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Home My WebLink About2020-03-11 Packet - Special Jnt UVSD gr .7 r � w„ City Council Special Meeting AGENDA Ukiah Valley Conference Center♦ 200 S. School St. ♦ Ukiah, CA 95482 March 11, 2020 - 5:00 PM JOINT MEETING WITH THE UKIAH VALLEY SANITATION DISTRICT 1. ROLL CALL AND PLEDGE OF ALLEGIANCE 2. AUDIENCE COMMENTS ON NON-AGENDA ITEMS The City Council welcomes input from the audience. If there is a matter of business on the agenda that you are interested in, you may address the Council when this matter is considered. If you wish to speak on a matter that is not on this agenda, you may do so at this time. In order for everyone to be heard, please limit your comments to three(3) minutes per person and not more than ten (10) minutes per subject. The Brown Act regulations do not allow action to be taken on audience comments in which the subject is not listed on the agenda. 3. UNFINISHED BUSINESS 3.a. Presentation of and Preliminary Read, Review, and Discussion of Draft Administrative Report on Wastewater Rate Analysis for the City of Ukiah and the Ukiah Valley Sanitation District; and Consideration of Wastewater Rates for the City of Ukiah. Recommended Action: 1. Receive Presentation and Conduct Preliminary Read, Review, and Discussion of Draft Administrative Report of Wastewater Rate Analysis. Action item options: 1. Direct staff to initiate the Prop 218 process to adjust wastewater rates annually for a five-year period, effective July 1, 2020. 2. Do not initiate the Prop 218 process but provide additional direction to staff. Attachments: 1. 2020 Joint Sewer Rate Study, Adminstrative Draft March 4 2020 2. Presentation - Wastewater Rate Study 4. ADJOURNMENT Please be advised that the City needs to be notified 72 hours in advance of a meeting if any specific accommodations or interpreter services are needed in order for you to attend. The City complies with ADA requirements and will attempt to reasonably accommodate individuals with disabilities upon request. Materials related to an item on this Agenda submitted to the City Council after distribution of the agenda packet are available for public inspection at the front counter at the Ukiah Civic Center, 300 Seminary Avenue, Ukiah, CA 95482, during normal business hours, Monday through Friday, 8:00 am to 5:00 pm. I hereby certify under penalty of perjury under the laws of the State of California that the foregoing agenda was posted on the bulletin board at the main entrance of the City of Ukiah City Hall, located at 300 Seminary Avenue; and at the Ukiah Valley Conference Center in Ukiah, California, not less than 24 hours prior to the meeting set forth on this agenda. Page 1 of 1 Agenda Item No: 3.a. MEETING DATE/TIME: 3/11/2020 ITEM NO: 2020-326 dl� tiuU h 0 � - Uki AGENDA SUMMARY REPORT SUBJECT: Presentation of and Preliminary Read, Review, and Discussion of Draft Administrative Report on Wastewater Rate Analysis for the City of Ukiah and the Ukiah Valley Sanitation District; and Consideration of Wastewater Rates for the City of Ukiah. DEPARTMENT: Finance PREPARED BY: Dan Buffalo, Finance Director PRESENTER: Dan Buffalo, Finance Director ATTACHMENTS: 1. 2020 Joint Sewer Rate Study, Adminstrative Draft March 4 2020 2. Presentation - Wastewater Rate Study Summary: The Ukiah City Council shall receive and consider the draft administrative report, titled 2020 Joint Sewer Rate Study, on wastewater rates and consider initiating the Prop 218 process to adjust City wastewater rates annually for a five-year period, effective July 1, 2020 and/or provide alternate direction to staff. Background: The Ukiah City Council (Council) and Ukiah Valley Sanitation District Board (Board)jointly approved and engaged the Reed Group and Hildebrand Consulting (Consultants) to conduct an analysis of the wastewater revenue requirements for each agency, identifying and analyzing the fiscal resources necessary for each agency to maintain wastewater services, including operations, debt service, and capital improvements. The process required significant effort, coordination, analysis, and planning by staff of both agencies and Consultants. Complexity of the customer data and the mechanics of the Operating Agreement between the two agencies created unique and significant challenges in developing the attached draft administrative report, 2020 Joint Sewer Rate Study (Attachment 1). The presentation for the meeting from the Consultants is also include for advance review (Attachment 2). Discussion: The results of that analysis and subsequent recommendations are included in the attached 2020 Joint Sewer Rate Study. The Consultants will present the report and provide required context and annotations for consideration. Staff, in conjunction with Consultants, will provide additional annotations to complement the report to ensure the City Council is satisfied with the scope of information presented. Recommended Action: 1. Receive Presentation and Conduct Preliminary Read, Review, and Discussion of Draft Administrative Report of Wastewater Rate Analysis. Action item options: 1. Direct staff to initiate the Prop 218 process to adjust wastewater rates annually for a five-year period, effective July 1, 2020. 2. Do not initiate the Prop 218 process but provide additional direction to staff. Page 1 of 2 Page 3 of 63 BUDGET AMENDMENT REQUIRED: None CURRENT BUDGET AMOUNT: N/A PROPOSED BUDGET AMOUNT: N/A FINANCING SOURCE: N/A PREVIOUS CONTRACT/PURCHASE ORDER NO.: N/A COORDINATED WITH: Water Resource Department, Public Works Department, City Manager's Office, Ukiah Valley Sanitation District Approved s o saftArnrt N l�u�nagr Page 2 of 2 Page 4 of 63 Attachment 1 City c�f' Ukielfz � re ,,, ........................................... i Y. 1 4 City of Ukiah ' YI/Irk r u�i, 'SYa pu� W4Y Ukiah Valley Sanitation District n 2020 Joint Sewer Rate Study d iiii i niii Uir t iii e Draft t Report f a„ March 4, 2020 Y` t m� 000u U I�,T� P THE REED GROUP, INC. err Attachment 1 ill lu0mo,�qmn„+auU111111�� 0��»��ti5ti5U1�INu"„Vm��@„nua^n1p`1 THE REED GROUP, INC. March 4, 2020 Mr. David Redding Mr. Sage Sangiacomo District Manager City Manager Ukiah Valley Sanitation District City of Ukiah 151 Laws Ave 300 Seminary Ave. Ukiah, CA 95482 Ukiah, CA 95482 Re: I II:C V:::..i 2020 Joint Sewer Rate Study Dear Mr. Buffalo and Mr. Redding, Hildebrand Consulting and the Reed Group are pleased to present this II)II!! p"A]..i.. 2020 Joint Sewer Rate Study (Study) performed for the City of Ukiah (City) and Ukiah Valley Sanitation District (District). We appreciate the fine assistance provided by you and all of the members of the City and District staff who participated in the Study. If you or others at the City or District have any questions, please do not hesitate to contact me at: mhildebrand@hildco.com (510) 316-0621 We appreciate the opportunity to be of service to the City and/or District and look forward to the possibility of doing so again in the nearfuture. Sincerely, Mark Hildebrand Robert Reed Hildebrand Consulting, LLC The Reed Group, Inc. Enclosure Page 6 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sce ides Executive Summary Hildebrand Consulting, LLC and The Reed Group, Inc. (collectively "Consultant") were retained by the City of Ukiah (City) and the Ukiah Valley Sanitation District (District) to conduct a Joint Sewer Rate Study (Study). STUDY The City and District recently entered into a new Operating Agreement'which specifies how sewer collection and treatment services will be provided within the respective service areas and how costs will be fairly shared and distributed. The purpose of this "joint" sewer rate study is to develop new (and separate) sewer rates schedules appropriate for both the City and the District, which will be based on a consistent methodology and approach and aligned with the new Operating Agreement. SCOPE& METHODOLOGY The scope of this Study was to prepare multi-yearfinancial plans, develop a consistent cost-of-service analyses, review the existing rate structures, and propose 5-year rate schedules for both the City and District. This Study applied methodologies that are aligned with industry standard practices for rate setting as promulgated by the Water Environment Federation (WEF) and all applicable law, including California Constitution Article XIII D,Section 6(b),commonly known as Proposition 218. 1 Operating Agreement for the Combined Sewer System Serving the Ukiah Valley Sanitation District and the City of Ukiah Page 7 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sce ides OPERATING AGREEMENT BACKGROUND The 2018 Operating Agreement between the City and the District includes a number of conditions that guide the approach to this Study. For example, the Operating Agreement specifies that budgeted operating costs are to be allocated to each party based on their proportionate use of the WWTP. For the purpose of performing this allocation of costs between the District and City,this Study defines an Equivalent Sewer Service Strength Unit (ESSSU) as the average winter water usage of a residential dwelling unit at residential strength. This term is not to be confused with the term "ESSU" (equivalent sewer service unit), which was established by the Operating Agreement forthe purpose of defining the number Capacity Project units used by each utility. FINANCIAL PLANS Financial plans were developed for both utilities, which provide a finance strategy that will enable both utilities to meet revenue requirements and financial performance objectives throughout the planning period while striving to minimize rate increases. Sewer Utility Operating Budget and Funds Revenue Rate revenue is the revenue generated from customers for sewer service. The City collects all rate revenue from both City and District customers. Rate revenue received from District customers is allocated to the District and rate revenue received from City customers is allocated to the City. Rate revenue for both utilities is collected through a fixed "Base" charge and a variable "Usage" charge, although the rate structures between the City and the District are slightly different. This Study's financial plans propose annual rate revenue adjustments that will meet the City and District's respective revenue requirements. Page 8 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sce ides Operating and Maintenance Expenses The combined operating and maintenance expenses include all ongoing collection, treatment,disposal,and administrative expenses.The ratio of ESSSUs between the City and the District are used to establish each utility's proportionate use of both the collection system and the WWTP for the purpose of allocating most annual budgeted operating costs. Most expenses are split based on the current ESSSU allocation (50.16% District : 49.84% City), while billing expenses are split based on the proportion of accounts (43.65% District : 52.35%City), and debt expenses are split as dictated by the Operating Agreement in FY 2019/20 (48.0% District : 52.0%) and based on the findings of this Study thereafter. Debt Service Section II.D.2. of the Operating Agreement describes the prescribed methodology for allocating the debt service costs associated with the 2006 Bond. As detailed in the full report, this Study calculated a debt service allocation of 53.99% for the District and 46.01%for the City. The City and District currently share responsibility for repayment of a 2006 Revenue Bond. The allocation of the costs associated with the 2006 Bond is described in Section 2.4. A pivotal topic for these financial plans is the possibility of refinancing the 2006 Bond,which has the potential of significantly reducing debt service obligations for both utilities. Based on projected debt service schedules provided by the City's and District's respective financial advisors, the District's annual debt service would decrease by approximately $520 thousand and the City's annual debt service would decrease by over$144 thousandz. 2 The change in the debt service for both entities is affected by the change in the allocation methodology. In addition,the District plans to use cash reserves to pay down $2.5 million in outstanding principal and Page 9 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sce ides In the event that the bond is not refinanced, the rate revenue increases would need to be materially larger than those recommended in this Study in order to meet the financial obligations associated with the existing 2006 Bond. Capital Improvement Program For purposes of this Study,all planned capital projects were identified as either a shared cost (subject to the allocation based on relative ESSSUs) or a City-only expense. PROPOSED RATE REVENUE INCREASES Based upon the financial data, assumptions, and reserve targets,this Study proposes a 5-year schedule of rate adjustments as detailed in the two tables below for the District and for the City. Recommended District Sewer Rate Recommended City Sewer Rate Revenue Increases Revenue Increases ® ®'''Illlllllllllll,�i IIII ®e® _ • °a _ °e Im Ills ® uu `' „,,,,,,,,,,,,,�„�,, e e m ® ° m July 1,2020 0.0% July 1,2020 5.0% July 1,2021 1.0% July 1,2021 2.0% July 1,2022 1.0% July 1,2022 2.0% July 1,2023 1.0% July 1,2023 1.0% July 1,2024 1.0% July 1,2024 1.0% the City will fund part of its Settlement Agreement costs with bond proceeds as well as defer some of the debt service that was previously due in FY 2019/20. Page 10 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Executive Summary The above rate increases are directly contingent and dependent on the refinancing of the 2006 Bond, consistent with the anticipated terms and debt repayment schedules provided by the City and District's financial advisors. COST OF SERVICE A cost-of-service analysis evaluates the cost of providing sewer service and proportionately allocates those costs to customer classes and rate structure components to ensure the proposed rate structure is (1) aligned with the costs of providing sewer service (2) equitable among all ratepayers, and (3) complies with Proposition 218. This Study employed well-established industry practices as recognized by the WEF,AWWA, and other accepted industry standards. After analyzing sewer system use characteristics for all customers within both service areas, unit costs are applied to the equivalent sewer service flow units3 (ESSFUs), annual sewer flows, BOD loadings and SS loadings associated with each customer class to arrive at the allocation of total costs to each customer class. The table below presents the allocation of costs to each user class. 