Environmental Services Commission - Regular Meeting

Thank you doing this great.

Alright. Good evening. It's 06:31, and I'm calling the October second Environmental Services Commission meeting to order. First, we'll take our roll call. Commissioner Letterman? Present. Commissioner Dupertis? He is currently absent. Commissioner Hainosh is in excused absence.

He just

Oh, commissioner DuPertis, can you hear us? Can you hear

Pressley, can you hear me?

Yes. Thank you. Commissioner Laxon? Present. Thank you. Commissioner Margolis?

Present.

Thank you. Commissioner Tyson?

Present. Thank

you. Good evening, and welcome to the October second Environmental Services Commission meeting. First item is the approval of the agenda. May I have a motion to approve the agenda? I move to approve the agenda. And a second. Thank you. Are there any requested changes or modifications to the agenda? Hearing no changes, the agenda is approved as motioned. We will now move into our oral and written communications.

Oral and written communications are now open. Remember that there is a three minute time limit per person and thirty minutes total per meeting. Public comment shall be limited to matters relating to City of Bellevue government and to subject matters encompassed within the power and duties of this commission. Persons participating in commission meetings must not engage in speech or conduct that disrupts, disturbs, or otherwise impedes the orderly conduct of any meeting. Disruptions may include and are not limited to failure of a speaker to comply with the commission bylaws concerning public comment.

In compliance with Washington state campaign laws regarding the use of public facilities during elections, no, excuse me, no speaker may support or oppose a ballot measure or support or oppose a candidate for an election, which includes your own campaign. Any speaker who begins discussing topics of this nature will be asked to stop. First off, Joe, are there any written communications this evening?

There are no written communications.

Okay. Thank you. Second, we have one person registered for oral oral communications, mister Zimmerman. Please come up.

Yeah. I'll talk to him. Yeah. Little bit confused. Yeah.

I'm so sorry. Yeah. Where I can put this? I don't know. Okay. I will. Yeah. This? Yeah. Dory, Nazi big. You're to become today and accept something, but there's nobody in state Washington have. Is this new rule what is covered right now for trespass 400 every day, but this commission have? Nobody have this. I speak for thirty five year. For thirty five year in Belavia, only one man who have trespasses.

One man, all Jewish, disabled man, have trespasses for thirty five year. Only one man only one man who support Donald Trump, who support Donald Trump for thirty five year have a one man who have trespasses. Ask me, Alexander Man. Why? Guys, you cannot be old. Can be a Nazi. Yes. A Bandita. Yes. You are. But you cannot be total idiot. Don't understand how is this possible. So one man for thirty five year have so many trespasses. Look. There's a witness there.

You know what this mean? Consul. You know what this mean? Who who I speak thirty five year ago. He in council chamber for thirty five years. Yeah. I'm thirty five years. Talk to Bellevue council. And right now, I need speak to committee because they make new rules, but is nobody have. No one committee. Yeah. How 100 speaking 100 committee. No one committee have trespasses for 100 every day. You guys are real freaking Nazi psychopath, a pure Gestapo. What the civilized word I can use with the broken law?

Yeah. You need to understand what's going on. We were Trump. We were new American revolution. Stand up, slave, and happy cow. We have right now a situation what is absolutely unique. When you go and go and looking in King County, you know what this mean? What is under mother looter king? Number one fascist county in America. And Trump list only one county from 500. Yes. It's very simple. So I like this slogan. We don't like Donald Trump. What we like, pay $5 for gas.

It's nice. Yeah. I love this slogan. No Donald Trump, but $5 for gas. Yeah. Guys, you really make mistake. You are a real freaking big generator. You know what this mean? You in constant change the choice committee here only for one particular reason so you can control everything. This plantation, let us be helped.

Thank you very much. Nazi pig. Approve these new rules for. Right.

Okay. Next. Is there anyone in attendance who has not registered would like to speak? If so, please raise your hand. And if you're attending remotely, please raise your hand using the feature in Zoom, or press 9 if you have joined by phone.

We do have a couple who have asked to speak. Please identify yourself and let us know what your comments are. A. Mishraaz, who's I've pulled in first.

