25 th Annual Region VI Pretreatment Association Workshop August 5, 2009

1. Wastewater Rate Equity – Cost of Service, Customer Classes & Surcharges 25th Annual Region VI Pretreatment Association Workshop August 5, 2009

2. Presentation Outline • Dallas Water Utilities (Morgan) • Utility Summary • Rate Charges • Utility Rate Basics (Jennifer) • Revenue Requirements • Wastewater Rate Cost of Service • Wastewater Rate Structure • Customer Classes • Significant Industrial User Surcharges • Retail Customer Classes • Customer Class Study (Morgan Set-up, then Randy) • Benchmarking • Information Collection • Sampling Statistics • Sampling • Grouping & Results

3. Dallas Water Utilities is a large, Municipally owned regional water/wastewater supplier • Self-supporting • Costs are driven by infrastructure requirements for both growth and renewal • Responsibility for planning for water requirements for service area

4. City of Dallas Water Utilities Fact Sheet • The department is funded from water and wastewater revenues, and receives no tax dollars • Approximately 1,500 employees • Population served (treated water) • 1.3 million - City of Dallas • 960,000+ wholesale customer cities • 699 square mile service area • 306,000 retail customer accounts • 4,850 miles of water mains • 4,200 miles of wastewater mains • 3 water treatment plants • 2 wastewater treatment plants • Wholesale customers • 24 treated water, 3 untreated water, 11 wastewater

5. Morgan, Do you have a better map of the Dallas Wastewater system / service area?

6. Dallas Water Utilities - Wastewater • 2 Wastewater treatment plants: • Central and Southside • Wastewater treatment capacity: 260 MGD • Wastewater pump stations: 14 • Miles of wastewater main: 4,146 • Wastewater treated 72 billion gallons • Service Area 699 Square Miles • Customer Accounts 300,000

7. City of Dallas FY 2008-09 Budget FY 2008-09 Annual Budget $2.7 billion Operating Budget Capital Budget (day to day operation and maintenance) (long-term capital improvements) $2.02 billion $ 673.0 million General Fund - $1.09 billion General Purpose - $347.0 million Enterprise Fund - $686.2 million Enterprise Fund - $326.0 million Debt Service - $246.2 million

8. FY 2008-09 Budget Enterprise Fund FY 2008-09 Annual Budget $2.7 billion Operating Budget Capital Budget (day to day operation and maintenance) (long-term capital improvements) $2.02 billion $ 673.0 million Enterprise Fund - $686.2 million Enterprise Fund - $326.0 million Water Utilities - $511.2 million Water Utilities - $320.0 million Aviation - $42.5 million Convention Services - $67.2 million Convention Services - $6.0 million Development Service - $26.8 million Municipal Radio - $3.5 million Storm Water - $35.1 million

9. Index Cities Comparison of Average Monthly Water & Sewer Residential Bills Note: Bill comparison based on rates effective August 2008; water consumption of 8,300 gallons; and, 6,200 gallon Winter Months Average for sewer

10. Components of Water Utilities Revenues

11. Surcharge Program • A Surcharge program is a procedure for recovering costs incurred while treating high strength waste discharged by industrial (SIU Surcharge Program) and commercial users (Customer Classes) into the wastewater system. • It is an additional charge made to a customer that discharges high strength wastewater that is amenable to treatment by the wastewater system but that exceeds the strength of normal wastewater.

12. DWU Customer Class Groups • Non-industrial (SIU) customers that routinely discharge Biochemical Oxygen Demand (BOD) and Total Suspended Solids (TSS) concentrations exceeding 250 mg/L are classified into the four class groups established under Dallas City Code • Eating Places • Equipment Service Facilities • Food and Kindred Products Processing • Drinking Places

13. Presentation Outline • Dallas Water Utilities (Morgan) • Utility Summary • Rate Charges • Utility Rate Basics (Jennifer) • Revenue Requirements • Wastewater Rate Cost of Service • Wastewater Rate Structure • Customer Classes • Significant Industrial User Surcharges • Retail Customer Classes • Customer Class Study (Morgan Set-up, then Randy) • Benchmarking • Information Collection • Sampling Statistics • Sampling • Grouping & Results

14. Principal Objectives of Rate Design & Cost-of-Service Study • Develop a comprehensive cost-of-service study that properly allocates costs to each customer class to ensure a fair and equitable rate structure. • Design Rate Structure that meets community values.

