City of Brentwood
Home PageContact Us!Back

City Administration

2010 Council Goals and Strategic Plan | City Council Members | Calendar of Events | Elections
eNotification | Sub-Committees| Pledge of Allegiance Sign Ups | Invocation Sign Up
Live Streaming Council Meeting | Streaming PC Help |
Streaming Mac Help |

Current Council Agenda and Past Meeting Information

 

CITY COUNCIL AGENDA ITEM NO. 14

Meeting Date: September 25, 2007

Subject/Title: Introduce and waive the first reading of two ordinances accepting and approving rate studies and adopting revised monthly user charges for water and wastewater rate structure for Fiscal Years 2007/08 to 2012/13 and subsequent fiscal years effective November 9, 2007.

Prepared by: Paul Eldredge, Assistant Director of Public Works/Assistant City Engineer

Submitted by: Bailey Grewal, Director of Public Works/City Engineer
Pam Ehler, Director of Finance and Information Systems

RECOMMENDATION
Staff recommends that the City Council:

1. Introduce and waive the first reading of an ordinance accepting and approving a water rate study and adopting revised monthly user charges for the water rate structure for Fiscal Years 2007/08 to 2012/13.
2. Introduce and waive the first reading of an ordinance accepting and approving a wastewater rate study and adopting revised monthly user charges for the wastewater rate structure for Fiscal Years 2007/08 to 2012/13.

PREVIOUS ACTION
The current rate structure for water and wastewater was adopted by the City Council on November 26, 2002, by Ordinance Nos. 729 and 730.

On September 12, 2006, by Resolution No. 2006-221, City Council approved and authorized the City Manager to execute a Professional Services Agreement with Bartle Wells Associates for a Water and Wastewater Rate and User Fee Study in an amount not to exceed $50,330, plus a 10% contingency, for a total amount of $55,363.

BACKGROUND
State law requires the City of Brentwood to set rates sufficient to cover operating expenses for the water and wastewater enterprises involving debt service and to provide funds for the replacement of facilities. It does this by examining operational costs, material and supply costs, debt services, normal additions and replacements of the existing system, administrative costs and capital improvement programs and then distributes these costs appropriately among the purchasers of water and wastewater customers. It is prudent and customary for agencies providing this service to review their rates every two to five years to ensure sufficient revenues are collected to operate these enterprises, ensure debt service ratios are being adequately met and that the level of service provided mirrors the rates being charged.

Staff sent out a Request For Proposal (“RFP”) in June of 2006 for professional services for the preparation of a comprehensive water and wastewater rate and user fee study (the “Study”) to seven firms. After a thorough evaluation of the firms’ qualifications, experience, methodology and ability to meet budgetary guidelines, Bartle Wells Associates (“BWA”) was chosen to perform the studies.

Once a draft of the study was prepared, staff presented the draft study to the Sewer and Water Adhoc Subcommittee for their review and comment. Staff was directed to continue with the rates studies, send out the public notices per Proposition No. 218 and proceed with taking the final Study to City Council for full consideration.

In 2006, the State Supreme Court held that water and wastewater rates were now subject to Proposition No. 218 requiring a notice of proposed increase in utility rates to be mailed 45 calendar days prior to the City Council conducting a public hearing on the proposed increases. Property owners or utility customers may submit a written, signed protest against either or both of the proposed rate increases prior to the close of the public comment portion of the public hearing. The City Council adopted its Resolution No. 2007-185, governing the return and tabulation of protests. If the City receives protests with respect to a majority of the parcels affected by a rate change, then the City Council can not impose the rate increase. A majority is defined as 50% of the notices sent out, plus one (10,063).

The City mailed out 20,125 notices to all parcels and customers that receive water, wastewater or non-potable water services from the City. The notice invited written protests and comments, phone calls and letters from citizens were received requesting more information regarding the proposed rate increases or protesting the rate increases. As of September 19, 2007, a total of 171 protests were received; 151 parcels/customers have protested both proposed water and wastewater rates, 20 parcels/customers have protested water rates only.

WATER
The water enterprise fund is responsible for the operation and maintenance (“O&M”) of the water treatment and distribution system. It is also responsible for the water system’s Capital Improvement Program (“CIP”) costs that are attributable to the needs of existing customers.

The City’s existing water rate structure consists of a fixed monthly base rate plus a variable tiered consumption charge based upon metered water consumption. The current tier structure with variable consumption charges for residential and non-residential customers is effective in both generating sufficient revenue and encouraging water conservation. The benefit of a tiered rate structure is that the increased consumption charge in the higher tiers results in increased revenue being collected from the heaviest water users whose usage places the greatest demand on the water system, thus requiring costly infrastructure and additional O&M expenses to accommodate these demands. The tier structure provides the most equitable means of distributing the costs for meeting these maximum demands. Additionally, it encourages water conservation by increasing the variable charge for higher water usage.

The current rate structure has four residential tiers and two non-residential tiers. Non-residential customers account for only 6% of the total customer base and their water usage is generally fairly consistent throughout the year compared to residential customers. Thus only two tiers were necessary for the non-residential accounts to both promote conservation and ensure that this customer base was paying their equitable share of the facilities required to meet the maximum day demand.

Staff concurs with the recommendation in the rate study prepared by BWA that the existing tier structure should only be modified for annual rate increases to account for inflation. Uniformly increasing both the base rate and the consumption charge annually at 3% will enable the City’s operating and capital revenues to keep pace with inflation as well as satisfy the debt service coverage.

The City supplies non-potable water for irrigation of parks, parkways, medians, and private industrial and commercial users. The non-potable water is either recycled water from the City’s Wastewater Treatment Plant or raw water purchased from East Contra Costa Irrigation District. Non-potable water costs include, but are not limited to, raw water purchases, pumping, distribution, operations and maintenance, and power. The treatment costs for recycled water and the purchase cost for raw water are, on average, a fixed cost. Thus a variable, or tiered, rate based upon usage is not applicable. Furthermore, it is in the best interest of the water enterprise and its customers to conserve potable water and encourage non-potable use by keeping non-potable water rates at a minimum.

Proposed Water Rates:

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
Monthly Base Rate
5/8" or 3/4 Meter $15.98 $16.46 $16.95 $17.46 $17.99 $18.53 $19.08
1" Meter 24.07 24.69 25.43 26.19 26.98 27.79 28.62
1.5" Meter 47.84 49.38 50.86 52.39 53.96 55.58 57.24
2" Meter 79.79 82.30 84.77 87.31 89.93 92.63 95.40
3" Meter 132.08 148.13 152.58 157.16 161.87 166.73 171.73
4" Meter 212.80 213.97 220.39 227.00 233.81 240.83 248.05
6" Meter 425.70 444.40 457.74 471.47 485.61 500.18 515.19
Consumption Charge (per 1,000 gallons = 1 unit)
Residential
Tier 1: Units 1-10 $2.50 $2.58 $2.65 $2.73 $2.81 $2.90 $2.99
Tier 2: Units 11-20 2.98 3.07 3.16 3.26 3.35 3.45 3.56
Tier 3: Units 21-30 3.57 3.68 3.79 3.90 4.02 4.14 4.26
Tier 4: Units 31+ 4.16 4.28 4.41 4.55 4.68 4.82 4.97
Non-Residential
Tier 1: Units 1-10 $2.50 $2.58 $2.65 $2.73 $2.81 $2.90 $2.99
Tier 2: Units 11+ 2.98 3.07 3.16 3.26 3.35 3.45 3.56
Non-Potable
Tier 1: Units 1+ $0.949 $0.977 $1.01 $1.04 $1.07 $1.10

WASTEWATER
The City secured a loan from the State Water Resources Control Board (“SWRCB”) for the construction of the new Wastewater Treatment Facility. The contract between the SWRCB and the City of Brentwood requires the City to maintain an adequate income to assure repayment of the loan, and generate enough income to pay for the operation of the facility, and maintain adequate income to provide for future expansion and improvement.

The City’s Wastewater Enterprise Fund is primarily funded by user charges and is responsible for the operation and maintenance of the wastewater collection and treatment system. It is also responsible for the wastewater system’s Capital Improvement Program (“CIP”) costs that are attributable to existing customers.