3 A measure of sewer utility service based on the estimated volume of wastewater from an average residential dwelling Page 11 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Executive Summary Allocation of Costs to Users (District and City) Service Charge Costs No.of Water BOD SS Fixed Costs Variable Costs(1) Allocation ESSFUs Usage Strength Strength Customer Class Flow BOD SS of Total (hcf) (mg/1) (mg/1) Costs I OMM $550.360/ESSFU $1.33/hcf $1.03/Ib $1.060/Ib Residential 2,291 185,741 175 175 Single Family $1,260,886 $246,855 $208,759 $215,566 $1,932,065 1,289 68,511 175 175 Multi-Family $709,420 $91,053 $77,001 $79,512 $956,987 620 49,141 175 175 Mobile Homes $341,226 $65,310 $55,231 $57,032 $518,799 Commercial 1,410 89,401 175 175 Low Strength $776,270 $118,816 $100,480 $103,756 $1,099,321 433 28,149 200 200 Moderate Strength $238,366 $37,410 $36,157 $37,335 $349,268 52 6,015 500 500 Medium Strength $28,549 $7,994 $19,316 $19,945 $75,804 205 13,983 800 600 High Strength $112,861 $18,583 $71,843 $55,639 $258,926 6,301 440,941 Totals: $3,467,577 $586,022 $568,786 $568,786 $5,191,171 $591.79/ESSFU $1.31/hcf $1.021 Ib $1.06/Ib Residential 7248 184,342 175 175 Single Family $1,612,041 $242,068 $204,794 $212,441 $2,271,343 83,060 175 175 Multi-Family $861,057 $109,070 $92,275 $95,721 $1,158,122 17,452 175 175 Mobile Homes $146,764 $22,917 $19,388 $20,112 $209,182 Commercial 1,464 99,345 175 175 Low Strength $866,213 $130,454 $110,367 $114,488 $1,221,521 104 7,122 200 200 Moderate Strength $61,482 $9,352 $9,042 $9,380 $89,257 51 3,464 500 500 Medium Strength $30,064 $4,549 $10,995 $11,406 $57,014 217 14,800 800 600 High Strength $128,622 $19,434 $75,163 $58,477 $281,697 6,263 409,585 Totals: $3,706,243 $537,844 $522,025 $522,025 $5,288,135 Total Fixed: $7,173,820 Total Variable Costs: $3,305,486 68.5% 31.5 Footnotes: (1) Unitcosts atthe top ofeach column are multiplied by the wastewater flow,the BOD loading,orthe SS loading foreach customer class from Table 7. RATE STRUCTURE RECOMMENDATIONS The City and District currently have very similar rate structures with only a few minor differences.With the concurrence of both District and City staff,this Study recommends that the rate structures be modified to be identical (although the rates themselves will be different to reflect the different financial needs and objectives of each respective agency). The changes are not expected to be material for either party and having identical rate structures will help the parties coordinate business and rate decisions in the future. All customers pay a fixed monthly Service Charge and a Usage Charge. Residential customers will pay a Service Charge foreach dwelling unit while Commercial customers Page 12 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Executive Summary will pay a Service Charge for each ESSFU. The Usage Charge for all customers is determined by multiplying the account's winter water usage by the respective Usage Charge for the customer classification (which accounts for sewer strength). The tables below presents the proposed Service Charges and Usage Rates for the next 5 years. District 5-Year Sewer Rate Schedule July 1, 2020 July 1, 2021 July 1, 2022 July 1, 2023 July 1, 2024 Monthly Service Charge*: $45.86 $46.32 $46.78 $47.25 $47.72 Consumption Rate(per HCF): Residential: $3.61 $3.65 $3.69 $3.73 $3.77 Commercial 1: $3.61 $3.65 $3.69 $3.73 $3.77 Commerciall: $3.94 $3.98 $4.02 $4.06 $4.10 Commercial3: $7.86 $7.93 $8.01 $8.09 $8.17 Commercial4: $10.45 $10.55 $10.66 $10.77 $10.88 *Service Charge is per dwelling unit for residential and per ESSFU for commercial accounts(with a minimum charge of 1 ESSFU). City 5-Year Sewer Rate Schedule July 1, 2020 July 1, 2021 July 1, 2022 July 1, 2023 July 1, 2024 Monthly Service Charge*: $49.32 $50.31 $51.32 $51.83 $52.35 Consumption Rate(per HCF): Residential: $3.58 $3.65 $3.72 $3.76 $3.80 Commercial 1: $3.58 $3.65 $3.72 $3.76 $3.80 Commerciall: $3.90 $3.98 $4.06 $4.10 $4.14 Commercial3: $7.78 $7.94 $8.10 $8.18 $8.26 Commercial4: $10.34 $10.55 $10.76 $10.87 $10.98 *Service Charge is per dwelling unit for residential and per ESSFU for commercial accounts(with a minimum charge of 1 ESSFU). CONCLUSION This Study used methodologies that are aligned with industry standard practices for rate setting as promulgated by WEF, AWWA and all applicable laws, including Page 13 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Executive Summary C8tif0rni8'S Proposition 218. The proposed 8nnu8t 8'kuStrnent5 to the rates pr0p0rti0n8tety assign C0StS to each CuSt0rnerCi8SS and customer based on service demands and vviR 8tt0vvthe City and District to continue to provide n8ti8bie and 8fford8bie sewer service t0customers. Page 14of03 Attachment 1 Ukiah 2020 Joint Sewer Rate Study T@b[eOfContents TABLE �� CONTENTS �� SECTION 1. INTRODUCTION.......................................................................2 1.1 SEWER UTILITY BACKGROUNDS ................................................................................. 2 1.2 RATE STUDY BACKGROUND....................................................................................... 3 1.3 SCOPE&OBJECTIVES DF STUDY................................................................................3 1/4 STUDY METHODOLOGY............................................................................................. 4 1.5 REPORT ORGANIZATION ........................................................................................... 5 SECTION 2. OPERATING AGREEMENT BACKGROUND ....................................6 2.1 EQUIVALENT SEWER SERVICE U NITS........................................................................... 6 2.2 ALLOCATION DF OPERATING COSTS............................................................................ 8 23 ALLOCATION DF CAPITAL COSTS ................................................................................ 9 2.4 ALLOCATION DF DEBT.............................................................................................. 9 SECTION 3. FINANCIAL PLANS..................................................................11 31 FINANCIAL DATA&ASSUMPT|DNS............................................................................ II 3.2 SEWER UTILITY OPERATING BUDGETAND FUNDS........................................................ II 3.2.1 District Operating Expenses and Revenues.................................................................................l2 3.2.2 City Operating Expenses and Revenues.......................................................................................12 3.2.3 Beginning Fund Balances.............................................................................................................13 32.4 Reserve Targets.............................................................................................................................14 32.5 Custon/erGrowth...........................................................................................................................16 3.2.6 Rate Revenues.------------------------------------------.16 32.7 Connection Fee Revenue...............................................................................................................17 32.8 Non-Rate Revenues.......................................................................................................................17 3.2.8 Operation and Maintenance Expenses........................................................................................18 3.2.10 Cost Escalation------------------------------------------18 3.2.11 Debt3ervice...................................................................................................................................18 3LI.12 Debt Service Coverage..................................................................................................................21 3.2.13 Capital Improvement Program.....................................................................................................21 32.14 Future Borrowing Assumptions....................................................................................................22 3.2.15 Expenditure Summary...................................................................................................................23 3.3 PROPOSED RATE REVENUE INCREASES...................................................................... 24 SECTION 4. COST OF SERVICE..................................................................28 4.1 CUSTOMER STATISTICS .......................................................................................... 28 4.2 FIXED VS.VARIABLE COST COMPONENTS................................................................... 3D 43 DETERMINATION DF UNIT COSTS ............................................................................. 32 4.4 ALLOCATION DF COSTS TD USERS(By CUSTOMER CLASSES)........................................ 33 4.5 CALCULATION DF STRENGTH MULTIPLIERS................................................................ 34 SECTION 5. RATE DESIGN &SCHEDULES...................................................36 5.1 EXISTING RATE STRUCTURES................................................................................... 36 5.2 RATE STRUCTURE RECOMMENDATIONS..................................................................... 37 5.3 PROPOSED RATE SCHEDULES.................................................................................. 38 SECTION 6. CONCLUSION ........................................................................40 Attachment 1 2019 Sewer Rate Study Table of Contents Schedule 1® Detailed Allocation of Operational Expenses between District Schedule 2 -City Cash Flow Pro Forma Schedule 3 ® District 16 Page 16 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study List of Acronyms List of Acronyms AWWA American Water Works Association CIP capital improvement program DCR debt service coverage ratio ENR Engineering News Record(periodical) ESSFU Equivalent sewer service flow unit, a measure of sewer utility service based on the estimated volume of wastewater from an average residential dwelling ESSSU Equivalent sewer service strength unit, a measure of sewer utility service based on the estimated volume and strength of wastewater from an average residential dwelling ESSU Capacity Project equivalent sewer service unit, as defined and applied bythe Ope rating Agreement between the City and District in orderto assign capacity to a connection or reserved for a connection FY fiscal year(which ends on June 30) hcf hundred cubic feet (i.e. 748 gallons) MG million gallons WEF Water Environment Federation WWTP Wastewater treatment plant Page 17 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Introduction Section 1. INTRODUCTION Hildebrand Consulting, LLC and The Reed Group, Inc. (collectively "Consultant") were retained by the City of Ukiah (City) and the Ukiah Valley Sanitation District (District) to conduct a Joint Sewer Rate Study (Study). This report describes in detail the assumptions, procedures, and results of the Study, including conclusions and recommendations. 1.1 SEWER UTILITY BACKGROUNDS Within the Ukiah Valley there are three agencies that provide wastewater treatment services: (1) City of Ukiah, (2) Ukiah Valley Sanitation District, and (3) Calpella County Water District. The City owns the collection system within a portion of its jurisdictional boundaries and a wastewater treatment plant(WWTP).The District owns the collection system within its jurisdictional boundaries, a part of which is within the City's boundaries, (known as the "overlap area"). The District and City have entered into various agreements and amendments for the sharing of costs associated with the operation, maintenance, and rehabilitation of the sewer collection system and the WWTP, as well as administrative costs such as utility billing.At present the District does not have operations staff of its own; it therefore contracts with the City of Ukiah for the provision of wastewater services.The City has its own staff,equipment and facilities for management and operations of wastewater services within the City'sjurisdiction. Calpella County Water District owns and operates its collection system and treatment plant and is not included as part of this Study. 16 Page 18 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Introduction 1.2 RATE STUDY BACKGROUND The City and District recently entered into a new Operating Agreement'which specifies how sewer collection and treatment services will be provided within the respective service areas and how costs will be fairly shared and distributed. The purpose of this "joint" sewer rate study is to develop new (and separate) sewer rates schedules appropriate for both the City and the District, which will be based on a consistent methodology and approach and aligned with the new Operating Agreement. The Study has been performed with equal inputfrom both the City and District,including direction from the City and District staff, financial advisors, and lawyers provided during joint meetings and group conference calls. 