Document Modesto_doc_f63cd896ca

SEWER RATE AND FEE STUDY Final Report January 2016 BARTLE WELLS ASSOCIATES Independent Public Finance Consultants 1889 Alcatraz Avenue Berkeley, California 94703 www.bartlewells.com Tel: 510/653‐3399 ---PAGE BREAK--- ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 TABLE OF CONTENTS SECTION 1: INTRODUCTION AND EXECUTIVE SUMMARY 1 1.1 Background 1 1.2 Study Overview 2 1.3 Procedural Requirements of Proposition 218 2 1.4 Rate Study Process 3 1.5 Findings and Recommendations 4 1.5.1 Revenue Requirement 4 1.5.2 Cost Allocation 4 1.5.3 Rate Design 5 1.5.4 Proposed Rates 6 SECTION 2: CURRENT SEWER RATES 9 2.1 Account Charge 9 2.2 Flow and Strength Rates 9 2.2.1 Industrial Rates 9 2.2.2 Commercial Rates 10 2.2.3 Residential Rates 10 2.2.4 Septage Rate 11 2.3 Current Rate Schedule 11 SECTION 3: REVENUE REQUIREMENT 12 3.1 Current 12 3.2 Operating Expenses 13 3.3 Debt Service 13 3.4 Capital Expenses 13 3.5 Financial Policies, Assumptions, and Targets 14 3.6 CanSeg Line Revenue Requirement 15 3.6.1 CanSeg Reserve 15 3.6.2 Operating Expenses and Non‐rate Revenue 16 3.6.3 CanSeg Line Capital Expenses 16 3.6.4 CanSeg Line Cash Flow 17 3.7 Wastewater Fund Cash Flow 18 SECTION 4: COST OF SERVICE ALLOCATION 20 4.1 Methodology 20 4.2 Customer Service 20 4.3 Allocation of Non‐Rate Revenues 21 4.4 Operating Expense 23 4.5 Debt Service 24 4.6 Secondary Scalping 25 4.7 Summary Allocation to M&I and CanSeg 28 4.8 Allocation to Flow and Strength 29 4.9 Septage 30 SECTION 5: RATE DESIGN 31 5.1 Billing Units 31 5.1.1 Accounts 31 5.1.2 Flow and Loadings 31 5.2 M&I and CanSeg Line Rate Design 34 5.3 CanSeg Line Rate Design 37 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 5.4 Secondary Scalping Rate Design 38 5.4.1 Secondary Scalping Rates 38 5.4.2 Annual Secondary CanSeg Capacity Charge 39 5.5 Customer Impacts 40 5.5.1 Customer Class‐Level Impacts 40 5.5.2 Secondary Scalping Impacts 40 5.5.3 Residential Bill Comparison 41 SECTION 6: CONCLUSIONS AND RECOMMENDATIONS 43 6.1 Conclusions 43 6.2 Recommendations 44 Appendix A: Capital Improvement Plan Appendix B: Cost Allocation Worksheets Appendix C: Billing Units ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 LIST OF TABLES Table 1‐1: Projected M&I Sewer Rates 6 Table 1‐2: Typical Customer Bill 7 Table 1‐3: Proposed CanSeg Line Sewer Rates 7 Table 1‐4: Proposed Secondary Scalping Rates 8 Table 2‐1: Current (FY2015/16) Sewer 11 Table 3‐1: Revenue Sources 12 Table 3‐2: 5‐Year Summary of Capital Improvement Projects 14 Table 3‐3: CanSeg Line Reserve Allocation 15 Table 3‐4: 5‐Year CanSeg Line Capital Improvement Projects 16 Table 3‐5: CanSeg Line Cash Flow 17 Table 3‐6: Wastewater Fund Master Cash Flow 19 Table 4‐1: Allocation to Customer Service 21 Table 4‐2: Estimated CanSeg Process Water to the Ranch 22 Table 4‐3: CanSeg Line Directly Allocated Operating Costs 24 Table 4‐4: Operating Cost Allocation for Secondary Scalping System 26 Table 4‐5: Secondary Scalping Capital Expenses 27 Table 4‐6: Secondary Scalping Debt Service 28 Table 4‐7: Summary Allocation to M&I and CanSeg 29 Table 4‐8: Flow and Strength Allocations 29 Table 4‐9: M&I Cost Allocation to Flow and Strength 30 Table 4‐10: CanSeg Cost Allocation to Flow and Strength 30 Table 5‐1: Number of Customer Accounts 31 Table 5‐2: Commercial Loading 32 Table 5‐3: Residential Flow and Loading Characteristics 32 Table 5‐4: Residential Dwelling Units 33 Table 5‐5: Total M&I Flows and Loads for Rate Design 33 Table 5‐6: CanSeg Line Flows and Loads 34 Table 5‐7: Accounts Charge 34 Table 5‐8: M&I Flow and Strength Unit Costs 35 Table 5‐9: Projected M&I Sewer Rates 36 Table 5‐10: CanSeg Line Sewer Rates 37 Table 5‐11: FY2020/21 Secondary Scalping Influent Flows and Loads 38 Table 5‐12: Secondary Scalping Operating Rate Design 38 Table 5‐13: Secondary Treatment Capacity 39 Table 5‐14: Secondary Scalping Secondary CanSeg Capacity Fee 39 Table 5‐15: Customer Class Revenue Impacts 40 Table 5‐16: Example Secondary Scalping Customer Impact 41 Table 5‐17: Typical Customer Bill 42 LIST OF FIGURES Figure 1: Comprehensive Cost of Service Study Process 3 Figure 2: Residential Bill Comparison 42 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 1 SECTION 1: INTRODUCTION AND EXECUTIVE SUMMARY 1.1 Background The City of Modesto provides wastewater (sewer) service to a population of over 200,000 within the City limits and to about 900 customers within the Empire Sanitary District. The City’s wastewater system consists of a sewer collection system, the Sutter Wastewater Treatment Plant (primary treatment), the Jennings Wastewater Treatment Plant (secondary and tertiary treatment), a Cannery Segregation Pipeline (CanSeg Line), and the Ranch. A new 12.6 million gallon per day tertiary treatment plant (Phase 2 plant) will come into service this year. The City last conducted an in‐depth cost of service rate study in 2007, which was approved and implemented by the City in compliance with Proposition 218. Since 2007, the City has reviewed and updated its rates on a nearly annual basis and the rates have remained below the maximum rates approved under the Proposition 218 process. The City engaged Bartle Wells Associates (BWA) to conduct a comprehensive cost of service review of the wastewater rates and charges. A rate update is needed due to changes in the City’s treatment process, infrastructure improvements identified in the Wastewater Master Plan Update, and to comply with the Tolling Agreement between the City and Stanislaus Foods. This year, the City will complete construction of the Phase 2 tertiary treatment plant and bring the plant into operation. In addition to the existing Phase 1 treatment facilities, the combined tertiary treatment plants will free up capacity in the secondary treatment plant. The secondary treatment plant will be adapted to treat the high strength flows and capacity will be offered to cannery customers. The City is also pursuing treatment retrofits to produce recycled water. A Wastewater Master Plan Update is currently being conducted by the City’s consulting engineer, Carollo Engineers. The Wastewater Master Plan Update identifies repair and replacement projects and capacity improvements needed over the next twenty years. The City’s current rate revenues are insufficient to fund these costs. The Wastewater Master Plan Update has also identified changes in the City’s customer base. Due to the economic recession, drought conditions, and water conservation, wastewater flows have decreased since 2007. A 2015 rate study update was also prompted by the City’s Tolling Agreement with Stanislaus Foods. Stanislaus Food is the largest customer served by the City’s Cannery Segregation Line. The CanSeg Line is used by five cannery customers during the canning season that typically runs from July through September. The CanSeg Line collects and conveys the canneries’ process flow directly to the Ranch for land application. During canning season, the cannery process flow does not receive treatment, however, the canneries pay the same rates and charges as all other industrial customers who do receive wastewater treatment. To resolve this disparity between the CanSeg level of service and rates paid, the City committed to develop a new rate structure for the CanSeg customers by 2016. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 2 1.2 Study Overview This rate study provides a financial plan reviewing the City’s operating and capital costs, reserve targets, and funding mechanisms and develops the Wastewater Fund revenue requirements. The costs associated with the CanSeg Line are developed separately from the remainder of the municipal and industrial treatment stream. As a second step, the revenue requirement is allocated to customer service, flow, and pollutant loading to determine the unit costs of service. As the final step, the unit costs are developed into rates for the next five year period. 1.3 Procedural Requirements of Proposition 218 Proposition 218, the “Right to Vote on Taxes Act”, was approved by California voters in November 1996 and is codified as Articles XIIIC and XIIID of the California Constitution. Proposition 218 establishes requirements for imposing any new or increasing any existing property‐related fees and charges. For many years, there was no legal consensus on whether water and sewer service fees met the definition of “property‐related fees.” In July 2007, the California Supreme Court essentially confirmed that Proposition 218 applies to water and sewer service fees. The City must follow the procedural requirements of Proposition 218 for all sewer rate increases. These requirements include: 1. Noticing Requirement – The City must mail a notice of the proposed rate increases to all affected property owners or ratepayers. The notice must specify the amount of the fee, the basis upon which it was calculated, the reason for the fee, and the date/time/location of a public rate hearing at which the proposed rates will be considered/adopted. 2. Public Hearing – The City must hold a public hearing prior to adopting the proposed rate increases. The public hearing must be held not less than 45 days after the required notices are mailed. 3. Rate Increases Subject to Majority Protest ‐ At the public hearing, the proposed rate increases are subject to majority protest. If more than 50% of affected property owners or ratepayers submit written protests against the proposed rate increases, the increases cannot be adopted. Proposition 218 also established a number of substantive requirements that apply to sewer rates and charges, including: 1. Cost of Service ‐ Revenues derived from the fee or charge cannot exceed the funds required to provide the service. In essence, fees cannot exceed the “cost of service”. 2. Intended Purpose ‐ Revenues derived from the fee or charge can only be used for the purpose for which the fee was imposed. 3. Proportional Cost Recovery ‐ The amount of the fee or charge levied on any customer shall not exceed the proportional cost of service attributable to that customer. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 3 4. Availability of Service ‐ No fee or charge may be imposed for a service unless that service is used by, or immediately available to, the owner of the property. 5. General Government Services ‐ No fee or charge may be imposed for general governmental services where the service is available to the public at large. Charges for water, sewer, and refuse collection are exempt from additional voting requirements of Proposition 218, provided the charges do not exceed the cost of providing service and are adopted pursuant to procedural requirements of Proposition 218. 1.4 Rate Study Process This section details the development of the City of Modesto’s sewer rates and compliance with Proposition 218 through a comprehensive cost of service and rate design study process as shown in the following figure. Figure 1: Comprehensive Cost of Service Study Process ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 4 The following is a brief description of the sewer rate study process:  Revenue Requirements ‐ Revenue requirement is essentially a financial plan developed from the Wastewater Fund budget. Based on the best information currently available, the financial plan incorporates projected operation and maintenance costs, capital expenditures, debt service, and growth to estimate annual revenue requirements. The plan serves as a roadmap for funding the City’s future operating and capital programs while maintaining long‐term fiscal stability. The financial plan projections determine the annual wastewater revenue requirements to be recovered through sewer rates and other revenue sources.  Cost of Service Allocation ‐ The cost of service process builds on the financial plan analysis and assigns wastewater system costs to functional cost components (accounts, flow, BOD (biochemical oxygen demand), and TSS (total suspended solids)). This process is intended to proportionately allocate costs to each customer based on how he or she takes wastewater service.  Rate Design ‐ Rate design involves developing a rate structure that proportionately recovers costs from sewer system customers. Final rate recommendations are designed to fund the utility’s short‐ and long‐term costs of providing service; proportionately allocate costs to all customers and customer classes; and comply with the substantive requirements of Proposition 218. 1.5 Findings and Recommendations The findings and recommendations presented in this report were developed with substantial input and overview from City staff and stakeholders. The rate recommendations include modifications to the cost of service allocations and sewer rates. The final rates are designed to recover the sewer utility’s cost of service and proportionately recover costs from all customer classes. 1.5.1 Revenue Requirement Currently, the Wastewater Fund is in healthy financial shape. The service charges generate positive net revenues, debt coverage requirements are met, and the City has accumulated a cash reserve. Due to operating cost increases and the need to fund capital improvements, the service charges must increase to meet the City’s financial obligations. 1.5.2 Cost Allocation BWA proposes that the City continue to allocate costs to accounts, flow, BOD, and TSS for ratemaking purposes. These cost categories are common amongst wastewater purveyors and reflect how customers take wastewater service. The accounts functional cost component includes customer service, billing, and administration. Flow is the quantity of wastewater generated by each customer. BOD and TSS are wastewater pollutants that the City must treat. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 5 BWA found that the City’s current rates should be adjusted to collect a greater portion of costs from BOD and TSS charges. With tertiary treatment coming online and secondary treatment improvements planned, a greater portion of the City’s cost of service is attributable to pollutant loading. This shift in cost allocation has a greater impact on commercial and industrial customers who have higher concentrations of BOD and TSS than domestic strength customers. Along similar lines, the proposed new CanSeg BOD and TSS charges are significantly less than the current industrial strength charges since the City does not provide treatment of the canneries’ process water. 1.5.3 Rate Design BWA proposes to maintain the City’s current rate structure based on unit charges for accounts, flow, and strength. BWA proposes two new customer classes: 1) CanSeg customers and 2) secondary scalping customers. As discussed above, the CanSeg Line operates only during canning season and bypasses the City’s treatment process. BWA proposes a new schedule of CanSeg flow, BOD, and TSS charges that is distinct from the industrial rate schedule. The CanSeg rates would apply to the flows and loads that pass through the CanSeg Line while the line is in use during the canning season. In addition to the CanSeg Line, canneries will be offered use of the secondary treatment stream. Currently, the CanSeg Line is at capacity and the canneries are unable to increase production. In order to expand wastewater service for the canneries, the City will conduct secondary treatment upgrades to provide treatment to the incremental increase in the canneries’ process water. This process is referred to as secondary scalping. By fiscal year (FY) 2020/21, the City projects that secondary treatment plant improvements will become operational and will allow the canneries to increase their canning season load by 25%. BWA recommends that the City sign service agreements with the canneries committing them to pay an annual Secondary CanSeg Capacity Fee in the secondary system. In addition, BWA proposes that the canneries pay flow, BOD, and TSS rates on the actual scalped flow. The CanSeg capacity fee is designed to recover the canneries’ share of the capital cost of the secondary treatment improvements, and the rates are designed to recover the canneries’ share of the operational costs of secondary treatment. As discussed above, wastewater flows have decreased since 2007. In particular, the estimated wastewater flow of a single family residential customer has decreased from 280 gallons per day to 215 gallons per day. This has a profound impact on the residential sewer rates as a large portion of system costs are attributable to flow. To mitigate rate changes, BWA proposes to phase‐in the change to the residential wastewater generation rate over the next five years. The Wastewater Master Plan Update also reflects adjustments to residential loading. This rate study phases‐in loading adjustments over the next five years. