financing a proportionate share of the improvements to the Hyperion System. The City's share is $63 million over the next ten years, based on estimates prepared by the City of Los Angeles. The City also is facing rising O&M and capital costs for our local wastewater system. To aid in forecasting these local system costs, the City contracted with the engineering firm of CH2M Hill to prepare a wastewater system master plan. Although the plan has not yet been completed, the consultant has estimated that the city's local system capital needs through FY 2000-01 may be as much as $37 million. This will be partially offset by connection fee revenue collected from new development to pay for capacity expansion. In addition to the significant cost impacts as described above, the City's sewer service revenues have decreased significantly. The city's current wastewater rate is based solely on the amount of water consumed. Due to the success of the cityt s water - 3 - conservation efforts wastewater service charge revenues collected in FY 1990-91 were much less than had been budgeted. Once the drought ends, it is not anticipated that the City's wastewater flow will return to its original level due to the aggressive implementation by the City of permanent water conservation measures. The magnitude of required Hyperion System capital expenditures over the next 10 years is too large to be equitably recovered on a pay-as-you-go basis. Thus, in 1989 the Ci ty council conceptually approved the issuance of revenue bonds to cover the city's proportionate share of Los Angeles's wastewater system capital improvement program. The City selected Connell & Associates to serve as financial advisor, and the law firm of Orrick, Herrington, and Sutcliffe to serve as bond counsel to City staff in preparation of the bond offering. The first bond issue of $33 million is scheduled for November 1991. Three subsequent bond issues will be required to cover Santa Monica's remaining share of the City of Los Angeles' wastewater system capital improvement program costs. A summary of the anticipated bond issues are as follows. FY 1991-92 FY 1994-95 FY 1997-98 FY 1999-00 $33,235,000 19,000,000 7,995,000 7,820,000 $68,050,000 TOTAL Additionally, the City selected the engineering conSUlting firm of Kennedy/Jenks/Chilton (KJC) to work with staff and the financial advisor to develop a wastewater revenue plan and a - 4 - projection of revenue increases which may be necessary to finance all wastewater operation costs over the next decade. Wastewater Revenue and Rate Analysis The objectives of the ten-year Wastewater Revenue and Rate Analysis prepared by KJC were to assess current projected costs, assess annual levels of wastewater discharge to project the city's share of Los Angeles' Capital and O&M expenses, conduct a cost of service study to equitably allocate utility costs to wastewater users, and recommend corresponding wastewater rate enhancements which allow the City to meet the debt service requirements of the proposed wastewater bond issues. The study concluded that the following average rate increases will be required to meet the City'S revenue requirements over the next decade. December 1, 1991 July 1, 1993 July 1, 1994 July 1, 1995 July 1, 1996 July 1, 1997 July 1, 1999 37 percent 8 percent 8 percent 8 percent 8 percent 8 percent 10 percent If the City chooses not to finance its share of the Hyperion capital upgrade costs through revenue bonds, it will be necessary to implement a 375 percent rate increase effective January 1, 1992 in order for the City to meet its current contractual obligations. staff believes that bond financing offers a much more equitable source of funding for these costs. - 5 - The city's Present Rate structure The City's present wastewater rate structure consists of a variable charge based on a percentage of water consumed times a per hundred cubic feet (hcf) rate. The methodology which is used to arrive at the correct percentage of water use which is sUbject to sewer service charges is based on an assumption as to how much of each user class' water is used for irrigation or other exterior uses and how much constitutes interior use which becomes sewage. These assumptions, or discharge factors, are presented in the table below. This rate structure has been in place for several years with the wastewater unit rate presently at $1.59 per hundred cubic feet. USER CLASS single Family Business in Residence Duplex Triplex Fourplex Over 4 Apts. Industry commercial Public schools Churches DISCHARGE FACTOR 50% 50% 68% 76% 85% 90% 100% 100% 50% 100% Under this rate structure, wastewater customers are charged in direct proportion to the amount of water they consume, but there is no minimum charge for cost of service. . proposed Rate structure and December 1, 1991, Rate Increase Using FY 1989-90 data from the City's utilities billing system, water production records, and wastewater