HomeMy WebLinkAbout2021-09-28; City Council; ; Status of Wastewater and Water Funds CA Review __RMC__
Meeting Date: Sept. 28, 2021
To: Mayor and City Council/President and Board Members
From: Scott Chadwick, City Manager/Executive Manager
Staff Contact: Vicki Quiram, Utilities Director/General Manager
vicki.quiram@carlsbadca.gov, 760-438-2722
Ryan Green, Finance Director
ryan.green@carlsbadca.gov, 760-602-2414
Subject: Status of Wastewater and Water Funds
Districts: All
Recommended Action
Receive a report on the status of wastewater and water funds.
Executive Summary
As discussed at the Feb. 9, 2021 City Council meeting, significant rate increases will be required
in 2022 to support the City Council-adopted Wastewater Master Plan Capital Improvement
Program goals and Encina Wastewater Authority operating and capital expenses. Wastewater
rates for the city trend among the lowest in the San Diego County region while operational and
capital improvement costs continue to increase. Wastewater treatment costs are determined
by the wastewater authority and are passed through directly to the Wastewater Enterprise
Fund, and then to the city’s wastewater customers. The wastewater authority’s costs make up
29% of the Council approved operating budget and 32% of the Council approved sewer
replacement capital budget for fiscal year 2021-22. The numbers in this report may change
slightly as the final models are being refined and will be presented when Council considers the
Cost of Service study and sets the public hearing.
Discussion
Wastewater
The wastewater rate increases for a single-family residential home that uses seven units of
water are expected to be approximately as follows:
2021
(current)
2021 local
average*
Potential
increase
Potential
2022 cost
Potential
increase
Potential
2023 cost
Potential
increase
Potential
2024 cost
$29.52 $54.52 $5.90 $35.42 $7.08 $42.50 $8.50 $51.00
*Average of comparable agencies in San Diego County
By 2024, these potential increases will bring the city closer to the current 2021 average cost of
wastewater service in the county. Assuming other districts implement similar increases, the
regional average will continue to increase, which will result in the city’s future rates continuing
Sept. 28, 2021 Item #13 Page 1 of 7
to be lower than the regional average. An alternative to spreading this increase over three
years could be to significantly raise the rates by approximately $18.00 within one year’s time to
catch up to the regional average. This approach would place the city closer to the regional
average in 2022 and would result in future year increases thereafter being lower than projected
increases under the incremental three-year plan.
All other customer classes could expect an increase of similar magnitude. The average
commercial wastewater customer bill could change approximately as shown below. The
Utilities Department plans to visit some of our largest commercial customers to go over their
potential increases before the hearing.
2021 (current) Potential increase Potential 2022 cost Potential increase Potential 2023 cost Potential increase Potential 2024 cost
$236.28 $47.25 $283.53 $56.71 $340.24 $68.05 $408.29
For the Wastewater fund, staff have made major changes in scheduling Capital Improvement
Projects to minimize the increases. However, without the proposed rate increases, additional
changes will have to be made to the timelines for implementing these improvements. This
could increase the risk of infrastructure failures, which could result in sewage overflows.
Rate increases will also be needed for potable and recycled water to support the Capital
Improvement Projects included in the Potable Water Master Plan and Recycled Water Master
Plan that have been adopted as goals by the CMWD Board. Rate increases also support CMWD
purchases of potable water from the San Diego County Water Authority, whose rates for
CMWD are anticipated to increase by 5.5% in 2022. County Water Authority expenses make up
69% of the Council approved potable water operating budget. Encina Wastewater Authority
expenses incurred for the operation of the Carlsbad Water Recycling Facility under a
memorandum of understanding with CMWD make up 14% of the recycled water operations
budget and 28% of the recycled water capital budget.
Staff anticipate returning to the City Council and the CMWD Board in the Fall of 2021 to present
updated cost-of-service studies for potable water and recycled water, which are expected to be
approximately 4% and 6% respectively for multiple years, as well as wastewater, as described
above, and to set the date for a public hearing for rate increases possibly in January 2022.
The City Council received a report on the status of wastewater funds on Feb. 9, 2021, which
identified the need for significant rate increases to continue to operate and maintain the city’s
service to its customers. Major cost drivers for the wastewater rates include the city’s portion
of capital and operating costs for treatment at the Encina Water Pollution Control Facility,
which the wastewater authority owns and operates, and the city’s Sewer Master Plan Capital
Improvement Program goals, which were approved by the City Council on Sept. 17, 2019, by
Resolution No. 2019-183. In addition, the cost of materials and construction have increased
significantly. Materials such as steel, copper, chlorine and odor control chemicals have not only
risen in cost but are now difficult to obtain.
