HomeMy WebLinkAbout2021-02-09; City Council; ; Status of Wastewater FundCA Review _ RMC__
Meeting Date: Feb. 9, 2021
To: Mayor and City Council
From: Scott Chadwick, City Manager
Staff Contact: Vicki Quiram, Utilities Director
vicki.quiram@carlsbadca.gov, 760-438-2722
Ryan Green, Finance Director
ryan.green@carlsbadca.gov, 760-602-2414
Subject: Status of Wastewater Fund
Districts: All
Recommended Action
Receive a report on the status of Wastewater Fund.
Executive Summary
On Nov. 19, 2019, the City Council and Carlsbad Municipal Water District Board of Directors
adopted Resolution No. 2019-244, which approved rate increases for wastewater service.
Wastewater rates had not increased for the previous four years. The resolutions approved 3%
rate increases for calendar years 2020 and 2021.
Wastewater rates for the City of Carlsbad continued to remain among the very lowest in the
region. Given current fund balances and spending targets, Wastewater Fund balances may only
support the City Council-adopted Wastewater Master Plan Capital Improvement Program goals
with additional rate increases beginning in 2022. Staff estimates current rates must increase by
5%-10% each year to fund these goals, which may put the city’s rates closer to the mid-range
when compared with other cities and districts in San Diego County.
Sustained investment in the city's aging wastewater infrastructure is critically needed to
prevent sewer spills, protect the health and safety of city residents and visitors and safeguard
the natural environment, including parks and beaches. These critical goals may only be met
with future rate increases.
Discussion
On Sept. 17, 2019, the Carlsbad City Council approved an updated Sewer Master Plan via
Resolution No. 2019-183. Implementation of this plan added $63 million over the next 15 years
for capital costs to maintain and upgrade the wastewater system throughout the city. These
costs increased the wastewater capital budget from an average of $8 million to $12 million per
year. These upgrades are needed to repair aging assets, extend the useful life of infrastructure,
meet federal and state regulations and continue to provide environmentally compliant
wastewater services to Carlsbad customers.
Feb. 9, 2021 Item #4 Page 1 of 4
In 2019, staff also worked with a consultant on a cost-of-service study, which included a
financial model and rate analysis. Wastewater rates had not increased for four years,
from 2016 to 2019 and major repairs were deferred until the Sewer Master Plan was
approved. The deferral of major repairs resulted in accumulated reserve funds. The
updated cost-of-service study and Sewer Master Plan were necessary to determine the
need for future rate increases.
In its Nov. 19, 2019, approval of Resolution No. 2019-244, the City Council and Carlsbad
Municipal Water District Board of Directors approved a 3% increase in wastewater rates
beginning in January 2020 and an additional 3% increase beginning in January 2021.
The accompanying staff report also summarized the plan to use approximately 42% of
operating reserves and $18.3 million in capital reserves over the subsequent two years
to fund capital improvements, draw reserves down to the city standard and smooth rate
increases. The financial model that was included in the cost-of-service study showed that
higher increases are needed in future years. While rates increased in 2020 and 2021, the
city has maintained some of the very lowest rates in the region. If the rates in Carlsbad
were adjusted to sustain the Capital Improvement Program plan, rates are estimated to
increase by 5%-10% each year. This increase would move rates closer to the mid-range
of other cities and districts’ rates in San Diego County.
The table below further breaks down the fund balance by type as of June 30, 2020, with
notes to explain the purpose and expectation of these balances:
Wastewater Fund balances1
Fund type Balance as of
6/30/2020 Notes
Operations $4.5 million
unrestricted
The operations reserves are slightly below the 40%
target, which is about $7 million. This balance can be
increased over the next five years with rate
increases.
Connection
fees
$5.2 million
restricted
Capital Improvement Program projects totaling $22
million (10 projects) are programmed over the next
15 years. Connection fees are paid by new
development. A shortfall in revenue will necessitate
project delays.
1 Fund balances are presented on a consolidated level in the city’s Comprehensive Annual Financial Report.
Feb. 9, 2021 Item #4 Page 2 of 4
Fund type Balance as of
6/30/2020 Notes
Replacement $28.7 million
unrestricted
Capital Improvement Program projects totaling $209
million, about half of which are Encina Wastewater
Authority capital projects, are programmed over the
next 15 years. Higher rate increases will be needed
to support these projects. However, staff is revisiting
the program to better schedule the work that can be
accomplished each year. This revised timeline will be
integrated into the next cost-of-service study rate
model.