flow records, KJC performed a cost of service analysis. This analysis provides for a fair and equitable distribution of costs and groups customers with similar discharge patterns by user class. Because different - 6 - user classes have different wastewater system characteristics and impose different costs for treatment, separate wastewater rates for each user class are proposed. It is also proposed that costs be recovered through both a fixed service charge and a variable volume rate. Additionally, for industrial and some commercial users with higher sewage strength, it is proposed, in accordance with state and federal guidelines, that a charge be assessed for sewage strength. The rate structure presented below incorporates the proposed initial 37 percent average rate increase. Fixed Service Charge An important concept that emanates from the cost of service analysis is the recouping of fixed wastewater operation costs from a fixed service charge rather than from a variable volume rate. The City'S present sewer service charge derives revenue from a rate based solely on water consumption. However, under such a revenue structure, significant reductions in water consumption jeopardize the financial integrity of the city's wastewater utility. Employee salaries and benefits, insurance, legal, general maintenance and other costs of operation, and the debt service cost for repayment of bonding for Hyperion System upgrade costs does not vary with levels of water consumption or amount of wastewater flows. This means that a majority of the City'S wastewater system's costs (approximately 65%) are fixed. These fixed costs are incurred whether or not customers discharge wastewater and are associated with the "readiness to serve" of the system. - 7 - In an effort to move the City toward recovery of all of its fixed costs through a fixed service charge, this report recommends that a fixed service charge be incorporated into the rate structure to collect approximately 45 percent of the operation's fixed costs as part of the proposed December 1, 1991 rate increase. Subsequent increases in the fixed service charge will be requested over time, eventually leading to full recovery of fixed costs. The newly proposed bi-monthly fixed service charges are: USER CLASS SERVICE CHARGE BY METER SIZE Meter single Multi without with Size Family Family permit* Permit** 5/Sn-3/4 n $ 16.98 $ 34.54 $ 42.81 $ 70.54 1" 23.77 48.36 59.94 98.75 1-1/2" 30.56 62.17 77.07 126.97 2" 49.24 100.17 124.16 204.56 3" 186.76 379.94 407.96 775.92 4" 237.69 483.56 599.40 987.53 6" 356.53 725.34 899.10 1,481.29 811 492.36 1,001.66 1,241.62 2,045.60 * includes governmental, insti tutional, and commercial and industrial without an industrial discharge permit **includes commercial with industrial discharge permits (such as restaurants and photo finishes) and industrial with industrial discharge permits variable (Flow Related) Charge The discharge factors for the variable component of the proposed waste'vater rate structure approximate the ci ty' s current discharge factors: USER CLASS Single Family Duplex Triplex Fourplex Over 4 Apartments DISCHARGE FACTOR 51% 68% 76% 85% 90% - S - Individually metered multi- family, regardless of number of units Commercial and Industrial Government (except landscape meters) Public Schools and Churches Landscape Meters Single Family MUlti-Family Government and Institutional Commercial, not requiring an industrial discharge permit Commercial, requiring an industrial discharge permit Industrial, not requiring an industrial discharge permit Industrial, requiring an industrial discharge permit 95% 89% 89% 89% 0% VARIABLE FLOW CHARGE $1.. 13 per HeF $1.13 per RCF $1.13 per HCF $1.13 per HCF $ .84 per HCF $1. 13 per HeF $ .84 per HeF Strength Charge In order to comply with state and federal regulations, the City's wastewater utility is required to also allocate costs on the basis of sewage strength as indicated by biochemical oxygen demand (BOD) and suspended solids (83). These costs are associated with industrial users and some commercial users (such as restaurants) whose wastewater discharge strength is stronger than that of domestic users. The proposed BOD and 55 charges are: USER CLASS commercial and Industrial with Industrial Permit Commercial and Industrial with Industrial Permit STRENGTH CHARGE $ .15 per pound BOD The industrial and commercial users which fall into this category $ .38 per pound 56 Control Ordinance. are currently regulated by the City's Industrial Wastewater - 9 - Affect of proposed Wastewater Rate structure (as of December 1, 1991) The affect of the proposed wastewater rate structure and the December 1, 1991, increase differs with each user class, and in some cases the proposed rate structure will result in a decrease. A comparison of the average impact for each user class follows. The impact on a sample of users from each user class is as follows: 12-1-91 METER CURRENT PROPOSED DOLLAR USER CLASS SIZE HCF BILL BILL INCR/DCRS Single Family 3/411 32 $ 25.44 $ 35.42 $ 9.98 Multi Family 1-1/2" 92 117.02 159.24 43.91 (7 units) Small Profes- sional Bldg. 3/411 38 60.42 81. 