Yeah. Hello. Can you hear me?

Yes. You're fine.

K. Wonderful. Good evening, board members, commissioners. My name is Ashi Misra. I'm a Bellevue Youth Link adult board member.

We're a youth advisory board composed of 12 youth and six adults. We are here today to extend our invitation to you for our upcoming annual YouthLink Gumbo Night happening on Wednesday, October 22 from six to 8PM at Crossroads Community Center. For the past twenty six plus years, Bellevue YouthLink hosts a special social event that provides an opportunity for Bellevue YouthLink members to dialogue with our elected and community leaders about important topics affecting our youth today. Youth and guests share important conversations over delicious pots of gumbo and other food. We hope that you can join us for this special and unique evening with our YouthLink members.

To RSVP, you can contact our staff, Patrick Alina, via email at palina@bellvwa.gov or call (425) 452-2846. Thank you very much.

Thank you, and thank you for the invitation. And I believe Larissa sent also that invitation via email to all the commissioners. You should all have received that in your City of Bellevue email box. Anyone else, Joe?

Let me confirm. Kaye Bachelor, are you interested in speaking?

No one else.

Hello? Is someone trying to speak on the Sorry. Sorry. I'm really far away, so this is spotty Wi Fi. No. I am good. Thank you. Thank you. Thank you.

Thank you.

Alright. Anyone else in the audience? If not, I just wanna let the public know that the Environmental Services Commission does not condone hateful or offensive speech from any individual. While we would prefer people refrain from making these types of comments, the commission respects individuals' First Amendment free speech rights. Individuals are allowed to express their thoughts or feelings whether we agree with them or not.

Next, we are on to, communication from city council. Council member Lee, would you like to share any updates today?

Thank you. It's always a pleasure for me to be here to thank the commission for your dedication and, yeah, volunteer to serve the community. I really don't have much to report except saying that, you know, we are looking forward to a great rest of the year and looking forward to the next year. We're gonna have the, you know, buy in and budget discussion, and I think the city is in a good shape. Our financial situation isn't is a is is a balance, and it's always working toward, hoping that even with the economy, we know, you know, it's kind of, up and down and certain.

But I think because of the city's, fiscal responsibility and our great operation, one of the comment I would make is the utilities, you know, department is so well run because they have their own, financial center. So, we have no any real concerns in the toward future. So thank you very much, and it's always a pleasure to bring the greetings from city council. Thank you.

Thank you, council member Lee. Joe, are there any staff reports this tonight?

Just a short announcement. You would have received an email about, a training session, Open Public Meetings Act and the Public Records Act. It's a Zoom webinar coming up on October 16, 06:30 to 07:30, and you can read the email. It speaks to how often you should take the training as part of the commission role you have. So, if you could take a look at that, and and train as needed. Right? So thank you for that.

Okay. Thank you. Next up, approval of the 09/04/2025 meeting minutes. May I have a motion to approve those minutes?

I move to approve the September.

Thank you. May I have a second?

I second.

Thank you. Are there any requested changes to those minutes? Alright. Hearing no objections, the minutes are approved as motioned. And next, we have no unfinished business, so we're gonna move directly to new business tonight. The first item is the proposed bylaw updates for the Environmental Services Commission.

Let me pull up the presentation here. Alright. So I just wanted to cover, this was an, an agenda memo on the updates to the ESC bylaws. Just we're seeking direction from the ESC to bring back recommended and updated bylaws for the final action and adoption at the commission's next regular meeting in November. Just by way of background, I'll touch on that summary of the changes briefly and then next steps.

We, just read from this. In 2023, Bellevue City Council updated its rules of decorum for public attendance and participation during council and board commission meetings. These rules were intended to provide for the orderly conduct of said meetings. Since 2023, city council has expressed an interest in updating these rules to increase the maximum exclusion period for violations of decorum from sixty days to one hundred and eighty days consistent with other local governments. Additionally, the council wants to revise and clarify the process to appeal any exclusionary period at the next council meeting provided it is at least three business days from the receipt of a timely written appeal.