Encina Wastewater Authority’s wastewater treatment costs and capital costs are rising and are
largely beyond city staff’s control. These costs will be going up in 2022, and this projected
increase is one of the major factors why the city’s revenue needs to significantly increase. A
revenue increase for the wastewater fund is imperative to support these costs.
Sept. 28, 2021 Item #13 Page 2 of 7
The chart below shows wastewater revenue in a relatively flat green line against rising costs,
shown as stacked columns.
In addition to the Capital Improvement Program increases, the following conditions and
unexpected events are increasing the cost of providing wastewater service:
• Aging infrastructure throughout the city and within the Encina Wastewater
Authority
• Delayed project implementation by Encina, resulting in higher construction costs
• Decreasing wastewater volumes associated with water conservation causing higher
treatment costs due to more concentrated wastewater that is harder to treat
• The wastewater authority’s decision to pay off 100% of the CalPERS retirement
liability in three years, while other agencies chose to remain closer to 80% funded
(like the City of Carlsbad) or payoff the liability over a longer time span
• The wastewater authority’s $95 million of capital requirements for infrastructure
budgeted over the next 10 years
• Materials such as steel, copper, chlorine and odor control chemicals have not only
risen in cost but are now difficult to obtain
The chart below compares the city’s current average wastewater bill for single-family
residential customers with other agencies in San Diego County. The average monthly
wastewater bill for the San Diego County region is currently $54.52, shown in the dashed
horizontal line, in comparison to Carlsbad’s current $29.52, shown in the light blue bar labeled
Carlsbad. The orange portion of the bar for Carlsbad represent potential increases in 2022, as
described above. The green portions of the other bars represent known increases for other
agencies in the region, which range from 2% to 17%. These numbers do not include increases
that other wastewater agencies are currently considering, which will raise the average
significantly in 2022 and beyond.
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Carlsbad operations includes depreciation. Average depreciation is $4.2 million.
Wastewater Fund revenue vs. expenditures
Carlsbad operations Carlsbad Capital Improvement Program
Encina operations Encina Capital Improvement Program
Revenue
Sept. 28, 2021 Item #13 Page 3 of 7
Potable water and recycled water
CMWD rates will need to increase to keep up with rising water costs from the San Diego County
Water Authority. In January, the water that CMWD buys from the Water Authority will increase
in cost by 5.5%. Staff anticipate rate increases for potable water and recycled water to be
approximately 4% and 6%, respectively, for multiple years. These increases are due to rising
costs to purchase water from the Water Authority, inflation and increased materials costs.
Revenue increases for the water fund will be necessary to continue to purchase and deliver
water for Carlsbad customers.
$29.52
$5.90 Current average $54.52
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
The Carlsbad rate includes the first year of a proposed increase in orange.
Three years of proposed increases remain below the regional average.
Green column tips represent known anticipated increases for other agencies for 2022.
Regional monthly single-family residential
wastewater bill
Sept. 28, 2021 Item #13 Page 4 of 7
The chart below shows water revenue in a green line against costs, shown as stacked columns.
CMWD water rates have remained low compared to the San Diego County region. The chart
below compares the CMWD’s current average water bill for single-family residential customers
with those from neighboring agencies. The average monthly water bill for the region is
currently $90.50, in comparison to Carlsbad’s $71.33. These numbers do not include increases
that other water agencies are currently considering.
Most agencies in the San Diego County region and statewide share the challenges of aging
infrastructure, pension costs, emergency repairs and rising construction costs. The city’s water
and wastewater rates remain among the lowest in San Diego County, and increases are needed
to continue to maintain these systems and protect the health of our community and the
environment that our customers enjoy.
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
CMWD Operations includes depreciation. Average depreciation is $3.9 million.
Potable Water Fund revenue vs. expenditures
CMWD operations (not water purchases)CMWD Capital Improvement Program
Total water purchases Revenue
Sept. 28, 2021 Item #13 Page 5 of 7
Reserve policy
Rate increases in 2020 and 2021 included the use of reserves, or unrestricted fund balances,
but much of those reserves have now been allocated to an updated sewer master plan. In the
FY 2021-22 budget for wastewater, there is an estimated $24 million in capital reserves,
however $35 million is needed to execute the sewer master plan and has been appropriated
creating a $9 million deficit. On the other hand, potable water capital funding is sufficient for
planned projects.