Sewer
benefit
areas2
$6.5 million
restricted
Staff is analyzing projects that may be candidates for
the use of these funds.
The improvements identified in the 2019 Sewer Master Plan Update are required to maintain a
fully functioning wastewater collection system and treatment facility. The city’s sustained
investment in its aging wastewater infrastructure is essential to prevent sewer spills, protect
the health and safety of its residents and visitors, and safeguard the natural environment,
including Carlsbad’s parks and beaches. Based on this plan, and the cost-of-service study, rate
increases will be required to fund these improvements.
Additional factors impacting the cost of wastewater operations
In addition to the planned Capital Improvement Program increases, the following realities and
unexpected events are increasing the cost of providing wastewater service:
• Aging infrastructure of both the city and Encina Wastewater Authority
• Delayed project implementation resulting in higher construction costs
• Decreasing wastewater volumes associated with water conservation causing higher
treatment costs at Encina Wastewater Authority due to strength and volume reduction
• Encina Wastewater Authority’s California Public Employee’s Retirement System
retirement liability payoff
• Encina Wastewater Authority’s $95 million of capital requirements for infrastructure
over the next 10 years
• Construction projects at Agua Hedionda and Foxes Lift Stations exceeding budget
• Emergency repairs that are not accounted for in the budget
2 Sewer benefit areas designate additional fees charged above the general capacity fee to pay for planned facilities
that serve more than one development project in a specific area.
Feb. 9, 2021 Item #4 Page 3 of 4
•Expected sanitary sewer overflow fines associated with the April 2020 rains and caused
by the City of Vista's trunk line backup into the City of Carlsbad's lateral sewer lines
The COVID-19 pandemic has also caused a shift in wastewater generation and revenue as
people use more water at home and some businesses remain closed, necessitating a
reconsideration of how wastewater rates are structured.
Fiscal Analysis
This staff report does not authorize any changes to budget or appropriations, so there is no
fiscal impact at this time. The longer-range fiscal impact will be explored in the future, as
outlined in the section below.
Next Steps
Staff is reexamining the Capital Improvement Program plan and considering which projects may
need to be delayed and which project budgets need to be revisited. Staff will also be updating
the 2019 cost-of-service study in 2021, in preparation for the next round of rate increases in
2022. Any proposed changes in rates based on the 2021 cost-of-service study results will be
brought before the City Council for its consideration and approval.
Environmental Evaluation (CEQA)
This action does not constitute a “project” within the meaning of the California Environmental
Quality Act under Public Resources Code section 21065 in that it has no potential to cause
either a direct physical change in the environment or a reasonably foreseeable indirect physical
change in the environment and therefore does not require environmental review.
Public Notification
Public notice of this item was posted in keeping with the Ralph M. Brown Act and it was
available for public viewing and review at least 72 hours before the scheduled meeting date.
Exhibits
None.
Feb. 9, 2021 Item #4 Page 4 of 4
Vicki Quiram, Utilities Director
Ryan Green, Finance Director
Status of Wastewater Fund
Feb. 9, 2021
Carlsbad’s wastewater rates
•Wastewater rates for the City of Carlsbad continue
to remain among the very lowest in the region
•The Wastewater Master Plan Capital Improvement
Program goals require additional rate increases,
likely beginning in 2022
•Staff estimates rate increases of 5%-10%, in the
near future, each year to fund these goals
2
History
•Rates held flat for four years 2016 through 2019
•Sewer Master Plan Update was required before:
•Capital projects could be added to the CIP
(Master Plan)
•Rate increases could be justified (Cost of
Service Study)
3
History (cont.)
•Sewer Master Plan Update approved on Sept. 17, 2019
•$63M additional over next 15 years was needed for
repair and rehabilitation of the aging wastewater system
•An average annual increase of $4.3 million to $12 million per
year
•This includes paying our share of the costs of Encina
Wastewater Authority JPA
4
•Sewer operations –$4.5 million unrestricted
-Generated when revenues exceed expenses and transfers out. Is used for day to day operations and to fund Sewer Replacement Fund
•Sewer connection –$5.2 million restricted for capital assets
-Fees collected for connection to the system to pay for use of initial infrastructure
•Sewer benefit areas –$6.4 million restricted
-Collected in specific development areas to pay for planned facilities (constructed by developers or the city) that serve more than one neighborhood in a specific area
•Sewer replacement –$28.7 million unrestricted
-Funds are transferred in from the Sewer Operations Fund to replace aged infrastructure built with Sewer Connection Fund and Sewer Benefit Area Fund funds
(Balances are as of June 30, 2020)5
Sewer funds and fund balances
6
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
Transfers to Sewer Replacement Fund
•Cost of Service Study or Rate Analysis completed in 2019
•In order to properly operate and maintain the city’s
wastewater system, 3% rate increases were approved to occur
in Jan. 2020 and Jan. 2021, with a plan to use reserves to
flatten the needed increase
•Financial model suggested rates needed to increase
significantly over the following years to meet projected cash
flow needs
7
History (cont.)