The City’s existing rate structure employs a monthly fixed base charge plus a variable rate charged per 1,000 gallons/month for average winter water usage (typically January and February). The average residential wastewater usage for 2006 was 231 gallons per day (“GPD”).

BWA recommends the City continue using its existing rate structure. It is fair and reasonable to customers since it does account for varying wastewater strengths and flows. For their first year of service, new residential customers are charged based upon the City’s average wastewater usage of 231 GPD since they have no prior winter water usage to base their wastewater usage upon. The new service rate for new customers in 2007/08 equals $32.78/month.

The proposed new monthly wastewater enterprise rates escalate the fixed base charge, the variable rate, and the wastewater lateral maintenance fee by 4.5% operational increase and a 3% Consumer Price Index (“CPI”) for a total annual increase of 7.5%. The additional 4.5% operational increase is needed to meet increasingly stringent government quality standards and testing costs as well as higher construction and utility costs. Using the proposed rate increase of 7.5%, projected revenues are sufficient to cover O&M expenses throughout the six year period. For fiscal years 2007/08 and 2008/09; however, revenues do not exceed total expenses which include O&M costs plus debt payments, transfers to the Capital Facilities Replacement Fund, and the Enterprise Fund’s CIP costs. Net income is positive in 2009/10 and for the remainder of the time period reviewed.

Proposed Wastewater Rates:

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
Customer Category
Residential
Monthly Fixed Base Charge $8.93 $9.60 $10.32 $11.09 $11.93 $12.82 $13.78
Variable Rate per 1,000 gallons/month 3.11 3.34 3.59 3.86 4.15 4.46 4.80
Total Ceiling Rate (fixed base+ variable) 31.78 34.16 36.73 39.48 42.44 45.62 49.05
New Service Rate (first year only)* 32.78 35.24 37.88 40.72 43.78 47.06

Non-Residential
Monthly fixed charge $8.93 $9.60 $10.32 $11.09 $11.93 $12.82 $13.78
Variable Rate per 1,000 gallons/month
Auto Sales and Repair 3.43 3.69 3.96 4.26 4.58 4.92 5.29
Barber & Beauty Shops 2.86 3.07 3.31 3.55 3.82 4.11 4.41
Bakery 8.78 9.44 10.15 10.91 11.73 12.60 13.55
Car Washes 2.95 3.17 3.41 3.66 3.94 4.24 4.55
Gas Stations 3.32 3.57 3.84 4.12 4.43 4.77 5.12
Grocery Stores 7.47 8.03 8.63 9.28 9.98 10.72 11.53
Hotels without Restaurants 3.42 3.68 3.95 4.25 4.57 4.91 5.28
Institutions, Churches, HOAs 3.02 3.25 3.49 3.75 4.03 4.34 4.66
Laundromats 3.11 3.34 3.59 3.86 4.15 4.46 4.80
Laundry, Commercial 4.03 4.33 4.66 5.01 5.38 5.79 6.22
Office Buildings, Banks 3.06 3.29 3.54 3.80 4.09 4.39 4.72
Restaurants 8.29 8.91 9.58 10.30 11.07 11.90 12.79
Retail Stores 3.11 3.34 3.59 3.86 4.15 4.46 4.80
Schools 2.86 3.07 3.31 3.55 3.82 4.11 4.41
Other Commercial 3.19 3.43 3.69 3.96 4.26 4.58 4.92
Mixed Use 4.17 4.48 4.82 5.18 5.57 5.99 6.44

Annual WW Service Standby Charge [2] This charge is not increasing over rate 80.00 80.00 80.00 80.00 80.00 80.00 80.00
established in prior years
Wastewater Lateral Maintenance Fee (Monthly) 1.10 1.18 1.27 1.37 1.47 1.58 1.70

* The New Service Rate is the wastewater rate charged to all new residential wastewater services. This rate is based
on the average 2006 January / February residential water usage which is 231 gpd.

In conjunction with these rate studies, the water and wastewater rates of several other agencies were obtained and verified. These rates were compared to the City of Brentwood’s existing and proposed rates and have been summarized as follows:

ANNUAL WATER RATES COMPARISON
SINGLE FAMILY RESIDENTIAL BASED ON 14 UNITS OF
WATER USAGE - AUGUST 2007
CITY / AGENCY ANNUAL
Tracy $316.20
Antioch $522.36
EBMUD (current) $563.76
American Canyon $570.00
Benicia $580.92
EBMUD (proposed) $581.52
City of Livermore $598.79
Brentwood (current) $634.80
Brentwood (proposed) $654.48
City of Pleasanton $657.00
Diablo WD (Oakley) $672.84
Fairfield $695.54
Dublin/San Ramon SD $710.88
Contra Costa WD (Concord) $766.49
Pittsburg $802.80
Vallejo $878.64
Golden State Water (Bay Point) $1,113.71

ANNUAL WASTEWATER TREATMENT AND COLLECTION CHARGES COMPARISON SINGLE FAMILY RESIDENTIAL RATES AS OF AUGUST 2007

CITY / AGENCY ANNUAL
EBMUD $240.00
Union SD $243.36
Concord $258.00
Fairfield - Suisun SD $276.36
DDSD + Baypoint $295.00
DDSD + Antioch $298.08
Central Contra Costa SD $300.00
Dublin San Ramon SD $300.00
DDSD + Pittsburg $351.48
Brentwood (current) $365.94
Tracy $372.00
Brentwood (proposed) $393.11
American Canyon $403.20
Hercules $456.00
Pinole $457.80
Ironhouse SD $465.00
Livermore $465.00
Vallejo S&FCD $473.76
Benecia $495.96
Crockett CSD $533.04
Pleasanton $756.00
Port Costa (CCCSD #5) $1,104.96

FISCAL IMPACT
Uniformly, increasing both the base water rate and consumption charge (both potable and non-potable) annually at 3% equal to the forecasted change in the San Francisco Bay Area CPI will enable the City’s operating and capital revenues to keep pace with inflation, as well as to satisfy required debt service. Throughout the six year projection period, the Water Enterprise Fund ending balance will meet or exceed the City’s reserve minimum goal. Further detailed cash flow and fiscal analysis can be found in the water rate study.

The proposed new monthly wastewater rates increase the fixed base charge, the variable rate and the wastewater lateral maintenance fee by 7.5% annually for the next six (6) years. The 7.5% increase consists of a 4.5% operational increase and a 3% CPI increase. Using this proposed rate increase projected revenues are sufficient to cover operation and maintenance expenses, including the requirements placed on the City by the SWRCB for the loan repayment. However, revenues do not exceed total expenses in Fiscal Years 2007/08 and 2008/09. This difference will be accommodated by the operating reserve that currently exists in this enterprise.

The reason this was done was to minimize the financial impact to the wastewater customers and to accommodate gradual, equal annual rate increases. The net income is positive for the remaining fiscal years reviewed with the City’s reserve minimum goal in all but Fiscal Years 2007/08 and 2008/09. The City meets or exceeds its required debt service coverage ratio for all of the fiscal years reviewed. Further detailed cash flow and fiscal analysis can be found in the wastewater rate study.

Unless otherwise adjusted by future action of the City Council, the rates set forth in Exhibit “A” to this Ordinance with respect to each Fiscal Year through 2012/13 shall be in effect during the indicated Fiscal Year. Unless the City Council takes action to change the rates for fiscal years subsequent to Fiscal Year 2012/13, the rates charged for Fiscal Year 2012/13 shall continue to apply to subsequent fiscal years, adjusted annually as set forth in Section 6 of this Ordinance;

The City Council approval of the proposed rate studies and the corresponding ordinances included an annual automatic adjustment to the rates effective July 1, 2013 each and every subsequent July 1st thereafter based upon the most current CPI for all urban consumers for the San Francisco-Oakland-San Jose area (or such successor index published by the United States Department of Labor) for the preceding twelve (12) months, capped at a maximum five percent (5%) for the preceding twelve (12) months.

Attachments:
Water Ordinance with Exhibit
Wastewater Ordinance with Exhibit
Water Rate Study
Wastewater Rate Study

ORDINANCE NO.

AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD ACCEPTING AND APPROVING A WATER RATE STUDY AND ADOPTING REVISED MONTHLY USER CHARGES FOR WATER SERVICE FOR FISCAL YEARS 2007/08 TO 2012/13 AND SUBSEQUENT FISCAL YEARS EFFECTIVE NOVEMBER 9, 2007.

WHEREAS, pursuant to Chapter 14.01 of the Brentwood Municipal Code, the City operates a municipal water system; and

WHEREAS, it is prudent and customary for agencies providing water service to review their rates every two to five years to ensure that sufficient revenues are collected to operate the water enterprise; ensure that debt service ratios are adequately met; and that the level of service provided mirrors the rates being charged; and

WHEREAS, staff sent out a Request For Proposal (“RFP”) in June of 2006 for professional services for the preparation of comprehensive water and wastewater rate and user fee studies to seven firms. After a thorough evaluation of the firms’ qualifications, experience, methodology and ability to meet budgetary guidelines, Bartle Wells Associates (“BWA”) was chosen to perform the studies; and

WHEREAS, the “City Of Brentwood Water Enterprise Rate Study” (the “Study”) prepared by BWA and dated September 25, 2007, which is on file and available for inspection in the Office of the City Clerk and is hereby incorporated by reference, proposes new monthly water rates to address the needs of the citizens for sanitary and effective water service; and

WHEREAS, the revenue derived from the user rates is used in a manner consistent with Health and Safety Code Section 5471 and the City's ordinances pertaining to water services including without limitation, the payment of installment sales payments or other debt service with respect to the financing of capital facilities for the water system; and

WHEREAS, the City has studied the proposed rate per parcel and has concluded that they do not exceed the reasonable cost of providing water service and facilities to water consumers and is proportionately representative of the costs incurred by the City. The rates reflect the burdens placed on the water system by users and are not in excess of the benefits the users receive from the system; and

WHEREAS, it is imperative for the adequacy of the City's water needs that an ordinance be adopted to establish new rates, in accordance with the requirements of Health and Safety Code Section 5471; and

WHEREAS, the City mailed to affected property owners and customers notice of the proposed rate increase and of a public hearing on the proposed rate increase; and

WHEREAS, the notices informed affected persons of their right to file written protests against the rate increase, which protests are processed by the City pursuant to City of Brentwood Resolution No. 2007-185; and

WHEREAS, as set forth in the notice, on September 25, 2007, the City Council held a public hearing on the rate increase and all interested persons were permitted to provide oral and written protests with respect to the hearing; and

WHEREAS, the City Council now desires to implement the proposed rate increase.

NOW, THEREFORE, the City Council of the City of Brentwood does ordain as follows:

1. Each of the above referenced recitals is true and correct;

2. The City Council accepts the Study and approves the findings contained therein;

3. The City Council finds that a majority protest, as defined by Resolution No. 2007-185 does not exist with respect to the proposed rate increases;

4. The City Council adopts the rates as set forth in Exhibit “A” to this Ordinance and further clarified by the Study, which shall be effective and applied to all users commencing with the first bill that includes service provided only after November 9, 2007;

5. Unless otherwise adjusted by future action of the City Council, the rates set forth in Exhibit “A” to this Ordinance with respect to each Fiscal Year through 2012/13 shall be in effect during the indicated Fiscal Year. Unless the City Council takes action to change the rates for fiscal years subsequent to Fiscal Year 2012/13, the rates charged for Fiscal Year 2012/13 shall continue to apply to subsequent fiscal years, adjusted annually as set forth in Section 6 of this Ordinance;

6. The City Council authorizes an annual automatic adjustment to the rates effective July 1, 2013 each and every subsequent July 1st thereafter based upon the most current Consumer Price Index for all urban consumers for the San Francisco-Oakland-San Jose area (or such successor index published by the United States Department of Labor) for the preceding twelve (12) months, capped at a maximum five percent (5%) for the preceding twelve (12) months;

7. The City Council finds that: (a) the revenues derived from the charges will not exceed the funds required to provide the water service; (b) the revenues derived from the charges will not be used for any purpose other than that for which the charges are imposed; (c) the amount of a charge imposed upon a consumer will not exceed the proportional cost of the water services attributable to the consumer; and (d) the charges are imposed only inasmuch as the water services are actually used by, or immediately available, to the consumer;

8. All resolutions and ordinances, or portions thereof, in conflict herewith are hereby repealed. The City Clerk is directed to publish this ordinance in any manner consistent with Government Code Section 36933.

INTRODUCED, WITH FIRST READING WAIVED by the City Council of the City of Brentwood at its regular meeting on September 25, 2007.

EXHIBIT A

Revised Monthly Water Rates

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
Monthly Base Rate
5/8" or 3/4 Meter $16.46 $16.95 $17.46 $17.99 $18.53 $19.08
1" Meter 24.69 25.43 26.19 26.98 27.79 28.62
1.5" Meter 49.38 50.86 52.39 53.96 55.58 57.24
2" Meter 82.30 84.77 87.31 89.93 92.63 95.40
3" Meter 148.13 152.58 157.16 161.87 166.73 171.73
4" Meter 213.97 220.39 227.00 233.81 240.83 248.05
6" Meter 444.40 457.74 471.47 485.61 500.18 515.19
Consumption Charge (per 1,000 gallons = 1 unit)
Residential
Tier 1: Units 1-10 $2.58 $2.65 $2.73 $2.81 $2.90 $2.99
Tier 2: Units 11-20 3.07 3.16 3.26 3.35 3.45 3.56
Tier 3: Units 21-30 3.68 3.79 3.90 4.02 4.14 4.26
Tier 4: Units 31+ 4.28 4.41 4.55 4.68 4.82 4.97
Non-Residential
Tier 1: Units 1-10 $2.58 $2.65 $2.73 $2.81 $2.90 $2.99
Tier 2: Units 11+ 3.07 3.16 3.26 3.35 3.45 3.56
Non-Potable
Tier 1: Units 1+ $0.949 $0.977 $1.01 $1.04 $1.07 $1.10

ORDINANCE NO.

AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF BRENTWOOD ACCEPTING AND APPROVING A WASTEWATER RATE STUDY AND ADOPTING REVISED MONTHLY USER CHARGES FOR WASTEWATER SERVICE FOR FISCAL YEARS 2007/08 TO 2012/13 AND SUBSEQUENT FISCAL YEARS, EFFECTIVE NOVEMBER 9, 2007.

WHEREAS, pursuant to Chapter 13.04 of the Brentwood Municipal Code, the City operates a municipal wastewater system; and

WHEREAS, it is prudent and customary for agencies providing wastewater service to review their rates every two to five years to ensure that sufficient revenues are collected to operate the wastewater enterprise; ensure that debt service ratios are being adequately met; and that the level of service provided mirrors the rates being charged; and

WHEREAS, staff sent out a Request For Proposal (“RFP”) in June of 2006 for professional services for the preparation of a comprehensive water and wastewater rate and user fee studies to seven firms. After a thorough evaluation of the firms’ qualifications, experience, methodology and ability to meet budgetary guidelines, Bartle Wells Associates (“BWA”) was chosen to perform the studies; and

WHEREAS, that the “City Of Brentwood Wastewater Enterprise Rate Study” (the “Study”) prepared by BWA and dated September 25, 2007, which is on file and available for inspection in the Office of the City Clerk and is hereby incorporated by reference, proposes increased wastewater rates to address the needs of the citizens for sanitary and effective wastewater service; and

WHEREAS, the equitable distribution of the wastewater treatment and collection cost is a requirement of the State Water Resources Control Board’s revolving fund loan program which provided a loan to the City for the Wastewater Treatment Plant expansion and upgrades; and

WHEREAS, the City has reviewed the proposed charge per customer category in the Study and has concluded that the charge does not exceed the reasonable cost of providing wastewater service and facilities to the subject categories and is proportionally representative of the costs incurred by the City. The charges reflect the burdens placed on the existing wastewater system and the new Wastewater Treatment Facility by users and is not in excess of the benefits the users receive from the system; and

WHEREAS, it is imperative to continue to implement the Study to establish new rates by this ordinance for the preservation of the public health and safety based on the recitals set forth above, to provide adequate operating revenues(s) to pay for operating expenditures, to maintain adequate debt service coverage, to maintain a positive cash flow within the Wastewater Enterprise Fund, to equitably distribute the wastewater treatment and collection system costs to each user, and the need for immediate processing of the new rates to users; and