1.3 SCOPE & OBJECTIVES OF STUDY The scope of this Study was to prepare multi-yearfinancial plans, develop a consistent cost-of-service analyses, review the existing rate structures, and propose 5-year rate schedules for both the City and District.The primary objectives of this Study were to: I. Establish a transparent and repeatable methodology for allocating operating and capital costs between the City and the District; ii. Develop multi-year financial management plans for both the City and District that integrate operational and capital project funding needs; III. Identify future annual rate adjustments to sewer rates to help ensure adequate revenues to meet the respective utilities' ongoing service and financial obligations; 4 Operating Agreement for the Combined Sewer System Serving the Ukiah Valley Sanitation District and the City of Ukiah Page 19 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Introduction iv. Determine the cost of providing sewer service to customers using industry- accepted methodologies; and V. Recommend specific modifications to the existing rate structures in order to ensure that the proposed rates equitably recover the cost of providing service and comporting with industry standards and California's legal requirements. 1.4 STUDY METHODOLOGY This Study applied methodologies that are aligned with industry standard practices for rate setting as promulgated by the Water Environment Federation (WEF) and all applicable law, including California Constitution Article XIII D, Section 6(b), commonly known as Proposition 218. The Study began with reviewing billing data of all customers (both City and District) to identify the number of customers, water use, and estimated sewage volume and strength in both service areas (see Section 2). This data was used to calculate the respective number of"equivalent sewer service strength units" (ESSSUs)5 in both the City and District in order to allocate operating, debt and capital costs to each entity in accordance with the Operating Agreement (see Section 2). The next step was to develop multi-year financial management plans (for both the City and the District) that determined the level of annual rate revenue required to cover estimated annual operating expenses, debt service (including coverage targets), and capital cost requirements while maintaining adequate reserves. The financial planning models were customized to reflect the financial dynamics of both utilities. The respective revenue requirements calculated in the financial plans for fiscal year 2020/21 (FY 2020/21) were then used to perform detailed cost-of-service analyses. The cost-of-service analyses and rate structure designs were conducted based upon s Not to be confused with"ESSU"as defined in the Operating Agreement,as explained in Section 2.1. Page 20 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Introduction principles outlined by the WEF, legal requirements (Proposition 218 and relevant court decisions) and other generally accepted industry practices to develop rates that reflect the cost of providing service. Recommendations for the financial plans and updated rate structures were presented to the City Council and District Board on FebruaryX,2020 and a Public Hearing to adopt the rates has been scheduled for April X,2020. 1.5 REPORT ORGANIZATION Section 2 addresses the relevant content of the Operating Agreement, including how operational expenses, debt service, and capital improvement costs are assigned to each the District and City, as well as how the Agreement's requirements have been interpreted by this Study. Section 3 presents the assumptions, methodology, and findings of the respective financial plans, including proposed debt strategies and rate revenue increases for both utilities. Section 4 describes the proportionate allocation of costs to specific customer classes (using an identical cost-of-service methodology for both utilities). Section 5 describes the proposed rate design structure and includes the proposed rate schedules for both utilities for a 5-year planning period. While the rate structures are identical for both utilities,there are differences in the actual rates due to differences in each utility's finances and customer profiles. Page 21 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Operating AgreementBackground_ Section 2. OPERATING AGREEMENT BACKGROUND The 2018 Operating Agreement between the City and the District includes a number of conditions that guide the approach to this Study. The pertinent conditions are described below, including a description of how those conditions have been interpreted for the purposes of this Study. 2.1 EQUIVALENT SEWER SERVICE UNITS The City operates the combined sewer system as one system with the combined treatment and collection costs apportioned between the City and the District. Section II.D.La.(1) of the Operating Agreement specifies that budgeted operating costs are to be allocated to each party based on their proportionate use of the WWTP, as measured by water consumption and relative strength of sewage discharged to the WWTP by the customers of each utility. For the purpose of performing this allocation of costs between the District and City,this Study defines an Equivalent Sewer Service Strength Unit (ESSSU) as the average winter water usage of a residential dwelling unit at residential strength. This term is not to be confused with the term "ESSU" (equivalent sewerservice unit),which was established bythe Operating Agreement forthe purpose of defining the number Capacity Project units used by each utility. Section 11.E.2 of the Operating Agreement specifies how ESSU values are calculated based on factors such as the number of bedrooms,which is not the case for the determination of ESSSUs for rate setti ng p u rposes. This Study allocates one (1) ESSSU to each residential dwelling unit, including single family homes, multifamily dwellings, and mobile home dwellings. These data were extracted from the City's sewer billing data for FY 2019/20. A summary of all residential dwelling units by utility can be found in Table 1. Page 22 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Operating AgreementBackground_ ESSSU values are assigned to commercial (i.e. non-residential) accounts by comparing the winter water use and sewer strength of each commercial account to an average residential dwelling. The average quantity of water used by residential dwelling customers was calculated based on water usage records from the City's water utility, Millview County Water District, Willow County Water District, and Regina Water Company during the winter months of January, February, and March. The average monthly winter usage across all residential dwelling units in the winter of 2019 was determined to be 5.68 hundred cubic feet(hcf). As detailed in Section 4,the commercial strength classifications include low, moderate, medium, and high and were assigned based on the existing commercial classifications of each commercial account. As required by the Operating Agreement, and consistent with common industry practice, each strength classification is assigned a numerical factordesigned to fairly capture the relative strength of the discharge of each respective class. The calculations regarding the application of the strength factors are detailed in Section 4. The ESSSU assignment for each commercial account is calculated by comparing the account's winter water usage to the average water usage by residential dwellings, and then multiplied by the numerical strength factor assigned to the commercial classification. For example, a commercial medium strength commercial account with month winter water usage of 11.36 hcf would be assigned 3.17 ESSSUs (11.36 hcf divided by 5.68 hcf x 1.5861). See Table 1 for a summary of all ESSSUs by customer class and by utility. 6 Medium Strength Commercial has a strength factor of 1.586,see Section 4.5. 16 Page 23 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Operating Agreement Background_ Table 1.Summary of Accounts, Dwelling Units and ESSSUs by Utility Dwelling ESSSUs Accounts Units Count % Single Family 2,291 2,291 2,291 17.6% Multifamily 162 1,289 1,289 9.9% Mobile Home 11 620 620 4.8% Commercial Low Strength 267 (na) 1,410 10.8% Commercial Moderate Strength 18 (na) 453 3.5% Commercial Medium Strength 5 (na) 82 0.6% Commercial High Strength 21 (na) 399 3.1% Total: 2,775 4,200 6,544 50.16% Single Family 2,724 2,724 2,724 20.9% Multifamily 247 1,455 1,455 11.2% Mobile Home 7 248 248 1.90/0 Commercial Low Strength 545 (na) 1,464 11.2% Commercial Moderate Strength 14 (na) 109 0.8% Commercial Medium Strength 9 (na) 81 0.6% Commercial High Strength 36 (na) 423 3.2% Total: 3,582 4,427 6,503 49.849/o 2.2 ALLOCATION OF OPERATING COSTS The ratio of ESSSUs shown in Table 1 are used to establish each utility's proportionate use of both the collection system and the WWTP for the purpose of allocating annual budgeted operating costs. The exception to this rule are costs related to billing and collection of revenue (which are allocated based on the relative number of accounts in each utility) and costs that are specified to be borne entirely by one utility orthe other'. 7 The only costs that were borne entirely by one utility or the other were specific legal fees and costs associated with the Settlement Agreement. Numerous sources of non-rate revenue were allocated Page 24 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Operating AgreementBackground_ As part of this Study,Consultant reviewed the detailed operating budgets with both City and District staff to ascertain the appropriate allocation methodology of each budgetary line-item. The allocation of annual operating costs are detailed in Schedule 1 (at the end of this report), which shows that most revenues and some expenses are designated as either for the District or for the City. Most expenses are split based on the current ESSSU allocation (50.16% District : 49.84% City, see Table 1), while billing expenses are split based on the proportion of accounts (43.65% District: 52.35% City), and debt expenses are split as dictated by the Operating Agreement in FY 2019/20 (48.0% District : 52.0%) and based on the findings of this Study thereafter (see Section 2.4 ). 2.3 ALLOCATION OF CAPITAL COSTS Section II.D.3.a.of the Operating Agreement states that capital improvement costs that benefit both the District and the City are subject to cost allocation using the allocation methodology (as described in the previous paragraph). The Operating Agreement describes a number of principals for identifying and negotiating capital improvement costs,which are beyond the scope of this report. It is anticipated that the allocation of capital costs will be a process that will be repeated annually between the City and the District. For purposes of this Study,all planned capital projects were identified as either a shared cost (subject to the allocation based on relative ESSSUs) or a City-only expenditure. No projects were identified as District-only. These projects have been summarized in Table 5. 2.4 ALLOCATION OF DEBT Section II.D.2. of the Operating Agreement describes the prescribed methodology for allocating the debt service costs associated with the existing 2006 Bond. In FY 2018/19 directly to one utility of the other, such as miscellaneous fees, property tax revenue, and interest earnings. 16 Page 25 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study OperatingAgreementBackground_ and FY 2019/20 the debt service on the 2006 Bond was split 52.0% City, 48.0% District. Beginning in FY 2020/2125.8414% of the existing debt (the "Capacity" portion) is to be allocated 65% to the District and 35% to the City. The remaining 74.1586% (the "Upgrade/Rehabilitation" portion) is to be allocated based on each utility's proportionate share of winter water usage and relative strength of sewage discharge to the WWTP (i.e. based on the relative number of ESSSUs). With the current ESSSU ratio of 50.16% : 49.84% (see Table 1),the resultant debt service allocation is 53.99%for the District and 46.01%for the City. The City and District plan to each issue new debt in a coordinated manner in FY 2019/20 to refinance the 2006 Bond to take advantage of attractive interest rates. At that point, each entity will be responsible for its own debt service obligations. Estimated debt service schedules for the new debt have been incorporated in the financial plans as provided by the District's and City's respective financial advisors. The only other new debt considered for this Study is the City's financing of its Settlement Agreement costs. The repayment of that obligation will be borne entirely by the City. Page 26 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans Section 3. FINANCIAL PLANS This section presents the financial plans developed for both utilities, including a description of the source data and financial assumptions. This section concludes with 5-year plans for sewer rate adjustments. Schedules 1 through 3 (attached at the end of this report) include detailed data supporting the financial plans discussed herein. This Study's 10-year financial plans were developed through interactive work sessions with City and District staff. As a result of this process, the Study has produced robust financial plans that will help enable both utilities to meet revenue requirements and financial performance objectives throughout the planning period while striving to minimize rate increases. Financial performance objectives include covering all anticipated operating, maintenance, debt service, and capital program costs; maintaining prudent financial reserves; and meeting debt service coverage ratio obligations. 3.1 FINANCIAL DATA&ASSUMPTIONS The City and District provided budgeted operating costs for the current fiscal year, a multi-year capital improvement program (CIP), and outstanding debt service obligations. City and District staff also assisted in confirming other assumptions and policies, such as operating and capital reserve targets, debt service coverage targets, escalation rates for operating costs, and plans for refinancing existing debt (all of which are described in the following subsections). 