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 6 1.5.4 Proposed Rates A summary of the current and proposed municipal and industrial sewer rates is provided below. The single family residential bill (account charge plus dwelling unit charge) is proposed to increase by approximately 6% annually from $31.92 to $42.45 per month over the next five years. Table 1‐1: Projected M&I Sewer Rates City of Modesto Sewer Rate and Fee Study Category Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Account Charge ($/Account) $4.34 $4.40 $4.42 $4.46 $4.50 $4.54 Residential Rates ($/Dwelling Unit) Single Family Residential, Mobile Home on a lot $27.58 $29.36 $31.36 $33.39 $35.67 $37.91 Multiple Family (2‐4 Dwelling Units), one additional Dwelling Unit or Mobile Home on a lot $23.67 $22.59 $24.03 $25.57 $27.50 $30.85 Apartments (5 or more Dwelling Units), Mobile Home Space in a Mobile Home Park $17.96 $20.33 $21.50 $22.73 $24.36 $26.45 Commercial Quantity Charge ($/100 cubic feet) Group 1‐BOD + TSS is 400 mg/l or less $2.35 $2.76 $3.01 $3.29 $3.55 $3.88 Group 2‐BOD + TSS is 401 mg/l to 900 mg/l $2.89 $3.78 $4.07 $4.40 $4.70 $5.07 Group 2‐BOD + TSS is 901 mg/l to 1,400 mg/l $3.45 $4.80 $5.13 $5.50 $5.85 $6.27 Group 4‐BOD + TSS is 1,401 mg/l or more $4.11 $6.03 $6.40 $6.83 $7.23 $7.71 Industrial Charges (these three components are additive) Flow Charge ($/Million gallons) $2,534 $2,604 $2,888 $3,212 $3,516 $3,901 BOD Charge ($/1,000 lbs) $129 $213 $226 $238 $246 $263 TSS Charge ($/1,000 lbs) $224 $441 $454 $471 $491 $504 Septage Quantity Charge Flow charge per 1,000 gallons $67 $61 $63 $66 $69 $71 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 7 Table 1‐2: Typical Customer Bill City of Modesto Sewer Rate and Fee Study Rates Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Account Charge ($/account) $4.34 $4.40 $4.42 $4.46 $4.50 $4.54 Residential Rate ($/dwelling unit) $27.58 $29.36 $31.36 $33.39 $35.67 $37.91 Total Single Family Residential Bill $31.92 $33.76 $35.78 $37.85 $40.17 $42.45 % increase 6% 6% 6% 6% 6% The current and proposed CanSeg Line wastewater rates are shown below. The cannery customers pay the City account charge plus flow and strength charges. The CanSeg flow rate is proposed to increase and the strength charges are proposed to decrease significantly reflecting that CanSeg process water flows do not require treatment for land application. Table 1‐3: Proposed CanSeg Line Sewer Rates City of Modesto Sewer Rate and Fee Study Category Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Account Charge ($/Account) $4.34 $4.40 $4.42 $4.46 $4.50 $4.54 CanSeg Line Charges (these three components are additive) Flow Charge ($/Million gallons) $2,534.00 $2,680 $2,841 $3,012 $3,191 $3,384 BOD Charge ($/1,000 lbs) $129.00 $1.39 $1.48 $1.57 $1.66 $1.76 TSS Charge ($/1,000 lbs) $224.00 $4.04 $4.29 $4.54 $4.81 $5.11 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 8 The proposed secondary scalping rates are shown below. It is anticipated that the secondary scalping improvements would come online in FY2020/21. It is proposed that customers who take secondary scalping service would sign agreements with the City to pay annual Secondary Can Seg Capacity charges based on their maximum flow and loading in addition to secondary scalping rates. Table 1‐4: Proposed Secondary Scalping Rates City of Modesto Sewer Rate and Fee Study Category Rate or Charge Secondary Scalping Rates (these components are additive) Flow Charge ($/Million gallons) $891.84 BOD Charge ($/1,000 lbs) $98.25 TSS Charge ($/1,000 lbs) $305.65 Annual Secondary Scalping Secondary Can Seg Capacity Charge (these components are additive) Flow ($/Million gallons per day, maximum day capacity) $117,837.54 BOD ($/lbs per day, maximum day capacity) $11.43 TSS ($/lbs per, maximum day capacity) $27.29 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 9 SECTION 2: CURRENT SEWER RATES The City last conducted a Proposition 218 public hearing regarding wastewater service charges on July 7, 2007. The rates were not subject to majority protest and were approved by City Council in Resolution No. 2007‐463. Since 2007, the City has rescinded and updated its wastewater rate resolution on a nearly annual basis. This City of Modesto assigns rates based on accounts, flow, BOD, and TSS unit costs. Each customer’s wastewater bill is proportional to that customer’s use or benefit from the wastewater system. The City’s current rate schedule is provided at the end of this section. 2.1 Account Charge Resolution No. 2007‐463 describes the account charge as “a fee charged to every sewer account to pay the actual fixed sewer system costs not allocable to sewer flow and strength components.” The account charge is intended to recover general, administrative, and customer service costs. The FY2015/16 account charge is $4.34 per month. Across the City’s customer base of nearly 63,200 accounts (estimated for FY2015/16), the City is projected to collect about $3.29 million in revenue from the account charge. This represents about 7% of the total rate revenue collected by the City of Modesto. 2.2 Flow and Strength Rates In addition to the account charge, each customer is billed based on his/her proportional use of the wastewater system based on flow and pollutant strength characteristics. Provided below is a description of the flow and strength charges for each customer class. The City’s rates are based on unit costs for flow ($/million gallons), BOD ($/thousand pounds), and TSS ($/thousand pounds). These unit costs are applied to flow and strength of each customer class to calculate the rates. 2.2.1 Industrial Rates The City has 37 industrial customers. The point of discharge for each industrial customer is metered and sampled by the City of Modesto to determine flow and pollutant loading. Industrial customers are then billed for their observed flow, BOD, and TSS. Industrial wastewater flow is billed on a $/million gallon (MG) basis, BOD is billed on a $/thousand pound (klbs) basis, and TSS is also billed on a $/thousand pound (klbs) basis. Currently, the industrial customer class contributes about 27% of the total rate revenues of the wastewater enterprise. Currently, the industrial customer class includes year‐around enterprises and seasonal cannery customers. The canneries typically operate July to September and discharge their wastewater flow through a cannery segregation line to the Ranch. The flow is used for irrigation and does not undergo wastewater treatment. Although the cannery seasonal flow does not receive treatment, the canneries are currently charged the same rates as the other industrial customers. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 10 2.2.2 Commercial Rates The wastewater flow of other customer groups is not individually metered and sampled. The City estimates the flow and loading of non‐industrial customers for rate design. Commercial customers are categorized into four groups based on pollutant loading. When a new commercial customer applies for service, the City of Modesto assigns the customer to a loading group based on typical strength characteristics for the type of business. The City uses metered water use of commercial customers as a proxy for wastewater flow. City policy dictates that commercial customers must utilize dedicated irrigation water meters for outdoor use and separate meters for indoor water use. Indoor water use flows into the sewer system and outdoor water use does not. Because water use is billed on a hundred cubic foot (hcf) basis, the indoor water use/sewer flow of commercial customer is also billed for sewer on an hcf basis. Unlike industrial customers, commercial customers are not billed separately for flow, BOD, and TSS. Instead, commercial customers have bundled rates which combine the costs of flow, BOD, and TSS into a single charge per customer group. The commercial flow is multiplied by the concentration (mg/l) to estimate the pounds of BOD and TSS produced per hcf of wastewater flow. The flow, BOD, and TSS are then multiplied by the unit charges (i.e. industrial rates) to determine a $/hcf rate based on the loading of each commercial group. Including accounts charges, the commercial customer class contributes about 11% of the total wastewater rate revenue. 2.2.3 Residential Rates The residential customer class includes single family, multiple family (two to four dwelling units per account), and apartment customers (five or more dwelling units per account). Residential customers are charged for wastewater flow and strength on a dwelling unit basis. In 2007, when the last rate study was conducted, the flow of each type of residential customer was estimated by the City’s consulting engineer as part of the last Wastewater Master Plan and by the City’s prior rate consultant. For rate design purposes, it was determined that the typical single family residential flow rate was 280 gallons per day (gpd), the typical multiple family dwelling flow rate was 210 gpd, and the typical apartment unit flow rate was 189 gpd. For the prior rate review, the residential BOD and TSS concentration was set as 200 mg/l for residential customers, which is industry typical. The flows and loadings of each residential dwelling type are multiplied by the unit costs (industrial rates) to determine the total charge per dwelling unit. Residential flows and loads are proposed to be updated as part of this rate study. The City also provides wastewater service to the Empire Sanitary District (Empire SD). The Empire SD customer base consists of about 900 residential accounts, which are billed the same rates as inside‐City of Modesto residential customers. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 11 2.2.4 Septage Rate The City also charges for the dumping of septic waste at the sewage treatment plant. The current rate is $67 per 1,000 gallons of sewage. The septage rate is proportional to the unit costs of flow, BOD, and TSS less a collection system discount applied to the flow rate. During the prior rate review, the City set the septage pollutant loading as 4,926 mg/l BOD and 30,260 mg/l TSS, which is proposed to be updated as part of this study. 2.3 Current Rate Schedule The City’s current rate schedule is provided below. It should be noted that schools have the option of being charged based on the average daily attendance (ADA) of pupils plus staff. ADA rates are subject to service agreements between participating schools and the City of Modesto. Table 2‐1: Current (FY2015/16) Sewer Rates City of Modesto Sewer Rate and Fee Study Category Rate Account Charge ($/Account) $4.34 Residential Rates ($/Dwelling Unit) Single Family Residential, Mobile Home on a lot $27.58 Multiple Family (2‐4 Dwelling Units), one additional Dwelling Unit or Mobile Home on a lot $23.67 Apartments (5 or more Dwelling Units), Mobile Home Space in a Mobile Home Park $17.96 Commercial Quantity Charge ($/100 cubic feet) Group 1‐BOD + TSS is 400 mg/l or less $2.35 Group 2‐BOD + TSS is 401 mg/l to 900 mg/l $2.89 Group 2‐BOD + TSS is 901 mg/l to 1,400 mg/l $3.45 Group 4‐BOD + TSS is 1,401 mg/l or more $4.11 Industrial Charges (these three components are additive) Flow Charge ($/Million gallons) $2,534 BOD Charge ($/1,000 lbs) $129 TSS Charge ($/1,000 lbs) $224 Septage Quantity Charge Flow charge per 1,000 gallons $67 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 12 SECTION 3: REVENUE REQUIREMENT This section develops the Wastewater Fund revenue requirement for the next five years. The revenue requirement is the financial plan for the wastewater utility projecting operating and capital expenses and calculating the revenue needed to fund these expenses. A portion of the wastewater service costs is offset by non‐rate revenues and use of reserves and the remainder must be funded by wastewater service charges. BWA developed a master revenue requirement for the Wastewater Fund as a whole and subordinate revenue requirements for the M&I system and the CanSeg Line. 3.1 Current Revenues Year‐end estimates for FY2014/15 indicate that the Wastewater Fund generated approximately $46.7 million in revenue last year. Approximately $43.3 million was collected from service charges and approximately $3.4 million was collected from non‐rate revenue sources, as shown below. The Wastewater Fund rental income is the lease of the Ranch to the farmer. In FY2015/16 and beyond, the City projects that the miscellaneous revenue category will collect $250,000 annually from development fees in addition to other revenues. The “Transfers In” revenue category consists of repayments of an Interfund Loan and a Compost Fund Loan. July 1, 2015, the City implemented a 3% rate adjustment and the City projects annual growth of 1.3% for most customer classes which is projected to increase rate revenues from $43.3 million to $44.9 million. Table 3‐1: Revenue Sources City of Modesto Sewer Rate and Fee Study Category FY2014/15 Estimated Revenue (Unaudited) FY2015/16 Budget Rate Revenue $43,288,000 $44,908,000 Interest earnings $453,000 $483,000 Rental Income $502,000 $494,000 Interfund Charges (Service Credit Labor) $1,211,000 $1,771,000 Miscellaneous (Development Fees & Other) $1,113,000 $250,000 Transfers In $166,000 $166,000 Total $46,733,000 $48,072,000 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 13 3.2 Operating Expenses For FY2015/16, the wastewater operating expenses are budgeted at $31.0 million. Operating expenses consist of ongoing annual costs including staffing, materials, supplies, power, chemicals, and maintenance. FY2015/16 will be the first full year of operations for the new Phase 2 tertiary treatment plant, which will be the wastewater fund’s largest single operating expense at an estimated $6.5 million. In general, operating costs are projected to increase by 2% annually due to inflation. In FY2018/19, the City projects recycled water treatment upgrades to come online and have an annual operating cost of $300,000. In FY2020/21, the City projects that the secondary scalping improvements will come into operation resulting in cost increase of about $900,000 to the secondary treatment expense. Operating expenses are discussed in Section 4. 3.3 Debt Service The City of Modesto currently has several outstanding bonds and State Revolving Fund (SRF) Loans. On November 1, 2015, the City fully refunded the Wastewater Revenue Refunding Bonds, Series 2005A and partially refunded the Wastewater Revenue Bonds, Series 2006A. Prior to the refunding, the annual debt service for the 2005 bonds was about $3.5 million. The refunding reduced the annual debt service to about $2.7 million. Unlike the 2005 bonds, the 2006 bonds do not have level annual debt service. Instead, the City will make interest only payments until FY2023/24 when principal payments begin. Principal payments are scheduled FY2023/24 through FY2036/37. In FY2014/15, the City budgeted about $730,000 for the 2006 bonds (interest only) debt service cost. The refunding reduces the annual debt service cost to about $675,000 through FY2023/24. As principal comes due in FY2023/24, the annual debt service for the 2006 bonds increases to about $1.5 million. The City has an outstanding Clean Water State Revolving Fund loan that the City used to finance the Phase 2 tertiary treatment plant construction. Per SRF policy, annual debt service payments begin after construction is completed. The first payment will be made in FY2016/17 and the annual amount is $8.2 million. Fall 2014, the City submitted an SRF loan application to fund recycled water treatment upgrades. For financial planning purposes, it is assumed that the loan will be approved and that payments will begin FY2018/19. The total loan amount is estimated to be $65 million with an estimated annual debt service payment of $2.5 million. 3.4 Capital Expenses As part of the Wastewater Master Plan Update, Carollo Engineers developed a capital improvement plan for the sewer collection system and the wastewater treatment stream. Over the next five years, a total of $248 million in capital improvements are planned. The fully detailed capital improvement plan is provided in Appendix A. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 14 Table 3‐2: 5‐Year Summary of Capital Improvement Projects City of Modesto Sewer Rate and Fee Study Category FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 5‐Year Total Collection System M&I System 35,837,000 29,784,000 8,611,000 6,039,000 24,933,000 105,204,000 CanSeg Line 2,901,000 2,439,000 0 7,614,000 7,767,000 20,721,000 Collection Subtotal 38,738,000 32,223,000 8,611,000 13,653,000 32,700,000 125,925,000 Treatment System M&I System 14,647,000 27,978,000 34,702,000 22,904,000 17,175,000 117,406,000 CanSeg Line 1,636,000 1,669,000 0 129,000 1,255,000 4,689,000 Treatment Subtotal 16,283,000 29,647,000 34,702,000 23,033,000 18,430,000 122,095,000 Total 55,021,000 61,870,000 43,313,000 36,686,000 51,130,000 248,020,000 1 ‐ CanSeg Line process water does not receive treatment. Some CanSeg Line facilities and equipment are located at the Jennings Treatment Plant and thus identified as "treatment" facilities. 3.5 Financial Policies, Assumptions, and Targets The City’s financial reserve policies include a reserve target and debt coverage goal. The City intends to maintain a cash reserve equal to 25% of its operating costs plus the annual SRF debt service payment. For FY2015/16, the reserve fund target is $15.9 million (including the tertiary SRF loan payment) and will increase to $19.5 million by FY2020/21. The increase in the reserve target reflects operating cost increases and the future annual recycled water project SRF loan payment. The Wastewater Master Plan Update identifies $248 million in capital improvement projects to be completed over the next five years.1 To mitigate rate impacts, the City intends to fund $19.25 million annually from reserves and rate revenue (referred to as “pay‐as‐you‐go” funding). The FY2014/15 unaudited cash reserve is estimated to be nearly $78 million, well in excess of the minimum reserve target. Although the reserve cannot fund all capital improvements over the next five years, it can be spent down over time as rate adjustments are phased‐in. For financial planning purposes, it is assumed that annual capital expenses in excess of the pay‐as‐you‐ go funding amount will be debt financed over a thirty year term via municipal revenue bonds. The City will pursue grants and low cost financing, including SRF loans, where possible. Municipal bond financing acts as a “worst case” financing scenario for the purpose of determining rates. 1 The Wastewater Master Plan Update is currently under development. Project costs may be further refined by Carollo Engineers and the City. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 15 Most municipal debt requires that the issuer generate net operating revenues of 1.25 times the total annual debt service payment or greater. This is referred to as “debt service coverage”. To support a strong credit rating and good financial health, the City prefers to maintain a debt coverage ratio of 1.5 times the annual payment or greater. 3.6 CanSeg Line Revenue Requirement As discussed throughout this report, BWA proposes that the City establish a new cost center for the CanSeg Line and distinguish CanSeg revenues from M&I system revenues. To facilitate this process, BWA developed a revenue requirement and cash flow for the CanSeg Line. 3.6.1 CanSeg Reserve The CanSeg Line came into operation September 1999. The first full canning season utilizing the CanSeg Line occurred in 2000 (FY2020/21). Since that time, the CanSeg customers have paid the City of Modesto industrial wastewater service charges amounting to 14.7% of the total wastewater rates collected. Applying 14.7% to the FY2015/16 estimated ending fund reserve, the CanSeg Line is allocated a reserve fund balance of $10.6 million, see Table 3‐3. Table 3‐3: CanSeg Line Reserve Allocation City of Modesto Sewer Rate and Fee Study Year Total Service Charge Revenue CanSeg Service Charge Revenue FY2000/01 $19,162,689 $3,554,401 FY2001/02 $20,901,619 $2,506,585 FY2002/03 $23,556,044 $3,810,284 FY2003/04 $25,292,995 $3,709,791 FY2004/05 $24,419,607 $3,586,907 FY2005/06 $23,057,564 $3,083,784 FY2006/07 $24,776,869 $3,523,419 FY2007/08 $28,796,814 $4,728,867 FY2008/09 $35,852,852 $5,605,959 FY2009/10 $37,305,248 $5,083,230 FY2010/11 $39,056,043 $5,765,374 FY2011/12 $41,804,518 $6,555,794 FY2012/13 $43,405,632 $5,849,322 FY2013/14 $46,032,716 $6,633,495 FY2014/15 (unaudited) $43,287,864 $5,858,182 FY2015/16 (estimate) $44,908,331 $6,639,033 Total $521,617,405 $76,494,425 CanSeg Line % of Past Service Charges Paid 14.7% FY2015/16 Reserve Estimate (Ending Balance) $72,153,279 CanSeg Line Reserve Allocation $10,581,172 1 – Does not includes accounts charge revenue. Accounts charges are subject to a separate cost allocation process. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 16 3.6.2 Operating Expenses and Non‐rate Revenue The CanSeg Line operating expenses are described in detail in the cost allocation section. The total CanSeg operating expenses are estimated at $581,000 in FY2016/17 and are projected to increase to about $628,000 in FY2020/21. Expenses are offset by approximately $240,000 to $280,000 in non‐rate revenues annually. For FY2016/17, the CanSeg Line non‐rate revenues include about $70,000 in interest earnings, $170,000 in rental income, and about $4,000 of Interfund Loan repayments. Allocation of non‐ rate revenues to the CanSeg Line is discussed in Section 4.3: Allocation of Non‐Rate Revenues and detailed revenue and expense worksheets for the CanSeg Line are provided in Appendix B 3.6.3 CanSeg Line Capital Expenses As part of the Wastewater Master Plan Update, Carollo Engineers developed a capital improvement plan for both the M&I system and the CanSeg Line. Over the next five years, $25.4 million in capital improvement projects are planned for the CanSeg Line. The CanSeg Line projects are described below. Table 3‐4: 5‐Year CanSeg Line Capital Improvement Projects City of Modesto Sewer Rate and Fee Study Collection System and “Treatment” Projects FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 Old River Trunk Lining 0 0 0 7,614,000 7,767,000 CanSeg Bank Armament 2,391,000 2,439,000 0 0 0 CanSeg Diversion Structure 510,000 0 0 0 0 Dryden Box 623,000 636,000 0 0 0 Pumping Plant 3 1,013,000 1,033,000 0 0 0 Third Outfall (20%) 0 0 0 129,000 1,255,000 Total 4,537,000 4,108,000 0 7,743,000 9,022,000 River Trunk Lining ‐ The relined River Trunk will be used for redundancy for both the CanSeg line and the new River Truck. The CanSeg Line Diversion Structure will allow CanSeg flow to switch from the CanSeg line to the relined River Trunk in the case of a Can Seg line failure. The relined River Trunk will also be able to take domestic wastewater in the event of a River Trunk Pump Station failure. CanSeg Bank Armament ‐ Project includes sheet piling and rip rap to protect the river bank from erosion during high river flows. CanSeg Diversion Structure – The structure will allow switching flow from the CanSeg Line to the River Trunk in case of a CanSeg Line failure and vice versa. Dryden Box ‐ The Dryden Box is a junction box that will combine the flows from the existing CanSeg line and a new redundant CanSeg line. The redundant CanSeg line will be converted from the River Trunk. A ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 17 new River Trunk, which will be positioned from the north along Colorado Ave., will replace the converted River Trunk. Pumping Plant 3 Improvements ‐ Two new submersible pumps and three new mechanical bar screens. 20% of the Third Outfall Pipeline ‐ The new 54” pipeline will be the primary pipeline for transporting M&I flows during dry weather. During rainy periods, peak flows will be too high for one pipeline. One of the existing 66” outfall lines will need to be used in parallel with the 54” line for M&I flows during these events. However, during the dry season (when canning season will occur), the existing 66” outfall line will be available for use by the CanSeg Line in the case of a failure of the CanSeg line normally used. Since the third line will benefit M&I customers the most, the recommended cost allocation is 80% for the M&I system and 20% for the CanSeg Line. 3.6.4 CanSeg Line Cash Flow Table 3‐5 provides the cash flow for the CanSeg Line. The non‐rate revenues and operating costs are developed in more detail in subsequent sections. FY2016/17 to FY2018/19 the CanSeg Line is projected to fund capital expenses via rate revenues and use of reserves. Thereafter, the CanSeg Line is projected to fund capital expenses via a combination of debt and rate revenues. Per City policy, rates are set to maintain a debt service coverage ratio of 1.5 times the annual debt service payment or greater. To fund operating and capital expenses, BWA projects a CanSeg Line rate revenue requirement $2.725 million in FY2016/17. BWA projects rate increases of 6% annually. Table 3‐5: CanSeg Line Cash Flow City of Modesto Sewer Rate and Fee Study FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 Beginning Balance $10,581,000 $7,160,000 $4,350,000 $5,782,000 $5,169,000 Debt Proceeds 0 0 0 5,500,000 5,500,000 Rate Increase 6.00% 6.00% 6.00% 6.00% Rate Revenue 2,725,000 2,889,000 3,062,000 3,246,000 3,441,000 Non‐Operating Revenue 245,000 268,000 244,000 272,000 283,000 Total Revenue 2,970,000 3,157,000 3,306,000 3,518,000 3,724,000 Operating Expenses 581,000 593,000 604,000 617,000 628,000 Net Revenue 2,389,000 2,564,000 2,702,000 2,901,000 3,096,000 Debt Service 2005Bonds Refinancing 1,273,000 1,267,000 1,270,000 1,271,000 1,268,000 New Debt 0 0 0 0 375,000 Total 1,273,000 1,267,000 1,270,000 1,271,000 1,643,000 Debt Coverage 1.88 2.02 2.13 2.28 1.88 Capital 4,537,000 4,107,000 0 7,743,000 9,022,000 Ending Balance $7,160,000 $4,350,000 $5,782,000 $5,169,000 $3,100,000 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 18 3.7 Wastewater Fund Cash Flow Table 3‐6 provides the Wastewater Fund master cash flow, which incorporates the revenues and expenses for both the M&I and CanSeg Line systems. As shown below and described in the cost allocation section, a shift in the revenue requirement is proposed such that the M&I system pays a higher portion of rate revenues and the cannery customers pay a lower portion of system revenues. Current rate revenues are budgeted at $44.9 million and are proposed to increase to $63.2 million by FY2020/21. In addition, the secondary scalping treatment improvements are projected to come online in FY2020/21. Secondary scalping will allow the canneries to increase their canning season loads by 25% and also provide non‐canning season secondary treatment. Secondary scalping is projected to generate about $6.7 million in additional rate revenue in FY2020/21. The City projects the recycled water delivery system will come online in FY2018/19. The recycled water rates (i.e. sales revenue) will be designed to recover recycled water operating costs plus 1.5 times the recycled water debt service expense. As shown in Table 3‐2, the City expects to fund between $36.7 million and $61.9 million of capital improvements annually. Of this amount, the City plans to fund $19.25 million annually via pay‐as‐you‐go funding and the remainder will be debt financed. The City prefers to maintain a debt service coverage ratio of 1.5 or greater. However, to mitigate rate impacts, the debt service coverage ratio is projected to fall to a low of 1.42 in FY2018/19. Thereafter, the debt service coverage ratio is projected to exceed the target of 1.5 in FY2019/20 and FY2020/21. The reserve fund is projected to remain above the minimum target of 25% of the operating expense plus the annual SRF debt payment for each year over the next five years. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 19 Table 3‐6: Wastewater Fund Master Cash Flow City of Modesto Sewer Rate and Fee Study Budget Projection Projection Projection Projection Projection FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 Revenues Service Charges M&I Customers 38,269,000 43,530,000 47,067,000 50,890,000 55,024,000 59,777,000 CanSeg Line 6,639,000 2,725,000 2,889,000 3,062,000 3,245,000 3,441,000 Cannery Secondary Scalping 0 0 0 0 0 6,705,000 Total Service Charges 44,908,000 46,255,000 49,956,000 53,952,000 58,269,000 69,923,000 Interest Income 483,000 502,000 527,000 527,000 527,000 527,000 Rental Income ‐ Lease of Land 494,000 494,000 494,000 494,000 494,000 494,000 Interfund Charges 1,771,000 1,842,000 1,934,000 1,934,000 1,934,000 1,934,000 Wastewater Developmental Fees 250,000 250,000 250,000 250,000 250,000 250,000 Transfers In 166,000 173,000 430,000 430,000 430,000 430,000 Recycled Water Sales 0 0 0 2,819,000 4,084,000 4,090,000 Total Revenues 48,072,000 49,516,000 53,591,000 60,406,000 65,988,000 77,648,000 Operating Expenses 30,891,000 31,336,000 31,963,000 32,902,000 33,560,000 35,151,000 Transfers Out to General Fund 69,000 69,000 69,000 69,000 69,000 69,000 Total Operating Expenses $30,960,000 $31,405,000 $32,032,000 $32,971,000 $33,629,000 $35,220,000 Debt Service 2005 Series Bonds & Refunding 3,034,000 2,743,000 2,730,000 2,736,000 2,738,000 2,732,000 2006 Series A Bonds 831,000 675,000 675,000 675,000 675,000 675,000 SRF Tertiary Treatment Project 0 8,204,000 8,204,000 8,204,000 8,204,000 8,204,000 SRF Recycled Water 0 0 0 2,519,000 2,519,000 2,519,000 New Debt 0 0 2,347,000 5,141,000 6,725,000 7,877,000 Total Debt Service $3,865,000 $11,622,000 $13,956,000 $19,275,000 $20,861,000 $22,007,000 Debt Service Coverage Ratio 4.43 1.56 1.54 1.42 1.55 1.93 Retained Earnings Calculation Beginning Retained Earnings 77,819,000 72,153,000 59,393,000 47,746,000 36,658,000 28,906,000 Net Operating Surplus/Deficit 17,113,000 18,112,000 21,560,000 27,435,000 32,359,000 42,428,000 Total Debt Service 3,864,000 11,622,000 13,956,000 19,274,000 20,860,000 22,007,000 Pay as You Go CIP 18,915,000 19,250,000 19,250,000 19,250,000 19,250,000 19,250,000 Ending Retained Earnings $72,153,000 $59,393,000 $47,746,000 $36,658,000 $28,906,000 $30,077,000 Minimum Reserve $15,944,000 $16,056,000 $16,212,000 $18,966,000 $19,130,000 $19,528,000 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 20 SECTION 4: COST OF SERVICE ALLOCATION The revenue requirements detailed in the previous section determine the amount of revenue to be recovered from sewer rates. The cost of service analysis advances the rate study process by providing a mechanism for recovery of revenues from customers based on the service that they receive from the wastewater system. Proposition 218 requires that agencies providing “property‐related services” (including wastewater utility service) set rates and charges that are based on the cost of providing those services. Detailed cost allocation worksheets supporting this section are provided in Appendix B. 4.1 Methodology BWA’s cost of service analysis reviewed each non‐rate revenue and expense line item listed in the wastewater budget and allocated the revenues and expenses to customer service, the M&I wastewater system, and the CanSeg Line system. Allocations were based on how the City incurs each revenue or expense and which customer group generates or benefits from each line item. 4.2 Customer Service Consistent with Resolution 2007‐463, the customer service function encompasses revenues and costs that are not attributable to wastewater flow or strength characteristics. Customer service expenses are recovered through the accounts charge, which has historically generated about 7% of the wastewater rate revenue. Table 4‐1 provides the budget line items allocated to customer service. For the five year rate plan, BWA allocated 6% to 7% of the wastewater fund interest earning revenue to the customer service function. For service credit labor charges, BWA allocated 11% to 12% of the annual revenue for this line item to customer service based on a composite of operating expenses. Service credits accrue when wastewater staff bill time to non‐wastewater City services. Major expense categories include wastewater billing, rate analysis, general, system analysis, administration, and sphere of influence analysis. These expense categories are assumed to be largely management and administration related that benefit each wastewater customer (large and small) equally. A small portion of collections and plant operations expenses are also allocated to customer service to reflect staff oversight, management, and planning. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 21 Table 4‐1: Allocation to Customer Service City of Modesto Sewer Rate and Fee Study Budget Line Item Allocation to Customer Service Non‐rate Revenues Interest Revenue on Bank Accounts 6% to 7% Interest Trustee/Investment Earnings 6% to 7% Interfund Charges ‐ Service Credit Labor Charges 11% to 12% Operating Expenses Wastewater General 70% Wastewater Utility Billing and Collections 100% Capital Improvement Services 30% Wastewater System Analysis 70% Sphere of Influence Area Expansion 70% Wastewater Rate Analysis 100% Wastewater Inventory & Condition Assessment 70% Wastewater Services Administration 70% Wastewater Collections Administration 10% Sewer Collections 10% Wastewater Operations Administration 10% Wastewater Plant Operations 10% Transfer Out General Fund 70% 4.3 Allocation of Non‐Rate Revenues The City has a number of non‐rate revenues that are allocated between the M&I system and the CanSeg Line as described below: Interest Revenue and Earnings – Interest is earned on the wastewater fund balance. By paying their service charges, the CanSeg customers contributed to the accumulation of reserves over time. For FY2016/17, the CanSeg Line is allocated 14.7% of interest earnings reflecting historical rates paid by the CanSeg Line customers. For FY2017/18 and beyond, it is envisioned that the CanSeg Line will have its own sub‐account within the Wastewater Fund and would generate its own interest earnings. Lease of Land – Lease/rental revenue generated from the rental of the Ranch to a farmer. City of Modesto M&I treated wastewater effluent and CanSeg Line process water is used by the farmer to irrigate the Ranch. Historically, the CanSeg Line supplied about one quarter of the total annual process water/irrigation water to the Ranch. Into the future, it is estimated that CanSeg process water will make up 35% to 40% of irrigation water to the Ranch due to a decrease to M&I flow due to the Phase 2 tertiary treatment plant coming online. Table 4‐2 summarizes the CanSeg process water flow to the Ranch. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 22 Table 4‐2: Estimated CanSeg Process Water to the Ranch City of Modesto Sewer Rate and Fee Study Year Total Irrigation Demand (MGY) Treated Municipal Flow (or Supplemental Water) to Irrigation (MGY) Percent Municipal/ Supplemental Water Flow Total CanSeg Process Water to Irrigation (MGY) Percent CanSeg Process Water Existing CanSeg Flow Conditions 2016 3,430 2,230 65% 1,200 35% 2017 3,430 2,230 65% 1,200 35% 2018 3,430 2,040 60% 1,390 40% 2019 3,430 2,120 62% 1,310 38% 2020 3,430 2,140 63% 1,290 37% Existing CanSeg Conditions + 5 mgd Increase in Canning Season Flows in 2020 2016 3,430 2,230 65% 1,200 35% 2017 3,430 2,230 65% 1,200 35% 2018 3,430 2,040 60% 1,390 40% 2019 3,430 2,120 62% 1,310 38% 2020 3,430 1,750 51% 1,680 49% MGY – million gallons per year Note: CanSeg process water shown above is assumed to include shoulder season flow General Fund (Repayment of InterFund Loan) – Resolution No. 2000‐446 describes the repayment of transfers made from the water and wastewater funds to the General Fund from July 1997 to September 1999. BWA evaluated the historical wastewater rate revenue collected during that period and estimates that the CanSeg rate revenues accounted for 3.1% (noting that the CanSeg Line came into service July of 1999 and thus paid no rates prior to that date). The CanSeg Line is therefore allocated 3.1% of the General Fund repayments. The CanSeg Line is not allocated any revenue associated with Interfund Charges/Service Credit Labor Charges, Wastewater Development Fees, Compost Fund loan repayments or recycled water sales revenues. The Interfund Charges/Service Credit Labor Charges are credits for wastewater staff providing services to other City funds. Wastewater operations staff determined that no credits are attributable to the CanSeg Line. The CanSeg Line currently serves five cannery customers and is at capacity. No new customers are able to take service from the CanSeg Line. Therefore, no development fee revenue is allocated to the existing CanSeg Line.2 Similarly, cannery customers are excluded from receiving Compost Fund loan repayment revenue or recycled water sales revenue because these revenues are generated from non‐CanSeg Line disposal process. The Compost Fund loan repayment is described in Resolution No 2013‐257. The Phase 2 2 The secondary scalping improvements will expand capacity and secondary scalping capital costs are proposed to be recovered from a capacity fee, see Section 5.4: Secondary Scalping Rate Design. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 23 tertiary treatment plant State Revolving Fund loan financed the relocation of the City’s compost facility from the Jennings Treatment Plant to another location to provide space for the new Phase 2 tertiary treatment plant. The Compost Fund is now repaying the Wastewater Fund for the relocation. The repayment is owed to tertiary customers only. Likewise, planned future recycled water will be generated exclusively by M&I customers. 4.4 Operating Expense Non‐customer service operating expenses were allocated between M&I and CanSeg either directly based on wastewater operations staff estimates or indirectly based on composite of wastewater general and administrative expenses. Directly allocated operating expense estimates were developed by City operations staff based on staff time, materials, and services needed to operate and manage the CanSeg Line. Although the cannery process water does not receive treatment, the CanSeg Line is allocated Sutter Plant and Jennings Plant operating costs reflecting how City staff record the CanSeg Line expenses. For future financial planning and rate design, BWA recommends that the City create a new budget line item for the CanSeg Line to more accurately record costs. About one third of the CanSeg Line operating expenses is environmental and laboratory services related to monitoring the Ranch for compliance with the City’s discharge permit. Other costs include electrical for conveyance of the cannery process water to the Ranch. The CanSeg operating costs are projected to increase by 2% annually. In addition to the directly allocated operating and maintenance costs, the CanSeg Line is allocated a small portion of wastewater general, capital improvement services, and transfer out expense categories. BWA allocated the CanSeg Line 2.1% of these categories based on a composite of the directly allocated operating expenses. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 24 Table 4‐3: CanSeg Line Directly Allocated Operating Costs City of Modesto Sewer Rate and Fee Study Budget Code Description FY2015/16 Directly Allocated Operating Expense 44113 Environmental Services $156,165 44110 Laboratory and Environmental Services Admin $10,575 44112 Laboratory Services $15,064 44210 Wastewater Collections Administration $1,993 44211 Sewer Collections $22,600 44310 Wastewater Operations Administration $401 44312 Wastewater Plant Operations Staffing $90,312 Internal Service Fund Costs $111,491 Repair and Maintenance $8,267 Permit Costs $10,362 Contracted Costs $14,645 Total $235,077 44313 Sutter Plant Maintenance Staffing $15,335 Electrical Costs ‐ Sutter $39,220 Total $54,555 44314 Jennings Plant Maintenance Staffing $23,628 Electrical Costs ‐ Jennings $25,551 Total $49,179 Total $545,609 1 ‐ Developed by City Operations staff. Does not include other wastewater general service line items. 4.5 Debt Service As described in Section 3.3, the City has two outstanding bonds, the outstanding tertiary SRF loan, and a planned SRF loan for the recycled water delivery facilities. Proceeds from the sale of Series 2006A Bonds were used to pay for the construction of the dissolved air flotation facilities and the design of the Phase 1A near term tertiary treatment facilities as well as portions of a long term tertiary treatment facilities. As discussed above, tertiary treatment and the production of recycled water are exclusively attributable to the M&I treatment stream and thus no debt service for these items are allocated to CanSeg. A portion of the 2005 bonds debt service is attributable to the CanSeg Line. The proceeds of the 2005 bonds were used to refund the 1993, 1996, and 1997 wastewater bonds. Of note, the 1997 bonds proceeds were used to construct the CanSeg Line which came into service in 1999. Based on the projects funded, BWA allocated 46% of the 2005 bonds debt service to the CanSeg Line, see Appendix B. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 25 Into the future, BWA recommends that the CanSeg Line financials be divorced from the M&I system such that CanSeg rates only fund CanSeg expenses. The CanSeg rates would be responsible for funding the CanSeg capital projects and associated debt service. 4.6 Secondary Scalping Table 4‐4 provides the cost allocation for the secondary scalping system. Secondary scalping is projected to come online FY2020/21. BWA reviewed the M&I non‐customer service revenues expenses and allocated costs between the secondary treatment system and the rest of the M&I system (collection, primary, tertiary, and recycled water). Some expenses are clearly unrelated to secondary treatment including collection system, primary treatment, tertiary, and recycled water expenses and are not recovered from scalping rates. Other expenses such as laboratory, environmental, and wastewater electrical services are shared between each step in the treatment stream (primary, secondary, and tertiary). These expense are allocated 1/3 to secondary scalping. Some expense categories encompass general wastewater operations and are not easily allocated between secondary treatment and the remainder of the wastewater system. Approximately 23% of the general wastewater expenses are allocated to secondary treatment based on a composite of the other expense categories. Operating expenses are funded via rate and non‐rate revenues. The secondary system is allocated 23% of the interfund charges (service credit labor charges) based on the secondary O&M composite. The secondary system is also allocated 12% of rental revenue. As shown in Table 4‐2, the existing CanSeg process water is estimated to account for 37% of flow to the Ranch. With the addition of 5 mgd of cannery scalping, the cannery process water is estimated to make up 49% of flow to the Ranch in FY2020/21. In total, the interfund charges and rental income allocated to secondary scalping in FY2020/21 is estimated to be $447,000. Because scalping is a new service, there is no past accumulation of reserves to offset the revenue requirement. In total, about $6.5 million in operating expenses must be recovered from scalping rates. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 26 Table 4‐4: Operating Cost Allocation for Secondary Scalping System City of Modesto Sewer Rate and Fee Study Category M&I System FY2020/21 Secondary Treatment Only FY2020/21 Allocation Notes Rate Revenue Requirement 6,463,000 Non‐rate Revenues Interfund Charges ‐ Service Credit Labor Charges 1,718,000 388,000 Secondary O&M Composite Lease of Land 494,000 59,000 12% based on process water to Ranch Total Non‐rate Revenues 2,212,000 447,000 Operating Expenses Wastewater General 202,000 46,000 Secondary O&M Composite Wastewater Utility Billing and Collections 0 0 Does not apply ‐ customer service Wastewater PCE Litigation (6210) 564,000 0 Does not apply ‐ collection system only Capital Improvement Services 546,000 123,000 Secondary O&M Composite Wastewater System Analysis 75,000 17,000 Secondary O&M Composite Sphere of Influence Area Expansion 26,000 6,000 Secondary O&M Composite Wastewater Rate Analysis 0 0 Does not apply ‐ customer service Wastewater Inventory & Condition Assessment 145,000 33,000 Secondary O&M Composite Wastewater Services Administration 239,000 54,000 Secondary O&M Composite Laboratory and Environmental Services Admin 476,000 159,000 Assumed to be 1/3 Laboratory Services 1,309,000 436,000 Assumed to be 1/3 Environmental Services 897,000 299,000 Assumed to be 1/3 Wastewater Collections Administration 224,000 0 Does not apply ‐ collection system only Sewer Collections 5,231,000 0 Does not apply ‐ collection system only Utility Cuts Repavement 30,000 0 Does not apply ‐ collection system only Sewer Lateral Cost Sharing Program 146,000 0 Does not apply ‐ collection system only Wastewater Operations Administration 766,000 255,000 Assumed to be 1/3 Wastewater Plant Operations 2,937,000 979,000 Assumed to be 1/3 Sutter Plant Maintenance 2,668,000 0 Does not apply ‐ primary treatment only Jennings Plant Maintenance 4,030,000 4,030,000 Secondary treatment cost Sewer Lift Stations 1,154,000 0 Does not apply ‐ collection system only Tertiary Treatment 7,164,000 0 Does not apply ‐ tertiary treatment only Wastewater Electrical Services 1,407,000 469,000 Assumed to be 1/3 Recycled Water Cost (O&M + repairs) 312,000 0 Does not apply ‐ recycled water only Transfer Out General Fund 20,000 5,000 Secondary O&M Composite Total Operating Expenses 30,568,000 6,911,000 Operating Net Revenues 0 Secondary O&M Composite Total Sanitary Costs Evaluated (direct allocation) 29,313,419 Secondary O&M Portion 6,627,011 Secondary O&M Composite 22.6% ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 27 In addition to operating costs, the City will incur $51 million in capital expenses to construct the secondary scalping improvements. Improvements consist of renovation of fixed film reactors, aerator addition in the recirculation channel, and dissolved air flotation piping modifications. The City (M&I system) will fund the construction cost in FY2015/16 to FY2019/20 and will be repaid via service charges once the system comes online. It is unknown how much of the construction costs will be cash‐funded or debt financed. If the improvements are debt financed, the secondary scalping customers would pay the annual debt service expense until the obligation is paid off (assumed to be 30 years). It is also assumed that the City would fund any debt service due during construction or the secondary scalping system would capitalize the interest. It is estimated that the City will fund $5.2 million of debt service costs incurred during construction. If the City cash funds the improvements, the funding should be considered a loan from the M&I system to the scalping system. Scalping customers should pay the City’s carrying cost/opportunity cost of funding the secondary improvements to reflect returns the City could have earned by investing the funds elsewhere. Thus, for financial planning purposes, the costs associated with debt funding also apply to a scenario in which the M&I system cash funds the improvements for the benefit of secondary scalping customers. Table 4‐5 provides the scalping construction costs and projected debt service paid during construction. Table 4‐5: Secondary Scalping Capital Expenses City of Modesto Sewer Rate and Fee Study FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 5‐Year Total Secondary Scalping Construction Cost 2,233,000 3,993,000 17,093,000 22,056,000 5,624,000 50,999,000 Est. Debt Service Paid During Const. New Debt ‐ Projects Funded FY2015/16 162,000 162,000 162,000 162,000 648,000 New Debt ‐ Projects Funded FY2016/17 0 276,000 276,000 276,000 828,000 New Debt ‐ Projects Funded FY2017/18 0 0 1,130,000 1,130,000 2,260,000 New Debt ‐ Projects Funded FY2018/19 0 0 0 1,453,000 1,453,000 Total Debt Service Paid During Const. 5,189,000 It is assumed that debt service payments begin the year after the project was funded. Debt service payments assume a 30‐ year term, a 4.5% interest rate, and financing of the construction cost, $250,000 in issuance costs, and a debt service reserve fund equal to the annual payment based on typical municipal bond terms and conditions. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 28 It is assumed that the debt service paid during construction by the City will be repaid by scalping customers over a thirty year term. The $5.2 million in debt service paid during construction repaid over a thirty year term results in an annual payment of $173,000. Table 4‐6 estimates the total annual debt service for the secondary scalping system for rate making purposes. The debt service expense includes financing the construction cost plus repayment of debt service paid during construction. In total, the annual capital cost of the secondary scalping improvements is $3.6 million. Table 4‐6: Secondary Scalping Debt Service City of Modesto Sewer Rate and Fee Study Expense Annual Debt Service New Debt ‐ Projects Funded FY2015/16 162,000 New Debt ‐ Projects Funded FY2016/17 276,000 New Debt ‐ Projects Funded FY2017/18 1,130,000 New Debt ‐ Projects Funded FY2018/19 1,453,000 New Debt ‐ Projects Funded FY2019/20 383,000 Repayment of Debt Service Paid During Construction 173,000 Total Annual Cost $3,577,000 In total, the annual cost of the secondary system is about $10 million including approximately $6.5 million in operating costs plus $3.6 million in debt service (capital) costs. However, the total revenue requirement is $11.8 million reflecting operating costs, debt service costs, and debt coverage of 1.5 times the annual payment. 