City and CMWD staff are developing a reserve policy for potable water, recycled water and
wastewater, which will be in line with industry standards. This will be presented to the City
Council and the CMWD Board for adoption within the coming year. Historically, staff used an
informal target of at least 40% of annual operating budget for reserve balance for water and
wastewater, without depreciation.
Other alternatives to raising rates
There are other alternatives to raising rates that could be considered. Issuing long-term debt,
such as issuing bonds, state revolving fund loans or other borrowing, has been considered and
utilized to maximize the benefit to our customers and when spreading large, one-time costs
over longer periods makes sense. This is not advisable in this case. Because the costs are
recurring in nature, debt-funding costs would ultimately be passed to our customers, and large
rate increases would still be required. An example of when long-term debt was used recently is
how CMWD used a large state revolving fund loan to build out the city’s recycled water system
while smoothing rates and providing generational equity.
CMWD was also recently selected for a federal grant for a small portion of a recycled water
tank project and applied for a state revolving fund loan for a portion of the wastewater
supervisory control and data acquisition project for flow monitoring. Using these debt options
spreads the impact of large one-time costs and results in generational funding equity. However,
given the recurring nature of the current and forecasted costs, limited revenue and low rates
when compared with the San Diego County region, staff recommend rate increases in the
upcoming years and will continue to analyze debt options in the future as part of holistic
enterprise fund management.
Fiscal Analysis
This staff report does not authorize any changes to budget or appropriations, so there is no
fiscal impact.
Next Steps
Staff will return to the City Council and the CMWD Board in Fall 2021 to present updated cost-
of-service studies for potable water, recycled water and wastewater services and to set a date
for a public hearing for rate increases, possibly to be held in January 2022.
Environmental Evaluation
This action does not require environmental review because it does not constitute a “project”
within the meaning of the California Environmental Quality Act under California 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.
Sept. 28, 2021 Item #13 Page 6 of 7
Public Notification
This item was noticed in accordance with the Ralph M. Brown Act and available for viewing at
least 72 hours prior to the meeting.
Exhibits
None
Sept. 28, 2021 Item #13 Page 7 of 7
Status of Water and
Wastewater Funds
Vicki Quiram, Utilities Director/CMWD General Manager
Ryan Green, Finance Director
Sep. 28, 2021
{city of
Carlsbad
TODAY’S PRESENTATION
Receive an report on the status of water
and wastewater funds.
ITEM 13: WASTEWATER AND WATER FUNDS
{city of
Carlsbad
TODAY’S PRESENTATION
Water
ITEM 13: WASTEWATER AND WATER FUNDS
Recycled water Wastewater
ABOUT RATES
Cost to provide service
Pass-through cost
Water Quality
Environmental Protection
Repairs/Replacements
Maintenance/Operations
Price paid by customer
Homes
Businesses
Apartments
Industry
ITEM 13: WASTEWATER AND WATER FUNDS
BILL -----------
Age of our city 70 years
Infrastructure lifespan 30 -50 years
THE COST OF AGING INFRASTRUCTURE
ITEM 13: WASTEWATER AND WATER FUNDS
$2.1 billion in infrastructure
Encina Treatment Facility 30 -50 years
THE COST OF AGING INFRASTRUCTURE:
ENCINA
ITEM 13: WASTEWATER AND WATER FUNDS
60 years
RATE COST DRIVERS
Bloomberg
Business
Markets
The Price of the Stuff That Makes
Everything Is Surging
Global economic rebound is fueling a blistering commodities rally
By Eddie SQence and Megan Durisin
April 30, 2021, 9:00 PM PDT
LISTEN TO ARTICLE
►4:59
SHARE THIS ARTICLE
I] Share
"# Tweet
in Post
~Email
The prices of raw materials used to make almost everything are
skyrocketing, and the upward trajectory looks set to continue as the world
economy roars back to life.
From steel and copper to corn and lumber, commodities started 2021 with a
bang, surging to levels not seen for years. The rally threatens to raise the
cost of goods from the lunchtime sandwich to gleaming skyscrapers. It's also
lit the fuse on the massive reflation trade that's gripped markets this year
and pushed up inflation expectations. With the U.S. economy pumped up
on fiscal stimulus, and Europe's economy starting to reopen as its
vaccination rollout gets into gear, there's little reason to expect a change in
direction.