3.2 SEWER UTILITY OPERATING BUDGET AND FUNDS This Study considered the operating budgets for both the City and the District since all costs associated with sewer operations are subject to cost allocation. The allocation of each utility's operating budget is described below and detailed in Schedule 1. Page 27 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans 3.2.1 DISTRICT OPERATING EXPENSES AND REVENUES The District provided its budgeted expenditures for FY 2019/20, which were used as the starting point for forecasting District costs overthe 10-year planning period.While some costs are split between the District and the City entirely based on the ESSSU allocation methodology, other costs are borne entirely by the District (largely legal fees), and yet other costs are partially directly borne by the District and the remaining balance is split with the City based on the ESSSU methodology. The District provided its actual revenues for FY 2018/19,which were used as the starting point for forecasting District costs over the 10-year planning period. All revenues received directly by the District(as opposed to District rate revenue first collected by the City) are kept by the District (not shared). These revenues include property taxes, interest earnings, and other revenue. 3.2.2 CITY OPERATING EXPENSES AND REVENUES The City's sewer utility is comprised of nine funds that are used to manage the sewer utility's use of funds in a transparent manner. The following describes the purpose of each fund and how this Study's financial plan model reflected the use of those funds. Fund 840 - The City Sewer Operating Fund is the primary operating fund of the City's sewer utility and tracks most operating and maintenance expenditures that are shared by the City and the District. Fund 840 also collects all revenue (including rate revenue) that is designated for the City. Fund 940 - The District Sewer Operating Fund is used to track rate revenue and operating costs that are designated for the District only. Fund 841 - The Sewer Debt Service Fund is used to track all existing debt (both City and District) and is used as a "clearing fund" to allocate those costs, as appropriate, to either Fund 840 or Fund 940. 16 Page 28 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans Fund 842 -The City Sewer Rate Stabilization Fund holds reserves, including reserves that are conditions for debt. Fund 942 - The District Sewer Rate Stabilization Fund holds reserves, including reserves that are conditions for debt. Fund 843 - The City Connection Fee Fund holds funds from connect fee revenues, reserves,which are restricted forthe purpose of paying for growth-related sewer system capital projects. Fund 943 - The District Connection Fee Fund holds funds from connect fee revenues, reserves,which are restricted forthe purpose of payingfor growth-related sewersystem capital projects. Fund 844 - The City Capital Reserve holds unrestricted funds for the use of paying for encumbered capital projects (see Section 3.2.4). Fund 944-The District Capital Reserve holds unrestricted funds for the use of paying for encumbered capital projects. While the financial plan models for this Study was developed with an understanding of these funds, the models did not attempt to replicate the internal movement of all moneys between funds. 3.2.3 BEGINNING FUND BALANCES The FY 2019/20 beginning fund balances for the District and the City are summarized in Table 2 and Table 3 respectively. The District's fund balances are not reported in the "940" fund series nomenclature because the District's books simply recognizes the sum of all the District's cash and equivalents (regardless of where the monies are held). Page 29 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans Table 2: District Beginning Cash Balance(FY 2019/20) FUND BALANCE Cash and investments $6,327,000 Receivable Settlement Agreement $4,000,000 Total: $10,327,000 Table 3: City Beginning Cash Balance(FY 2019/20) FUND BALANCE Fund 840 $1,714,000 Fund 841 $0 Fund 842 $2,975,000 Fund 843 $1,884,000 Fund 844 $0 TOTAL: $6,573,000 Per direction from District staff, the $4 million receivable related to the Settlement Agreement has been shown as part of the beginning balance for FY2019/20 even though the District will not receive the money from the City until sometime during FY 2019/20. 3.2.4 RESERVE TARGETS Reserves for utilities are cash balances that are maintained in order to (a) comply with contractual obligations (e.g. bond covenants), (b) protect the utility from unexpected financial events, and/or (c) accommodate operational and capital program cash flow needs. Often multiple reserves are maintained,each with a specific function. In addition to the direct benefits of financial stability, reserves can help utilities obtain higher credit rankings,which can then help qualify the utility for cheaper debt. Credit rating agencies evaluate utilities on their financial stability, which includes adherence to formally adopted reserve targets. 16 Page 30 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans The City has adopted financial management policies which include guidance with respect to reserve levels. While the District has not formally adopted such policies, the City's policies will be followed for both entities for purposes of this Study. The City's policies call for City enterprise funds (including the sewer utility) to maintain a minimum working capital balance of at least 25 percent of operating expenses. The primary purpose of this balance is to set aside funds to maintain cash balances sufficient to payexpenses as needed and to provide for unanticipated oremergency expenses that could not be reasonably foreseen during the preparation of the budget. The City's financial policies also require thatfund balances and retained earnings should be sufficient to meet debt service reserve requirements, reserves for encumbrances(see Fund 844 and Fund 944),funding requirements for projects approved in prior years that are carried forward (see Fund 844 and Fund 944), and established rate stabilization reserves (as required by bond covenant,see Fund 842 and Fund 942). The above policies are generally consistent with Consultant's industry experience for similar systems. In order to further strengthen the current reserve policies, this Study recommends that (1) the minimum working capital balance be raised to 50 percent of operating expenses (which is common for smaller utilities) and (2) establish a Capital Reserve target equal to the average annual planned capital spending($670 thousand for the District and $646 thousand for the City). The working capital reserve ensures continuity of service regardless of short-term changes in cash flow or sudden increases in operating costs. The Capital Reserve is designed to smooth the inherent variability of the capital spending program. In other words,this reserve would be drawn down during years of higher-than-average capital spending and conversely the reserve would be built up during years when capital spending is below average. Such an approach can help reduce the need for large rate adjustments and help ensure continuous funding for capital replacement and rehabilitation projects. Building on the City's existing reserve policies would establish reserves that are aligned with best practices as reported by reserve studies conducted by the American Water Page 31 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans Works Association (AWWA), and healthy reserve levels for public utilities per the evaluation criteria published by rating agencies (e.g. Fitch, Moody's, and Standard & Poor's). Future customer growth affects this Study in terms of (1) anticipated connection fee revenue, (2) increase in rate revenue, and (3) changes in the ratio of ESSSUs between the City and the District. Based on recent connection fee revenue and known difference in growth potential, this Study assumes that the District's growth rate (assumed to be 0.55% peryear) will out-pace the City's growth rate (assumed to be 0.08% peryear). As a result, the District's ESSSU ratio (currently at 50.16%) is forecasted to slowly increase overtime at a rate of 14 basis points per year(while the City ratio decreases as the same pace). 3.2.6 RATE REVENUES Rate revenue is the revenue generated from customers for sewer service. The City collects all rate revenue from both City and District customers. Rate revenue received from District customers is allocated to the District (in Fund 940) and rate revenue received from City customers is allocated to the City(in Fund 840). Rate revenue for both utilities is collected through a fixed "Base" charge and a variable "Usage" charge, although the rate structures between the City and the District are slightly different (see Section 5.1). This Study's financial plans propose annual rate revenue adjustments that will meet the City and District's respective revenue requirements. Budgeted and projected rate revenues are listed in Schedule 2 (District)'and Schedule 3 (City). 8 The rate revenues in Schedule 2 and Schedule 3 includes the proposed rate adjustment recommended bythis Study,as described in Section 3.3. Page 32 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans 3.2.7 CONNECTION FEE REVENUE Both the City and the District charge a connection fee to new development as a condition for connecting to the sewer system. By law (see California Government Code 66013), connection fee revenue is required to be used "solely for the purposes for which the charges were collected" (i.e. growth-related capital projects). Both the City and the District have indicated that connection fee revenues (and existing reserves from those revenues) are eligible to pay for the Capacity portion of the 2006 Bond debt service (i.e. 25.8% of the debt service). Based on those instructions, this Study uses available connection fee revenues and reserves to pay forthe Capacity portion of the existing debt, as well as the refinancing of that debt. 3.2.8 NON-RATE REVENUES In addition to rate revenue and connection fee revenue, both utilities receive other revenue, including miscellaneous fees, interest earnings on investments, and property tax revenue (District only). Estimates of future interest income were calculated annually based upon estimated average fund balances and historic effective return on cash and invested funds (1.66% for the District and 0.36% for the City). Projections of all other non-rate revenues were based on FY 2018/19 actual revenues for the District and based on FY 2019/20 budgeted revenue for the City. All revenues for the District and City are depicted below in Figure 1 and Figure 2 respectively, and detailed in Schedule 2 (District) and Schedule 3 (City). Note that the connection fee revenue for the District in FY 2019/20 is unusually high due to a large development paying the fees in the current year. Page 33 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study inancial Nans Connection Fees $1,004,000 15.5% Other Income $292,000 Seiner Service charge Revenue $5,153,000 79g% Figure 1: District Revenue Categories(FY 2019/20) Connection Fees Other Income $51,000 $47,000 % 0.9% 1.0 r� se a SoNice Chargie Revenue $S,g33,000 Figure 2: City Revenue Categories(FY 2019/20) Page 34 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans 3.2.9 OPERATION AND MAINTENANCE EXPENSES The combined operating and maintenance expenses include all ongoing collection, treatment, diSp0S8L and administrative expenses. The annual operating and maintenance costs for this Study are based on the City and District's FY 2019/20 budgets and are adjusted f0rfutun8 years based 0n inflation (see Section 3.2.l0\. [>per8tingC0StS are allocated between the City and District 8Sdescribed in Section 2.2. 3.2.10 COST ESCALATION Annual cost escalation factors for the various types of expenses were developed based upon 8 review of historical inflation trends, published inflation f0n8C8StS, industry experience, and discussions with District and City staff. During the projection period, all operating expenses are projected to inCn88Se at 3.096 per year white capital C0StS are projected t0 increase 8t3.596 per year. 3.2.11 DEBT SERVICE The City and District currently share responsibility for repayment of 2006 Revenue Bond. The allocation 0f the costs associated with the 2006 Bond iS described inSection 2.4. /\ piv0t8t topic for these financial plans is the possibility of refinancing the 2006 Bond,which has the potential 0f significantly reducing debt service obligations for both utilities. Based 0nprojected debt service schedules provided by the City'S and District's respective financial advisors, the District's annual debt service would decrease by approximately $520 thousand' and the City'S annual debt service would deCn88Se by more than $l44thousand. The change in the debt service for both entities is affected by the change in the allocation methodology (see Section 2.4). In addition' the District plans to use cash reserves to pay down $2.5 million in outstanding principal and the City will fund part of its Settlement Agreement costs with bond proceeds as well as defer some of the debt service that was previously due in FY 2019/20. Page 35of03 Attachment 1 Ukiah 2020 Joint Sewer Rate Study inancial Nans It is critical to note that the financial plans for this Study assume that the 2006 Bond will be refinanced at the terms and debt repayment schedules provided by the City's and District's respective financial advisors. The terms include the debt service coverage ratio targets (1.25 for the City, 1.40 for the District) and the District's principal payment of$2.5 million from existing cash reserves. The estimated debt repayment schedules are shown in Table 4 (both City and District), based on the debt terms provided by the City and District's financial advisors (2.42%with a 15 year repayment term). Table 4: Estimated Debt Service Schedule For ReFinanced Bond District city Principal Interest Total Principal Interest Total FY2020/21 $1,402,578 $605,121 $2,007,699 $1,393,884 $601,370 $1,995,254 FY 2021/22 $1,436,520 $571,179 $2,007,699 $1,427,616 $567,638 $1,995,254 FY 2022/23 $1,471,284 $536,415 $2,007,699 $1,462,164 $533,090 $1,995,254 FY 2023/24 $1,506,889 $500,810 $2,007,699 $1,497,549 $497,705 $1,995,254 FY 2024/25 $1,543,356 $464,343 $2,007,699 $1,533,789 $461,465 $1,995,254 FY 2025/26 $1,580,705 $426,994 $2,007,699 $1,570,907 $424,347 $1,995,254 FY 2026/27 $1,618,958 $388,741 $2,007,699 $1,608,923 $386,331 $1,995,254 FY 2027/28 $1,658,137 $349,562 $2,007,699 $1,647,859 $347,395 $1,995,254 FY 2028/29 $1,698,264 $309,435 $2,007,699 $1,687,737 $307,517 $1,995,254 FY 2029/30 $1,739,362 $268,337 $2,007,699 $1,728,580 $266,674 $1,995,254 FY 2030/31 $1,781,455 $226,244 $2,007,699 $1,770,412 $224,842 $1,995,254 FY 2031/32 $1,824,566 $183,133 $2,007,699 $1,813,256 $181,998 $1,995,254 FY 2032/33 $1,868,720 $138,979 $2,007,699 $1,857,137 $138,117 $1,995,254 FY 2033/34 $1,913,943 $93,756 $2,007,699 $1,902,079 $93,175 $1,995,254 FY2034/35 $1,960,261 $47,438 $2,007,699 $1,948,110 $47,144 $1,995,254 *The debt service schedules in these tables are not identical to the schedules provided by the City and Districts financial advisors but they are sufficiently similar for purposes of this Study. In the event that the bond is not refinanced, the rate revenue increases would need to be materially larger than those recommended in Section 3.3 in order to meet the financial obligations associated with the existing 2006 Bond. The City is obligated to pay the District $4 million as a result of the Settlement Agreement. The City has paid $1 million with cash reserves, intends to fund another$1.4 million with proceeds from the refinanced bond,and will fund the remaining$1.6 million with an internal loan which will be repaid over a 10-year period at an interest rate of 2.0%. The City's financial advisor advised Hildebrand Consulting that the internal loan Page 36 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study inancial Plans repayment expense is subordinate to all external debt and therefore isn't included in the debt service coverage ratio in this Study. 