WHEREAS, the revenue derived from the user rates shall be used in a manner consistent with Health and Safety Code Section 5471 and the City’s ordinances pertaining to wastewater and wastewater services particularly Section 13.04.130 of the Brentwood Municipal Code, including without limitation, the payment of State Revolving Fund Loans and other debt service with respect to the financing of capital facilities for the wastewater system; and

WHEREAS, the rates set forth herein are for the provision of wastewater service and shall not constitute a capital facilities fee pursuant to Government Code Section 54999.3; and

WHEREAS, it is imperative for the adequacy of the City’s wastewater needs that an ordinance be adopted and establish new rates, in accordance with the requirements of Health and Safety Code Section 5471; and

WHEREAS, the City mailed to affected property owners and customers notice of the proposed rate increase and of a public hearing on the proposed rate increase; and

WHEREAS, the notices informed affected persons of their right to file written protests against the rate increase, which protests are processed by the City pursuant to City of Brentwood Resolution No. 2007-185; and

WHEREAS, as set forth in the notice, on September 25, 2007, the City Council held a public hearing on the rate increase and all interested persons were permitted to provide oral and written protests with respect to the hearing; and

WHEREAS, the City Council now desires to implement the proposed rate increase.

NOW, THEREFORE be it resolved that the City Council of the City of Brentwood does ordain as follows:

1. Each of the above referenced recitals is true and correct;

2. The City Council accepts the Study and approves the findings contained therein;

3. The City Council finds that a majority protest, as defined by Resolution No. 2007-185 does not exist with respect to the proposed rate increases;

4. The City Council adopts the rates as set forth in Exhibit “A” to this Ordinance and further clarified by the Study, which shall be effective and applied to all users commencing with the first bill that includes service provided only after November 9, 2007;

5. Unless otherwise adjusted by future action of the City Council, the rates set forth in Exhibit “A” to this Ordinance with respect to each Fiscal Year through 2012/13 shall be in effect during the indicated Fiscal Year. Unless the City Council takes action to change the rates for fiscal years subsequent to Fiscal Year 2012/13, the rates charged for Fiscal Year 2012/13 shall continue to apply to subsequent fiscal years, adjusted annually as set forth in Section 6 of this Ordinance;

6. The City Council authorizes an annual automatic adjustment to the rates effective July 1, 2013 each and every subsequent July 1st thereafter based upon the most current Consumer Price Index for all urban consumers for the San Francisco-Oakland-San Jose area (or such successor index published by the United States Department of Labor) for the preceding twelve (12) months, capped at a maximum five percent (5%) for the preceding twelve (12) months;

7. The City Council finds that: (a) the revenues derived from the charges will not exceed the funds required to provide the water service; (b) the revenues derived from the charges will not be used for any purpose other than that for which the charges are imposed; (c) the amount of a charge imposed upon a consumer will not exceed the proportional cost of the wastewater services attributable to the consumer; and (d) the charges being increased are imposed only to the extent wastewater services are actually used by, or immediately available, to the consumer and do not constitute standby charges as that term is used in Article XIIID of the California Constitution.

8. All resolutions and ordinances, or portions thereof, in conflict herewith are hereby repealed. The City Clerk is directed to publish this ordinance in any manner consistent with Government Code Section 36933.

INTRODUCED, WITH FIRST READING WAIVED by the City Council of the City of Brentwood at its regular meeting on September 25, 2007.

Exhibit A

Proposed Monthly Wastewater Rates

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13
Customer Category
Residential
Monthly Fixed Base Charge $8.93 $9.60 $10.32 $11.09 $11.93 $12.82 $13.78
Variable Rate per 1,000 gallons/month 3.11 3.34 3.59 3.86 4.15 4.46 4.80
Total Ceiling Rate (fixed base+ variable) 31.78 34.16 36.73 39.48 42.44 45.62 49.05
New Service Rate (first year only)* n/a 32.78 35.24 37.88 40.72 43.78 47.06

Non-Residential
Monthly fixed charge $8.93 $9.60 $10.32 $11.09 $11.93 $12.82 $13.78
Variable Rate per 1,000 gallons/month
Auto Sales and Repair 3.43 3.69 3.96 4.26 4.58 4.92 5.29
Barber & Beauty Shops 2.86 3.07 3.31 3.55 3.82 4.11 4.41
Bakery 8.78 9.44 10.15 10.91 11.73 12.60 13.55
Car Washes 2.95 3.17 3.41 3.66 3.94 4.24 4.55
Gas Stations 3.32 3.57 3.84 4.12 4.43 4.77 5.12
Grocery Stores 7.47 8.03 8.63 9.28 9.98 10.72 11.53
Hotels without Restaurants 3.42 3.68 3.95 4.25 4.57 4.91 5.28
Institutions, Churches, HOAs 3.02 3.25 3.49 3.75 4.03 4.34 4.66
Laundromats 3.11 3.34 3.59 3.86 4.15 4.46 4.80
Laundry, Commercial 4.03 4.33 4.66 5.01 5.38 5.79 6.22
Office Buildings, Banks 3.06 3.29 3.54 3.80 4.09 4.39 4.72
Restaurants 8.29 8.91 9.58 10.30 11.07 11.90 12.79
Retail Stores 3.11 3.34 3.59 3.86 4.15 4.46 4.80
Schools 2.86 3.07 3.31 3.55 3.82 4.11 4.41
Other Commercial 3.19 3.43 3.69 3.96 4.26 4.58 4.92
Mixed Use 4.17 4.48 4.82 5.18 5.57 5.99 6.44

Annual WW Service Standby Charge [2] This charge is not increasing over rate 80.00 80.00 80.00 80.00 80.00 80.00 80.00
established in prior years
Wastewater Lateral Maintenance Fee (Monthly) 1.10 1.18 1.27 1.37 1.47 1.58 1.70

* The New Service Rate is the wastewater rate charged to all new residential wastewater services. This rate is based
on the average 2006 January / February residential water usage which is 231 gpd.

CITY OF BRENTWOOD
WATER ENTERPRISE
RATE STUDY

September 25, 2007

Bartle Wells Associates
Independent Public Finance Advisors
1889 Alcatraz Avenue
Berkeley, CA 94703

TABLE OF CONTENTS

FINDINGS AND RECOMMENDATIONS 1

INTRODUCTION 3

WATER ENTERPRISE 4
Water Customers 4
Water Rates 5
Historical Water Usage 7
Water Tiers 8

WATER FINANCES 9
Water Debt 9
Capital Improvement Program 11

WATER RATE ANALYSIS 12
Proposed Water Monthly Charges 12
Base Rate (Meter) Charges 12
Water Consumption Charges 13
Projected Water Cash Flow 15
Revenues 15
Expenses 15
Enterprise Fund Balances 15
Water Debt Service Coverage 17

NON-POTABLE WATER 18

LIST OF TABLES

Summary – Proposed Charges 1

Table 1 – Water Customer Data 5

Table 2 – Historical Water Rates 6

Table 3 – Historical Water Usage 7

Table 4 – Water Bills and Usage by Current Tiers - 2006 8

Table 5 – Water Enterprise Future Obligations 10

Table 6 – Water Enterprise Capital Improvements 11

Table 7 – Proposed Water Base Meter Charges 13

Table 8 – Proposed Water Consumption Charges 14

Table 9 – Water Enterprise Cash Flow Projection 16

Table 10 – Water Debt Service Coverage 17

Table 11 – Non-Potable Water Rate 18
CITY OF BRENTWOOD
WATER ENTERPRISE RATE STUDY

FINDINGS AND RECOMMENDATIONS

 A summary of the proposed water rates are as follows:

 The water enterprise fund’s primary sources of revenue are derived from monthly rates and charges.

 The water enterprise fund is responsible for the operation and maintenance (O&M) of the water treatment and distribution system.

 The water enterprise fund is also responsible for the water system’s capital improvement program (CIP) costs that are attributable to the needs of existing customers.

 The City of Brentwood has grown rapidly with a population that has increased from 23,090 in 2000 to the current population of 48,907 (a 112% increase).