LIVE ON BLOOMBERG
Watch Live TV >
Listen to Live Radio >
COST DRIVERS
2” copper tubing 83%
8” PVC pipe
144%
31%
Steel reinforcing bars
Water Rates
WATER COSTS
9%
Depreciation
22%CMWD
Operations
69%Water
Purchases
ESTIMATED 2022 WATER BILL
SOME CONTROL VERY LITTLE CONTROL
COST OF PURCHASED WATER
Cost per Acre Foot
2,500
2,000
1,500
1,000
500
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
WATER REVENUE VS EXPENDITURES
14
0
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Expenses Revenue-
WATER BILL ESTIMATED INCREASE
About $3.67 a month
$75 a month for average household
ITEM 13: WASTEWATER AND WATER FUNDS
16
WATER BILL COMPARISON
$71.33 $90.50
Average bill
$0
$20
$40
$60
$80
$100
$120
$140
*MONTHLY SINGLE FAMILY RESIDENTIAL
Carlsbad
•••••••••• ••••••••••••••••••••••••••••••••••• •• •• •• •• • ••
~'o,e ~'o,e .,~ (b'o, ~ ~'?>4. ~~ -~o ~"'Y ~ -~o" ~+ (b 0 ~~ ~ '&'o-o 0~ ~'?> it 0~ (/>~ -~ ~~ § 0 ~ ~e '?> 6 x;-e 4..$-~ -e~ ~ -~ ~o 0 G <;) (/>~ ~e <;>" c.l ~ ~o -e~ ,'-e ~~ ~e; <;)~ ~ c.f 0(:-~<:-~<.; ~<:-'i:}e t,e; "'t> ~ ee <;)~ ~'t> r.,'l>~ ~ ~,t. ~c,G ~ ~'t> '<:§, a ~o r.,.:1-r.,'l>~ ~~ ~:§, ~'t> -~ ~ ,i..'-e ~ 'W '<e 0
~'?> r.,'l>~
Recycled Water
•Modest rate increase to keep up with expenses
•Recycled water will always be more affordable than
potable rates
•Local supply
•Drought-proof
•Electricity costs affect recycled water
RECYCLED WATER
ITEM 13: WASTEWATER AND WATER FUNDS
Wastewater Rates
Our share of
regional projects
Cost to maintain the system
(Capital Improvement Projects -CIP)
Cost to operate
the collection
system
WASTEWATER COST
Encina Wastewater Authority (CIP)
Our share of
regional operations
Encina Wastewater Authority operations
Depreciation
costs ~
WASTEWATER COST DRIVERS
Significant CIP projects needed
Pension strategy
Materials costs increasing
City Encina
Energy, Chemicals, Hiring
/' /' /' /' /' /' /' /'
WASTEWATER FUND REVENUE VS EXPENDITURES
22
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Expenses Revenue--
Why?
SEWER MASTER PLAN
•New approach with Sewer Master Plan
•Utilized history and technology to assess condition
•Predictive modeling -risk of failure
•More accurate assessment of true high risk needs
•Cost of service study based on new plan and data
•COSS completion scheduled for Oct. 19, 2021
SEWER TREATMENT - ENCINA
•Unlike the past, Encina’s capital plans show Encina
having the ability to deliver more of the necessary
projects
•Cost of projects is increasing significantly
•Disconnect between the cost of projects and the
ratepayers who pay for them
•Almost no control over the cost of their CIP
26
WASTEWATER BILL COMPARISON
*MONTHLY SINGLE FAMILY RESIDENTIAL
Carlsbad
$29.52
Average
$54.52
Highest
$114.62
27
WASTEWATER BILL COMPARISON
*MONTHLY SINGLE FAMILY RESIDENTIAL
$29.52
$5.90 Current average $54.52
$-
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
-_____ / ________ _
POTENTIAL WASTEWATER RATES
Residential
Commercial
2021 2021 local Potential Potential Potent ial Potential Potential Potential
(current) average• . 2022 cost . 2023 cost . Z024 cost increase increase increase
$29,.52 $54,.52 $5.90 $35.4 2 $7.08 $42.50 $8.50 $51.00
2021 Potential Potential Potential Potential Potential Potential
(current) . 2022 cost . 2023 cost • 2024 cost increase increase increase
$236.28 $47.25 $283.53 $56.71 $340.24 $68.05 $408.29
NEXT STEPS
Status of wastewater
and water funds
Public hearing
Cost-of-service study presented
With proposed rate increases and
options
Set public hearing
9/21 Oct. 2021
Notifications mailed to
customers (Prop 218)
New rates go
into effect
Jan. 2022
Customer/ business outreach
5-7 weeks
following
approval
2/19
Update on
funds YOU ARE 0
0
HERE T 0
.... .....
0
TODAY’S PRESENTATION
Receive a report on the status of
water and wastewater funds.
ITEM 13: WASTEWATER AND WATER FUNDS
Thank you