15. Cornerstones of a Defensible User Charge System

16. The Three Forms of Equity

17. RATE SETTING PROCESS • REVENUE REQUIREMENTS COST ALLOCATION ASSIGN EXPENSES TO FUNCTIONAL CATEGORIES CLASSIFY FUNCTIONALIZED EXPENSES INTO COST COMPONENTS ALLOCATE TO CUSTOMER CLASSES RATE DESIGN

19. Cost-of-Service Goal Revenue Requirements (O&M + Debt Service + Capital + Reserves) Non-Residential Cost of Service Residential Cost of Service

20. Steps in a Cost-of-Service Study

21. Wastewater Cost Allocation in the Broader Perspective

22. Issue 1: Wastewater Cost Allocation Options • Design Basis • Functional Basis • Hybrid Approach

23. Design Basis • Allocates costs based on engineering design criteria • Less administrative burden • Least implementation risk • Potential positive impact on conservation due to increased unit cost for wastewater treatment and disposal

24. Functional Basis • Allocates costs based on operational or functional purposes • Minimal administrative burden

25. Hybrid Approach • Allocates O&M costs based on function and capital costs based on design • More acceptable to public and political officials • Increased administrative burden • Improved interclass and intraclass equity • Improved sustainability • Recommended by consulting team

26. Issue 2: Customer Service Characteristics • Flow, BOD, and TSS only • Considerations • Add Total Kjeldahl Nitrogen (TKN)? • Add Phosphorus? • Add O&G?

27. Flow, BOD, and TSS Only • DWU’s current methodology • Least administrative burden • Most common approach

28. Add Total Kjeldahl Nitrogen (TKN) • Difficult to implement without additional data • Likely to become increasingly important in future (policy durability – discharge permits) • Improved interclass and intraclass equity • Improved sustainability • Recommended (once sufficient data is available from sampling program)

29. Add Phosphorus • Difficult to implement without additional data • Likely to become increasingly important in future (policy durability) • Improved interclass and intraclass equity • Improved sustainability • Recommended (once sufficient data is available from sampling program)

30. Issue 3: I/I Estimation and Allocation • Combined connections and volume • Minimal administrative burden • Less affordable for residential customers • Potential increased economic development • Contributed wastewater volume • Easy to implement • Easy to understand • More affordable for residential customers • Potential negative impact on economic development • Number of connections • Easy to implement • Easy to understand • Less affordable for residential customers • Potential increase in economic development • Land area • Greatest administrative burden • Greatest risk of implementation • Least common approach

31. Presentation Outline • Dallas Water Utilities (Morgan) • Utility Summary • Rate Charges • Utility Rate Basics (Jennifer) • Revenue Requirements • Wastewater Rate Cost of Service • Wastewater Rate Structure • Customer Classes • Significant Industrial User Surcharges • Retail Customer Classes • Customer Class Study (Morgan Set-up, then Randy) • Benchmarking • Information Collection • Sampling Statistics • Sampling • Grouping & Results

32. Dallas Water Utilities Customer Classes • Currently four major customer classes for establishments producing wastewater exceeding 250 BOD and 250 TSS • Eating Places • Equipment Service Facilities • Food and Kindred Products Processing • Drinking Places

33. Surcharge Class Study Phase I • Benchmark Other Utilities • Develop Database Structure & Populate with Existing Data • Screen Database to Develop Study Groups • Develop Statistical Sampling Approach based on Study Groups • Develop Sampling & Analysis Plan

34. Task 1 - Benchmarking • Initial benchmark study done on the following cities • City of Amarillo • City of Austin • City of Corpus Christi • El Paso Water Utilities • City of Fort Worth • Benchmark Information • Number and types of customer classes • Surcharge rates for BOD and TSS • Average Domestic Wastewater Strengths for BOD & TSS • Strength ranges for BOD & TSS • Additional Cities • City of Bakersfield, CA • East Bay Municipal Utility District, CA • City of Fort Collins, CO • City of Prescott, AZ • City of Houston • City of Laredo • City of Lubbock • San Antonio Water System

35. Benchmark Information • Number and types of customer classes • Surcharge rates for BOD and TSS • Average Domestic Wastewater Strengths for BOD & TSS • Strength ranges for BOD & TSS

39. Benchmark Information • Number and types of customer classes • Surcharge rates for BOD and TSS • Average Domestic Wastewater Strengths for BOD & TSS • Strength ranges for BOD & TSS

41. Benchmark Information • Number and types of customer classes • Surcharge rates for BOD and TSS • Average Domestic Wastewater Strengths for BOD & TSS • Strength ranges for BOD & TSS

42. Domestic Wastewater Strength is Increasing.

43. Benchmark Information • Number and types of customer classes • Surcharge rates for BOD and TSS • Average Domestic Wastewater Strengths for BOD & TSS • Strength ranges for BOD & TSS

44. Benchmarked BOD value categories

45. Benchmarked BOD value categories (contd.)

46. Benchmarked BOD value categories (contd.)

47. Benchmarked TSS value categories

48. Surcharge Class Study Phase I • Benchmark Other Utilities • Develop Database Structure & Populate with Existing Data • Screen Database to Develop Study Groups • Develop Statistical Sampling Approach based on Study Groups • Develop Sampling & Analysis Plan

49. City of Dallas Database Info • Dallas Water Utilities Bill System • DWU Pretreatment & Laboratory Services • City of Dallas Environmental Health Department • City of Dallas Development Services Department – Building Inspection Division

50. Project Database