 The City’s water customers are primarily residential. In 2006, 94% of the City’s water accounts were residential accounting for 76% of the City’s water use.

 The City’s existing water rate structure consists of a fixed monthly base rate plus a variable tiered consumption charge based upon metered water consumption. There are four usage tiers for residential customers and two usage tiers for non-residential customers. The current tier structure with variable consumption charges for residential and non-residential customers is effective in both generating sufficient revenue and encouraging water conservation. The existing tier structure should only be modified for annual rate increases to account for inflation.

 Uniformly increasing both the base rate and the consumption charge annually at 3%, equal to the forecasted change in the San Francisco Bay Area Consumer Price Index, will enable the City’s operating and capital revenues to keep pace with inflation as well as satisfy the debt service coverage required on the 1996 revenue bonds of net operating revenues equaling at least 1.2 times annual debt service.

 Throughout the six year projection period, the water enterprise fund ending balance will meet or exceed the City’s reserve minimum goal of 30% of annual appropriations.

INTRODUCTION

The City of Brentwood is situated in the eastern portion of Contra Costa County and is located 45 miles northeast of San Francisco and 65 miles southwest of Sacramento. The City was incorporated in 1948 and retained an agricultural orientation up until the 1980s. In recent years, new residential subdivisions have transformed the City into a more suburban environment.

The City provides water service to residential and non-residential customers. Brentwood’s water enterprise fund is responsible for the operation and maintenance (O&M) of the water treatment and distribution system. The enterprise fund is also responsible for the share of the water system’s capital improvement program (CIP) project costs that benefit existing customers. The enterprise fund’s primary revenue source is user charges. The City requested Bartle Wells Associates (BWA) to examine the City’s water enterprise fund and to develop water rates for six future years to ensure sufficient funds for ongoing O&M as well as capital improvement projects.

Planning for the growth of the City is essential to ensure that the water system’s infrastructure and services keep pace with the demands of its existing customers and can also accommodate future growth. Revenues and expenditures for the water system must be fiscally managed to provide long-term high quality service to the City’s water customers. The existing water rates and fees must be examined to determine the revenue adequacy over the next six-year period.

WATER ENTERPRISE

The City’s water system delivers water to over 15,700 accounts through approximately 171 miles of water mains. During the spring and summer, 50% of the water is from the surface water source (the Delta) while the remaining amount is provided from groundwater wells owned and operated by the City. The City has multiple storage reservoirs throughout Brentwood which hold water during periods of low demand. This stored water is then available to the City for use during peak consumption. The water is sampled and tested on a regular basis to ensure compliance with all state and federal drinking water standards and the City’s Water Division staff performs daily site checks to ensure well productivity and to maintain the optimum operating performance of the delivery systems.

The City has partnered with the Contra Costa Water District (CCWD) for a new surface water treatment plant that will be located north of Brentwood. The plant will treat surface water supply purchased by the City from the East Contra Costa Irrigation District (ECCID) under an existing agreement that covers the City through buildout. The new plant will be expanded in the future when needed to meet increased demand.

The City’s water system is funded in two ways: user charges and impact fees. The user charges are collected in the water enterprise fund (Fund 560 – existing customers) and the impact fees are collected in the water facility fund (Fund 250 – new development). The user charges are fees charged to existing customers to fund ongoing O&M and for the share of the water system’s CIP project costs that benefit existing customers. The purpose of this study is to analyze and propose water charges applicable to the water enterprise.

Water Customers
Table 1 shows the number of water accounts for the City over the past five calendar years. There are ten different water customer categories and the City has over 15,700 total water accounts. From 2002 to 2006, there was a 32% increase in total water customers. The water system’s primary customer is residential accounts, which, in 2006, equated to 94% of the City’s total water accounts.

Water Rates
Table 2 shows the historical water rates for the City. The water rate structure is comprised of a fixed monthly base rate and a variable consumption charge based upon metered water usage. The current monthly base rate for a typical residential 3/4” meter is $15.98 and $24.07 for a 1” meter.

Through 2002/03, the variable consumption charge per 1,000 gallons was uniform. Regardless of the quantity of water used, residential and non-residential users paid the same consumption rate for each unit (1,000 gallons) of metered water.

In 2003/04, the City adopted a tiered consumption charge rate structure that set different rates per unit based upon the amount of water usage. The benefit of a tiered rate structure is that the increased consumption charge in the higher tiers results in increased revenue being collected from the heaviest water users whose usage places the greatest demand on the water system thus requiring costly infrastructure and additional O&M expenses to accommodate these demands. The tier structure provides the most equitable means of distributing the costs for meeting these maximum demands. Additionally, it encourages water conservation by increasing the variable charge for higher water usage. The current rate structure has four residential tiers and two non-residential tiers. Non-residential customers account for only 6% of the total customer base and their water usage is generally fairly consistent throughout the year compared to residential customers. Thus only two tiers were necessary for the non-residential accounts to both promote conservation and ensure that this customer base was paying their equitable share of the facilities required to meet the maximum day demand.

Historical Water Usage
The City’s water usage for the past five years is shown in Table 3. Brentwood’s rapid growth is seen in the fact that total water usage has increased by 92% over the past five years from 1.68 billion gallons in 2002 to 3.24 billion in 2006. Residential consumption accounted for three-quarters of total water usage in 2006 and the average consumption per residential water account was over 166,000 gallons, or approximately 13,900 gallons per month.

Table 3 shows high water usage in 2005. This was due in large part to the significant spike in hydrant water usage to over 330 million gallons. This figure does not reflect actual 2005 hydrant water use, rather it is explained by the City’s efforts to catch up on the backlog of hydrant use and, as a result, the 2005 figure contains multiple years of hydrant water usage that had not previously been recorded. The 2006 hydrant water total of approximately 17.5 million gallons is more representative of typical use.

Water Tiers
Table 4 shows 2006/07 residential and non-residential water usage within the existing tiers. Nearly half of all the residential bills were billed at the Tier 1 rate of $2.50 per 1,000 gallons, the lowest variable consumption rate. Customers whose monthly water total falls in one of the higher tiers are only billed at the higher variable rate for the water consumption within that tier. For example, if a customer used 12,000 gallons, the customer would be billed for ten units at the Tier 1 rate of $2.50 and for two units at the Tier 2 rate of $2.98.

The water consumption information in Table 4 shows how water usage is distributed amongst the tiers. The Tier 1 residential usage figure of 1.86 billion gallons includes not only the 85,324 bills listed in Tier 1, but also includes the Tier 1 water usage for those residents billed in Tiers 2, 3, and 4. Approximately 60% of the City’s residential water usage is billed at Tier 1, the lowest variable consumption rate. The non-residential usage figures show that 90% of the water sold to non-residential customers is billed at the higher Tier 2 rate.

WATER FINANCES

This section addresses outstanding debt that is paid from the water enterprise fund and the enterprise fund’s long-term financial obligations, such as annual payments to Contra Costa Water District (CCWD), and future borrowings to pay for the new surface water treatment facility scheduled to be operational in 2008. The enterprise fund is also responsible for paying the share of the water system’s CIP project costs that benefit existing users and these costs are shown in this section in Table 6. Monthly water rates pay for these enterprise fund capital projects.

Water Debt
In December 1996, the City issued $12,195,000 in Water/Wastewater Revenue Bonds. The water enterprise fund is responsible for 80% of this debt and the wastewater enterprise fund is responsible for the remaining 20%. As of June 30, 2006, the total remaining combined balance is approximately $10,240,000. Table 5 shows the remaining water enterprise fund payments through 2026. The annual debt payment of principal plus interest is approximately $685,000.

In February 2000, the City entered into an agreement with the CCWD to resolve an overlap in service boundaries; to provide Brentwood an emergency supply of raw water from CCWD’s raw water system; and to pay a water connection fee for Brentwood’s customers residing within CCWD’s Los Vaqueros Service Area. The agreement requires Brentwood to pay CCWD a connection fee in annual installments over a twenty year period based upon the number of new dwelling units proposed in this overlap area. In exchange, Brentwood receives approximately 3,000 acre-feet per year of water from CCWD’s raw water system.