3.2.12 DEBT SERVICE COVERAGE Debt service coverage is a measurement of the cash flow available to pay current debt obligations. The formula is net operating income (i.e., grow income minus operating expenses) divided by annual debt service. A debt service coverage ratio of 1.0 means that a utility has exactly enough money to pays its debt service after paying its operating expenses. The existing 2006 Bond includes covenants that require the City and District to each maintain a minimum debt service coverage ratio of 1.25. Maintaining a higher debt service coverage ratio is recommended in order to access more favorable borrowing terms in the future. Based on recently published guidance from Fitch Ratings10, utility systems with midrange financial profiles should maintain a DCR greater than 1.50 times annual debt service. Based on guidance provided bythe City's and District's financial advisors,these financial plans target minimum debt service coverage ratios of 1.25 for the City and 1.40 for the District" 3.2.13 CAPITAL IMPROVEMENT PROGRAM As discussed in Section 2.3, the combined sewer system's capital spending is allocated to the City and the District based on terms of the Operating Agreement.Table 5 provides a summary of all capital projects planned through FY 2022/23. Capital spending for FY 2023/24 and beyond is assumed to be equal to the average spending from FY 2019/20 to FY 2022/23 ($1.316 million). 16 As published on July 31,2013. 11 Hildebrand Consulting and The Reed Group are not financial advisors and are therefore not permitted to provide this type of financial guidance to our clients. Page 37 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study inancial Nans Table 5: Capital Improvement Schedule(FY 2019/20 through FY 2022/23) Project Name Split FY 2019/20 FY 2020/21 FY 2021/22 FY 2022/23 FACILITIES/BUILDINGS/LAND Upgrade HVAC Units on Buildings Shared $ - $ - $ 150,000 $ - INFORMATION TECHNOLOGY Utility Billing CIS Replacement Shared $ - $ $ - $ INFRASTRUCTURE Chlorine Residual Valve/Alarm on Discharge Shared $ 150,000 $ $ $ Dora Street Utility Improvement Project-Water&Sewer City only $ - $ 400,000 $ $ Downtown Streetscape Utility Replacement-Water&Sewer City only $ 1,700,000 $ - $ $ Belt Filter Press Replacement Shared $ 500,000 $ $ $ Replace Heat Exchangers Shared $ - $ $ $ Telemetry Shared $ 30,000 $ $ $ STREETS&RIGHTS-OF-WAY AsphaltZipper-SharedCost Shared $ - $ $ $ 40,000 Asphalt Roller-Shared Cost Shared $ $ $ $ 66,000 Asphalt Paver -Shared Cost Shared $ $ $ $ 70,000 VactorReplacement-SharedCost Shared $ $ 150,000 $ $ - WaterTender-SharedCost Shared $ $ 35,000 $ $ Ford/Orchard Lift Station Upgrade Shared $ 100,000 $ - $ $ Replace Water/Sewer Operations Call Truck-Shared Cost Shared $ - $ $ $ 30,000 Telescoping Lift Shared $ 12,000 $ $ $ - Digester Rehabilitation and Methane Scrubber Shared $ - $ $ 1,500,000 $ TFSC REXA Valves Shared $ 30,000 $ $ - $ Field Analyzer Installation Shared $ 25,000 $ $ $ SCADA Upgrade at Waste WaterTreatment Plant Shared $ 200,000 $ $ $ VFD Installation at Wastewater Treatment Plant Shared $ - $ $ 55,700 $ Utility Task Vehicle Shared $ 22,000 $ $ - $ Total: $ 2,769,000 $ 585,000 $ 1,705,700 $ 206,000 Total after escalation: $ 2,769,000 $ 585,000 $ 1,765,400 $ 228,396 City Total: $ 2,224,898 $ 490,838 $ 866,843 $ 112,146 District Total: $ 544,102 $ 94,162 $ 898,557 $ 116,249 3.2.14 FUTURE BORROWING ASSUMPTIONS Aside from the City's financing of the Settlement Agreement (see Section 3.2.11), this Study does not propose any new debt in order to finance the costs of future capital projects. Debt financing is not utilized because none of the capital projects during the planning period are expected to materially impact cash reserves and it is more cost effective to fund ongoing rehabilitation and replacement projects on a pay-as-you-go basis. 16 Page 38 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study inancial Nans 3.2.15 EXPENDITURE SUMMARY The District's FY 2019/20 budgeted operating, capital and debt expense categories are depicted in Figure 3 and detailed in Schedule 2. The City's FY 2019/20 budgeted operating, capital and debt expense categories are depicted in Figure 4 and detailed in Schedule 3. Capital Spending_.__.__._ $536,000 Services& 1910 Supplies $661,000 fr 10.9% `=--�Adminstrative& Overhead $870,000 14.3 Utilities& Chemicals $317,000 S.2% Figure 3: District Budgeted Expense Categories (FY 2019/20) Page 39 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial Plans �11�rriie� Benefits d Services& Supplies $619,000 11.2° Act Overhead & ove $608,,000 Existing Debt:✓ Utiliti Service es&Chemicals 11.0f $623,000 $315,04C1 11.3! 5.7% Figure 4: City Budgeted Expense Categories (FY 2019/20)12 3.3 PROPOSED RATE REVENUE INCREASES All of the above information was entered into separate financial planning models (City and District) to produce 10-yearfinancial plans that evaluated the sufficiency of current revenues to meet current and estimated future financial obligations and determined the level of rate revenue increases necessary in each year of the planning period. Based upon the previously discussed financial data, assumptions, and reserve targets, this Study proposes a 5-year schedule of rate adjustments as detailed in Table 6 for the District and Table 7 for the City. As will be described in the sections that follow, rate structure changes are proposed for the new rates to be effective July 1,2020. 12 Debt service in FY 2019/20 is atypically low due to deferral of debt by the City Page 40 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Financial, Nans Table 6: Recommended District Sewer Rate Revenue Increases e ® July 1, 2020 0.0% July 1, 2021 1.0% July 1, 2022 1.0% July 1, 2023 1.0% July 1, 2024 1.0% Table 7: Recommended City Sewer Rate Revenue Increases July 1, 2020 5.0% July 1, 2021 2.0% July 1, 2022 2.0% July 1, 2023 1.0% July 1, 2024 1.0% As previously emphasized in Section 3.2.11, the above rate increases are directly contingent and dependent on the refinancing of the 2006 Bond, consistent with the anticipated terms and debt repayment schedules provided by the City and District's financial advisors. The cash flow numbers provided in Schedule 2 for the District are summarized graphically in Figure 5. The cash flow numbers provided in Schedule 3 for the City are summarized graphically in Figure 6. 16 Page 41 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study inancial Plans $8 =Non-Rate Revenue Existing Rate Revenue 1111111 Additional Rate Revenue Operating Expenses uiu Debt 111111111 Cash Capital a� Q $6 - X Mimi M a> 5i $4 - a> ai QI $2 $0 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 .. $12 .. .. .. .. o $b ~Ending Fund Balance $6 ---Target Reserves $2 --------------------------------------------------------- $0 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 Rate Revenue Increases: 0.01/. 1.01/. 1.0% 1.01/. 1.0% 1.01/. 1.01/. 1.01/. 1.0% 2.01/6 1.01/. Debt Coverage Ratio: 1.47 1.48 1.48 1.49 1.50 1.50 1.50 1.50 1.50 1.53 1.53 Figure 5: District Financial Forecast with Recommended Rate Increases $10 Non Tate Revenue I:::wsNI 1Rate Revenue uIIIIII Additional Date Revenue Operating f:::7(joenses III I:::)ebt 11111111111 Cash Capital c $8 a) CL X LU $6 IIIVIIii� I�� II II ��II II > $4 - 75 $2 $0 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 $12 ----Ending Fund Balance $10 z $8 ---Target Reserves o $6 ...................... ________-_______ $2 ......---'--------------------.----------------.....--....._.-------------------.. $0 FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 IFY 2025 FY 2026 FY 2027 IFY 2028 FY 2029 FY 2030 IFY 2031 Rate Revenue Increases: 5.0% 2.0% 2.0% 1.0% 1.0% 2.0% 2.0% 2.0% 2.01/6 2.0% 2.0°/o Debt Coverage Ratio: 3.93 1.25 1.27 1.30 1.30 1.29 1.32 1.34 1.37 1.39 1.42 1.54 Figure 6: City Financial Plan Estimates with Recommended Rate Increases Page 42 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study inancial Nans As can be interpreted from Figure 6 and Figure 5, all proposed rate revenue increases are driven by the need to maintain the debt service coverage ratios at their respective targeted levels. Cash reserve levels for both the City and the District are expected to remain above their targeted levels for the duration of the planning period based on planned capital project spending. While rate revenues can't be decreased to lower the cash reserve levels (because of the debt service coverage ratio requirements), both the City and the District should consider increasing the level of capital spending to rehabilitate existing infrastructure (i.e., use the surplus reserves to fund additional projects). 16 Page 43 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service Section 4. COST OF SERVICE Once the respective rate revenue requirements for both utilities have been determined, the next step in the rate setting process is to evaluate the cost of providing service to individual customer classes. A cost-of-service analysis evaluates the cost of providing sewer service and proportionately allocates those costs to customer classes and rate structure components to ensure the proposed rate structure is aligned with the costs of providing sewer service. This is done in orderto be equitable among all ratepayers and to comply with Proposition 218. This Study employed well-established industry practices as recognized bythe WEF,AWWA,and otheraccepted industry standards.The cost-of-service analysis and rate structure proposed by this Study is designed to: / Fairly and equitably recover costs through sewer rates; / Conform to accepted industry practice and legal requirements; and / Provide financial stability and recovery of system fixed costs. The following section presents a detailed description of the cost-of-service and rate structure methodology and the corresponding results. The same cost allocation and rate design methodology has been applied to both the City and the District for consistency. The rate schedules for each utility are different, however, due to the differing revenue requirements and differences in each customer base. 4.1 CUSTOMER STATISTICS To develop equitable sewer rates, the revenue requirement is allocated to various customer classifications according to the services provided and the demands placed on the sewer system. There are a total of 6,358 accounts between the City and the District (see Table 8). For purposes of allocating costs to various customer classes, this Study calculated metrics to measure the use of the sewer system by various customer classes. As explained in Section 2.1, the ESSSUs are assigned to commercial accounts by comparingthe winterwater use and sewer strength of each commercial account to the Page 44 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service average residential winter water use and strength. In addition, this Study measured Equivalent Sewer Service Flow Units ("ESSFUs"), which is a measure of the average winter water use of residential dwelling units (without the strength factor). ESSFUs are assigned to commercial accounts by comparing the winter water use13 of each commercial account to the average winter water usage of all residential dwellings. As with ESSFUs (see Section 2.1), the average quantity of water used by residential dwelling customers was calculated based on water usage records from the City's water utility, Millview County Water District, Willow County Water District, and Regina Water Company. As previously mentioned in Section 2.1, the average monthly winter usage across all residential dwelling units in the winter of 2019 was determined to be 5.68 hcf (or 141 gallons per day). The sewer strength factors forthis Study look at biochemical oxygen demand (BOD) and suspended solids (SS) as these factors play a key role in the cost of treatment plant operations and capital expenditures. Consistent with existing practice by the City and the District, this Study uses five strength classifications: residential, low strength commercial, moderate strength commercial, medium strength commercial, and high strength commercial. Residential customers are assigned standard residential strength factors of 175 mg/l for BOD and 175 mg/l for SS. The strength assumptions for low, moderate, medium, and high commercial strength categories are summarized in Table 8. The strength characteristics used by this Study are the same as current practice for both the City and the District and are consistent with guidelines published by the California State Water Resources Control Board14 "As explained in Section 2.1,this Study defines winter water usage as the average monthly water usage from the previous January through March. 