This ensures staff will have sufficient time to perform necessary administrative functions, such as including the appeal as an action item in any agenda, making or distributing copies of the appeal to council members, and providing sufficient time for council members to consider the appeal. Moreover, the city council has sought to create more opportunities for broader community participation in council advisory boards and commissions. Specifically, the council intends to limit service on any board or commission to two consecutive terms. Previously, after two full terms, a person was prohibited from serving on the same board commission until there had been at a minimum a two year break in service. And previously, that individual would be allowed to immediately serve on a different board or commission without needing to observe the two year break.

On 09/23/2025, city council adopted ordinance sixty eight sixty four, which is exhibit b in your packet, and ordinance sixty eight sixty five, exhibit c in your packet, which amend the Bellevue City code provisions for all councils, advisory boards, commissions, including chapter 3.55, Bellevue City code, which applies to the ESC. Alright. So just a quick summary. Amending the section concerning membership as revised limiting service to two consecutive terms on any advisory board or commission. Also updating the b s c ESC bylaws to amend the section concerning decorum consistent with the ordinances as revised, extending the maximum exclusionary period to one hundred and eighty days, amending the section concerning decorum as revised, clarifying the process to appeal any exclusionary period, and then performing non substantive and other formatting corrections, which you can see in track changes of the strike draft.

So per pursuant to the commission bylaws, a two step process is required to amend said bylaws after this meeting consistent with any direction provided. Final revisions will be presented at the commission's next regular meeting in November, and any amendments require two thirds of the membership to vote in favor of amending the bylaws. So I'll just open it up for comment or questions.

Okay. I have a comment. I get the intent is to exclude people that have served two consecutive four year terms on any commission from Right. Immediate service Correct. Without a wait of two years.

Without a wait of two years. And if somebody comes on a commission midway through a somebody comes off a commission, say someone comes on with two years left, it's the two years plus a four plus a four.

Okay. Yeah. So that's not what this draft says. So this draft and you it Sorry. On your summary, you had up there, you had the words any commission. But in the draft we were given, it says the commission, meaning this in article two a six. Let me let me see if

I can pull up the and share that. I'm gonna what I'm pulling up is the red lines themselves on

the And and that's the one I was looking at.

Well, that's the one I would go with because the red lines

But there's a new paragraph six. No person shall serve on the commission.

Right? For more than two consecutive term

And the word the keyword there is the commission.

Okay. So We will

look at that. So if someone just finished two four year terms on transportation commission, this does not say they couldn't serve on this commission. Thank you for that.

We I will follow-up with their attorney on that. That's a good point. We'll see if it's

But because both the city council memo and the summary you just put up there said any commission.

Gotcha. Okay. Thank you. Good call.

We'll look at that. Second second nit, article two h as in hotel. The since you're fixing the indents, the paragraph subparagraph h is indented funny.

We'll look at that, see if it's a track changes issue or something that will clear up after it's Yeah. Accepted. Comments? Thank you for your comments.

Alright.

Again, we will come back next. So I looked at this from January and February 2024, and, we had a motion to bring it back. We could do that, or we could just bring it back, and we would then be looking for a motion to approve. I think either approach works. Alright.

Would you like me to make a motion?

Yeah. Let's go ahead and do that.

I move to bring this to our next account commission meeting for approval considering the comments made.

May I have a second?

Second.

Thank you. Alright. Thank you. Excellent. Thank you, everyone.

Next, order of business is the sewer cost of service analysis, I believe.

Alright. Evening, everyone. My name is Matt Thurber, assistant director for the utility. And with me tonight, I have my good friend, Matt Hobson, who is our fiscal manager and an all around expert in cost of service. We are very lucky to have Matt working for us, at Bellevue Utilities.

So the purpose of tonight's presentation is to provide the commission with draft results of the cost of service analysis that was completed by our staff for the city's sewer utility. Bellevue Utilities as well as other public utilities across the country rely on these types of studies to evaluate the cost equity or fairness of rates for its customers. Public utilities also rely on these studies to assess pricing of services as it relates to achieving their financial, operational, capital, and environmental stewardship goals. Oh, sorry. Okay.