In addition to these existing debts and obligations, Table 5 also shows the anticipated water enterprise fund’s borrowing to finance the cost of the new surface water treatment facility scheduled to be operational in 2008.

Capital Improvement Program
Capital projects are funded in whole or in part by the water enterprise fund. The enterprise fund is responsible for funding the share of CIP costs that are related to existing users.

The City has partnered with the CCWD for a new surface water treatment facility that will be located north of Brentwood. The plant will treat surface water supply purchased by the City from the East Contra Costa Irrigation District (ECCID) under an existing agreement that accommodates the City through build out. The new plant will be expandable in the future when needed to meet increased demand. Table 6 shows the enterprise fund’s share of costs on this project totaled $3.8 million in 2006/07.

The total estimated CIP cost for the water enterprise fund over the next five fiscal years is projected to be $1.6 million. The individual project costs and annual totals are shown in Table 6.

WATER RATE ANALYSIS

The City’s water rates must be designed to recover operating and capital costs as well as satisfy the debt service coverage required on the 1996 revenue bonds. Operating costs include the O&M of the water system, customer billing and accounting, personnel services, supplies and services, internal services and other-post-employment-benefits (OPEB).

Capital costs include the enterprise fund’s portion of water CIP projects, payment of water’s share of debt service on the revenue bonds, payment of any commercial paper borrowing, and payment of the future long-term borrowing related to the surface water treatment facility.

Proposed Water Monthly Charges
After a thorough analysis of residential and non-residential water consumption, it was concluded that the City’s existing tier structure is appropriate and does not require any modification. The proposed water charges maintain the City’s existing water rate design: a monthly fixed base rate charge that differs by meter size, and a tiered consumption charge that varies by water usage.

Base Rate (Meter) Charges
Table 7 shows the proposed base rate charges for the next six fiscal years. The monthly residential 5/8” and 3/4” meter base rate charges are increased by 3% annually. The rates for the larger meters are calculated by multiplying the monthly 3/4” meter base charge by a fixed ratio that is based upon the increasing flow capacity of the successively larger meters.

The projected revenue from the proposed base rate charges is based upon the average number of bills per month at each respective meter size. The average number of monthly bills was determined by reviewing the billing data from the last six months of 2006. The projected growth in water accounts is 500 new accounts for 2007/08 and 2008/09, and 600 for the following four years of the analysis period. From a conservative budgetary standpoint, all new water accounts were assumed to be 1” meters.

The projected revenue in Table 7 reflects the current 50% discount off of the base rate charge pursuant to Resolutions 91-18 and 92-60. Resolution 91-18 established a discount program in February 1991 for seniors on a fixed income who meet certain eligibility requirements. In May 1992, Resolution 92-60 expanded this program to include residents with total permanent disability who meet certain income criteria. For both resolutions, the 50% discount applies only to the monthly meter charge and not to the consumption water charges. Proposition 218 and the July 2006 Bighorn Supreme Court ruling has altered the manner in which the City can administer and fund this discount program. It is recommended that this program continue pursuant to the aforementioned resolutions with the reduction in revenue to be augmented by City resources other than the Enterprise Fund.

Water Consumption Charges
Table 8 shows the proposed water consumption charges for the four residential tiers and the two non-residential tiers for the next six fiscal years. The consumption charges are escalated annually by 3%, the forecasted change in the Consumer Price Index (CPI) for the San Francisco Bay area. The analysis of the City’s 2006/07 water usage shown in Table 4 demonstrated that the existing structure consisting of tier breaks every ten units was effective and appropriate and should be continued.
The 2006/07 water usage information from Table 4 is used in Table 8 to estimate the annual revenue from the consumption charges over the analysis period. The 2006/07 usage is increased by 6% for the next two years and 4% for the remaining four years. These forecasted increases are applied uniformly to each of the tiers.

Projected Water Cash Flow
Table 9 presents a forecast of revenues and expenses for the water enterprise fund. Revenues and expenses for 2006/07 are used as the base amounts. Projections are made for 2007/08 through 2012/13. The starting balance used in the cash flow projection is $10.46 million, which is the water enterprise fund balance as of June 30, 2006.

Revenues
The two primary revenue sources for the enterprise fund are the base meter charge and the consumption charge. Tables 7 and 8 estimated the revenues for both of these sources and those figures are used in Table 9. The 500 new accounts forecasted in 2007/08 and 2008/09, and the 600 annually in the following years, were included in the Table 7 base meter charge revenue estimates. This new growth was accounted for in the consumption charge revenue estimates on Table 8 by the projected increases in water usage.

Table 9 shows the other enterprise fund revenue sources besides the base meter charge and the water consumption charge. As the City approaches build out, the estimated revenue from vacant parcel charges is expected to decrease and this is reflected in Table 9. The annual investment income is assumed to be 4% of the beginning fund balance and the revenue from late charges is 1.77% of water usage revenue. The non-potable revenue charge is discussed in greater detail at the end of this report.

Expenses
Forecasted increases in expenses are based on increases in personnel services due to the addition of new staff over the next six years, increases in supplies and services costs (predominantly power and chemicals), and increases in internal services costs. Other expenses include funding a share of water capital projects, payment of the water portion of the revenue bonds’ debt service, and the CCWD overlap area.

Since the enterprise fund pays for replacements of capital facilities, the cash flow analysis in Table 9 also includes transfers to the capital facilities replacement fund. Additionally, there is the repayment of the commercial paper borrowing and the annual debt service on the anticipated future borrowing, both related to the construction of the new surface water treatment facility.

Enterprise Fund Balances
Forecasted revenues are sufficient to cover O&M expenses in all of the next six fiscal years. The ending enterprise fund balance for the next six years meets or exceeds the City’s minimum reserve goal of 30%.

Water Debt Service Coverage
Table 10 shows the calculation of the debt service coverage ratio. Water operating revenues less O&M expenses produce net revenues which must be equal to at least 1.2 times annual debt service (including any new borrowings). The coverage ratios computed in this table are greater than the minimum ratio.

NON-POTABLE WATER

The City supplies non-potable water for irrigation of parks, parkways, medians, and private industrial and commercial users. The non-potable water is either recycled water from the City’s wastewater treatment plant or raw water purchased from ECCID. Non-potable water costs include, but are not limited to, raw water purchases, pumping, distribution, operations and maintenance, and power. The treatment costs for recycled water and the purchase cost for raw water are, on average, a fixed cost. Thus a variable, or tiered, rate based upon usage is not applicable. Furthermore, it is in the best interest of the water enterprise and its customers to conserve potable water and encourage non-potable use by keeping non-potable water rates at a minimum.

The non-potable rate is based on the average unit costs for capital outlay (replacement), ECCID purchases, electric costs, staff and billing costs assigned to non-potable water service. It is a uniform rate of $0.949 per unit (1,000 gallons) of consumption and would recover the costs for water purchases, electric costs, staff and billing time and capital replacement.

Table 11 shows the proposed non-potable unit costs for 2007/08 through 2012/13. The costs are escalated annually by the CPI change of 3% to account for inflation.

CITY OF BRENTWOOD
WASTEWATER ENTERPRISE
RATE STUDY

September 25, 2007

Bartle Wells Associates
Independent Public Finance Advisors
1889 Alcatraz Avenue
Berkeley, CA 94703

TABLE OF CONTENTS

FINDINGS AND RECOMMENDATIONS 1

INTRODUCTION 4

WASTEWATER ENTERPRISE 5
Wastewater Customers and Currently Monthly Charges 5
Wastewater Characteristics and Flow 8
Wastewater Usage 8

WASTEWATER FINANCES 9
Wastewater Debt 9
Capital Improvement Program 12

WASTEWATER RATE ANALYSIS 13
Wastewater Rate Structures 13
Proposed Service Rate for New Residential Customers 14
Projected Wastewater Cash Flow 17
Revenues 17
Expenses 17
Enterprise Fund Balance 17
Wastewater Debt Service Coverage 19
LIST OF TABLES

Summary – Proposed Charges 1

Table 1 – Wastewater Customer Data as of 2007 5

Table 2 – Historical Wastewater Rates 7

Table 3 – Wastewater Characteristics 8

Table 4 – Average Residential Winter Water Usage - 2006 8

Table 5 – Wastewater Debt Service 9

Table 6 – State Revolving Fund Loan – Wastewater Enterprise 10

Table 7 – Wastewater Enterprise Future Obligations 11

Table 8 – Wastewater Enterprise Capital Improvements 12

Table 9 – Average Wastewater Bill for a New Residential Customer 14

Table 10 – Proposed Rates Using Existing Rate Structure 16

Table 11 – Wastewater Enterprise Cash Flow Projection 18

Table 12 – Wastewater Enterprise Debt Service Coverage 19
CITY OF BRENTWOOD
WASTEWATER ENTERPRISE RATE STUDY

FINDINGS AND RECOMMENDATIONS

 A summary of the proposed wastewater rates are as follows:

 The City’s wastewater enterprise fund is primarily funded by user charges and is responsible for the operation and maintenance of the wastewater collection and treatment system.