14 California State Resources Control Board Revenue Program Guidelines(March 1998). Page 45 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service Table 8: Account Data and Estimated Sewer Flows and Loadings Annual Indoor Estimated No.of No.of No.of Water Annual BOD Annual SS Annual Accts. ESSFUs ESSSUs Usage Wastewater Strength BOD Strength SS Customer Class (1) (1) (1) (2) Flow (3) Loading (3) Loading hcf MG mg/I Ibs mg/I Ibs Ukiah Valley Sewer District Residential Single Family 2,291 2,291 2,291 185,741 138.93 175 202,775 175 202,775 Multi-Family 162 1,289 1,289 68,511 51.25 175 74,794 175 74,794 Mobile Homes 11 620 620 49,141 36.76 175 53,648 175 53,648 Commercial Low Strength 267 1,410 1,410 89,401 66.87 175 97,599 175 97,599 Moderate Strength 18 433 453 28,149 21.06 200 35,120 200 35,120 Medium Strength 5 52 82 6,015 4.50 500 18,762 500 18,762 High Strength 21 205 399 13,983 10.46 800 69,783 600 52,338 District Totals: 2,775 6,301 6,544 440,941 329.82 552,482 535,036 Residential Single Family 2,724 2,724 2,724 184,342 137.89 175 201,248 175 201,248 Multi-Family 247 1,455 1,455 83,060 62.13 175 90,677 175 90,677 Mobile Homes 7 248 248 17,452 13.05 175 19,052 175 19,052 Commercial Low Strength 545 1,464 1,464 99,345 74.31 175 108,455 175 108,455 Moderate Strength 14 104 109 7,122 5.33 200 8,886 200 8,886 Medium Strength 9 51 81 3,464 2.59 500 10,805 500 10,805 High Strength 36 217 423 14,800 11.07 800 73,862 600 55,396 City Totals: 3,582 6,263 6,503 409,585 306.37 512,985 494,520 Footnotes: (1) From the utility billing system for FY 19-20. (2) Water usage data from average winter usage from 2019(Januarythrough March) (3) Based on existing ordinance assumptions and SWRCB guidelines. 4.2 FIXED VS. VARIABLE COST COMPONENTS Before costs are allocated to individual customerclasses (as defined in 4.1),each utility cost is designated to be recovered either through fixed revenue or variable (i.e., usage- based) revenue. This step uses budget data from a "Test Year" (in this case FY 2020/21) and assigns each budgetary line item to either fixed revenue, variable revenue, or a combination of the two. These expense assignments are summarized in Table 9 (District) and Table 10 (City) in Rows 1 through 12. Some costs are designated to be collected entirely through fixed revenue, such as administrative costs, legal costs, billing costs, and debt service, because these costs do not change regardless of operational activities. Other costs are designated to be collected entirely through Page 46 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service variable revenue, such as utilities, chemical and operational supplies, because those costs can be correlated to wastewater flows. All other costs are allocated based on the "indirect allocation method" (based on the proportionate allocation of all costs that were previously allocated either to fixed or variable). In this case,the indirect allocation results in 57%allocation to fixed revenue and 43%to variable revenue. Rows 13 and 14 are credits of not-rate revenue sources to offset revenue requirements. Connection fees are credits to the variable and fixed categories based on the indirect method, while Miscellaneous Non-Rate Revenue it credited entirely to offset expenses allocated to the fixed category. As a final step in Row 15,the indirect allocation basis is used to allocate the cost of building cash reserves during the Test Year. The tables conclude with the revenue requirements from fixed and variable revenue components. Table 9: District Designation of Fixed vs.Variable Revenue(Test Year) IRevenue Recovery Test Year B Fixed% Variable% Fixed$ Variable$ 1 Salaries and Benefits $1,175,958 57% 43% $669,174 $506,783 2 Professional Services $448,779 57% 43% $255,376 $193,403 3 Operating Supplies $148,974 100% $148,974 4 Utilities and Chemicals $326,894 100% $326,894 5 Administrative $190,712 100% $190,712 6 Training $26,220 100% $26,220 7 Billing $78,960 100% $78,960 8 Legal Fees $56,733 100% $56,733 9 Internal Allocation $212,246 100% $212,246 10 Miscellaneous $61,612 100% $61,612 11 Capital $92,799 57% 43% $52,807 $39,992 12 Debt Service $2,007,699 100% $2,007,699 13 Use of Connection Fees -$518,818 100% 0% -$518,818 $0 14 Misc.Non-Rate Revenue -$295,328 100% -$295,328 15 Change in Fund Balance $1,177,729 57% 43% $670,182 $507,547 16 $5,191,171 Revenue Requirement: $3,467,577 $1,723,593 17 66.8% 33.2% 18 Total Revenue Requirement: $5,191,171 Page 47 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service Table 10: City Designation of Fixed vs.Variable Revenue(Test Year) IRevenue Recovery Test Year B Fixed% Variable% Fixed$ Variable$ 1 Salaries and Benefits $1,158,813 57% 43% $659,418 $499,395 2 Professional Services $438,466 57% 43% $249,507 $188,958 3 Operating Supplies $148,013 100% $148,013 4 Utilities and Chemicals $324,787 100% $324,787 5 Administrative $186,766 100% $186,766 6 Training $25,795 100% $25,795 7 Billing $99,639 100% $99,639 8 Legal Fees $41,876 100% $41,876 9 Internal Allocation $210,878 100% $210,878 10 Miscellaneous $61,215 100% $61,215 11 Capital $492,201 57% 43% $280,085 $212,116 12 Debt Service $2,173,376 100% $2,173,376 13 Use of Connection Fees -$515,602 100% -$515,602 14 Misc.Non-Rate Revenue -$42,186 100% -$42,186 15 Change in Fund Balance $484,098 57% 43% $275,474 $208,624 16 $5,288,135 Revenue Requirement: $3,706,243 $1,581,893 17 70.1% 29.9% 18 Total Revenue Requirement: $5,288,135 4.3 DETERMINATION OF UNIT COSTS After allocating revenue requirements to be recovered through fixed vs. variable revenue, Table 11 shows how both the variable and fixed rate components are converted to unit costs. First the variable sewer rate revenue requirement is allocated evenly between the metrics of flow,biochemical oxygen demand (BOD),and suspended solids (SS). BOD and SS are measures of sewerage strength, which drives many of the variable cost of operation including chemicals, power, and labor. Based on existing practices at the City and District, common practice in the sewer utility rate setting community, and best practices promulgated by associations such as WEF, it is reasonable to allocate variable operating costs evenly between flow, BOD and SS. Unit costs are then calculated by dividing the total cost for each component by the number of units identified in Table 8. For example, the District has approximately 535 6 Page 48 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service thousand pounds of SS and an annual cost of $569 thousand for solid removal, treatment and disposal, therefore the unit cost for SS is $1.06 / lb. These unit costs become the basis for then assigning costs to customer classes. Table 11: Determination of Unit Costs(District and City) Component Parameter Annual Cost Allocation Allocation Allocated to Percentages Percentages Each Quantities for Each Unit Cost for Each Cost Category (1) (2) Parameter Parameter Parameter District Fixed% 66.8% $3,467,577 6,301 ESSFUs $550.36 per ESSFU Variable% 33.2% $1,723,593 Flow(MG) 34% $586,022 329.82 mg $1.33 per hcf BOD(Ibs) 33% $568,786 552,482 Ibs $1.03 per lb SS (Ibs) 33% $568,786 535,036 Ibs $1.06 per lb Revenue Requirement: $6,191,171 Fixed Operating Costs 70.1% $3,706,243 6,263 ESSFUs $591.79 per ESSFU Variable Operating Costs 29.9% $1,581,893 Flow(MG) 34% $537,844 306.37 mg $1.31 per hcf BOD(Ibs) 33% $522,025 512,985 Ibs $1.02 per lb SS (Ibs) 33% $522,025 494,520 Ibs $1.06 per lb Revenue Requirement: $6,288,136 Footnotes: (1) Percentages taken from Tables 9&10 (2) Allocations to parameters are consistent with prior rate studies and rate setting practices. 4.4 ALLOCATION OF COSTS TO USERS (BY CUSTOMER CLASSES) Unit costs are applied to the ESSFUs,annual sewer flows, BOD loadings and SS loadings associated with each customer class to arrive at the allocation of total costs to each customer class. Table 12 presents the allocation of costs to each user class. Page 49 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service Table 12: Allocation of Costs to Users(District and City) Service Charge Costs No.of Water BOD SS Fixed Costs Variable Costs(1) Allocation ESSFUs Usage Strength Strength Customer Class Flow BOD SS of Total (hcq (mg/1) (mg/1) Costs District $550.360/ESSFU $1.33/hcf $1.03/lb $1.060/lb Residential 2,291 185,741 175 175 Single Family $1,260,886 $246,855 $208,759 $215,566 $1,932,065 1,289 68,511 175 175 Multi-Family $709,420 $91,053 $77,001 $79,512 $956,987 620 49,141 175 175 Mobile Homes $341,226 $65,310 $55,231 $57,032 $518,799 Commercial 1,410 89,401 175 175 Low Strength $776,270 $118,816 $100,479 $103,756 $1,099,321 433 28,149 200 200 Moderate Strength $238,366 $37,410 $36,157 $37,335 $349,268 52 6,015 500 500 Medium Strength $28,549 $7,994 $19,316 $19,945 $75,804 205 13,983 800 600 High Strength $112,861 $18,583 $71,843 $55,639 $258,926 6,301 440,941 Totals: $3,467,578 $586,021 $568,785 $568,785 $5,191,171 $591.79/ESSFU $1.31/hcf $1.021 Ib $1.06/Ib Residential 7248 184,342 175 175 Single Family $1,612,040 $242,068 $204,794 $212,441 $2,271,343 83,060 175 175 Multi-Family $861,056 $109,070 $92,275 $95,721 $1,158,122 17,452 175 175 Mobile Homes $146,764 $22,917 $19,388 $20,112 $209,182 Commercial 1,464 99,345 175 175 Low Strength $866,212 $130,454 $110,367 $114,488 $1,221,521 104 7,122 200 200 Moderate Strength $61,482 $9,352 $9,042 $9,380 $89,257 51 3,464 500 500 Medium Strength $30,064 $4,549 $10,995 $11,406 $57,014 217 14,800 800 600 High Strength $128,622 $19,435 $75,163 $58,477 $281,698 6,263 409,585 Totals: $3,706,241 $537,844 $522,025 $522,025 $5,288,135 Total Fixed: $7,173,819 Total Variable Costs: $3,305,487 68.5% 31.5 4.5 CALCULATION OF STRENGTH MULTIPLIERS As introduced in Section 2.1, ESSSUs are calculated based on flow and strength characteristics. "Strength factors" are used to quantify the difference between a moderate, medium, or high strength commercial customer as compared to typical residential customers. The strength factor is made up of two elements: the fixed cost component and the variable cost component. The fixed component is based only on flow (not strength) therefore all customer types receive the same value of 68.5% (see bottom of Table 12). The remaining 31.5% (variable cost) is scaled for each customer class in order to reflect their relative strength of the discharge. This scaling is calculated by dividing the sum of the classes' BOD and SS strength by the sum of residential BOD and SS strength. By way of example, the full ESSSU calculation for High Strength Commercial is shown in Figure 7. 6 Page 50 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Cost of Service (800 mg + 600 rrlgl High Strength Multiplier = 68.5% + x 31.5% = 1.946 (175 mg + 175'gl Figure 7 - Example Calculation - High Strength Multiplier Again, ESSSU assignments for commercial accounts are calculated by comparing the account's winter water usage to the average water usage for residential dwellings (5.68 hcf per month) and then multiplied by the numerical strength factor assigned to the commercial classification. As such, a commercial high strength commercial account with month winter water usage of 11.36 hcf would be assigned 3.89 ESSSUs (11.36 hcf divided by 5.68 hcf x 1.946). The strength multipliers forthe four commercial classes are summarized in Table 13. Table 13: Commercial Strength Factors Classification • Factor Low Strength 1.000 Moderate Strength 1.045 Medium Strength 1.586 High Strength 1.946 16 Page 51 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sce ides SectionS. RATE DESIGN & SCHEDULES The following describes recommended minor modifications the rate structures currently used by the City and the District and concludes with the proposed sewer rates schedules for both the City and the District for the next 5 years. 5.1 EXISTING RATE STRUCTURES The City and District currently charge for sewer services with very similar rate structures. All customers pay a fixed "minimum charge" in addition to a usage charge (based on winter water usage). City Residential: All residential accounts with up to 4 dwelling units pay the minimum charge multiplied by the number of dwelling units. In addition, those accounts pay a (lower) consumption rate based on winter water usage (i.e. the water usage from the previous January). Mobile home and apartments with more than 4 dwelling units do not pay the minimum charge, however their consumption rate is equal to the (higher) Commercial 1 rate. District Residential: All residential accounts pay the minimum charge multiplied by the number of dwelling units. In addition, a consumption rate is charged based on all winter water usage in excess of 3.4 hundred cubic feet (hcf)15. The District defines winter water usage as the average water usage from the previous January through March. City and District Commercial: Commercial properties(i.e. non-residential accounts)are charged the same minimum charge as residential accounts *or* a usage charge based on winter water usage and the applicable usage rate, whichever is greater. There are is 1 hcf is 748 gallons,therefore 3.4 hcf is 2,543 gallons per month (or 85 gallons per day) 16 Page 52 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sce ides fourcommercial classifications,with the higherstrength classifications paying a higher usage rate. 5.2 RATE STRUCTURE RECOMMENDATIONS As described above,the City and District currently have very similar rate structures with only a few minor differences. With the concurrence of both District and City staff, this Study recommends that the rate structures be modified to be identical (although the rates themselves will be different to reflect the different financial needs and objectives of each respective agency). The changes are not expected to be material for either party and having identical rate structures will help the parties coordinate business and rate decisions in the future. All customers pay a fixed monthly Service Charge and a Usage Charge. Residential customers will pay a Service Charge foreach dwelling unit while Commercial customers will pay a Service Charge for each ESSFU11 (with a minimum of one (1) ESSFU per commercial account). The Usage Charge for all customers