02 20.60 Auto'" Repair 3/4" 6 13.88 79.43 65.50 Large Sit-Down Restaurant 1-1/211 481 764.79 1,495.83 731.04 Laudromat 1-1/2" 496 788.64 674.61 -114.03 Car Wash 2" 517 822.03 726.44 -95.59 Hospital 2 - 4"/ 2 - 611 13,186 20,965.74 20,324.36 -632.38 Hotel 3"/611 1,329 2,113.10 5,486.91 3,373.81 Due to the impact of the proposed fixed service charge, customers in each user class will also be affected differently depending on the amount of water consumed. Those customers in each user class who continue to consume less than the average amount of water will likely experience a greater percentage increase in their wastewater bill. The rate re-structuring proposal has been forwarded to and discussed with Rent Control staff. - 10 - The attached table compares Santa Monica's proposed wastewater rate for single family occupancies with wastewater rates of other cities in the area. BUDGET/FINANCIAL IMPACT The proposed wastewater rate structure and December 1, 1991, rate increase will generate approximately $1,396,750 in additional revenue at account 31-500-661-00000-0165-100000 for FY 1991-92. The estimated full year impact in FY 1992-93 will be $2,860,544. This increased revenue is the amount necessary to meet the proposed debt coverage and on-going operations and maintenance costs for the wastewater system. A proposed resolution which sets the specific rates described above will be submitted for Council review and action concomitant with the second reading of the ordinance. RECOMMENDATION It is recommended that the city Council: 1. Approve the proposed wastewater rate structure as described in this report; and 2. Introduce for first reading the attached ordinance revising Santa Monica Municipal Code Sections 7137 and 7143 to incorporate the new wastewater rate structure. Prepared by: stan Scholl, Director of General services F. J. Schroeder, Interim utilities Manager Jean Stanley Higbee, Sr. Administrative Analyst (srwwrate) Attachment: Table "Single Family Bill comparison - city of Santa Monica - Wastewater utility" Ordinance - 11 - SINGLE FAMILY BILL COMPARISON CITY OF SANTA MONICA - WASTEWATER UTILITY CURRENT FY '992-93 RATE caallTJONS I UTI I.: TY 811.1.(1) 91 LL(Z} SUBSIDY LA IEMBER I Santa MonIca S25 .410 535.42\ IKlNE YES Los Angeles 533. 15 139.30 ' MOllIE yES Et SeglrlOO(3) S16. DO S17.28 ! Gen F t.n:I yES i :'lenaale $42.24 $04562 NOllIE YES Severt y HI lla $40.70 $50.44 WONE YES Las Vlrgenes $3'.50 $34.02 lfONE YES LA CCI.rlty San. $10.00 510.60 I T ues NO IIIu'1ICID8Lltles Torrlll'lCe(4) $13.00 513.7! ,Gen FLRl I He InglNOOd(4) S~S.OO S19.OS \GIn fll'lQ I MO C,) All bIlls are bi-~thly end ~ an 32 Hc1/Cycle. (2) FY 1991-93 prOjected bIll IS bauC en the current 1:l1ll wid, lIn 1 nc:reesec:l of !!X, wt'l1 en apprOXTlftl'Ces LA tre.a.nt end 0&14 cost ~cal.tHln fKtor. (3) Currently 11\ Lltl;.tlGn WIth LA over caDltel cost elloeeelena. (4) These CItIes dlsenarge wastewater to LA COuntY San. DIstrIct. CA:RMM:moxd0002/hpw/pc city council Meeting 10-1-91 Santa Monica, California ORDINANCE NUMBER (City council Series) AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF SANTA MONICA AMENDING SECTIONS 7137, 7143A, 7143B, 7143C, AND 71430 OF THE SANTA MONICA MUNICIPAL CODE RELATING TO SEWER SERVICE CHARGES THE CITY COUNCIL OF THE CITY OF SANTA MONICA DOES ORDAIN AS FOLLOWS: SECTION 1. Section 7137 of the Santa Monica Municipal Code is amended to read as follows: SECTION 7137. Sewer Connection Fee. (a) The owner or developer of a building in the City shall pay a sewer connection fee to the City. This fee shall be paid to the Department of General Services before the issuance of the next permi t or certificate of occupancy of the building. No Ci ty permit or certificate shall be issued in connection with a building until the Department of General Services certifies - 1 - that payment of the prescribed fee has been received. (b) The fee shall be established time to time be amended or by Resolution of the ci ty and from revised Council. (c) If the use of property subject to this section is change so that its sewage flow or strenqth warrants the payment of a higher fee, as shown on the city council Resolution setting the fee, the owner or developer of the property shall pay an additional fee, as determined by the Director of General Services. (d) This fee shall be supplementary to all other permit and fee requirements of this Chapter. SECTION 2. section 7143A of the Santa Monica Municipal Code is amended to read as follows: SECTION 7143A. Sewer Service Charge. Definitions. As used in Sections 7143A through 7143E, the following words and phrases shall have the meaning set forth herein, unless it is apparent from the context that a different meaning