4.7 Summary Allocation to M&I and CanSeg Table 4‐7 provides a five year summary of the M&I and CanSeg cost allocation. CanSeg Line rate revenue currently makes up about 15% of the total rate revenue and is proposed to decrease to 5.9% reflecting the FY2016/17 cost allocation. FY2017/18 to FY2019/2020, the CanSeg Line’s contribution to total rate revenues is proposed to decrease to 5.6% reflecting growth of the M&I customer base. Most M&I customer classes are projected to grow by 1.3% and the industrial class is projected to grow by 2.6% annually. After coming online in FY2020/21, the secondary scalping rate revenue is projected to make up 9.6% of the total rate revenue. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 29 Table 4‐7: Summary Allocation to M&I and CanSeg City of Modesto Sewer Rate and Fee Study Budget Projection Projection Projection Projection Projection FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 Service Charges M&I Customers 38,269,000 43,530,000 47,067,000 50,890,000 55,024,000 59,777,000 CanSeg Line 6,639,000 2,725,000 2,889,000 3,062,000 3,245,000 3,441,000 Secondary Scalping 0 0 0 0 0 6,705,000 Total Service Charges 44,908,000 46,255,000 49,956,000 53,952,000 58,269,000 69,923,000 Service Charges M&I Customers 85.2% 94.1% 94.2% 94.3% 94.4% 85.5% CanSeg Line 14.8% 5.9% 5.8% 5.7% 5.6% 4.9% Secondary Scalping 0.0% 0.0% 0.0% 0.0% 0.0% 9.6% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Includes accounts charge revenues and a 0.8% delinquency factor 4.8 Allocation to Flow and Strength The final step in the cost allocation process is to allocate the M&I, secondary scalping, and CanSeg Line expenses to flow and strength based on industry standard cost allocations, see Table 4‐8. Scalping expenses are allocated based on the secondary allocation shown below. Table 4‐8: Flow and Strength Allocations City of Modesto Sewer Rate and Fee Study Functionalized Cost Categories Flow BOD TSS Collection System & Pumping 100% 0% 0% Primary 70% 10% 20% Secondary 40% 30% 30% Lab, Enviro, Monitoring 40% 30% 30% Tertiary & Recycled Water 25% 25% 50% Electrical 80% 10% 10% Table 4‐9 presents a summary of the M&I cost allocation to flow and loads. The proposed M&I cost allocation is more heavily weighted to loading which reflects increased costs for secondary and tertiary treatment. Table 4‐10 presents a summary of the CanSeg Line allocation to flow and loads. The CanSeg Line expenses are largely flow based reflecting the purpose of the CanSeg Line as a method to collect, convey, and dispose cannery season process water. A small portion of the CanSeg Line revenue requirement is allocated to strength reflecting environmental compliance, laboratory work, and sampling. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 30 Table 4‐9: M&I Cost Allocation to Flow and Strength City of Modesto Sewer Rate and Fee Study Category Current FY2016/17 Flow $25,461,000 $25,236,000 BOD $3,584,000 $5,906,000 TSS $4,876,000 $9,035,000 Total $33,921,000 $40,177,000 Flow 75% 63% BOD 11% 15% TSS 14% 22% Total 100% 100% Does not include customer service, CanSeg Line, or secondary scalping revenues. Table 4‐10: CanSeg Cost Allocation to Flow and Strength City of Modesto Sewer Rate and Fee Study Category Current FY2016/17 Flow $2,523,000 $2,669,000 BOD $2,497,000 $27,000 TSS $1,618,000 $29,000 Total $6,639,000 $2,725,000 Flow 38% 98% BOD 38% 1% TSS 24% 1% Total 100% 100% Does not include customer service 4.9 Septage Septage customers transport their effluent directly to the wastewater treatment plant and do not use the sewer collection system. Thus, the cost of the collection system is credited from the septage revenue requirement. BWA conducted a cost allocation separating the M&I collection system costs from the M&I treatment stream. BWA determined the collection system makes up about 27% of the M&I wastewater revenue requirement. A detailed cost allocation workpaper for the septage collection system credit is provided in Appendix B. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 31 SECTION 5: RATE DESIGN The previous section determined the amount of revenue allocated to flow, BOD, and TSS for the M&I service, CanSeg Line, and secondary scalping service. The allocated revenue is then divided by the billing units to calculate the rates. A detailed schedule of billing units and projected rates is provided in Appendix C. 5.1 Billing Units BWA estimated the number of accounts, number of residential dwelling units, and flows and loads for the next five years. 5.1.1 Accounts The City of Modesto currently provides wastewater service to 62,400 accounts consisting of residential, multiple family, commercial, industrial customers located within the City of Modesto as well as the City of Ceres and the Empire Sanitary District. The City projects growth of 1.3% annually for most municipal customers and 2.6% annual growth for industrial customers. Projected accounts over the next six years is provided in Table 5‐1. Table 5‐1: Number of Customer Accounts City of Modesto Sewer Rate and Fee Study Projected Customer Class Actual FY2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 Single Family Residential 54,558 55,267 55,986 56,714 57,451 58,198 58,954 Multiple family Residential 4,188 4,242 4,298 4,353 4,410 4,467 4,525 Commercial 2,711 2,746 2,782 2,818 2,855 2,892 2,929 Industrial 32 33 34 35 35 36 37 CanSeg 5 5 5 5 5 5 5 Empire SD 888 900 911 923 935 947 960 Total 62,382 63,193 64,015 64,848 65,691 66,546 67,411 5.1.2 Flow and Loadings BWA estimated the flows and loadings of each customer class over the next five years. For FY2015/16 and beyond, commercial and industrial flows are estimated as 95% of the actual FY2014/15 flows reflecting water conservation compounded by the growth rates described above. Commercial loads are estimated based on the flow and strength characteristics of each of the four commercial customer groups (i.e. the flow of group 1 is multiplied by 200 mg/l BOD and 200 mg/l TSS to estimate the group 1 loading). The commercial loading used for rate design purposes is shown in Table 5‐2. The loading assumptions provided below are the same assumptions used in the 2007 rate study. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 32 Table 5‐2: Commercial Loading City of Modesto Sewer Rate and Fee Study Commercial Rate Group BOD (mg/l) TSS (mg/l) Group 1 200 200 Group 2 450 450 Group 3 700 700 Group 4 1,000 1,000 The City’s prior rate study assumed septage pollutant loading of 4,926 mg/l of BOD and 30,260 mg/l of TSS. These loading factors were based on 1995 and 1996 sampling data. More recent sampling data is not available so BWA used septage characteristics cited by the U.S. Environmental Protection Agency.3 It is assumed that septage flows will increase by 1.3% annually consistent with the growth rate of the residential customer class. The 2007 rate study estimated the single family residential flow to be 280 gallons per day. The Wastewater Master Plan Update estimates the current single family residential flow to be 215 gallons per day. With a decrease in residential flow, the non‐residential customer classes are attributed a greater portion of system costs. Moreover, the loads of residential customers are proposed to be adjusted from 200 mg/l for both BOD and TSS to 270 mg/l BOD and 310 mg/l TSS consistent with the Wastewater Master Plan Update. To mitigate rate impacts, the residential flow and load adjustments are phased‐in over the next five years, see Table 5‐3. The flow and loading assumptions for each type of residential customer is multiplied by the number of units, see Table 5‐4, to estimate total residential flows and loads used for rate design. Table 5‐3: Residential Flow and Loading Characteristics City of Modesto Sewer Rate and Fee Study Residential Customers Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Gallons per Day Wastewater Effluent Single Family 280 260 248 235 227 215 Multi Family (2‐4 units) 210 200 190 180 175 175 Apartment units) 189 180 170 160 155 150 BOD (mg/l) 200 200 212 230 255 270 TSS (mg/l) 200 205 230 255 275 310 1 ‐ mg/l = milligrams per liter; loading factors apply to all types of residential customers 3 U.S. Environmental Protection Agency. 1994. Guide to Septage Treatment and Disposal. EPA‐625‐R‐94‐002 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 33 Table 5‐4: Residential Dwelling Units City of Modesto Sewer Rate and Fee Study Residential Dwelling Units Actual Projected FY2014/15 FY2015/16 FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Single Family 56,812 57,551 58,299 59,057 59,824 60,602 61,390 Multiple Family 7,375 7,471 7,568 7,666 7,766 7,867 7,969 Apartments 14,886 15,080 15,276 15,474 15,675 15,879 16,086 Total 79,073 80,101 81,142 82,197 83,266 84,348 85,445 1 ‐ Includes Empire Sanitary District dwelling units The total M&I flows and loads projected over the next five years is provided in Table 5‐5. Table 5‐5: Total M&I Flows and Loads for Rate Design City of Modesto Sewer Rate and Fee Study Customer Class FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Flow (MG) Residential 7,089 6,838 6,557 6,422 6,229 Commercial 1,299 1,316 1,333 1,351 1,368 Industrial 1,405 1,441 1,479 1,517 1,557 Septage 9 9 9 9 9 Total Flow 9,801 9,604 9,378 9,299 9,163 BOD (klbs) Residential 11,824 12,089 12,578 13,658 14,027 Commercial 4,072 4,125 4,179 4,233 4,288 Industrial 11,499 11,798 12,105 12,420 12,743 Septage 463 469 475 481 487 Total BOD 27,858 28,482 29,337 30,792 31,546 TSS (klbs) Residential 12,119 13,116 13,945 14,729 16,105 Commercial 4,072 4,125 4,179 4,233 4,288 Industrial 3,427 3,517 3,608 3,702 3,798 Septage 919 931 943 955 968 Total TSS 20,538 21,689 22,675 23,619 25,159 1 ‐ Includes Empire Sanitary District. Reflects phase‐in of residential flow and load adjustments. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 34 The CanSeg Line flows and loads are provided in Table 5‐6 and projected to remain stable over the next five years for the purpose of rate design. Table 5‐6: CanSeg Line Flows and Loads City of Modesto Sewer Rate and Fee Study CanSeg Line Annual Flows and Loads Flow (MG) 996 BOD (klbs) 19,358 TSS (kbs) 7,225 5.2 M&I and CanSeg Line Rate Design Table 5‐7 presents the calculation of the accounts charge. The allocated customer service revenue is divided by the number of accounts billed to calculate the charge. Table 5‐7: Accounts Charge City of Modesto Sewer Rate and Fee Study Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Annual Revenue $3,291,000 $3,354,000 $3,413,000 $3,487,000 $3,561,000 $3,643,000 Billed Accounts (over 12 months) 752,253 762,037 771,948 781,988 792,158 802,461 Rate ($/account) $4.34 $4.40 $4.42 $4.46 $4.50 $4.54 % increase 1.4% 0.5% 0.8% 0.8% 1.0% ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 35 Table 5‐8 presents the calculation of the M&I flow and strength unit costs. The allocated flow, BOD, and TSS rate revenue requirement is divided by the billing units to calculate the $/million gallons cost for flow and $/klbs cost for BOD and TSS. The FY2016/17 costs reflect the updated cost allocation between M&I and CanSeg Line customers. Table 5‐8: M&I Flow and Strength Unit Costs City of Modesto Sewer Rate and Fee Study Category Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Rate Revenue Flow $25,461,000 $25,317,000 $27,509,000 29,871,000 32,429,000 35,453,000 BOD $3,584,000 $5,877,000 $6,385,000 6,934,000 7,527,000 8,229,000 TSS $4,876,000 $8,983,000 $9,760,000 10,599,000 11,506,000 12,579,000 Total Rev $33,921,000 $40,177,000 $43,654,000 $47,404,000 $51,462,000 $56,261,000 %Increase 18% 9% 9% 9% 9% Billing Units Flow (MG) 10,155 9,721 9,525 9,301 9,222 9,088 BOD (klbs) 28,083 27,636 28,254 29,102 30,546 31,293 TSS (klbs) 22,002 20,374 21,515 22,493 23,430 24,958 Unit Cost Flow $2,534 $2,604 $2,888 $3,212 $3,516 $3,901 BOD $129 $213 $226 $238 $246 $263 TSS $224 $441 $454 $471 $491 $504 % Increase Flow 3% 11% 11% 9% 11% BOD 65% 6% 5% 3% 7% TSS 97% 3% 4% 4% 3% Does not include customer service, CanSeg Line, or secondary scalping revenues. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 36 The unit costs are scaled to the flows and loadings of each customer group (as provided in Section 5.1.2 Flow and Loadings) to calculate the final rates, see Table 5‐9. Septage customers are provided a flow rate discount of 27% reflecting their non‐use of the sewer collection system. Septage customers pay the same unit costs for BOD and TSS as all other M&I customers. Table 5‐9: Projected M&I Sewer Rates City of Modesto Sewer Rate and Fee Study Category Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Account Charge ($/Account) $4.34 $4.40 $4.42 $4.46 $4.50 $4.54 Residential Rates ($/Dwelling Unit) Single Family Residential, Mobile Home on a lot $27.58 $29.36 $31.36 $33.39 $35.67 $37.91 Multiple Family (2‐4 Dwelling Units), one additional Dwelling Unit or Mobile Home on a lot $23.67 $22.59 $24.03 $25.57 $27.50 $30.85 Apartments (5 or more Dwelling Units), Mobile Home Space in a Mobile Home Park $17.96 $20.33 $21.50 $22.73 $24.36 $26.45 Commercial Quantity Charge ($/100 cubic feet) Group 1‐BOD + TSS is 400 mg/l or less $2.35 $2.76 $3.01 $3.29 $3.55 $3.88 Group 2‐BOD + TSS is 401 mg/l to 900 mg/l $2.89 $3.78 $4.07 $4.40 $4.70 $5.07 Group 2‐BOD + TSS is 901 mg/l to 1,400 mg/l $3.45 $4.80 $5.13 $5.50 $5.85 $6.27 Group 4‐BOD + TSS is 1,401 mg/l or more $4.11 $6.03 $6.40 $6.83 $7.23 $7.71 Industrial Charges (these three components are additive) Flow Charge ($/Million gallons) $2,534 $2,604 $2,888 $3,212 $3,516 $3,901 BOD Charge ($/1,000 lbs) $129 $213 $226 $238 $246 $263 TSS Charge ($/1,000 lbs) $224 $441 $454 $471 $491 $504 Septage Quantity Charge Flow charge per 1,000 gallons $67 $61 $63 $66 $69 $71 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 37 5.3 CanSeg Line Rate Design Table 5‐10 presents the CanSeg Line flow and strength charges. The allocated flow, BOD, and TSS rate revenues are divided by the CanSeg Line billing units to calculate the rates. In addition to the charges shown in Table 5‐10, the cannery customers would pay the proposed accounts charges shown in Table 5‐9. The CanSeg Line flow rate is proposed to increase in FY2016/17 and the strength charges are proposed to decrease dramatically. Each year thereafter, the rates are proposed to increase by 6% annually consistent with the cash flow provided in Table 3‐5. The rate increases are needed to fund operating cost increases, debt service expenses, and to facilitate “rate smoothing”. The proposed rates shown below span the next five year planning horizon. Beginning FY2021/22, the City plans to rehabilitate the CanSeg Line outfall pipeline. The rehabilitation is projected to span four years and cost $28.3 million. By implementing annual rate increases, the cannery customers can mitigate rate spikes in later years. Table 5‐10: CanSeg Line Sewer Rates City of Modesto Sewer Rate and Fee Study Category Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Rate Revenue Flow $2,523,000 $2,669,000 $2,829,000 $2,999,000 $3,178,000 $3,370,000 BOD $2,497,000 $27,000 $29,000 $30,000 $32,000 $34,000 TSS $1,618,000 $29,000 $31,000 $33,000 $35,000 $37,000 Total Revenue $6,638,000 $2,725,000 $2,889,000 $3,062,000 $3,246,000 $3,441,000 Billing Units Flow (MG) 996 996 996 996 996 996 BOD (klbs) 19,358 19,358 19,358 19,358 19,358 19,358 TSS (klbs) 7,225 7,225 7,225 7,225 7,225 7,225 Unit Cost Flow $2,534 $2,680 $2,841 $3,012 $3,191 $3,384 BOD $129 $1.39 $1.48 $1.57 $1.66 $1.76 TSS $224 $4.04 $4.29 $4.54 $4.81 $5.11 % Increases Flow 6% 6% 6% 6% 6% BOD ‐99% 6% 6% 6% 6% TSS ‐98% 6% 6% 6% 6% Does not include customer service, M&I, or secondary scalping revenues. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 38 5.4 Secondary Scalping Rate Design It is proposed that secondary scalping operating costs be recovered via rates charged to scalped flow, BOD, and TSS. To provide revenue stability, it is proposed that capital costs be recovered through a fixed annual Secondary CanSeg Capacity charge. 