is determined by multiplying the account's winter water usage by the respective Usage Charge for the customer classification (which accounts for sewer strength). The recommendation to change commercial accounts from the current flow-based structure to a structure with both a fixed component and variable component is to reflect the fact that fixed costs are primarily driven by system capacity (size) which is best measured by flow (i.e. ESSFUs) while variable costs are primarily driven by treatment costs (such as chemicals and energy) which are driven by both flow and strength (i.e. ESSSUs). To be clear, the City's mobile home and apartments will no longer be charged as commercial customers and District residential customers will no longer receive a water 16 ESSFU are calculated based on water usage from the previous winter. Page 53 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sce ides use allowance. Winter water usage will follow the District's convention of using the average of usage values from January, February and March each year. Table 14 presents the proposed Service Charges and Usage Rates recommended for each customer class for both the City and the District for FY 2020/21. Table 14: Sewer Rate Determination (District and City For FY 2020/21) Annual Total Total Indoor Monthly Fixed Total Usage Annual Water BOD SS Fixed Usage Rates Charge Charge Rate Customer Class ESSFUs Use Strength Strength Charges (1) Revenue Revenue Revenue hcf mg/I mg/I $/dwelling unit $/hcf Residential Single Family 2,291 185,741 175 175 $45.86 $3.61 $1,260,886 $671,179 $1,932,065 Multi-Family 1,289 68,511 175 175 $45.86 $3.61 $709,420 $247,567 $956,987 Mobile Homes 620 49,141 175 175 $45.86 $3.61 $341,226 $177,573 $518,799 Commercial Low Strength 1,410 89,401 175 175 $45.86 $3.61 $776,270 $323,051 $1,099,321 Moderate Strength 433 28,149 200 200 $45.86 $3.94 $238,366 $110,902 $349,268 Medium Strength 52 6,015 500 500 $45.86 $7.86 $28,549 $47,255 $75,804 High Strength 205 13,983 800 600 $45.86 $10.45 $112,861 $146,065 $258,926 Totals: 6,301 440,941 $3,467,578 $1,723,592 $5,191,171 Residential Single Family 2,724 184,342 175 175 $49.32 $3.58 $1,612,040 $659,304 $2,271,343 Multi-Family 1,455 83,060 175 175 $49.32 $3.58 $861,056 $297,066 $1,158,122 Mobile Homes 248 17,452 175 175 $49.32 $3.58 $146,764 $62,417 $209,182 Commercial Low Strength 1,464 99,345 175 175 $49.32 $3.58 $866,212 $355,308 $1,221,521 Moderate Strength 104 7,122 200 200 $49.32 $3.90 $61,482 $27,775 $89,257 Medium Strength 51 3,464 500 500 $49.32 $7.78 $30,064 $26,950 $57,014 High Strength 217 14,800 800 600 $49.32 $10.34 $128,622 $153,075 $281,698 Totals: 6,263 409,585 $3,706,241 $1,581,895 $5,288,135 Footnotes: (1) The usage rate applies to 2019 winterwater usage(the average of Januarythrough March). 5.3 PROPOSED RATE SCHEDULES The above rates are proposed to be implemented on July 1, 2020. Subsequently sewer rates would increase by the rate adjustments proposed in Table 6 (for the District) and Table 7 (forthe City). The proposed rate schedules for the next 5 years are summarized in Table 15 (District) and Table 16 (City). Page 54 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Rate Design and Sche ides Table 15: District 5-Year Sewer Rate Schedule July 1, 2020 July 1, 2021 July 1, 2022 July 1, 2023 July 1, 2024 Monthly Service Charge*: $45.86 $46.32 $46.78 $47.25 $47.72 Consumption Rate(per HCF): Residential: $3.61 $3.65 $3.69 $3.73 $3.77 Commercial 1: $3.61 $3.65 $3.69 $3.73 $3.77 Commerciall: $3.94 $3.98 $4.02 $4.06 $4.10 Commercial3: $7.86 $7.93 $8.01 $8.09 $8.17 Commercial4: $10.45 $10.55 $10.66 $10.77 $10.88 *Service Charge is per dwelling unit for residential and per ESSFU for commercial accounts(with a minimum charge of 1 ESSFU). Table 16: City 5-Year Sewer Rate Schedule July 1, 2020 July 1, 2021 July 1, 2022 July 1, 2023 July 1, 2024 Monthly Service Charge*: $49.32 $50.31 $51.32 $51.83 $52.35 Consumption Rate(per HCF): Residential: $3.58 $3.65 $3.72 $3.76 $3.80 Commercial 1: $3.58 $3.65 $3.72 $3.76 $3.80 Commerciall: $3.90 $3.98 $4.06 $4.10 $4.14 Commercial3: $7.78 $7.94 $8.10 $8.18 $8.26 Commercial4: $10.34 $10.55 $10.76 $10.87 $10.98 *Service Charge is per dwelling unit for residential and per ESSFU for commercial accounts(with a minimum charge of 1 ESSFU). 16 Page 55 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Conclusion Section 6. CONCLUSION This Study used methodologies that are aligned with industry standard practices for rate setting as promulgated by WEF, AWWA and all applicable laws, including California's Proposition 218. The proposed annual adjustments to the rates proportionately assign costs to each customer class and customer based on service demands and will allow the City and District to continue to provide reliable and affordable sewer service to customers. The sewer rates will need to be adopted in accordance with Proposition 218,which will require a detailed notice describing the proposed rates to be mailed to each affected property owner or customer at least 45 days prior to conducting a public hearing to adopt the rates. 16 Page 56 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study able of Contents SCHEDULES ®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®®® Schedule 1 - Detailed Allocation of Operational Expenses between District and City Schedule 2 - District Cash Flow Pro Forma Schedule 3 - City Cash Flow Pro Forma Page 57 of 63 Ukiah 2020 Attmgwenfe$tudy Schedule 1 Amount eligible Percent Split Dollar Split to be split District City District City Notes FY 1 1 District Operating 1 I�Wages&Payroll(Personnel) 2 District Manager $49,500 90% 50.2% 49.6% $27,296 $22,204 3 Administrative Assistant/Sec. $50,000 95% 50.2% 49.6% $26,326 $23,674 4 Office Assistant $31,200 95% 50.2% 49.6% $16,427 $14,773 5 Employer Contribution(SS,UE,WC) $6,500 95% 50.2% 49.6% $4,475 $4,025 6 Office Expense 7 Telephone&DSL $1,100 95% 50.2% 49.6% $579 $521 S Dues&Subscriptions $10,622 95% 50.2% 49.6% $5,593 $5,029 9 Office Rent $5,100 95% 50.2% 49.6% $2,665 $2,415 10 Office Utilities $1,500 95% 50.2% 49.6% $790 $710 11 Postage $500 95% 50.2% 49.6% $263 $237 12 Supplies $2,000 95% 50.2% 49.6% $1,053 $947 13 Office Equipment $1,500 95% 50.2% 49.6% $790 $710 14 Software/Web $4,500 95% 50.2% 49.6% $2,369 $2,131 15 Auditing&Fiscal Services 16 Audit Services-FS Preparation $22,000 100% 50.2% 49.6% $11,035 $10,965 17 Accounting/bookkeeping Services $1,500 100% 50.2% 49.6% $752 $746 16 Banking Services $360 100% 50.2% 49.6% $161 $179 19 State Controllers Report $1,500 100% 50.2% 49.6% $752 $748 20 Liability and Property Insurance $6,200 100% 50.2% 49.6% $4,113 $4,067 21 Financial Review/Monthly Reports $55,000 100% 50.2% 49.6% $27,566 $27,412 22 Other Prof&Special Services 23 Engineer Services $20,000 100% 50.2% 49.6% $10,032 $9,966 24 Mapping Services(GIS) $1,000 0% 50.2% 49.6% $1,000 $0 25 Computer Services/Hardware $2,500 100% 50.2% 49.6% $1,254 $1,246 26 County Auditor(property tax admin) $2,500 0% 50.2% 49.6% $2,500 $0 27 Financial Consulting Contract $15,000 75% 50.2% 49.6% $9,393 $5,607 26 Publication&Legal Notices $105 100% 50.2% 49.6% $53 $52 29 Legal Fees 30 Bond Refinancing $60,000 0% 100% 0% $60,000 $0 Expense reduced to$0 in FY2020/21 31 Dispute Resolution&Arbitration $200,000 0% 100% 0% $200,000 $0 Expense reduced to$0 in FY2020/21 32 District Legal Support $60,000 50% 50.2% 49.6% $45,048 $14,952 33 Training/Transportation/Tr-el 34 Travel to Seminars(Board) $4,000 100% 50.2% 49.6% $2,006 $1,994 35 Travel for District Manager $2,500 90% 50.2% 49.6% $1,379 $1,121 36 Staff Training and Development $3,000 100% 50.2% 49.6% $1,505 $1,495 37 Seminars/Conferences $3,500 100% 50.2% 49.6% $1,756 $1,744 District mldl m dlldm mw 36 PROPERTY TAX CURRENT SECURED -$54,400 0% 100% 0% -$54,400 $0 39 PROPERTY TAX CURRENT UNSEC -$1,634 0% 100% 0% -$1,634 $0 40 SUPPLEMENTAL ROLL TAX -$1,170 0% 100% 0% -$1,170 $0 41 PROPERTY TAX PRIOR UNSECUR -$93 0% 100% 0% -$93 $0 42 HOMEOWNERS PROP TAX RELIEF -$437 0% 100% 0% -$437 $0 43 INTEREST -$65,170 0% 100% 0% -$65,170 $0 44 SPECIAL TAX-FIREASSMT -$76,792 0% 100% 0% -$76,792 $0 45 Other Income -$2,465 0% 100% 0% -$2,465 $0 46 OTHER -$21,697 0% 100% 0% -$21,697 $0 Fund 1 Operating 47 42421 WASTE DISCHARGE PERMIT -$429 0% 0% 100% $0 -$429 46 42422 GREASE TRAP PERMIT FEES CITY -$306 0% 0% 100% $0 -$306 49 44170 PLAN CHECK FEES -$6,163 0% 0% 100% $0 -$6,163 50 44621 SEWER 1 RESIDENCE(CITY) -$2,117,905 0% 0% 100% $0 -$2,117,905 51 44622 SEWER 2 RESIDENCE(CITY) -$194,112 0% 0% 100% $0 -$194,112 52 44623 SEWER 3 RESIDENCE(CITY) -$42,154 0% 0% 100% $0 -$42,154 53 44624 SEWER 4 RESIDENCE(CITY) -$120,933 0% 0% 100% $0 -$120,933 54 44625 SEWER RESIDENTIAL/UNIT(CITY -$526,122 0% 0% 100% $0 -$526,122 55 44626 SEWER COMMERCIAL(CITY) -$274,369 0% 0% 100% $0 -$274,369 56 44627 SEWER COMM LOW PER UNIT CITY -$670,130 0% 0% 100% $0 -$670,130 57 44626 SEWER COMM MODERATE/UNITCIT -$66,666 0% 0% 100% $0 -$66,666 56 44629 SEWER COMM MEDIUM/UNITCITY -$61,435 0% 0% 100% $0 -$61,435 59 44630 SEWER COMM HIGH/UNITCITY -$265,593 0% 0% 100% $0 -$265,593 60 44631 SEWER APARTMENTS CITY -$471,059 0% 0% 100% $0 -$471,059 61 44632 SEW LAT INSPECTION FEE-CITY -$2,652 0% 0% 100% $0 -$2,652 62 44633 SEWER MOBILE HOMES CITY -$176,095 0% 0% 100% $0 -$176,095 63 44640 CONNECTION FEES -$500 0% 0% 100% $0 -$500 64 44732 SEW LAT INSPECTION FEE-UVSD -$357 0% 0% 100% $0 -$357 65 44630 REIMBURSABLE JOBS $0 0% 0% 100% $0 -$1,075 66 46110 INTEREST ON INVESTMENTS -$6,664 0% 0% 100% $0 -$6,664 67 44620 SALES OF PROPERTY -$3,621 0% 0% 100% $0 -$3,621 S1-1 Page 58 of 63 Ukiah 2020/MUGlhWWbte1Study Schedule 1 Amount eligible Percent Split Dollar Split to be split District City District City Notes III I � 66 54103 LAB SUPPLIES $20,000 100% 50.2% 49.6% $10,032 $9,966 69 56125 LAB EQUIP-REPAIR&MAINT. $10,000 100% 50.2% 49.6% $5,016 $4,964 70 51110 REGULAR SALARIES&WAGES $1,266,534 100% 50.2% 49.6% $635,286 $631,248 71 51120 NON-REGULAR SALARIES&WAGES $7,000 100% 50.2% 49.6% $3,511 $3,469 72 51210 RETIREMENT)PERS) $156,008 100% 50.2% 49.6% $78,253 $77,755 73 51220 INSURANCE $255,474 100% 50.2% 49.6% $128,144 $127,330 74 51230 WORKERS COMP $93,228 100% 50.2% 49.6% $46,763 $46,465 75 51240 MEDICARE $20,742 100% 50.2% 49.6% $10,404 $10,338 76 51130 OVERTIME SALARIES&WAGES $53,000 100% 50.2% 49.6% $26,584 $26,416 77 51250 UNEMPLOYMENT $14,365 100% 50.2% 49.6% $7,205 $7,160 76 51290 CELL PHONE STIPEND $4,737 100% 50.2% 49.6% $2,376 $2,361 79 51140 STAND-BY SALARIES&WAGES $35,000 100% 50.2% 49.6% $17,556 $17,444 SO 51211 PERS UNFUNDED LIABILITY $248,440 100% 50.2% 49.6% $124,616 $123,824 61 61300 BILLING&COLLECTION ALLOCATIO $171,680 100% 43.7% 56.3% $74,943 $96,737 Shared based on#of accounts 62 61600 GARAGE ALLOCATION $72,904 100% 50.2% 49.6% $36,568 $36,336 63 61420 BUILDING MAINTENANCE ALLOCATIO $5,232 100% 50.2% 49.6% $2,624 $2,606 64 61422 IT ALLOCATION $95,841 100% 50.2% 49.6% $48,073 $47,768 65 61500 INSURANCE ALLOCATION $157,031 100% 50.2% 49.6% $78,766 $78,265 66 61200 PURCHASING ALLOCATION $46,426 100% 50.2% 49.6% $23,287 $23,139 67 61430 CORP YARD ALLOCATION $16,763 100% 50.2% 49.6% $6,406 $6,355 SS 61700 DISPATCH $16,603 100% 50.2% 49.6% $6,326 $6,275 69 62100 ADMIN&OVERHEAD ALLOCATION $249,789 100% 50.2% 49.6% $125,293 $124,496 90 54100 SUPPLIES $142,000 100% 50.2% 49.6% $71,226 $70,774 91 54101 POSTAGE $700 100% 50.2% 49.6% $351 $349 92 55100 TELEPHONE $4,600 100% 50.2% 49.6% $2,406 $2,392 93 55210 UTILITIES $312,200 100% 50.2% 49.6% $156,598 $155,602 94 56300 BUILDING MAINT.&REPAIR $18,000 100% 50.2% 49.6% $9,029 $6,971 95 57100 LEARNING AND DEVELOPMENT $37,500 100% 50.2% 49.6% $18,810 $18,690 96 52100 CONTRACTUAL SERVICES $405,298 100% 50.2% 49.6% $203,295 $202,003 97 52150 LEGAL SERVICES/EXPENSES $20,000 100% 50.2% 49.6% $10,032 $9,966 96 56120 EQUIPMENT MAINTENANCE&REPAIR $287,000 100% 50.2% 49.6% $143,958 $143,042 99 57300 MEMBERSHIPS&SUBSCRIPTIONS $7,600 100% 50.2% 49.6% $3,912 $3,666 100 54320 SOFTWARE $42,000 100% 50.2% 49.6% $21,067 $20,933 101 52113 PLANNING STUDIES $125,000 100% 50.2% 49.6% $62,699 $62,301 Projected annual expense=$25K 102 52160 SECURITY SERVICES $1,500 100% 50.2% 49.6% $752 $746 103 54330 COMPUTER AND TECHNOLOGY $27,000 100% 50.2% 49.6% $13,543 $13,457 104 56210 FUEL&FLUIDS $47,500 100% 50.2% 49.6% $23,826 $23,674 105 59100 PROPERTY TAXES PAID $10,750 100% 50.2% 49.6% $5,392 $5,356 106 59101 FEES $33,300 100% 50.2% 49.6% $16,703 $16,597 107 59400 OTHER EXPENSES $10,000 100% 50.2% 49.6% $5,016 $4,964 106 54102 SMALL TOOLS $27,000 100% 50.2% 49.6% $13,543 $13,457 109 56130 EXTERNAL SERVICES $40,000 100% 50.2% 49.6% $20,064 $19,936 110 56410 EQUIPMENT RENTAL-PRIVATE $2,000 100% 50.2% 49.6% $1,003 $997 111 56510 REIMBURSABLE JOBS $5,000 100% 50.2% 49.6% $2,506 $2,492 112 52114 COMPLIANCE STUDIES $25,000 100% 50.2% 49.6% $12,540 $12,460 113 54700 FINES&PENALTIES $50,000 100% 50.2% 49.6% $25,080 $24,920 114 55200 PG&E $33,000 100% 50.2% 49.6% $16,553 $16,447 115 56504 FACILITY MAINTENANCE&REPAIR $20,000 100% 50.2% 49.6% $10,032 $9,966 116 56201 WATER PURCHASES $1,000 100% 50.2% 49.6% $502 $496 117 56202 TREATMENT PLANTCHEMICALS $240,000 100% 50.2% 49.6% $120,383 $119,617 Fund 841(CitV Debt Fund) FY 2019/20 Budget mld ddw u 116 46110 INTEREST ON INVESTMENTS -$21,297 100% 52.0% 46.0% -$11,074 -$10,223 II F �uu mium 119 52500 TRUSTEE FEES $8,000 100% 50.2% 49.6% $4,013 $3,967 S1-2 Page 59 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Schedule 1 Amount eligible Percent Split Dollar Split to be split District City District City Notes Fund 842[CitV Rate Stabilization) FY 2019/20 Budget mldl dlldmmw 120 461101NTEREST ON INVESTMENTS -$7,720 100% 0% 100% $0 -$7,720 Fund 843[CitV Connection Fee) FY 2019/20 Budget IN, dlldmmwE� MMM7 121 461101NTEREST ON INVESTMENTS -$5,694 MOM100% 0% 70007 $0 -$5,694 122 44770 SALE OF RECYCLED WATER $000% 0%M11 $0 $700 Fund 844[CitV Capital Fund) FY 2019/20 Budget mldl m dlldm mw 123 46110 INTEREST ON INVESTMENTS -$10 100% 0% 100% $0 -$10 Ills F iuu miuI 124 53000 LAWSUIT SETTLEMENT $1,000,000 100% 0% 100% $0 $1,000,000 125 52150 LEGALSERVICES-CITY ONLY $0 100% 0% 10091. $0 $15,737 Fund 1 Operating 126 42421 WASTE DISCHARGE PERMIT $0 0% 100% 0% $0 $0 