is intended: - 2 - Adjustment: A determination that the volumetric amount or strength of sewage which enters the sewer system from a premise is deemed to be a defined amount substantially different from that amount or strenqth specified in a resolution of the City Council referred to hereinafter. Average sewage: The average amount of sewage which enters the sewer system from a user, as determined and established for residential, commercial, industrial and governmental users from time to time by resolution of the city Council. Biochemical Oxygen Demand (BOD): The quantity of oxygen utilized in the biochemical oxidation of organic matter in five (5) day at 20 degrees centigrade expressed in terms of milliqrams per liter (mg/l) and analyzed in accordance with the most recent publication of "Standard Methods for the Examination of Water and Wastewater, n prepared and published by the American Public Health Association, American Water Works Association, and Water Pollution Control Federation. - 3 - commercial: That use of the sewer system which is in any manner related to the operation of or on any premises for purposes of business, commerce or trade. Discharge Factor: A factor which shall be applied to the water usaqe of a particular class of user to reflect the actual or estimated percentage of water usaqe which is discharqed to the sewer system. Governmental: That use of the sewer system by a city, city and county, county, state, federal government, or a political subdivision of any of the foreqoinq. Industrial: That use of the sewer system which is in any manner related to manufacturing or processing activities. Premises: A parcel of real property, and any appurtenances and improvements situated thereon, discharging sewage or connected to the sewer system. Residential: That use of the sewer system which is related to predominantly residential use of the premises in discharging sewage into the sewer system. - 4 - Sewage: The used, spent, or wasted discharge of the community of the City received, directly or indirectly, by the sewer system from one or more of the following sources, to wit: residences, commercial buildings, industrial plants, other structures and institutions, sub-surface water, surface water, and storm water. Sewer service charge: That amount imposed upon users of the sewer system as provided for in this chapter. Sewer System: The entire network of appurtenances, improvements, fixtures, real and personal property involved and contributing to the operation and maintenance of the sewage collection and disposal system of the city of Santa Monica and the city of Los Angeles, including but not limited to sewer facilities, pumping stations, and treatment plants. Residential Sewage strength: The concentration of dissolved and suspended matter in sewage, as indicated by Biochemical Oxyqen Demand or Suspended SOlids, which derives from normal - 5 - residential discharges to the sewer system. sewage strength: The concentration of dissolved and suspended matter in sewaqe, as indicated by Biochemical Oxyqen Demand or Suspended Solids, as defined herein. Suspended Solids (SS): The total non-filtrable residue in water, wastewater or other liquids, which is removable in accordance with the most recent publication of "Standard Methods for the Examination of Water and Wastewater," prepared and published by the American Public Health Association, American Water Works Association, and the Water Pollution Control Federation. User: An owner or occupant, whether commercial, governmental, industrial or resldential, of an appurtenance, improvement, buildlng, lot or premises being served by the City of Santa Monica Water Division, and discharqinq sewage or havinq a connection to discharqe sewaqe, to the sewer system. User Class: A qroup of users of the water system or sewer system which, in the ludqment of the utilities Manaqer, - 6 - have similar purposes for water use, similar wastewater discharqe requirements and similar wastewater strenqth characteristics. wastewater: Synonymous with the definition of Sewage set forth above. SECTION 3. section 7143B of the Santa Monica Municipal Code is amended to read as follows: SECTION 7143B. Charges. Sewer Service (a) There is hereby imposed a sewer service charge for the receiving, transportation, pumping, treatment, and disposal of sewage through the sewer system, and capital replacement costs pertaining thereto. (b) The sewer service charge shall be a charge to commercial, governmental, industrial, residential, and other users of the sewer system. It shall have three components as follows: (1) A fixed rate component, which shall be based on a user class and the capacity in the sewer system which a user may require, as indicated by size of water meter, and which shall generally be - 7 - intended, in its aqqreqate, to recover the City's fixed costs of service to that particular user class. (2) A variable rate component, which