5.4.1 Secondary Scalping Rates To calculate the secondary scalping rates, the operating rate revenue requirement (developed in Table 4‐4) is divided by the estimated flows and loads treated at the secondary plant. Carollo Engineers estimated the secondary scalping flows and loads in FY2020/21 when the secondary improvements are completed, see Table 5‐11. Over the past five years, the canning season has lasted 78 days on average. Based on the estimated daily flows and loads and length of the canning season, the total annual secondary system billing units are shown in Table 5‐12 along with the proposed rates. Table 5‐11: FY2020/21 Secondary Scalping Influent Flows and Loads City of Modesto Sewer Rate and Fee Study Parameter Units M&I Can‐Seg Total Secondary Influent M&I Can‐Seg Non‐Canning Season Flow mgd 5.3 2.0 7.3 72.6% 27.4% BOD lbs/day 10,800 25,300 36,100 29.9% 70.1% TSS lbs/day 4,900 5,300 10,200 48.0% 52.0% Canning Season Flow mgd 5.3 5.0 10.3 51.5% 48.5% BOD lbs/day 10,800 109,400 120,200 9.0% 91.0% TSS lbs/day 4,900 38,900 43,800 11.2% 88.8% Table 5‐12: Secondary Scalping Operating Rate Design City of Modesto Sewer Rate and Fee Study Component Cost Allocation Annual Operating Rate Revenue Requirement FY2020/21 Annual Flow and Loads Units Rates Flow 40% $2,585,000 2,899 MG $891.84 BOD 30% $1,939,000 19,736 thousand lbs $98.25 TSS 30% $1,939,000 6,344 thousand lbs $305.65 100% $6,463,000 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 39 5.4.2 Annual Secondary CanSeg Capacity Charge Given the significant cost of constructing the secondary scalping improvements, BWA proposes that capital costs be recovered through an annual Secondary Scalping CanSeg Capacity Fee. The capacity fee revenue requirement is set as $5.37 million, which is 1.5 times the estimated annual debt service cost (developed in Table 4‐6). The fee is calculated as the capital revenue requirement divided by the canning season maximum capacity of the secondary improvements. The canning season maximum is the appropriate capacity metric for calculation of the Secondary CanSeg Capacity fee because the improvements were designed and engineered for the maximum canning season loads. Although hydraulic capacity is not reached, the secondary treatment facilities are limited by BOD loading. Absent the canning season peak, the City would construct lower capacity, less expensive improvements or forgo secondary improvements all together. It is envisioned that the City would reserve secondary capacity for the cannery customers via service agreements. Cannery customers would estimate their scalping capacity and commit to pay annual Secondary Can Seg Capacity charges based on that capacity. The capacity fee is calculated in Table 5‐14. Table 5‐13: Secondary Treatment Capacity City of Modesto Sewer Rate and Fee Study Parameter Units M&I Existing Can‐Seg Flow Treated Additional Can‐Seg Flow Treated (25% Increase) Available Can‐ Seg Capacity Total Secondary Influent Non‐Canning Season Flow mgd 13.22 1.77 0.44 5.20 20.63 BOD lbs/day 31,500 26,100 6,500 76,600 140,700 TSS lbs/day 20,100 6,900 1,700 20,300 49,000 Canning Season Flow mgd 13.22 0 5.00 0 18.22 BOD lbs/day 31,500 0 109,400 0 140,900 TSS lbs/day 20,100 0 38,900 0 59,000 1 ‐ Based on projected 2035 max month flow and loads. 2 ‐ Under theses flows and loads, the capacity of the secondary treatment facilities is limited by the BOD loading. Table 5‐14: Secondary Scalping Secondary CanSeg Capacity Fee City of Modesto Sewer Rate and Fee Study Component Cost Allocation Capital Revenue Requirement Canning Season Capacity Units Secondary CanSeg Capacity Fee Flow 40% $2,147,000 18.22 mgd max day capacity $117,837.54 BOD 30% $1,610,000 140,900 lbs/day max day capacity $11.43 TSS 30% $1,610,000 59,000 lbs/day max day capacity $27.29 100% $5,367,000 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 40 5.5 Customer Impacts As described throughout this report, there are a number of proposed changes to the City’s cost allocation and rate structure that will impact customers. 5.5.1 Customer Class‐Level Impacts Table 5‐15 provides the proposed revenue to be collected from each customer class over the next five years. Commercial, industrial, and septage customers are proposed to receive larger increases due to the shift in cost from the flow charge to the pollutant loadings (treatment) charges. In addition, the estimated flow per residence is proposed to decrease over time resulting in a higher portion of system costs recovered from non‐residential customers. During canning season, CanSeg Line customers are proposed to receive a steep revenue reduction reflecting the CanSeg process water flow does not require treatment. Table 5‐15: Customer Class Revenue Impacts City of Modesto Sewer Rate and Fee Study Customer Class Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Residential $26,836,000 $28,807,000 $30,920,000 $33,130,000 $35,690,000 $38,492,000 Empire SD $471,000 $508,000 $546,000 $585,000 $631,000 $682,000 Commercial $4,789,000 $6,143,000 $6,701,000 $7,341,000 $7,964,000 $8,716,000 Septic Tank Pumping $561,000 $516,000 $542,000 $573,000 $605,000 $636,000 Industrial $5,612,000 $7,556,000 $8,359,000 $9,261,000 $10,134,000 $11,250,000 CanSeg Line $6,639,000 $2,725,000 $2,889,000 $3,062,000 $3,245,000 $3,441,000 Total $44,908,000 $46,255,000 $49,956,000 $53,952,000 $58,269,000 $63,218,000 Revenue % Increases Residential 7% 7% 7% 8% 8% Empire SD 8% 7% 7% 8% 8% Commercial 28% 9% 10% 8% 9% Septic Tank Pumping 5% 6% 6% 5% Industrial 35% 11% 11% 9% 11% CanSeg Line ‐59% 6% 6% 6% 6% Total 3% 8% 8% 8% 8% Reflects 0.8% delinquency. Includes accounts charge revenue. Does not include secondary scalping. 5.5.2 Secondary Scalping Impacts The CanSeg Line is currently at capacity and is not able to accommodate an increase in flow. Secondary scalping provides the opportunity for cannery customers to increase their process water and have it treated at a lower cost than M&I system rates. Provided below are example bills for a hypothetical cannery customer comparing the cost of municipal system service vs. secondary scalping wastewater service. The hypothetical cannery customer is assumed to make up one fifth of the cannery customer class’ committed scalping capacity and estimated annual flows and loads. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 41 Provided below is the hypothetical example cannery customer’s wastewater bill under the proposed M&I rates in FY2020/21 and under the proposed secondary scalping capacity fee and rates for FY2020/21. Under the M&I rates, the customer would be billed about $2.0 million. Under the secondary scalping rates and capacity fee, the customer would be billed $1.3 million. The customer receives a savings of approximately 34% compared with the M&I treatment scenario. Table 5‐16: Example Secondary Scalping Customer Impact City of Modesto Sewer Rate and Fee Study M&I Canning Season Units Billing Units FY2020/21 Rate or Charge Billed Amount Rates Flow MG 193 $3,901.21 $752,154 BOD klbs 3,159 $262.97 $830,700 TSS klbs 911 $504.01 $459,180 Total Canning Season M&I Wastewater Bill $2,045,646 Scalped Canning Season Units Billing Units FY2020/21 Rate or Charge Billed Amount Rates Flow MG 193 $891.84 $171,947 BOD klbs 3,159 $98.25 $310,343 TSS klbs 911 $305.65 $278,468 Secondary Can Seg Capacity Charge Committed Max Capacity Flow MGD 1.00 $117,837.54 $117,838 BOD lbs/day 21,880 $11.43 $250,013 TSS lbs/day 7,780 $27.29 $212,302 Total Canning Season Secondary Scalping Wastewater Bill $1,340,910 Secondary Scalping Savings $701,123 34% 5.5.3 Residential Bill Comparison Under the proposed rate increases, the typical single family residential bill is proposed to increase approximately 6% annually from the $31.91 to $42.45 over the next five years. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 42 Table 5‐17: Typical Customer Bill City of Modesto Sewer Rate and Fee Study Rates Current FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Account Charge ($/account) $4.34 $4.40 $4.42 $4.46 $4.50 $4.54 Residential Rate ($/dwelling unit) $27.58 $29.36 $31.36 $33.39 $35.67 $37.91 Total Single Family Residential Bill $31.92 $33.76 $35.78 $37.85 $40.17 $42.45 % increase 6% 6% 6% 6% 6% Although the typical residential bill is proposed to increase, the City of Modesto bill will remain competitive with other local wastewater agencies, see figure below. Figure 2: Residential Bill Comparison ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 43 SECTION 6: CONCLUSIONS AND RECOMMENDATIONS This Sewer Rate and Fee Study report presents a comprehensive review of the City of Modesto’s wastewater revenue requirement, cost allocation, and rate structure. The City last conducted a comprehensive cost of service review in 2007. Since then, the City has engaged in a Wastewater Master Plan Update which identified needed capital improvements and also projected reduced flows from residential customers. In addition, the City signed a Tolling Agreement committing the City to develop a separate cost allocation and rate schedule for CanSeg Line customers. Finally, the City is planning major operational changes including providing secondary scalping service to cannery customers, bringing the tertiary treatment system online, and generating recycled water. All of these factors were considered in the rate study to fairly develop rates for customers. 6.1 Conclusions The City practices sound financial planning that has provided for the financial health of the wastewater enterprise. Historically, the City has gradually increased rates to keep up with inflationary cost increases and to accumulate reserves. This allows the City to avoid rate spikes when new costs are incurred, such as the new tertiary treatment plant operating and debt service costs. The City has been very successful in securing grants and low cost State Revolving Fund loans providing savings to the ratepayers. The City’s financial targets are to maintain debt service coverage of 1.5 times the annual payment and to maintain reserves equal to 25% of operating costs plus one year’s SRF debt service payment. These policies provide financial stability and benefit the ratepayers. The City’s rate structure, composed of an accounts charge, a flow charge, a BOD charge, and a TSS charge, is consistent with generally accepted rate making principles and industry standard practice. These functional categories reflect how the City provides wastewater service: the City provides customer service and billing, the City collects and conveys effluent, the City treats wastewater pollutants, and the City disposes of the wastewater. BWA finds the City’s functional categories to be reasonable and appropriate. The M&I rates must increase over the next five years to fund the City’s wastewater operating and capital expenses, meet debt coverage requirements, and to maintain emergency reserves. Residential rates are proposed to increase by 6% annually and non‐residential rates are proposed to increase more steeply. BWA found that a higher portion of wastewater service costs are attributable to wastewater treatment than previously assumed. Therefore, BOD and TSS rates are proposed to increase more significantly than the flow charge. The rate change impacts higher strength customers to a greater degree than domestic strength customers. Since the CanSeg Line came into service in 1999, the cannery customers have over‐paid for wastewater service. The CanSeg Line collects the canneries’ process water, bypasses the treatment stream, and conveys the process water for disposal on the Ranch as irrigation water. Although the process water does not receive treatment, the City billed the cannery customers the fully encumbered M&I industrial ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Page 44 rates. The City’s current billing procedures reflect the City’s budgeting process. The CanSeg Line operating costs are embedded into the M&I wastewater budget line items and are not easily distinguished from M&I costs. As such, determining the CanSeg Line costs was difficult for City staff. 6.2 Recommendations BWA recommends that the City adopt the rates shown in this report. Rates were developed as part of a collaborative process that included workshops with City staff, including personnel from Engineering, Wastewater Operations, and Finance, the City’s consulting engineer, and cannery stakeholders. BWA recommends that the City adopt a new cost center for the CanSeg Line and record actual costs over the next fiscal year. The City can then “true up” the CanSeg cost allocation with actual data. The City should provide separate accounting for the CanSeg Line revenues and expenses to prevent against cross‐ customer subsidies. At minimum, BWA recommends that the City review and update its cost allocation every five years and/or concurrent with Wastewater Master Plan Updates. Proposition 218 allows public agencies to adopt rates over a five year planning horizon. Any further rate increases must be supported by a cost of service analysis. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 APPENDICES Appendix A: Capital Improvement Plan Appendix B: Cost Allocation Worksheets Appendix C: Billing Units ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix A Appendix A: Capital Improvement Plan ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix A Table A‐1: 10‐Year Collection System Capital Improvement Plan City of Modesto Sewer Rate and Fee Study Project Capital Cost FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20 FY 2020/21 FY 2021/22 FY 2022/23 FY 2023/24 FY 2024/25 FY 2025/26 AREA 1 West Trunk 1,474,366 506,500 516,630 ‐ 223,384 227,852 ‐ ‐ ‐ ‐ ‐ ‐ West Sub‐Trunks 10,184,427 1,012,500 1,637,610 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 866,442 3,747,189 Rumble Trunk 4,745,250 3,712,500 1,032,750 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Rumble Sub‐Trunks 2,564,940 ‐ ‐ ‐ 2,564,940 ‐ ‐ ‐ ‐ ‐ ‐ ‐ North Trunk Extension 9,866,560 ‐ ‐ ‐ ‐ 3,650,502 3,723,513 ‐ ‐ ‐ 1,233,933 1,258,612 North Sub‐Trunks 2,359,791 ‐ ‐ ‐ ‐ ‐ ‐ ‐ 1,168,213 1,191,578 ‐ ‐ Dale Trunk 3,303,079 ‐ ‐ ‐ ‐ ‐ ‐ 1,635,188 1,667,892 ‐ ‐ ‐ AREA 2 Emerald Trunk 9,465,631 ‐ ‐ ‐ ‐ ‐ ‐ 3,114,402 3,176,690 883,431 901,100 688,122 Emerald Sub‐Trunks 2,324,014 613,000 625,260 ‐ 537,502 548,252 ‐ ‐ ‐ ‐ ‐ ‐ AREA 3 Sutter Trunk 2,101,467 768,500 1,055,700 277,267 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ AREA 4 6th Street Trunk 1,249,406 ‐ ‐ 618,518 630,888 ‐ ‐ ‐ ‐ ‐ ‐ ‐ J Street Trunk 891,082 ‐ ‐ 441,130 449,952 ‐ ‐ ‐ ‐ ‐ ‐ ‐ D Street Trunk 1,441,703 ‐ ‐ 713,714 727,989 ‐ ‐ ‐ ‐ ‐ ‐ ‐ F Street Trunk 360,426 ‐ ‐ 178,429 181,997 ‐ ‐ ‐ ‐ ‐ ‐ ‐ AREA 5 Santa Rosa Trunk 6,494,827 ‐ ‐ ‐ 1,019,821 778,810 2,725,976 1,970,221 ‐ ‐ ‐ ‐ Santa Rosa Sub‐Trunks 5,924,694 ‐ ‐ ‐ ‐ ‐ ‐ 403,166 2,742,487 1,775,650 ‐ ‐ AREA 6 Sonoma Trunk Extension 5,138,560 2,071,500 2,112,930 472,342 481,788 ‐ ‐ ‐ ‐ ‐ ‐ ‐ Lakewood Trunk Extension 3,853,893 ‐ ‐ 955,607 974,720 ‐ ‐ ‐ 952,260 971,306 ‐ ‐ Lakewood Sub‐Trunks 340,370 168,500 171,870 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Empire Trunk 2,045,250 1,012,500 1,032,750 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Old River Trunk 15,381,025 ‐ ‐ ‐ ‐ 7,614,369 7,766,656 ‐ ‐ ‐ ‐ ‐ New River Trunk 89,078,382 ‐ 25,614,240 26,126,525 ‐ ‐ 18,483,969 18,853,648 ‐ ‐ ‐ ‐ Cannery Segregation Line 5,839,578 500,000 2,900,880 2,438,698 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ AREA 8 Ceres Trunk 1,973,540 977,000 996,540 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ AREA 10 Ustick Trunk 1,132,914 ‐ ‐ ‐ 560,848 572,065 ‐ ‐ ‐ ‐ ‐ ‐ Ustick Sub‐Trunks 7,576,709 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3,750,846 CITY‐WIDE PROJECTS Lift Station Stand‐By Generators 518,761 ‐ ‐ ‐ 256,812 261,949 ‐ ‐ ‐ ‐ ‐ ‐ Storm Runoff Removal 2,060,400 1,020,000 1,040,400 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Total Capital Cost 199,691,043 12,362,500 38,737,560 32,222,229 8,610,642 13,653,799 32,700,113 25,976,625 9,707,543 4,821,965 3,001,475 9,444,769 1 ‐ Total capital cost including expenses planned for FY2027 and beyond; costs escalated by 2% annually to the year of construction ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix A Table A‐2: 10‐Year Wastewater Treatment Capital Improvement Plan City of Modesto Sewer Rate and Fee Study Project Proposed Facility Category Total Project Cost FY15/16 FY16/17 FY17/18 FY18/19 FY19/20 FY20/21 FY21/22 FY22/23 FY23/24 FY24/25 FY25/26 Sutter Plant Headworks, Dryden Box, and Influent Flume Improvements Capacity 13,593,939 1,554,400 6,251,274 5,788,265 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Influent Screw Pump Addition Capacity 2,671,515 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 19,567 358,289 2,293,660 Outfall Pump Station Capacity 19,708,741 ‐ ‐ ‐ ‐ 213,997 2,080,640 8,860,646 8,553,458 ‐ ‐ ‐ Demolition of Sutter Treatment Facilities Capacity 6,556,309 ‐ ‐ ‐ ‐ ‐ ‐ 531,999 3,181,630 2,842,680 ‐ ‐ Outfall Pipelines Tuolumne River Crossings Rehabilitation 37,005,435 ‐ 399,942 3,889,952 12,646,310 15,991,420 4,077,812 ‐ ‐ ‐ ‐ ‐ Third Outfall Pipeline from Sutter Plant to Jennings Plant Capacity 59,714,354 ‐ ‐ ‐ ‐ 645,563 6,277,362 20,406,739 25,804,534 6,580,156 ‐ ‐ Line Canseg Outfall Pipeline Rehabilitation 28,299,469 ‐ ‐ ‐ ‐ ‐ ‐ 153,383 2,972,913 11,157,126 14,016,046 ‐ Jennings Plant Secondary Treatment/Canseg Treatment Facilities Upgrades Rehabilitation 50,999,688 2,233,400 3,993,300 17,092,524 22,056,147 5,624,318 ‐ ‐ ‐ ‐ ‐ ‐ Primary Treatment and Solids Handling Facilities Capacity 106,524,132 ‐ ‐ ‐ ‐ 557,886 5,994,275 5,533,737 17,393,858 30,330,043 30,936,644 15,777,689 Dredging Rehabilitation 10,201,000 2,500,000 5,100,000 2,601,000 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Misc. Repairs Rehabilitation 1,078,042 264,200 538,968 274,874 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ Annual Capital Costs 6,552,000 16,283,484 29,646,614 34,702,457 23,033,182 18,430,090 35,486,504 57,906,393 50,929,573 45,310,979 18,071,348 Costs escalated by 2% annually to the year of construction 1 ‐ Project includes: Headworks Improvements, Dryden Box Improvements, Influent Flume Improvements, Pumping Plant No. 3 Improvements, and Headworks Screening Room Ventilation Improvements. 