8
Wastewater rate comparison 2019
Regional Monthly SFR Wastewater Bill
$160
$140
iii $120
>-:E $100 E 0 ~ $80
$60 ------------- ---
$40 01U111 11 1III $20
$-
-Fixed Charge
-Commodity Charge
Wastewater Budget
•30,000 connections
•Collection System
–288 miles, 11 lift stations, 6,000 access holes
•Encina Wastewater Treatment Facility
•Carlsbad Water Recycling Facility
•Complying with all regulations to protect public
health and the environment 24/7
9
$2.1 Billion in Aging Utilities Assets
10
Footage Percentage
< 10 Years 24,362.90 1.73%
10-50 Years 1,119,265.00 79.66%
50-100 Years 261,455.00 18.61%
> 100 Years
1,405,082.90 100.00%
11 FY2021 Budget Proposal
Utilities Asset Management
Goal –Manage the lifecycle of sewer assets in
a way that minimizes costs while providing
appropriate levels of service at acceptable
levels of risk.
12
Asset Management Master Plan
•Added to Master Plans for the first time
•*Data-driven CIP Budget Forecast estimates
•More accurate 15-year estimates
•Transition to performance-based planning
*Asset Mgmt program budgets include Sewer Condition Assessment (5513) and Sewer
Line Refurbishments and Replacement (5503)
13
Capital Projects
14
Pipe Age
FY22 FY23 Total
Encina Capital Projects $5,383,095 $6,217,360 $11,600,455
Buena Interceptor Sewer Improvements $750,000 $4,486,296 $5,236,296
Orion Center $1,500,000 $2,202,975 $3,702,975
SCADA Improvements $1,198,200 $-$1,198,200
Sewer Line Capacity Improvements $870,000 $-$870,000
Sewer Line Refurbishments And Replacement $1,850,000 $1,850,000 $3,700,000
Terramar Area Coastal Improvements $500,000 $500,000 $1,000,000
Vista Carlsbad Intercepter -Rehabilitation (VC1 &
VC2)$1,795,000 $-$1,795,000
Historical & Future Capital Investment
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
Capital Expenses Capital Expenses Adjusted for Inflation Capital Projection
8-29
16
Gravity Sewer and Access Hole Renewal Cost Forecast
c
0 -n,
6.0
5.0
'E 4.0
00 C
-0 ::::,
u 3.0 X Q)
C 0
~ 2.0 -VI 0 u
1.0
ID ~ N
"'$12 .9M difference
between age-based and
condition-based forecasts
Condition assessment over the next 5-10 years wi ll provide long-
term condition-based forecast
00 N C> N
C> N V \D 00 a ~ tS ~ a N N N N N
• Condition-Based
C> N V \D g g g g
N N N N
---Age-Based
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Projects
•Current/Recent Sewer Line Refurbishment Projects:
–Condition assessments on wet wells at sewer lift stations
–Performed condition assessments on Batiquitos and VC trunk lines
–Palomar Airport Rd at Yarrow/Airport intersection break repair
–Terramar Improvement Area sewer main replacement (replacing two lines with defects and relocating manholes/mains b/c of roundabout)
–Highland and Chinquapin sewer main replacement collapsed sewer mains progress
–Forcemain improvement at Poinsettia LS add surge tank
17
Next Steps
•Continue to prepare CIP Budget with special
attention to project needs and timing
•Complete Cost of Service Study
•Return to Council with CIP Budget and
Recommended Rates
18
Questions
19
Summary of Capital Expenses
FY2021 Budget Proposal
Capital Summary FY2020Budget 2020 Projectionof FY2021 FY2021Proposed $Change %Change
EWPCF – Capital Improvements $17,594,480 $20,374,951 $16,921,000 ($3,453,951) -17.0%
EWPCF – Planned Asset Rehabilitation & Replacement $969,600 $989,000 $989,500 $500 0.1%
EWPCF – Capital Acquisitions $341,100 $348,000 $346,700 ($1,300)-0.4%
Remotes Facilities – Acquisitions & Rehabilitation $920,300 $939,000 $3,176,500 $2,237,500 238.3%
Subtotal $19,825,480 $22,650,951 $21,433,700 ($1,217,251) -5.4%
Salaries & Benefits $2,665,096 $2,718,000 $2,815,323 $97,323 3.6%
Total Capital Expense $22,490,576 $25,368,951 $24,249,023 ($1,119,928) -4.4%
8-10
FY2021 Proposed Budget
FY2021 Budget Proposal8-18
FY21 Liquid -Primary ($6.4M)
Primary Area
Improvements
$6.4M (Constr.)