 The enterprise fund is also responsible for the wastewater system’s capital improvement program (CIP) costs that are attributable to existing customers.
 The City has more than doubled in size since 2000 and is currently planning to begin Phase II of its Wastewater Treatment Plant (WWTP) expansion in 2011/12. The enterprise fund’s share of Phase II costs is approximately $8.8 million.

 The City’s existing rate structure employs a monthly fixed base charge plus a variable rate charged per 1,000 gallons/month for average winter water usage (typically January and February). The average residential wastewater usage for 2006 was 231 gallons per day (GPD).

 To finance the enterprise portion of the WWTP Phase II expansion, a new borrowing of $8.8 million is proposed for 2011/12. The annual loan payments are conservatively estimated at $643,000.

 The total CIP cost to the enterprise fund over the next six fiscal years is projected to be more than $10 million.

 Bartle Wells Associates (BWA) recommends the City continue using its existing rate structure. It is fair and reasonable to customers since it does account for varying wastewater strengths and flows. An alternative rate structure using a flat rate based on equivalent residential unit (ERU) factors was evaluated, but would require the City’s billing system to be changed and also entail a significant amount of work in determining the appropriate ERU figure for non-residential customers with no clear benefit over the City’s existing rate structure.

 For their first year of service, new residential customers are charged based upon the City’s average wastewater usage of 231 GPD since they have no prior winter water usage to base their wastewater usage upon. The service rate for new customers in 2007/08 equals $32.78/month.

 The proposed new monthly wastewater enterprise rates escalate the fixed base charge, the variable rate, and the sewer lateral maintenance fee by 7.5% each annually for the next six years. The 7.5% increase consists of a 4.5% operational increase and a 3% Consumer Price Index increase.

 Using the proposed rate increase of 7.5%, projected revenues are sufficient to cover operation and maintenance (O&M) expenses throughout the six year period. For the next two fiscal years (2007/08 and 2008/09), however, revenues do not exceed total expenses which include O&M costs plus debt payments, transfers to the Capital Facilities Replacement Fund, and the enterprise fund’s CIP costs. Net income is positive in 2009/10, and for the remainder of the time period reviewed.

 The City’s reserve goal of 30% of annual O&M costs is met in four of the six years of the cash flow projection. In the years the goal is not met, the ending fund balance is 70 and 84 percent, respectively, of the reserve goal.

 The City exceeds its required debt service coverage ratio of net revenues equaling at least 1.2 times annual debt service throughout the six year period.

INTRODUCTION

The City of Brentwood is situated in the eastern portion of Contra Costa County and is located 45 miles northeast of San Francisco and 65 miles southwest of Sacramento. The City was incorporated in 1948 and retained an agricultural orientation up until the 1980s. In recent years, new residential subdivisions have transformed the City into a more suburban environment. The City of Brentwood has been a rapidly growing City with a population that has grown from 23,090 in 2000 to the current population of 48,907 (a 112% increase).

The City provides wastewater treatment for its residential and non-residential customers and Brentwood’s rapid growth has led to the City developing an extensive capital improvement program (CIP) to ensure that its wastewater infrastructure and services keep pace with the demands of its existing citizens and can also accommodate future growth. The City’s wastewater enterprise fund is responsible for the operation and maintenance (O&M) of the wastewater collection and treatment system. The enterprise fund’s primary revenue source is user charges. The enterprise fund is also responsible for the share of the wastewater system’s CIP costs that are attributable to existing customers.

Planning for the growth of the City is essential to maintain quality services to the wastewater system’s customers. Revenues and expenditures for the wastewater system must be fiscally managed to ensure long-term high quality service. The existing wastewater rates and fees must be examined to determine the revenue adequacy over the next six year period. Bartle Wells Associates (BWA) prepared this report examining the City’s wastewater enterprise fund to develop appropriate wastewater rates for the next six years to ensure sufficient funds for ongoing O&M as well as the fund’s share of capital projects.

WASTEWATER ENTERPRISE

The City of Brentwood provides wastewater collection service to approximately 15,300 connections within its city limits. The existing City wastewater collection system consists of about 150 miles of sewer mains and lateral connections. The wastewater is treated at Brentwood’s Wastewater Treatment Plant (WWTP) that has an average dry weather capacity of five million gallons per day (MGD). The treatment plant was designed to be expandable to an average dry weather flow of ten MGD. After the wastewater is treated, it is then discharged into Marsh Creek or utilized for water reclamation for irrigation.

The City’s wastewater enterprise fund accounts for the O&M of the wastewater system. The enterprise fund is also responsible for the portion of CIP costs that serve existing water customers. The enterprise fund’s revenue is generated by user charges and other fees.

Wastewater Customers and Current Monthly Charges
Table 1 shows the number of current City wastewater accounts for each customer category. There are ten different wastewater customer categories and the City has approximately 15,300 wastewater total accounts. The City’s wastewater system primarily services residential accounts as seen by the fact that residential accounts comprise 97% of all accounts.

The City’s existing rate structure had a monthly fixed base charge of $8.93 for 2006/07. Added to this fixed monthly charge is a variable rate charged per 1,000 gallons/month of estimated wastewater flow. Average winter water consumption (typically January and February) is used to estimate wastewater flow for residential customers. The 2006/07 residential variable charge was $3.11 per 1,000 gallons/month. For residential customers there is a ceiling rate that is the maximum monthly wastewater charge that the fixed base charge plus the variable rate charge can equal. The 2006/07 residential ceiling rate was $31.78 per month. In addition, there is a monthly charge for sewer lateral maintenance. The 2006/07 monthly charge was $1.10 per account.

There is a different variable rate for non-residential customers than that charged to residential customers. Non-residential customers are billed by their metered water consumption and commercial irrigation is separately metered. Non-residential water consumption is presumed to return through the sanitary sewer system. The non-residential variable rates differ not only from the residential rate, but also by customer category. There is a different variable rate for each non-residential customer category due to the differing strengths of wastewater produced by the various non-residential categories and the corresponding different levels of expense in treating the non-residential wastewater. Determination of appropriate category adjustments for non-residential customers shall be at the discretion of the City, based upon the customer’s impact to the sanitary sewer system. Table 2 shows the historical variable rates for residential and non-residential customer categories.

Wastewater Characteristics and Flow
Table 3 shows wastewater characteristics for 2005 and 2006 for the City’s wastewater system. Wastewater characteristics include flow, biological oxygen demand (BOD) and suspended solids (SS). The strength of wastewater influent affects the cost of treatment. The different variable charges for non-residential customers shown earlier in Table 2 reflect the differing wastewater strengths of the City’s non-residential customers.

Wastewater Usage
The City calculates residential wastewater usage based upon winter water consumption. Table 4 estimates the residential winter water usage for January and February, 2006 in gallons per day (GPD) and determined average residential wastewater usage to be 231 GPD.
WASTEWATER FINANCES

Wastewater Debt
In December 1996, the City issued $12,195,000 in Water/Wastewater Revenue Bonds. The remaining balance as of June 30, 2006, is $10,240,000. The revenue bonds are the responsibility of both the water and wastewater enterprises. The wastewater enterprise’s portion of the debt is 20%. Table 5 shows the remaining wastewater fund payments through 2026 – the annual debt payment of principal plus interest is approximately $176,000.