2 ‐ Project includes: Renovation of Fixed Film Reactors, Aerator Addition in Recirculation Channel, and DAF Piping Modifications. 3 ‐ Project includes: Primary Treatment Facilities, Yard Piping and Structures, Anaerobic Digesters, WAS Thickening and Biosolids Dewatering, and Sludge Cake Drying Beds. ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B Appendix B: Cost Allocation Worksheets 2005 Bonds Use of Proceeds Original Use of Funds Refunded Principal Method of Allocation CanSeg Cost 1993 Bonds Parallel 60” Outfall, Sonoma Trunk – Floyd to Sylvan Avenues, Lakewood Trunk Extension, Remodeling of the 1000 Oaks Lift Station, land acquisition for trunk construction $4,945,000 13.8% CanSeg % of system total net book value of wastewater fixed assets based on CanSeg year of construction $684,158 1996 Bonds Refund 1987 Wastewater Treatment Facility Refunding Revenue Bonds $2,710,000 13.8% CanSeg % of system total net book value of wastewater fixed assets based on CanSeg year of construction $374,938 1997 Bonds Improve/construct the can-seg line, construct a subtrunk and sewer extension, and to purchase co-compost equipment $32,365,000 54% % of original par for can-seg facilities $17,513,729 Total $40,020,000 $18,572,825 46% Note: used to allocate 2005 bonds debt service to CanSeg Line service ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B City of Modesto 26,823,130 Indirect Cost Allocation Wastewater Fund ProForma 561,295 Total O&M Considered FY2016/17 Proposed Budget 2.1% CanSeg Portion Proposed Accounts Rate M&I CanSeg DRAFT FY 2016/17 Rev Req Allocation Allocation M&I CanSeg Non‐rate Revenues Use of Reserves/Replenishment less delinquency 12,760,196 0% 27,000 12,733,196 Direct 26.9% 9,312,305 3,421,000 Interest Revenue on Bank Accounts 344,240 7% 25,228 319,012 Direct 14.7% 272,118 46,895 Interest Trustee/Investment Earnings 158,080 7% 11,585 146,495 Direct 14.7% 124,960 21,535 Lease of Land 494,000 0% 0 494,000 Direct 35.0% 321,100 172,900 Interfund Charges ‐ Service Credit Labor Charges 1,841,757 12% 212,917 1,628,840 Direct 0.0% 1,628,840 0 Wastewater Developmental Fees (4211‐42500) 250,000 0% 0 250,000 Direct 0.0% 250,000 0 General Fund (RePayment of InterFund Loan) 121,139 0% 0 121,139 Direct 3.1% 117,431 3,708 Compost Fund (RePayment of InterFund Loan) 51,919 0% 0 51,919 Direct 0.0% 51,919 0 Recycled Water Sales 0 0% 0 0 Direct 0.0% 0 0 Total Non‐rate Revenues 16,021,331 249,729 3,011,405 2,766,368 245,038 Operating Expenses Wastewater General 635,931 70% 445,152 190,779 Indirect 2.1% 186,787 3,992 Wastewater Utility Billing and Collections 616,435 100% 616,435 0 Direct 0.0% 0 0 Wastewater PCE Litigation (6210) 520,891 0% 0 520,891 Direct 0.0% 520,891 0 Capital Improvement Services 735,590 30% 220,677 514,913 Indirect 2.1% 504,138 10,775 Wastewater System Analysis 232,486 70% 162,740 69,746 Direct 0.0% 69,746 0 Sphere of Influence Area Expansion 81,097 70% 56,768 24,329 Direct 0.0% 24,329 0 Wastewater Rate Analysis 273,568 100% 273,568 0 Direct 0.0% 0 0 Wastewater Inventory & Condition Assessment 446,683 70% 312,678 134,005 Direct 0.0% 134,005 0 Wastewater Services Administration 749,960 70% 524,972 224,988 Indirect 2.1% 220,280 4,708 Laboratory and Environmental Services Admin 450,581 0% 0 450,581 Direct 2.5% 439,794 10,787 Laboratory Services 1,224,391 0% 0 1,224,391 Direct 1.3% 1,209,025 15,365 Environmental Services 987,581 0% 0 987,581 Direct 1.6% 828,292 159,288 Wastewater Collections Administration 232,580 10% 23,258 209,322 Direct 68.5% 207,290 2,033 Sewer Collections 5,395,139 10% 539,514 4,855,625 Direct 0.0% 4,832,573 23,052 Utility Cuts Repavement 28,073 0% 0 28,073 Direct 0.0% 28,073 0 Sewer Lateral Cost Sharing Program 134,585 0% 0 134,585 Direct 0.0% 134,585 0 Wastewater Operations Administration 786,796 10% 78,680 708,116 Direct 0.1% 707,707 409 Wastewater Plant Operations 3,280,954 10% 328,095 2,952,859 Direct 8.1% 2,713,080 239,779 Sutter Plant Maintenance 2,520,077 0% 0 2,520,077 Direct 2.2% 2,464,430 55,646 Jennings Plant Maintenance 2,923,478 0% 0 2,923,478 Direct 1.7% 2,873,315 50,163 Sewer Lift Stations 1,065,777 0% 0 1,065,777 Direct 0.0% 1,065,777 0 Tertiary Treatment 6,618,046 0% 0 6,618,046 Direct 0.0% 6,618,046 0 Wastewater Electrical Services 1,300,177 0% 0 1,300,177 Direct 0.0% 1,300,177 0 CCTV 95,472 0% 0 95,472 Direct 5.0% 90,698 4,774 Recycled Water Cost (O&M + repairs) 0 0% 0 0 Direct 0.0% 0 0 Transfer Out General Fund 68,640 70% 48,048 20,592 Indirect 2.1% 20,161 431 Total Operating Expenses 31,404,987 3,630,585 27,774,403 27,193,202 581,201 Debt Service 2005 Series A Bonds 0 0% 0 0 Direct 46.4% 0 0 2005A Bond Refinancing 2,742,864 0% 0 2,742,864 Direct 46.4% 1,469,932 1,272,932 2006 Series A Bonds 674,688 0% 0 674,688 Direct 0.0% 674,688 0 SRF Loan Payments: Phase 2 ‐ Tertiary 8,204,373 0% 0 8,204,373 Direct 0.0% 8,204,373 0 SRF Loan Payments: 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2016 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2017 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2018 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2019 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2020 0 0% 0 0 Direct 0.0% 0 0 Total Debt Service 11,621,925 0 11,621,925 10,348,993 1,272,932 Pay as You Go CIP 19,250,000 0% 0 19,250,000 Direct 14,713,000 4,537,000 Rate Revenue Requirement 46,255,581 3,353,855 42,901,726 40,176,563 2,725,095 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B City of Modesto Wastewater Fund ProForma 27,359,593 Total O&M Considered FY 2017/18 Proposed Budget 572,521 CanSeg Portion 2.1% Proposed Accounts Rate M&I CanSeg DRAFT FY 2017/18 Rev Req Allocation Allocation M&I CanSeg Non‐rate Revenues Use of Reserves/Replenishment 11,646,630 0% 28,890 11,617,740 Direct 42.0% 8,807,740 2,810,000 Interest Revenue on Bank Accounts 361,452 7% 24,932 336,520 Direct 12.1% 295,951 40,569 Interest Trustee/Investment Earnings 165,984 7% 11,449 154,535 Direct 12.1% 135,905 18,630 Lease of Land 494,000 0% 0 494,000 Direct 40.0% 296,400 197,600 Interfund Charges ‐ Service Credit Labor Charges 1,933,845 12% 223,514 1,710,330 Direct 0.0% 1,710,330 0 Wastewater Developmental Fees (4211‐42500) 250,000 0% 0 250,000 Direct 0.0% 250,000 0 General Fund (RePayment of InterFund Loan) 378,000 0% 0 378,000 Direct 3.1% 366,429 11,571 Compost Fund (RePayment of InterFund Loan) 51,919 0% 0 51,919 Direct 0.0% 51,919 0 Recycled Water Sales 0 0% 0 0 Direct 0.0% 0 0 Total Non‐rate Revenues 15,281,830 259,896 3,375,304 3,106,934 268,370 Operating Expenses Wastewater General 648,650 70% 454,055 194,595 Indirect 2.1% 190,523 4,072 Wastewater Utility Billing and Collections 628,764 100% 628,764 0 Direct 0.0% 0 0 Wastewater PCE Litigation (6210) 531,309 0% 0 531,309 Direct 0.0% 531,309 0 Capital Improvement Services 750,302 30% 225,091 525,212 Indirect 2.1% 514,221 10,990 Wastewater System Analysis 237,136 70% 165,995 71,141 Direct 0.0% 71,141 0 Sphere of Influence Area Expansion 82,719 70% 57,903 24,816 Direct 0.0% 24,816 0 Wastewater Rate Analysis 279,039 100% 279,039 0 Direct 0.0% 0 0 Wastewater Inventory & Condition Assessment 455,617 70% 318,932 136,685 Direct 0.0% 136,685 0 Wastewater Services Administration 764,959 70% 535,471 229,488 Indirect 2.1% 224,685 4,802 Laboratory and Environmental Services Admin 459,593 0% 0 459,593 Direct 2.5% 448,590 11,002 Laboratory Services 1,248,878 0% 0 1,248,878 Direct 1.3% 1,233,206 15,673 Environmental Services 1,007,332 0% 0 1,007,332 Direct 19.2% 844,858 162,474 Wastewater Collections Administration 237,232 10% 23,723 213,509 Direct 1.0% 211,435 2,074 Sewer Collections 5,503,042 10% 550,304 4,952,738 Direct 0.5% 4,929,225 23,513 Utility Cuts Repavement 28,634 0% 0 28,634 Direct 0.0% 28,634 0 Sewer Lateral Cost Sharing Program 137,277 0% 0 137,277 Direct 0.0% 137,277 0 Wastewater Operations Administration 802,532 10% 80,253 722,279 Direct 0.1% 721,861 417 Wastewater Plant Operations 3,346,573 10% 334,657 3,011,916 Direct 8.8% 2,767,342 244,574 Sutter Plant Maintenance 2,570,478 0% 0 2,570,478 Direct 2.3% 2,513,719 56,759 Jennings Plant Maintenance 2,981,948 0% 0 2,981,948 Direct 1.7% 2,930,782 51,166 Sewer Lift Stations 1,087,093 0% 0 1,087,093 Direct 0.0% 1,087,093 0 Tertiary Treatment 6,750,407 0% 0 6,750,407 Direct 0.0% 6,750,407 0 Wastewater Electrical Services 1,326,181 0% 0 1,326,181 Direct 0.0% 1,326,181 0 CCTV 97,381 0% 0 97,381 Direct 5.0% 92,512 4,869 Recycled Water Cost (O&M + repairs) 0 0% 0 0 Direct 0.0% 0 0 Transfer Out General Fund 68,640 70% 48,048 20,592 Indirect 2.1% 20,161 431 Total Operating Expenses 32,031,714 3,702,235 28,329,479 27,736,663 592,816 Debt Service 2005 Series A Bonds 0 0% 0 0 Direct 46.4% 0 0 2005A Bond Refinancing 2,729,934 0% 0 2,729,934 Direct 46.4% 1,463,003 1,266,931 2006 Series A Bonds 674,688 0% 0 674,688 Direct 0.0% 674,688 0 SRF Loan Payments: Phase 2 ‐ Tertiary 8,204,373 0% 0 8,204,373 Direct 0.0% 8,204,373 0 SRF Loan Payments: 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2016 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2017 2,347,148 0% 0 2,347,148 Direct 0.0% 2,347,148 0 New Debt ‐ Projects FY2018 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2019 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2020 0 0% 0 0 Direct 0.0% 0 0 Total Debt Service 13,956,143 0 13,956,143 12,689,212 1,266,931 Pay as You Go CIP 19,250,000 0% 0 19,250,000 Direct 15,143,000 4,107,000 Rate Revenue Requirement 49,956,027 3,413,450 46,542,578 43,654,199 2,888,379 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B City of Modesto 28,206,785 Total O&M Considered Wastewater Fund ProForma 583,971 CanSeg Portion FY 2018/19 Proposed Budget 2.1% Proposed Accounts Rate M&I CanSeg DRAFT FY 2018/19 Rev Req Allocation Allocation M&I CanSeg Non‐rate Revenues Use of Reserves/Replenishment 11,088,626 0% 30,912 11,057,713 Direct 0.0% 12,489,713 ‐1,432,000 Interest Revenue on Bank Accounts 361,452 7% 24,698 336,754 Direct 9.1% 306,074 30,680 Interest Trustee/Investment Earnings 165,984 7% 11,342 154,642 Direct 9.1% 140,554 14,089 Lease of Land 494,000 0% 0 494,000 Direct 38.0% 306,280 187,720 Interfund Charges ‐ Service Credit Labor Charges 1,933,845 11% 221,434 1,712,411 Direct 0.0% 1,712,411 0 Wastewater Developmental Fees (4211‐42500) 250,000 0% 0 250,000 Direct 0.0% 250,000 0 General Fund (RePayment of InterFund Loan) 378,000 0% 0 378,000 Direct 3.1% 366,429 11,571 Compost Fund (RePayment of InterFund Loan) 51,919 0% 0 51,919 Direct 0.0% 51,919 0 Recycled Water Sales 2,818,627 0% 0 2,818,627 Direct 0.0% 2,818,627 0 Total Non‐rate Revenues 17,542,453 257,473 17,254,067 5,952,294 244,060 Operating Expenses Wastewater General 661,623 70% 463,136 198,487 Indirect 2.1% 194,378 4,109 Wastewater Utility Billing and Collections 641,339 100% 641,339 0 Direct 0.0% 0 0 Wastewater PCE Litigation (6210) 541,935 0% 0 541,935 Direct 0.0% 541,935 0 Capital Improvement Services 765,308 30% 229,592 535,716 Indirect 2.1% 524,625 11,091 Wastewater System Analysis 241,879 70% 169,315 72,564 Direct 0.0% 72,564 0 Sphere of Influence Area Expansion 84,373 70% 59,061 25,312 Direct 0.0% 25,312 0 Wastewater Rate Analysis 284,620 100% 284,620 0 Direct 0.0% 0 0 Wastewater Inventory & Condition Assessment 464,729 70% 325,310 139,419 Direct 0.0% 139,419 0 Wastewater Services Administration 780,258 70% 546,181 234,077 Indirect 2.1% 229,231 4,846 Laboratory and Environmental Services Admin 468,784 0% 0 468,784 Direct 2.5% 457,562 11,222 Laboratory Services 1,273,856 0% 0 1,273,856 Direct 1.3% 1,257,870 15,986 Environmental Services 1,027,479 0% 0 1,027,479 Direct 19.2% 861,755 165,724 Wastewater Collections Administration 241,977 10% 24,198 217,779 Direct 1.0% 215,664 2,115 Sewer Collections 5,613,103 10% 561,310 5,051,792 Direct 0.5% 5,027,809 23,983 Utility Cuts Repavement 29,207 0% 0 29,207 Direct 0.0% 29,207 0 Sewer Lateral Cost Sharing Program 140,022 0% 0 140,022 Direct 0.0% 140,022 0 Wastewater Operations Administration 818,583 10% 81,858 736,724 Direct 0.1% 736,299 426 Wastewater Plant Operations 3,413,504 10% 341,350 3,072,154 Direct 8.8% 2,822,688 249,466 Sutter Plant Maintenance 2,621,888 0% 0 2,621,888 Direct 2.3% 2,563,993 57,894 Jennings Plant Maintenance 3,041,587 0% 0 3,041,587 Direct 1.7% 2,989,397 52,189 Sewer Lift Stations 1,108,835 0% 0 1,108,835 Direct 0.0% 1,108,835 0 Tertiary Treatment 6,885,415 0% 0 6,885,415 Direct 0.0% 6,885,415 0 Wastewater Electrical Services 1,352,704 0% 0 1,352,704 Direct 0.0% 1,352,704 0 CCTV 99,329 0% 0 99,329 Direct 5.0% 94,363 4,966 Recycled Water Cost (O&M + repairs) 300,000 0% 0 300,000 Direct 0.0% 300,000 0 Transfer Out General Fund 68,640 70% 48,048 20,592 Indirect 2.1% 20,166 426 Total Operating Expenses 32,970,976 3,775,319 29,195,657 28,591,213 604,444 Debt Service 2005 Series A Bonds 0 0% 0 0 Direct 46.4% 0 0 2005A Bond Refinancing 2,735,796 0% 0 2,735,796 Direct 46.4% 1,466,145 1,269,652 2006 Series A Bonds 674,688 0% 0 674,688 Direct 0.0% 674,688 0 SRF Loan Payments: Phase 2 ‐ Tertiary 8,204,373 0% 0 8,204,373 Direct 0.0% 8,204,373 0 SRF Loan Payments: 2,518,627 0% 0 2,518,627 Direct 0.0% 2,518,627 0 New Debt ‐ Projects FY2016 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2017 2,347,148 0% 0 2,347,148 Direct 0.0% 2,347,148 0 New Debt ‐ Projects FY2018 2,793,354 0% 0 2,793,354 Direct 0.0% 2,793,354 0 New Debt ‐ Projects FY2019 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2020 0 0% 0 0 Direct 0.0% 0 0 Total Debt Service 19,273,986 0 19,273,986 18,004,334 1,269,652 Pay as You Go CIP 19,250,000 0% 0 19,250,000 Direct 19,250,000 0 Rate Revenue Requirement 53,952,510 3,486,934 50,465,576 47,403,540 3,062,036 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B City of Modesto 28,770,920 Total O&M Considered Wastewater Fund ProForma 595,651 CanSeg Portion FY 2019/20 Proposed Budget 2.1% Proposed Accounts Rate M&I CanSeg DRAFT FY 2019/20 Rev Req Allocation Allocation M&I CanSeg Non‐rate Revenues Use of Reserves/Replenishment 7,751,379 0% 33,076 7,718,303 Direct 0.0% 7,105,303 613,000 Interest Revenue on Bank Accounts 361,452 6% 23,361 338,091 Direct 15.8% 284,765 53,327 Interest Trustee/Investment Earnings 165,984 6% 10,727 155,257 Direct 15.8% 130,768 24,488 Lease of Land 494,000 0% 0 494,000 Direct 37.0% 311,220 182,780 Interfund Charges ‐ Service Credit Labor Charges 1,933,845 11% 221,387 1,712,457 Direct 0.0% 1,712,457 0 Wastewater Developmental Fees (4211‐42500) 250,000 0% 0 250,000 Direct 0.0% 250,000 0 General Fund (RePayment of InterFund Loan) 378,000 0% 0 378,000 Direct 3.1% 366,429 11,571 Compost Fund (RePayment of InterFund Loan) 51,919 0% 0 51,919 Direct 0.0% 51,919 0 Recycled Water Sales 4,083,941 0% 0 4,083,941 Direct 0.0% 4,083,941 0 Total Non‐rate Revenues 15,470,520 255,475 15,181,969 7,191,499 272,166 Operating Expenses Wastewater General 674,855 70% 472,399 202,457 Indirect 2.1% 198,265 4,192 Wastewater Utility Billing and Collections 654,166 100% 654,166 0 Direct 0.0% 0 0 Wastewater PCE Litigation (6210) 552,774 0% 0 552,774 Direct 0.0% 552,774 0 Capital Improvement Services 780,614 30% 234,184 546,430 Indirect 2.1% 535,117 11,313 Wastewater System Analysis 246,716 70% 172,701 74,015 Direct 0.0% 74,015 0 Sphere of Influence Area Expansion 86,061 70% 60,243 25,818 Direct 0.0% 25,818 0 Wastewater Rate Analysis 290,312 100% 290,312 0 Direct 0.0% 0 0 Wastewater Inventory & Condition Assessment 474,024 70% 331,817 142,207 Direct 0.0% 142,207 0 Wastewater Services Administration 795,863 70% 557,104 238,759 Indirect 2.1% 233,816 4,943 Laboratory and Environmental Services Admin 478,160 0% 0 478,160 Direct 2.5% 466,713 11,447 Laboratory Services 1,299,333 0% 0 1,299,333 Direct 1.3% 1,283,027 16,306 Environmental Services 1,048,028 0% 0 1,048,028 Direct 19.2% 878,990 169,038 Wastewater Collections Administration 246,816 10% 24,682 222,135 Direct 1.0% 219,977 2,157 Sewer Collections 5,725,365 10% 572,536 5,152,828 Direct 0.5% 5,128,365 