FY2021 Budget Proposal8-19
FY21 Liquid -Secondary ($500k)
Sec. Clarifiers & Strainers $500k
(Constr.)
FY2021 Budget Proposal8-20
--------.,.
Digester Nos. 4, 5, 6 Improvements
$500k (Const.)
FY21 Solids -Digestion ($500k)
FY2021 Budget Proposal8-21
FY21 Solids -Biosolids($310k)
Solids Thickening Improvements$210k
Heat Dryer 1 Rehab.
$100k
FY2021 Budget Proposal8-22
Cogen Engine
Full Overhaul$900K
FY21 Energy Management ($900K)
FY2021 Budget Proposal8-23
As Needed
Contractor $1.0M
Professional
Services $1.28M
FY21 General Plant Assets ($4.8M)
Plant-Wide
Painting and
Coating $55k
Flow EQ Settlement
$600k
Other
Misc.
$460k
Climate Control
and HVAC
Improvements
$1.0M
ORF Carbon
Replacement
$100k
FY2021 Budget Proposal8-24
Cogen Wall
Repair$1.5M
FY21 Unanticipated Projects ($3.25M)
Biosolids Mgmt.
Plan$350k
Dryer Safety
$500k
Network
Improvements
Phase 1&2
$900k South Parcel Ag.
Mitigation Fee
$284k
FY2021 Budget Proposal8-25
FY20/21 Capital Improvement Program
15-year CIP Overview:
•Sewer Connection -New developments for increased capacity projects
•$22 M programed (10 projects)
•Current balance 5.2M New development connection fees?
•Sewer Replacement -transfers from the operating fund
•$255M ($209M remaining) programed
•23 city pipeline repair rehab and replacement projects
•Encina Capital Project: $135 million (53%)
•Should be moving approx. $12M/year from the operating fund into the replacement fund. Currently $5M (depreciation only)
•Started 2 years ago -raised rates and used reserves began analysis
29
Rate history
•Wastewater rates have been held flat for the past four years, as the utility experienced lower
than anticipated expenditures for several years in a row that increased the reserves. The
recommended revenue increase is 3% effective for one year beginning Jan. 1, 2020, and 3% for
one year beginning Jan. 1, 2021. A portion of wastewater operating reserves will be used to
offset the rate increases.
•The proposed rate increases are needed primarily for:
–EWPCF's three-year 100% CalPERS retirement liability payoff
–Increased energy and chemical costs
–Capital budget for EWPCF infrastructure of $95 million over the next 10 years
–Approximately $63 million over 15 years in the city's approved FY 2019-20 CIP for
assessment, repair and rehabilitation of the wastewater system to extend the useful life of
the system assets
–Basic increases in the city's operating costs due to inflation
30
31
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0 0 0 0 0
0 0 0 0 0 \ 0 0 0 0 0 0 0 0 0 0
0 0 0 0
~ 0
0 0 0 00 0 0
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0 000000 Co 0 g 0 0 0 0 0 0 0 \ 0
0 0 0 0 0 <> -00 0 ~ 0 0 <> % 0
<2 oo O ooo 0
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32
CAPITAL IMPROVEMENT PROGRAM
MULTI-YEAR PROJECTS
Actual FY20H Bud,g:et Fi'2-Q2-0 Rl!commended Ff2.02:1
liquid Process $ 6,545,058 $ 7,602,220 $ 7,500,00()
Outfall $ 28,406 $ 567,000 $ ll6,000
5'1/ids Process $ 2,368,524 $ 3,611,5.60 $ 1,66D,OOO
E.11ergy .M'a11ageme11t $ 913,686 $ 450,000 $ 900,000
General $ 161,491 $ 4,178,700 $ 3,966,000
Technokilgy $ $ $ 1,385,000
Profess.ionol Services $ 2,066,46.1 $ 1,175,000 $ 1,284,000
Total EWPCF -Capital lm,provement:s $ U .083,616 $ 17,594,480 $ 16,921,000
EWPCF-Planned As.sl!t Rl!habilit:ltion. & Replacement s 772,090 s 969,600 s 9&9.500
EWPCf -Ca,pital Acquisillions s 4,10,240 $, 341,100 $ 346,700
Remote Fadlioes -Acquisitions & Rehabilitatiion $ 48&,305 $ 920,300 s 3,176.900
Perwnnl!I $ 2,,417,309 $ 2,665,096 s 1,815,323
T,otal Capit3'I 1Expensl! $ 16,171.51'0 $, 22,4,!lOiS,76 $ 24;2A!l,023
33
ENCi NA WASTEWATER AUTHORITY Budget I Fiscal Y,eair 2.021
EWPCF -CAP ITAL IMPROVEMENTS
Org Objert !Project Description Amount Totals.