shall be based on estimated volume discharge of sewaqe as determined by metered water usaqe and adopted discharqe factors, or by measured sewaqe discharqe, and which shall generally be intended, in its aqqreqate, to recover the City's variable or flow-related costs of service. (3) A sewaqe strength component, which shall apply to all commercial and industrial users who are required by Article V, Chapter 4 of the Santa Monica Municipal Code to obtain an Industrial Wastewater Permit. It shall be based on the actual or estimated sewaqe strenqth, and shall qenerally be intended, in its aqqreqate, to recover the city/s variable costs of collectinq, transportinq, treatinq and disposinq of sewaqe which exceeds residential sewaqe strenqth. This component may also be applied to other users when, in the judgment of the utilities Manager, the - 8 - strength of discharge of that user exceeds residential sewage strength. (c) The sewer service charge shall be computed at the rates established from time to time by resolution of the City Council. (d) No sewer service charge shall be made or collected on any appurtenance, improvementr building, lot or premises where there is no connection to discharqe sewaqe to the sewer system. ( e) Any user, at his or her own option and cost, may obtain a permit from the Department of General services and install pursuant thereto and subject to inspection by the Department of General Services, a metering device or devices approved by the Department of General Services for measuring all of the sewage discharged into the sewer system from his premises. For purposes of this subsection (e) , the total aggregate measured through said device or devices during a given billing period will be deemed to be the average sewage from his premises for said billing period. (f) The Director of General Services or his or her designated - 9 - representative shall have the power and duty, and is hereby directed to enforce all of the provisions of Sections 7143A through 7143 E, incl us i ve, except as otherwise set forth herein, and shall provide such rules and regulations as are consistent with the provisions of said sections and may be necessary or desirable to aid in the administration, adjustments, and enforcements of said sections. SECTION 4. Section 7l43C of the Santa Monica Municipal Code is amended to read as follows: section 7143C. Billing-collec- tions-payment of Charges-Delinquency Penalties. The Director of General Services shall direct, supervise and control the collection of the sewer serv ice charge imposed in this Chapter, and shall arrange for the billing, collection, delinquency penalties, and accounting for the sewer service charge through the available facilities of the Water Division of the City and ln accordance wlth its regular billing practices, as provided in the applicable - 10 - sections of the Santa Monica Municipal Code. SECTION 5. section 7143D of the Santa Monica Monica Municipal Code is amended to read as follows: section 7143D. Adjustment and Appeals. (a) The director of General Services shall have the authority to provide for adjustments in the discharge factors and sewaqe strenqths established Qy resolution of the City Council in cases where the Director of General Services determines that the actual quantity or quality of sewage discharge is substantially different from those established. The Director of General Services shall also have authority to prorate fixed rate and variable rate components of the sewer service charge in cases where more than one user class are served by a common water meter. (b) Any user may appeal determinations of the Director of General Services as provided for in section 6072 of the Santa Monica Municipal Code. - 11 - SECTION 6. Any provision of the Santa Monica Municipal Code or appendices thereto inconsistent with the provisions of this Ordinance, to the extent of such inconsistenc1es and no further, are hereby repealed or modified to that extent necessary to affect the provisions of this Ordinance. SECTION 7. If any section, subsection, sentence, clause, or phrase of this Ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of any competent jurisdiction, such decision shall not affect the validity of the remaining portions of this Ordinance. The city Council hereby declares that it would have passed this Ordinance, and each and every section, subsection, sentence, clause, or phrase not declared invalid or unconstitutional without regard to whether any portion of the Ordinance would be subsequently declared invalid or unconstitutional. SECTION 8. The Mayor shall sign and the City Clerk shall attest to the passage of this Ordinance. The City Clerk shall cause the same to be published once in the official newspaper within 15 days after its adoption. This Ordinance shall become effective after 30 days from its adoption. APPROVED AS TO FORM: ~~+~,~ ROBERT M. MYERS City Attorney - 12 -