In December 2000, the City entered into a state revolving fund (SRF) loan with California’s State Water Resources Control Board. The purpose of the $37.8 million SRF loan was to finance the wastewater treatment plant expansion project. The loan is shared between existing wastewater customers (Wastewater Enterprise Fund 590) and new development (Wastewater Facility Fund 255). Table 6 shows the annual SRF obligations of the wastewater enterprise fund through fiscal year 2023. The wastewater enterprise fund annual SRF payment is approximately $1.0 million per year.

The combined wastewater debt service applicable to the wastewater enterprise fund appears in Table 7. To finance the enterprise portion of the Phase II expansion of the WWTP currently proposed to commence in 2011/12, a new borrowing of $8.8 million is estimated to occur in this same time frame. Estimated annual loan payments of $643,000 for this new loan are also included in Table 7. Annual payments are calculated as a 20 year loan at an average assumed interest rate of 4% .

Capital Improvement Program
The City’s wastewater CIP includes ongoing replacement and repair for existing facilities in addition to construction of new facilities due to system expansion. The wastewater enterprise fund pays for the share of CIP costs that are related to existing users. As the City’s wastewater system ages, repairs and replacements are necessary and are expected to become an increasingly larger element of annual capital costs. Table 8 shows the five CIP projects that the enterprise fund is funding in whole or in part. The most significant project is the WWTP Expansion - Phase II. The wastewater enterprise’s share of the WWTP Expansion costs is estimated at approximately $8.8 million and the Phase II expansion is currently projected to begin in 2011/12. The total CIP cost to the enterprise fund over the next five fiscal years is projected to be over $10.2 million.

WASTEWATER RATE ANALYSIS

BWA has analyzed the City’s wastewater rates. It has designed wastewater rates to recover operating and capital costs as well as satisfy the debt service coverage required on the 1996 revenue bonds.

Operating expenses include personnel services, supplies and services, internal services, O&M of the wastewater system, billing and accounting for customers, minor capital outlays, and other-post-employment-benefits (OPEB). Capital costs include the enterprise fund’s portion of wastewater CIP projects, payment of wastewater’s share of debt service on the revenue bonds, repayment of the SRF loan, and the loan repayment anticipated to begin in 2011/12.

Wastewater Rate Structures
BWA evaluated two rate structures for the wastewater enterprise: the current rate structure of a monthly fixed charge plus a variable rate per 1,000 gallons of winter water usage and an alternative rate structure based on a uniform flat rate.

The flat rate approach is based on an equivalent residential unit (ERU) where a single family residence is defined as one ERU. Multi-family and non-residential customer classifications would have an ERU factor. The ERU factors would take into account flow and strength characteristics of the customer category. For multi-family, the ERU factor could take into account the number of dwelling units per wastewater account.

Developing a flat wastewater rate per ERU would require the City to change its billing method, would require a substantial amount of effort in determining the ERU figure for non-residential customers and would not provide an overall reduction in wastewater rates. The City would first need to define its unit for each non-residential customer class. For instance, a motel could be defined as ERUs per room; a retail shop or office could be defined as ERUs per 1,000 square feet of space; and a laundromat defined as ERUs per washing machine. In determining the appropriate ERU figure for a restaurant, the City would need to distinguish between sit-down and take-out restaurants. Furthermore, assuming each seat equals 0.1 ERU, the City would need to count the number of seats in each sit-down restaurant. Similar efforts would be required at other non-residential establishments (the number of washing machines in each laundromat and so forth) and each establishment would need to be re-evaluated periodically necessitating additional staff over and above that already anticipated.

BWA recommends the City retain its existing rate structure. The structure is reasonable and fair to customers since it does account for wastewater flow and does not require any changes in the city’s existing billing structure. The recommended wastewater charges utilize the existing rate structure and these charges are expected to generate sufficient revenue to cover the enterprise funds operating and capital revenue for the next six years.

Proposed Service Rate for New Residential Customers
BWA does recommend a refinement to the existing rate design for wastewater. The existing rate structure for residential users employs a variable wastewater rate charge per 1,000 gallons that is based upon a resident’s winter water use. For new accounts, however, there is no historical record of prior winter water use. To solve this problem, the proposed wastewater rate design includes a fixed service rate for all new residential customers. The new service rate will be in effect during a new resident’s first year and is based upon the average wastewater bill for a residential customer.

An earlier table (Table 4) showed average residential winter water use to be 231 GPD. Table 9 calculates the wastewater bill for a residential customer in 2006/07 using this average wastewater flow.

Table 10 shows the proposed wastewater monthly charges using the existing rate structure, where the monthly fixed rate and variable rates are increased 7.5% annually. The increase consists of a 4.5% annual operational increase and a 3% annual Consumer Price Index (CPI) increase. The rate increases are necessary to pay increased operating costs, payments on existing revenue bonds and SRF loan, future CIP projects, and the repayment of a future borrowing anticipated in 2011/2.

The proposed rate structure includes a ceiling rate for residential wastewater customers. The projected ceiling rate in Table 10 is calculated by escalating the existing ceiling rate by 7.5% annually. The proposed service rate that all new residential customers pay during their first year of service is also escalated by 7.5% annually. The proposed new customer service rate for 2007/08 is $32.78 per month. This equals the average wastewater bill for 2006/07 of $30.50 (shown in Table 9) escalated by 7.5%.

Projected Wastewater Cash Flow
Table 11 presents a forecast of revenues and expenses for the wastewater enterprise fund. Revenues and expenses for 2006/07 are used as the base amounts and forecasts are made for 2007/08 through 2012/13. BWA added a sixth year to the cash flow projection to forecast the impact of the new loan anticipated in 2011/12. In 2006/07, the cash flow analysis shows a beginning balance of $2.35 million.

Revenues
For the purpose of the cash flow analysis, the City projects 500 new wastewater accounts a year in 2007/08 and 2008/09, and 600 annually thereafter. The new accounts are assumed to all be residential. The anticipated revenue equals the previous year’s revenue escalated by 7.5% plus the revenue from the new service rate shown on Table 10 times the number of new accounts. The 7.5% annual rate increase is also applied to the sewer lateral maintenance fee. Included in the cash flow projections are other enterprise fund revenues, such as investment income, late charges, and application fees.

Expenses
Forecasted increases in expenses are based on discussions with City staff and reflect expected increases in personnel services due to the addition of new staff, increases in supplies and services costs, and increases in internal services costs, and are consistent with the City’s CIP and Operating Budgets.

The cash flow analysis includes transfers to the capital facilities replacement fund. The wastewater enterprise fund pays for replacements of capital facilities. Other capital costs include funding wastewater capital projects, payment of the existing SRF loan, and payment of the wastewater portion of the revenue bonds’ debt service. Beginning in 2011/12, there is an estimated repayment of the forecasted $8.8 million loan to pay for Phase II of the wastewater treatment plant expansion.

Enterprise Fund Balances
City policy has established a goal that the ending balance in the wastewater enterprise fund equal 30% of annual appropriations. This 30% mark is a reasonable and prudent goal in that it covers over three months of operating expenses in case of an emergency. Additionally, it allows for the option of phasing in future rate hikes more gradually because of sufficient reserve funds.

The cash flow projection on Table 11 shows that total expenses are estimated to exceed total revenues for 2007/08 and 2008/09, but thereafter net income is positive and the enterprise fund balance begins to grow again. In 2007/08, the ending fund balance does meet the City’s goal of equaling 30% of annual O&M appropriations. In fiscal years 2008/09 and 2009/10, the ending balance falls below the 30% goal due largely to the negative net income in 2008/09 of over $600,000, but the ending fund balances for both these years is still sufficient to cover the O&M expenses. By 2010/11, the cash flow projection estimates that the ending wastewater enterprise fund balance will again meet or exceed 30% of annual O&M expenses and will meet this goal for the remainder of the time period analyzed.

Wastewater Debt Service Coverage
Table 12 shows that the calculation of the debt service coverage ratio. Wastewater operating revenues less O&M expenses yield net revenues which must be equal to at least 1.2 times annual debt service. The coverage ratios computed in this table are greater than the minimum ratio throughout the six year projection.

 

City Administration
City of Brentwood City Council
150 City Park Way
Brentwood, CA 94513
(925) 516-5440
Fax (925) 516-5441
E-mail allcouncil@brentwoodca.gov