912101 8300 11005 ~imary Area Improvements s 6,400,000
9'H02 8300 13007 Secondary Olarifiers and Strainers Improvements $ 500,000
912102 8300 13022 Secondary Flow Equalization Basin Settlement s 600,000
Total liquid Process $ 7,500,000
92101 8300 21006 Ocean Outfal I -Integrity Assessment s 226,000
Total Out/ull $ 226,000
9'2101 8300 31002 Solids Thickening Improvements s 210,000
9'2102 8300 32013 Di~ester Rellabilitation and Improvements s 500,000
92101 8300 3.3025 Heat Dryer 1 Rellab s 100,000
92102 8300 3.30-26 Heat Dryer Safety Phase 3 1[from HAZOP) $ 500,000
92102 8300 3.3027 Biosolid:s Mana~ement Plan Upd<ate s 3.S0,000
Total Solids Process $ 1,6'60,000
92102 8300 41007 Cogen Engine FuD Overhaul 900,000
34
911.101 .8.300 51r002 OJtF Carbon Med:ia Replacement s 101,000
912.102 .8300 5~0-21 Climate Cammi at MCCs andl Cogen Suildin,g s 400,000
9'2.101 .8.300 53:004 Adm in Building ChiJler R-eplacement s 610,000
9'2.101 .8.300 51032 Plant-Wide Asse,t Paintiin.g andl Protective Coating s 55,000
!U101 .8.300 53016 Cogen Wall Repair s 1,500,000
912102 .8300 54005 Im pleme nt Minor C.oru:liticm Assessment Rernmmeru:lations s 15-D,000
911.101 .8.300 5A006 As-Needed Contractor Services s 1,000,000
9,1.101 .8.300 5A007 Miscellaneous. Buildin,g Rehabilitaliion s 150,000
Total G!!"1era1 s 3,966,000
912101 8300 6.2708 Docum ent Management S','sltem Up:grade s 160~000
91.102 .8.300 61205 Network Im prove men ts Phase 1 & 2 s 900,000
912101 8.300 61514 As-Needed SCAOA ln~liation Ser\Aices s 325,000
T,otal Tedma!c,gr s 1,3.85,000
911.101 .8300 B.l!0:16 Asset Conditio n Assessmenms -EWPCF s 11.00,00CJ
912101 .8.300 B.3001 E-CAMP Update s 150,000
911.101 8.300 84001 Exite111Sion of Staff E°'gineering Services. s 650,000
912.10.2 .8300 84002 Research and Develapmen.t Projects Servkes s 100,000
9!2.102 .8300 B.5009 South Parcel Agricultural Mitigation F-ee s 284,000
Total Professiano, SeNices $ 1,284,000
Total EWPClr -Ca;pital lmpmvements: $ 16,9121,000
FY 2019-20 results
•Reduced usable fund balance (excludes non-SBA and capital assets) by $0.8 million
-Revenues exceeded expenses by $1.3 million
•COVID-19 resulted decrease in commercial and industrial revenue
•These wastewater rates are based on water consumption
-$0.5 million in net additions to capital (additions less depreciation)
•Finished year better than COS study plan, largely due to lower than expected CIP execution
35
Capital Improvement Program
36
Sewer Fund FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21
Connection $6.7M $9.2M $17.6M $6.7M
Replacement $6.1M $24.7M $24.9M $10.8M
Beginning fund balances:
Higher than average CIP expenditures post-2019.
Capital Improvement Program
Encina Capital Projects:
•FY 2012 through FY 2020 average annual budget: $3.5
million
•Forecast 15-year CIP average annual budget: $7.0 million
City 15-year CIP average annual budget:
•Connection: $1.2 million
•Replacement: $10.8 million (includes $7.0 million for Encina)
37