127 42423 GREASE TRAP PERMIT FEES(UVSD) -$100 0% 100% 0% -$100 $0 126 44721 SEWER 1 RESIDENCE(UVSD) -$1,456,626 0% 100% 0% -$1,456,626 $0 129 44722 SEWER 2 RESIDENCE(UVSD) -$79,946 0% 100% 0% -$79,946 $0 130 44723 SEWER 3 RESIDENCE(UVSD) -$17,539 0% 100% 0% -$17,539 $0 131 44724 SEWER 4 RESIDENCE(UVSD) -$69,650 0% 100% 0% -$69,650 $0 132 44725 SEWER RESIDENTIAL/UNIT(UVSD -$1,026,504 0% 100% 0% -$1,026,504 $0 133 44726 SEWER COMMERCIAL(UVSD) -$65,050 0% 100% 0% -$65,050 $0 134 44727 SEWER COMM LOW/UNIT(UVSD) -$769,429 0% 100% 0% -$769,429 $0 135 44725 SEWER COMM MODERAT/UNIT UVSD -$240,662 0% 100% 0% -$240,662 $0 136 44729 SEWER COMM MEDIUM/UNIT UVSD -$76,227 0% 100% 0% -$76,227 $0 137 44730 SEWER COMM HIGH/UNIT UVSD -$252,579 0% 100% 0% -$252,579 $0 136 44731 SEWER APARTMENTS(UVSD) -$676,634 0% 100% 0% -$676,634 $0 139 44732 SEW LAT INSPECTION FEE-UVSD $0 0% 100% 0% $0 $0 140 44733 SEWER MOBILE HOMES UVSD -$391,655 0% 100% 0% -$391,655 $0 141 44735 SEWER COMM LEACHATE UVSD -$3,111 0% 100% 0% -$3,111 $0 142 46110 INTEREST ON INVESTMENTS -$17,693 0% 100% 0% -$17,693 $0 143 46110 MISCELLANEOUS RECEIPTS $0 0% 100% 0% $0 $0 144 46130 COLLECTION OF BAD DEBTS $0 0% 100% 0% $0 $0 145 48150CASH OVER/SHORT $6,590 0% 100% 0% $6,590 $0 146 46116 MISCELLANEOUS INCOME $0 0% 100% 0% $0 $0 147 52101 UVSD-PREP OFSCO REPORT $0 0% 100% 0% $0 $0 146 52102 UVSD-CONSULTANT SERVICES $0 0% 100% 0% $0 $0 149 52105 UVSD-SHARE CAP PROJECTS844 $0 0% 100% 0% $0 $0 u F �uu mium 150 5 2100 CONTRACTUAL SERVICES $30,690 0% 100% 0%Mmm $30,690 $0 Used previous year actual' Fund 842(District Rate Stabilization) FY 2019/20 Budget m mw 151 46110INTERESTONINVESTMENTS -$1 0% 100% 0% -$1 $0 Fund 843(District Connection Fee) FY 2019/20 Budget mld ddw u 152 44640 CONNECTION FEES -$1,003,701 0% 100% 0% -$1,003,701 $0 Used TYD actuals 153 46110 INTEREST ON INVESTMENTS -$10,665 0% 100% 0% -$10,665 $0 u F �uu mium 154 61 300 BILLING&COLLECTION ALLOCATIO $3,332 0% 100% 0% $3,332 $0 155 62100 ADMIN&OVERHEAD ALLOCATION $1,313 0% 100% 091. $1,313 $0 Fund 844(Distrit Capital Fund) FY 2019/20 Budget mld ddw u 156 46110 INTEREST ON INVESTMENTS $24 0% 100% 0% $24 $0 157 44635 REIM BURSEM ENTS/RETAINAGE -$34,066 0% 100% 0% -$34,066 $0 u F �uu mium 156 61 300 BILLING&COLLECTION ALLOCATIO $607 0% 100% 0% $607 $0 S1-3 Page 60 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Schedule 2 SCHEDULE 2 - District Cash Flow Proforma ftil Forme Fe III Feniiim Mud Fe Forme Final Fe am Foniiim Fe Fonoeee FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 1 Sewer Rate Revenue Increase: 0.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 2.0% 1.0% Revenue 2 Sewer Service Charge Revenue $5,162,702 $5,162,702 $5,191,171 $5,271,708 $5,353,496 $5,436,552 $5,520,896 $5,606,550 $5,693,532 $5,781,863 $5,871,565 $6,021,374 3 Change due to growth $28 469 $28 626 $29 070 $29 521 $29 979 $30 444 $30 917 $31 396 $31 883 $32 378 $33 204 4 Increase due to rate,adtustments $0 $51 912 $52 717 $53 535 $54 366 $55 209 $56 065 $56 935 $57 819 $117 431 $60 214 Non-Rate Revenues 5 Other Income $49 661 $24 907 $25 156 $25 408 $25 662 $25 919 $26 178 $26 440 $26 704 $26 971 $27 241 $27 513 6 OtherO emtin Revenue $3,211 $3,243 $3,275 $3,308 $3,341 $3,374 $3,408 $3,442 $3,477 $3,511 $3,546 $3,582 7 Interest Earnings $104,778 $130217 $149724 $151293 $165528 $169,770 $173,705 $177,295 $180,502 $183,284 $185599 $188,374 8 Pro e Tax $56 564 $59 001 $61 543 $64 195 $66 961 $69 846 $72 855 $75 994 $79 269 $82 684 $86 247 $89 963 9 Special Tax $77 962 $77 962 $77 962 $77 962 $77 962 $77 962 $77 962 $77 962 $77 962 $77 962 $77 962 $77 962 10 Connection Fees $1,,,003701 $186,896 $186,896 $186,896 $186,896 $186,826 $189,826 $189,826 $186,896 $189,896 $186,896 $186,896 11 Settleme nt Agree merit Rev $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0... 12 Grant Revenue $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 13 Total Revenue $6,458,578 $5,673,397 $5,776,265 $5,862,558 $5,962,902 $6,054,663 $6,147,553 $6,241,561 $6,336,672 $6,432,874 $6,588,866 $6,689,082 O&M Costs 14 Salaries and Benefits $1,152,847 $1,175,904 $1,202,710 $1,230,117 $1,258,139 $1,286,790 $1,316,083 $1,346,034 $1,376,655 $1,407,962 $1,439,970 $1,472,695 15 Professional Services $516,537 $448,759 $463,488 $478,698 $494 403 $510 619 $527,363 $544 652 $562 504 $580 936 $599 968 $619 618 16 Operating Supplies $144628 $148967 $153857 $158905 $164119 $169502 $175060 $180799 $186725 $192844 $199161 $205685 17 Utilities and Chemicals,,, $317,359 $326,879 $337,609 $348,687 $360,127 $371,939 $384,135 $396,729 $409,732 $423,158 $437,021 $451,335 18 Administrative $185 149 $190 704 $196 963 $203 426 $210 100 $216 991 $224 107 $231 454 $239 040 $246 873 $254 961 $263 312 19 Training $25455 $26219 $27079 $27968 $28,886 $29,833 $30811 $31,821 $32,864 $33,941 $35,053 $36,201 20 Billing $78882 $78960 $81552 $84228 $86,992 $89,845 $92791 $95,833 $98,974 $102,217 $105,566 $109,024 21 Legal Fees $315,080 $56,732 $58,594 $60,517 $62,502 $64,552 $66,669 $68,855 $71,112 $73,442 $75,848 $78,332 22 Internal Allocation $206,055 $212,237 $219,203 $226,396 $233 823 $241 493 $249,412 $257 589 $266 031 $274 749 $283 750 $293 043 23 Miscellaneous $59,815 $61,610 $63,632 $65,720 $67,876 $70,102 $72,401 $74,775 $77,225 $79,756 $82,369 $85,067 24 Total Operating Expenses $3,001,807 $2,726,970 $2,804,686 $2,884,663 $2,966,967 $3,051,666 $3,138,833 $3,228,540 $3,320,863 $3,415,879 $3,513,668 $3,614,312 Capital 25 Total Capital Spending $536,204 $92,795 $885,514 $110,688 $732,099 $757,722 $784,243 $811,691 $840,100 $869,504 $899,936 $931,434 26 Bond Proceeds(net of issuance costs) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 27 Cash Funded CapitalProjects $536 204 $92 795 $885 514 $110 688 $732 099 $757 722 $784 243 $811 691 $840 100 $869 504 $899 936 $931 434 28 Existing Debt Service $2,536 235 $2,007 699 $2,007 699 $2 007 699 $2,007,699 $2,007,699 $2 007 699 $2 007,699 $2 007,699 $2 007,699 $2 007,699 $2,007699 29 One-time Principal Contribution $2,500,000 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 30 New Debt Service $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 31 Total Capital Expenses $5,572,439 $2,100,494 $2,893,213 $2,118,387 $2,739,798 $2,765,421 $2,791,942 $2,819,390 $2,847,799 $2,877,203 $2,907,636 $2,939,133 32 Total Revenue Requirement $8,574,247 $4,827,464 $5,697,900 $5,003,050 $5,706,765 $5,817,088 $5,930,775 $6,047,931 $6,168,662 $6,293,082 $6,421,303 $6,553,445 33 Beginning Year Balance(allfunds*) 10,326,633v 7,862,662 9,040,516 9,135,262 9,994,770 10,250,907 10,488,483 10,705,261 10,898,891 11,066,901 11,206,693 11,374,255 *includes restrcted connection fee funds 34 Use of Connection Fees for Existing Debt $655,399 $518,818 $203,277 $186,896 $186,896 $186,896 $186,896 $186,896 $186,896 $186,896 $186,896 $186,896 35 Surplus/(Shortfall) ($2,463,971) $1,177,854 $94,746 $859,508 $256,137 $237,576 $216,779 $193,630 $168,010 $139,792 $167,562 $135,637 36 End of Year Balance 7,862,662 9,040,516 9,135,262 9,994,770 10,250,907 10,488,483 10,705,261 10,898,891 11,066,901 11,206,693 11,374,255 11,509,893 37 Minimum Reserve Target x $2,161,215 $2,023,796 $2,062 654 $2,102 643 $2 143 795 $2,186 144 $2 229,728 $2 274,581 $2 320,743 $2 368,251 $2 417 145 $2,467,467 38 Available Cash $5 701 447 $7 016 720 $7 072 608 $7 892 127 $8 107 113 $8 302 338 $8 475 533 $8 624 310 $8 746 158 $8 838 442 $8 957 110 $9 042 426 39 Rest,-icted Fund Balance(Connection Fees).... ..$348 302 .... $16 381 .... $0 .... $0 .... .$!) .... $0 .... $0.... ..$0 .... $0 .... $0.... ...$0 .... $0.... Debt Coverage Calculations Total Revenue Available for Debt Service 40 ...with Connection Fees $3 456 771 $2 946 427 $2 971 579 $2 977 895 $2 995 935 $3 002 997 $3 008 720 $3 013 020 $3 015 809 $3 016 995 $3 075 198 $3 074 771 41 ...without Connection Fees $2 453 070 $2 759 531 $2 784 683 $2 790 999 $2 809 039 $2 816 101 $2 821 824 $2 826 124 $2 828 913 $2 830 099 $2 888 302 $2 887 875 42 Total Yearly Parity Debt Payment $2,536,235 $2,007,699 $2,007,699 $2,007,699 $2,007,699 $2,007,699 $2,007,699 $2,007,699 $2,007,699 $2,007,699 $2,007,699 $2,007,699 43 Debt Coverage Ratio,(with Connection Fees) 1.36 1.47 1.48 1.48 1.49 1.50 1.50 1.50 1.50 1.50 1.53 1;53 44 Debt Covera a Ratio without Connection Fees0.97 1.37 1.391.39 1.40 1.40 1.41 1.41 1.41 1.41 1.44 1.44 S2-1 Page 61 of 63 Attachment 1 Ukiah 2020 Joint Sewer Rate Study Schedule 3 SCHEDULE 3 - City Cash Flow Proforma D"W FWOOW FaOont FOONd Fog Faroat Fa00nt Faooaat Fo -m Fog Fatud Fare ad FY 2020 FY 2021 FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 FY 2029 FY 2030 FY 2031 1 Sewer Rate Revenue Increase: 5.0% 2.0% 2.0% 1.0% 1.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0 Revenue 2 Sewer Service Charge Revenue $5 032 575 $5 032,575 $5,288 135 $5 398 030 $5 510 207 $5 569 614 $5 629 662 $5 746 653 $5 866 076 $5 987 980 $6 112 418 $6 239 442 3 Change due to growth $3,932 $4,131 $4,217 $4,305 $4,351 $4,398 $4,490 $4,583 $4,678 $4,775 $4,875 4 increased ue to rate adjustments $251,629 $105,763 $107,961 $55,102 $55,696 $112,593 $114,933 $117,322 $119,760 $122,248 $124,789 5 Non-Rate Revenues 6 Other Income $3,621 $3,657 $3,694 $3,731 $3,768 $3,806 $3,844 $3,882 $3,921 $3,960 $4,000 $4,040 7 OtherOperatingRevenue $19187 $19,379 $19572 $19768 $1%966 $20166 $20,367 $20,571 $20,777 $20,984 $21194 $21496 8 Interest Earnings $23 847 $19,150 $20 906 $21 437 $21943 $25 595 $21984 $21454 $21007 $23,641 $23 356 $23 153 9 Connection Fees $50,500 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 10 Total Revenue $5,129,729 $5,360,821 $5,472,701 $5,585,644 $5,648,791 $5,709,728 $5,826,348 $5,945,483 $6,067,185 $6,191,504 $6,318,492 $6,448,205 O&M Costs 11 Salaries and Benefits $1136144 $1158,867 $1,,,178783 $1,199034 $1,21%622 $1,240555 $1,261,838 $1,283,476 $1305,475 $1327,841 $1350581 $1373699 12 Professional Services $475 555 $438,486 $450 395 $462 623 $475,181 $488 075 $501,315 $514,91,1 $528,871 $543,296 $557 925 $573 039 13 Operating Supplies $143709 $141020 $152040 $156,168 $160,407 $164760 $1„69,222 $17181„9 $178,532 $181371 $188339 $193441 14 Utilities and Chemicals $3 15 341 $324,802 $333 623 $342,681 $351,983 $361 534 $371,341 $381,41,2 $391,753 $402,372 $413 275 $424 470 15 Administrative $181335 $186,775 $191848 $197056 $202,405 $207898 $213,537 $219,329 $225,275 $231,381 $237651 $244088 16 Trainin9,,,,,,, $25 045 $25,796 $26 497 $27 216 $27,955 $28 714 $2%493 $30,292 $31,114 $31,957 $32 823 $33 712 17 Billing $96737 $9%639 $102345 $105124 $107,978 $110998 $1,13,916 $117,096 $129,178 $121435 $126,780 $130214 18 MlnorCapita1 $0 $0 $0 .. $0 $0 .. $0 $0 $0 $0 $0 $0 $0.. 19 Legal Fees $40,658 $41,877 $43,015 $44,183 $45,382 $46,613 $47,878 $49,176 $50,510 $51,879 $53,284 $54,728 20 Internal Allocation $204 745 $210,887 $216 615 $222 496 $228,536 $234 737 $241,105 $247,644 $254,358 $261,252 $268 331 $275 600 21 Miscellaneous $59,435 $61,218 $62,881 $64,588 $66,341 $68,141 $69,990 $71,888 $73,837 $75,838 $77,893 $80,003 22 Total Opera tingExpenses $2,678,703 $2,696,367 $2,758,041 $2,821,170 $2,885,789 $2,951,934 $3,019,643 $3,088,952 $3,159,902 $3,232,532 $3,306,882 $3,382,995 Capital Costs 23 Total Capital Spending $2 232 796 $492,,205 $879 885 $109 984 $727 445 $752 906 $779 257 $806 531 $834 760 $863 977 $894 216 $925 513 24 Settlement Agreement Payment,(Cash) $1000000 Capital25 Cash Funded Prolects $ $492,205 $879 885 $109 984 $727,445 $752 906 $779,257 $806,531 $834,760 $863,977 $894 216 $925 513 26 Existng Debt Service $623370 $1995,254 $,1,995254 $1,995254 $1,995,254 $1,995254 $1,995,254 $1,995,254 $1995,254 $1995,254 $1995254 $,1995254 27 Internal Loan Repayments $0 $178,122 $178 122 $178 122 $178 122 $178 122 $178122 $178 122 $178 122 $178 122 $178 122 $0 28 New DebtService $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 29 Total Settlement&Capital Expenses $3,856,166 $2,665,581 $3,053,261 $2,283,361 $2,900,821 $2,926,282 $2,952,634 $2,979,908 $3,008,136 $3,037,353 $3,067,592 $2,920,767 30 Total Revenue Requirement $6,534,869 $5,361,949 $5,811,302 $5,104,530 $5,786,610 $5,878,216 $5,972,276 $6,068,860 $6,168,038 $6,269,885 $6,374,474 $6,303,762 31 Beginning Year Balance(all funds*) 6,572,638 $5,278,086 $5,762,060 $5,908,561 $6,874,775 $7,054,576 $6,886,089 $6,740,160 $6,616,784 $6,515,930 $6,437,549 $6,381,567 'includes restricted connection fee funds 31 Use of Connection Fees for Existing Debt $161,088 $515,602 $515,602 $515,602 $348,120 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 $30,500 32 Surplusl(Shorffall) ($1,294,552) $483,974 $146,501 $966,215 $179,801 ($168,488) ($145,928) ($123,377) ($100,854) ($78,381,) ($55,982) „$144,443,,,, 33 End of Year Balance 5,278,086 5,762,060 5,908,561 6,874,775 7,054,576 6,886,089 6,740,160 6,616,784 6,515,930 6,437,549 6,381,567 6,526,010 34 Minimum Reserve Target $1 995 465 $2 004,297 $2,035 134 $2,066 699 $2,099,008 $2,132,081 $2 1,65,935 $2,200,590 $2 236,065 $2 272,380 $2 309 555 $2 347 611 35 Available Cash 3,282,620 $3 757,763 $3,873 426 $4,898 077 $4,955,568 $4,754 008 $4,574225 $4,416,194 $4 279,865 $4 165,169,,,, $4 072,012 $4 178 399 36 Restricted Fund Balance(Connection Fees) 1,772,924 1,287,823 802,721 317,620 Debt Coverage Calculations 37 wth Connection Fees $2 451 026 $2 486,331 $2,536 538 $2,586 351 $2,584,880 $2,579,672 $2 628,583 $2,678,409 $2 729,160 $2 780,849 $2 833 488 $3 065 210 38 without Connection Fees $2 400 526 $2 455,831 $2,506 038 $2,555 851 $2,554,380 $2,549 172 $2 598,083 $2,647,909 $2 698,660 $2 750,349 $2 802 988 $3 034 710 39 Total 4$95 54$99 54 9 25 1,5,2 e D Yearly Parity Debt Payment $623,370 $1,9954 $ 995,254 $1,995, 4 $1, 95,254 $1,995,2 $1, 5,254 1,995,2 $1,9 ,254 1,995,25 $1,99 .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... .... 5,,254 $1,995,254 40 Debt Coverage Ratio(with Connection Fees) 3.93 1.25 1.27 1.30 1.30 1.29 1.32 1.34 1.37 1.39 1.42 1.54 41 Debt Coverage Ratio(without Connection Fei 3.85 1.23 1.26 1.28 1.28 1.28 1.30 1.33 1.35 1.38 1.40 1.52 S3-1 Page 62 of 63 ATTACHMENT 2 Wastewater Rate Study Presentation (Placeholder — Presentation will be made available when received.) 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