24,463 Utility Cuts Repavement 29,791 0% 0 29,791 Direct 0.0% 29,791 0 Sewer Lateral Cost Sharing Program 142,823 0% 0 142,823 Direct 0.0% 142,823 0 Wastewater Operations Administration 834,954 10% 83,495 751,459 Direct 0.1% 751,025 434 Wastewater Plant Operations 3,481,775 10% 348,177 3,133,597 Direct 8.8% 2,879,142 254,455 Sutter Plant Maintenance 2,674,325 0% 0 2,674,325 Direct 2.3% 2,615,273 59,052 Jennings Plant Maintenance 3,102,418 0% 0 3,102,418 Direct 1.7% 3,049,185 53,233 Sewer Lift Stations 1,131,011 0% 0 1,131,011 Direct 0.0% 1,131,011 0 Tertiary Treatment 7,023,123 0% 0 7,023,123 Direct 0.0% 7,023,123 0 Wastewater Electrical Services 1,379,758 0% 0 1,379,758 Direct 0.0% 1,379,758 0 CCTV 101,316 0% 0 101,316 Direct 5.0% 96,250 5,066 Recycled Water Cost (O&M + repairs) 306,000 0% 0 306,000 Direct 0.0% 306,000 0 Transfer Out General Fund 68,640 70% 48,048 20,592 Indirect 2.1% 20,166 426 Total Operating Expenses 33,629,023 3,849,865 29,779,158 29,162,634 616,524 Debt Service 2005 Series A Bonds 0 0% 0 0 Direct 46.4% 0 0 2005A Bond Refinancing 2,737,765 0% 0 2,737,765 Direct 46.4% 1,467,200 1,270,566 2006 Series A Bonds 674,688 0% 0 674,688 Direct 0.0% 674,688 0 SRF Loan Payments: Phase 2 ‐ Tertiary 8,204,373 0% 0 8,204,373 Direct 0.0% 8,204,373 0 SRF Loan Payments: 2,518,627 0% 0 2,518,627 Direct 0.0% 2,518,627 0 New Debt ‐ Projects FY2016 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2017 2,347,148 0% 0 2,347,148 Direct 0.0% 2,347,148 0 New Debt ‐ Projects FY2018 2,793,354 0% 0 2,793,354 Direct 0.0% 2,793,354 0 New Debt ‐ Projects FY2019 1,584,253 0% 0 1,584,253 Direct 0.0% 1,584,253 0 New Debt ‐ Projects FY2020 0 0% 0 0 Direct 0 0 Total Debt Service 20,860,208 0 20,860,208 19,589,642 1,270,566 Pay as You Go CIP 19,250,000 0% 0 19,250,000 Direct 17,007,000 2,243,000 Rate Revenue Requirement 58,268,710 3,561,313 54,707,397 51,462,473 3,244,924 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B City of Modesto Wastewater Fund ProForma 30,264,012 Total O&M Considered FY 2020/21 Proposed Budget 607,462 CanSeg Portion 2.0% Proposed Accounts Rate M&I CanSeg DRAFT FY 2020/21 Rev Req Allocation Allocation Sanitary CanSeg Non‐rate Revenues Use of Reserves/Replenishment 5,405,128 1% 35,391 5,369,737 Direct 0.0% 3,300,737 2,069,000 Interest Revenue on Bank Accounts 361,452 6% 22,092 339,360 Direct 17.9% 278,677 60,684 Interest Trustee/Investment Earnings 165,984 6% 10,145 155,839 Direct 17.9% 127,972 27,867 Lease of Land 494,000 0% 0 494,000 Direct 37.0% 311,220 182,780 Interfund Charges ‐ Service Credit Labor Charges 1,933,845 11% 215,575 1,718,270 Direct 0.0% 1,718,270 0 Wastewater Developmental Fees (4211‐42500) 250,000 0% 0 250,000 Direct 0.0% 250,000 0 General Fund (RePayment of InterFund Loan) 378,000 0% 0 378,000 Direct 3.1% 366,429 11,571 Compost Fund (RePayment of InterFund Loan) 51,919 0% 0 51,919 Direct 0.0% 51,919 0 Recycled Water Sales 4,090,061 0% 0 4,090,061 Direct 0.0% 4,090,061 0 Total Non‐rate Revenues 13,130,389 247,811 12,847,187 7,194,548 282,901 Operating Expenses Wastewater General 688,352 70% 481,847 206,506 Indirect 2.0% 202,361 4,145 Wastewater Utility Billing and Collections 667,249 100% 667,249 0 Direct 0.0% 0 0 Wastewater PCE Litigation (6210) 563,830 0% 0 563,830 Direct 0.0% 563,830 0 Capital Improvement Services 796,227 30% 238,868 557,359 Indirect 2.0% 546,171 11,187 Wastewater System Analysis 251,650 70% 176,155 75,495 Direct 0.0% 75,495 0 Sphere of Influence Area Expansion 87,782 70% 61,448 26,335 Direct 0.0% 26,335 0 Wastewater Rate Analysis 296,118 100% 296,118 0 Direct 0.0% 0 0 Wastewater Inventory & Condition Assessment 483,504 70% 338,453 145,051 Direct 0.0% 145,051 0 Wastewater Services Administration 811,780 70% 568,246 243,534 Indirect 2.0% 238,646 4,888 Laboratory and Environmental Services Admin 487,723 0% 0 487,723 Direct 2.5% 476,048 11,676 Laboratory Services 1,325,320 0% 0 1,325,320 Direct 1.3% 1,308,688 16,632 Environmental Services 1,068,989 0% 0 1,068,989 Direct 19.2% 896,570 172,419 Wastewater Collections Administration 251,753 10% 25,175 226,577 Direct 1.0% 224,377 2,200 Sewer Collections 5,839,872 10% 583,987 5,255,885 Direct 0.5% 5,230,933 24,952 Utility Cuts Repavement 30,387 0% 0 30,387 Direct 0.0% 30,387 0 Sewer Lateral Cost Sharing Program 145,679 0% 0 145,679 Direct 0.0% 145,679 0 Wastewater Operations Administration 851,653 10% 85,165 766,488 Direct 0.1% 766,045 443 Wastewater Plant Operations 3,551,410 10% 355,141 3,196,269 Direct 8.8% 2,936,725 259,544 Sutter Plant Maintenance 2,727,812 0% 0 2,727,812 Direct 2.3% 2,667,579 60,233 Jennings Plant Maintenance 4,084,166 0% 0 4,084,166 Direct 1.3% 4,029,868 54,298 Sewer Lift Stations 1,153,632 0% 0 1,153,632 Direct 0.0% 1,153,632 0 Tertiary Treatment 7,163,586 0% 0 7,163,586 Direct 0.0% 7,163,586 0 Wastewater Electrical Services 1,407,353 0% 0 1,407,353 Direct 0.0% 1,407,353 0 CCTV 101,316 0% 0 101,316 Direct 5.0% 96,250 5,066 Recycled Water Cost (O&M + repairs) 312,120 0% 0 312,120 Direct 0.0% 312,120 0 Transfer Out General Fund 68,640 70% 48,048 20,592 Indirect 2.0% 20,179 413 Total Operating Expenses 35,217,903 3,925,901 31,292,002 30,663,906 628,096 Debt Service 2005 Series A Bonds 0 0% 0 0 Direct 46.4% 0 0 2005A Bond Refinancing 2,732,384 0% 0 2,732,384 Direct 46.4% 1,464,316 1,268,068 2006 Series A Bonds 674,688 0% 0 674,688 Direct 0.0% 674,688 0 SRF Loan Payments: Phase 2 ‐ Tertiary 8,204,373 0% 0 8,204,373 Direct 0.0% 8,204,373 0 SRF Loan Payments: 2,518,627 0% 0 2,518,627 Direct 0.0% 2,518,627 0 New Debt ‐ Projects FY2016 0 0% 0 0 Direct 0.0% 0 0 New Debt ‐ Projects FY2017 2,347,148 0% 0 2,347,148 Direct 0.0% 2,347,148 0 New Debt ‐ Projects FY2018 2,793,354 0% 0 2,793,354 Direct 0.0% 2,793,354 0 New Debt ‐ Projects FY2019 1,584,253 0% 0 1,584,253 Direct 0.0% 1,584,253 0 New Debt ‐ Projects FY2020 1,152,492 0% 0 1,152,492 Direct 48.2% 777,819 374,673 Total Debt Service 22,007,319 0 22,007,319 20,364,578 1,642,741 Pay as You Go CIP 19,250,000 0% 0 19,250,000 Direct 15,728,000 3,522,000 Base Rate Revenue Requirement 63,344,833 3,642,699 59,702,134 56,261,199 3,440,936 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B Functionalized M&I CanSeg DRAFT Cost Category Flow BOD TSS Flow BOD TSS Non‐rate Revenues Use of Reserves/Replenishment less delinquency General Composite 62% 16% 22% 100% Interest Revenue on Bank Accounts General Composite 62% 16% 22% 100% 52% 56% Interest Trustee/Investment Earnings General Composite 62% 16% 22% 100% 52% 56% Lease of Land Ranch ‐ Flow Only 100% 0% 0% 100% 100% 0% 0% Interfund Charges ‐ Service Credit Labor Charges Admin & General 62% 16% 22% 100% Wastewater Developmental Fees (4211‐42500) CIP ‐ 6 year average 82% 9% 10% 100% General Fund (RePayment of InterFund Loan) Rates Paid 1997‐1999 60% 18% 22% 100% 28% 38% 34% Compost Fund (RePayment of InterFund Loan) Tertiary 25% 25% 50% 100% Recycled Water Sales Tertiary 25% 25% 50% 100% Operating Expenses Wastewater General General Composite 62% 16% 22% 100% 52% 56% Wastewater Utility Billing and Collections Customer Service 0% 0% 0% 0% Wastewater PCE Litigation (6210) Collection System & Pumping 100% 0% 0% 100% Capital Improvement Services General Composite 62% 16% 22% 100% 100% 0% 0% Wastewater System Analysis General Composite 62% 16% 22% 100% Sphere of Influence Area Expansion General Composite 62% 16% 22% 100% Wastewater Rate Analysis Customer Service 0% 0% 0% 0% Wastewater Inventory & Condition Assessment General Composite 62% 16% 22% 100% Wastewater Services Administration General Composite 62% 16% 22% 100% 52% 56% Laboratory and Environmental Services Admin Lab, Enviro, Monitoring 40% 30% 30% 100% 40% 30% 30% Laboratory Services Lab, Enviro, Monitoring 40% 30% 30% 100% 40% 30% 30% Environmental Services Lab, Enviro, Monitoring 40% 30% 30% 100% 40% 30% 30% Wastewater Collections Administration Collection System & Pumping 100% 0% 0% 100% 100% 0% 0% Sewer Collections Collection System & Pumping 100% 0% 0% 100% 100% 0% 0% Utility Cuts Repavement Collection System & Pumping 100% 0% 0% 100% Sewer Lateral Cost Sharing Program Collection System & Pumping 100% 0% 0% 100% Wastewater Operations Administration General Composite 62% 16% 22% 100% 100% 0% 0% Wastewater Plant Operations General Composite 62% 16% 22% 100% 100% 0% 0% Sutter Plant Maintenance Primary 70% 10% 20% 100% 70% 10% 20% Jennings Plant Maintenance Secondary 40% 30% 30% 100% 40% 30% 30% Sewer Lift Stations Collection System & Pumping 100% 0% 0% 100% Tertiary Treatment Tertiary & Recycled Water 25% 25% 50% 100% Wastewater Electrical Services Electrical 80% 10% 10% 100% CCTV Collection System & Pumping 100% 0% 0% 100% 100% 0% 0% Recycled Water Cost (O&M + repairs) Tertiary & Recycled Water 25% 25% 50% 100% Transfer Out General Fund General Composite 62% 16% 22% 100% 22% 37% 40% Debt Service 2005 Series A Bonds Based on Projects 77% 9% 14% 100% 100% 0% 0% 2005A Bond Refinancing Based on Projects 77% 9% 14% 100% 100% 0% 0% 2006 Series A Bonds Based on Projects 40% 30% 30% 100% SRF Loan Payments: Phase 2 ‐ Tertiary Tertiary & Recycled Water 25% 25% 50% 100% SRF Loan Payments: Tertiary & Recycled Water 25% 25% 50% 100% New Debt ‐ Projects FY2016 Based on Projects 82% 9% 10% 100% 100% 0% 0% New Debt ‐ Projects FY2017 Based on Projects 82% 9% 10% 100% 100% 0% 0% New Debt ‐ Projects FY2018 Based on Projects 82% 9% 10% 100% 100% 0% 0% New Debt ‐ Projects FY2019 Based on Projects 82% 9% 10% 100% 100% 0% 0% New Debt ‐ Projects FY2020 Based on Projects 82% 9% 10% 100% 100% 0% 0% Pay as You Go CIP Based on Projects 82% 9% 10% 100% 0% 0% 5‐year Composite 63.0% 14.6% 22.4% 97.9% 1.0% 1.1% ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix B Septage Collection System Credit Allocation City of Modesto Wastewater Fund ProForma 298,348,547 Total Considered 79,194,657 Collection Portion 27% % DRAFT – 5‐year Total M&I Collection System Cost Allocation Non‐rate Revenues Use of Reserves/Replenishment 41,015,690 10,887,345 Composite Interest Revenue on Bank Accounts 1,437,584 381,597 Composite Interest Trustee/Investment Earnings 660,159 175,235 Composite Lease of Land 1,546,220 0 Direct Interfund Charges ‐ Service Credit Labor Charges 8,482,309 0 Direct Wastewater Developmental Fees (4211‐42500) 1,250,000 331,804 Composite General Fund (RePayment of InterFund Loan) 1,583,148 420,236 Composite Compost Fund (RePayment of InterFund Loan) 259,595 0 Direct Recycled Water Sales 10,992,629 2,917,921 Composite Total Non‐rate Revenues 67,227,334 15,114,139 Operating Expenses Wastewater General 972,313 258,094 Composite Wastewater PCE Litigation (6210) 2,710,740 2,710,740 Direct Capital Improvement Services 2,624,273 696,596 Composite Wastewater System Analysis 362,960 96,345 Composite Sphere of Influence Area Expansion 126,610 33,608 Composite Wastewater Inventory & Condition Assessment 697,367 185,112 Composite Wastewater Services Administration 1,146,658 304,373 Composite Laboratory and Environmental Services Admin 2,288,708 0 Direct Laboratory Services 6,291,816 0 Direct Environmental Services 4,310,466 0 Direct Wastewater Collections Administration 1,078,743 1,078,743 Direct Sewer Collections 25,148,904 25,148,904 Direct Utility Cuts Repavement 146,091 146,091 Direct Sewer Lateral Cost Sharing Program 700,385 700,385 Direct Wastewater Operations Administration 3,682,937 0 Direct Wastewater Plant Operations 14,118,977 0 Direct Sutter Plant Maintenance 12,824,995 0 Direct Jennings Plant Maintenance 15,872,548 0 Direct Sewer Lift Stations 5,546,348 0 Direct Tertiary Treatment 34,440,577 0 Direct Wastewater Electrical Services 6,766,174 0 Direct CCTV 470,073 470,073 Direct Recycled Water Cost (O&M + repairs) 918,120 0 Direct Transfer Out General Fund 100,832 26,765 Composite Total Operating Expenses 143,347,617 31,855,829 Debt Service 2005 Series A Bonds 0 0 Direct 2005A Bond Refinancing 7,330,595 0 Direct 2006 Series A Bonds 3,373,438 0 Direct SRF Loan Payments: Phase 2 ‐ Tertiary 41,021,866 0 Direct SRF Loan Payments: 7,555,882 0 Direct New Debt ‐ Projects FY2016 0 0 Direct New Debt ‐ Projects FY2017 9,388,592 4,436,973 Based on projects New Debt ‐ Projects FY2018 8,380,061 3,960,349 Based on projects New Debt ‐ Projects FY2019 3,168,506 1,497,410 Based on projects New Debt ‐ Projects FY2020 777,819 367,591 Based on projects Total Debt Service 80,996,759 10,262,324 Pay as You Go CIP 81,841,000 38,677,397 Based capital composite Base Rate Revenue Requirement 238,958,041 65,681,411 27.49% ‐ collection system credit Total M&I Capital Improvements 5‐year M&I Collection 105,203,740 47% Capital composite M&I Treatment 117,406,360 53% 222,610100 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix C Appendix C: Billing Units Actuals Projected FY2014/15 FY2015/16 FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Residential and Commercial Growth 1.30% 1.30% 1.30% 1.30% 1.30% 1.30% Industrial Growth 2.60% 2.60% 2.60% 2.60% 2.60% 2.60% SF Residential 54,558 55,267 55,986 56,714 57,451 58,198 58,954 Multiple Residential 4,188 4,242 4,298 4,353 4,410 4,467 4,525 Commercial 2,711 2,746 2,782 2,818 2,855 2,892 2,929 Industrial 32 33 34 35 35 36 37 CanSeg 5 5 5 5 5 5 5 Empire SD 888 900 911 923 935 947 960 Total Accounts 62,382 63,193 64,015 64,848 65,691 66,546 67,411 Rate ($/month) $4.22 $4.34 $4.40 $4.42 $4.46 $4.50 $4.54 Revenue $3,159,000 $3,291,000 $3,354,000 $3,413,000 $3,487,000 $3,561,000 $3,643,000 Residential Dwelling Units Single Family 55,958 56,685 57,422 58,169 58,925 59,691 60,467 Multiple Family 7,241 7,335 7,430 7,527 7,625 7,724 7,824 Apartments 14,413 14,600 14,790 14,982 15,177 15,375 15,574 Rate ($/dwelling unit per month) Single Family $26.78 $27.58 $29.36 $31.36 $33.39 $35.67 $37.91 Multiple Family $22.98 $23.67 $22.59 $24.03 $25.57 $27.50 $30.85 Apartments $17.44 $17.96 $20.33 $21.50 $22.73 $24.36 $26.45 Residential Revenue $25,970,691 $27,090,026 $29,039,195 $31,169,287 $33,397,607 $35,977,447 $38,802,500 Commercial Flow (hcf) Conservation Factor Group 1 1,256,179 1,209,700 1,225,426 1,241,357 1,257,494 1,273,842 1,290,402 Group 2 129,398 124,610 126,230 127,871 129,534 131,217 132,923 Group 3 119,284 114,870 116,364 117,877 119,409 120,961 122,534 Group 4 275,862 265,656 269,109 272,608 276,151 279,741 283,378 Commercial Rates ($/hcf) Group 1 $2.27 $2.35 $2.76 $3.01 $3.29 $3.55 $3.88 Group 2 $2.79 $2.89 $3.78 $4.07 $4.40 $4.70 $5.07 Group 3 $3.33 $3.45 $4.80 $5.13 $5.50 $5.85 $6.27 Group 4 $3.95 $4.11 $6.03 $6.40 $6.83 $7.23 $7.71 Commercial Revenue $5,215,105 $4,834,091 $6,192,618 $6,754,824 $7,399,920 $8,027,782 $8,786,556 ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix C Actuals Projected FY2014/15 FY2015/16 FY2016/17 FY2017/18 FY2018/19 FY2019/20 FY2020/21 Industrial (Major and Minor) Conservation Factor Flow (MG) 1,403 1,369 1,405 1,441 1,479 1,517 1,557 BOD (klbs) 11,483 11,208 11,499 11,798 12,105 12,420 12,743 TSS (kbs) 3,423 3,341 3,427 3,517 3,608 3,702 3,798 Industrial Rates Flow $2,472 $2,534 $2,604 $2,888 $3,212 $3,516 $3,901 BOD ($/klbs) $122 $129 $213 $226 $238 $246 $263 TSS ($/kbs) $214 $224 $441 $454 $471 $491 $504 Industrial Revenue $5,603,000 $5,665,535 $7,617,163 $8,426,363 $9,335,711 $10,215,983 $11,340,544 CanSeg Line Flow (MG) 957 996 996 996 996 996 996 BOD (klbs) 16,583 19,358 19,358 19,358 19,358 19,358 19,358 TSS (kbs) 6,872 7,225 7,225 7,225 7,225 7,225 7,225 Canning Rates Flow $2,472 $2,534 $2,680 $2,841 $3,012 $3,191 $3,384 BOD ($/klbs) $122 $129 $1.39 $1.48 $1.57 $1.66 $1.76 TSS ($/kbs) $214 $224 $4.04 $4.29 $4.54 $4.81 $5.11 Canning Revenue $5,858,000 $6,639,294 $2,725,359 $2,888,644 $3,062,303 $3,245,194 $3,441,208 Empire Sanitary District Residential Dwelling Units Single Family 854 865 876 888 899 911 923 Multiple Family 134 136 138 139 141 143 145 Apartments 473 479 485 492 498 505 511 Empire Revenue $455,351 $474,985 $512,593 $550,120 $589,487 $635,746 $687,851 Septic Units (1,000 gallons) 8,348 8,456 8,566 8,677 8,790 8,905 9,020 Rate $64.00 $67.00 $61.39 $63.76 $66.63 $69.51 $72.18 Discount $0.72 $0.79 $0.88 $0.97 $1.07 Revenue $534,251 $566,565 $519,755 $546,424 $577,950 $610,368 $641,392 Septic Discount 6,132 6,889 7,760 8,607 9,673 1 – Includes accounts revenue; does not include delinquency factor ---PAGE BREAK--- City of Modesto – Sewer Rate and Fee Study 2016 Appendix C Projected FY2020/21 Cannery Secondary Scalping Flow (MG) 964 BOD (klbs) 15,794 TSS (kbs) 4,555 Canning Secondary Rates Flow $891.84 BOD ($/klbs) $98.25 TSS ($/kbs) $305.65 Canning Secondary Scalping Operating Revenue $3,803,791 Canning Secondary Scalping Annual Capacity Fee Flow (mgd) 5 BOD (klbs/day) 109,400 TSS (kbs/day) 38,900 Flow ($/mgd) $117,837.54 BOD ($klbs/day) $11.43 TSS ($kbs/day) $27.29 Canning Secondary Scalping Capacity Fee Revenue $2,900,760