So for tonight's meeting, we're gonna provide an overview of the purpose, assumptions, methods, and results of the study. We'll also discuss how the city might use the results of the study to improve cost equity between the different groups of customers that make up the sewer utility. So this is our road map for the next two meetings. Again, tonight, we'll focus on the background of why we do a cost of service study and the preliminary results. We hope to use the latter half of the meeting to hear your general thoughts and to answer questions from the group.

We'll come back to the commission next month on November 6 to talk through the preferred options and rate design implications. This is tonight's agenda. So as we move through the presentation, please feel to feel free to ask questions as we go. Cost of service studies are relatively technical studies, and each step of the study provides the foundation for the next step. Getting your questions answered as we go and as they come to you will help us all arrive at the same place as we go through these results.

We'll spend the first few minutes providing a general overview of cost of service studies as well as, the public utility industry. We'll spend time moving step by step through the study process. At the end of this section, we'll we'll present the cost of service for each customer group in the in the sewer utility and compare the revenue collected from each class. We'll allow changes we will show changes that can be made to each customer group's rate to improve cost equity. And then finally, we'll provide options to improve cost equity and then open up the meeting for discussion.

So what is a cost of service analysis? So first thing to note is that Washington state law does require that public utilities base their rates on cost of service. And furthermore, the City of Bellevue's financial policies require that utility rates for water, sewer, and drainage are based on cost of service so that rates are equitable in proportion to each customer class's use of the system. There are three main purposes of a cost of service study. First, it provides a defensible and rational basis for determining the equitable or fair share of utilities costs for each customer group in proportion to the demands that they place on the system.

Second, the results of these cost of service studies show that in comparison to the revenue collected for each customer group, how that measures to each customer class's use and equity in the system. The cost of service is the most widely used and defensible basis for setting utility utility rate pricing throughout the industry. So central to a cost of service study is the revenue requirement. So we're gonna talk about what the revenue requirement is and what it will be for this version of the cost of service study. So because the city adjust rates for every year, the cost of service completed on each year's financial needs otherwise known is otherwise known as the revenue requirement.

The widely followed approach used in the industry is to select the next year that the utility plans to adjust rates and use that year as what's called the test year. Because the city has already adopted rates for 2025 and 2026, the test year used for this cost of service study will be 2027. The graph on this slide itemizes the major elements of the sewer utility's revenue requirement over the next ten years. These costs have been updated based on the utility's forecast, which includes the latest expense forecast provided by King County Metro in May 2025. The single largest operating expense for the sewer utility is contracted costs paid to King County for transmission and treatment of sewage flows.

It's approximately half of the revenue requirement between 2027 and 2031 and each year thereafter. The forecast for this expense is based on the twenty year forecast provided by the county and presented to the city council in May. So these rate increases are largely due to the Mouth Of Duwamish combined sewer overflow project and other sewer overflow projects, cost estimates, and timeline acceleration. So this was required, after the consent decree was amended between King County, the Environmental Protection Agency, and the Washington State Department of Ecology. Other major expenses include city and state taxes and franchise fees as well as the annual cash transfer to the utility capital fund to support the six year CIP as well as the long term asset replacement program.

So before we go any further and talk about methodology, any questions so far? K. I'm gonna turn it over to Matt to talk about methodology.

Good evening. So, I'm gonna liken the rest of the presentation to a marathon, not a sprint. So and and Matt had mentioned earlier, please ask questions as we go along. Each step really does it serves as a foundation for the next step. So throughout the following slides, I'm gonna be using some terms over and over again. I wanna make sure that we all have kind of a similar understanding and definition for those terms. And the first one is going to be one of my favorite flow four letter words. It's flow. And it it it's basically it's wastewater. You know?

We measure flow in terms of, increments of a 100 cubic feet or CCF, and that essentially is every time a toilet flushes, every time you take a shower, every time you turn the dishwasher on. What it doesn't count is water that customers use to irrigate their lawns. This is domestic water entering our wastewater system. We call it flow, and it's measured in a 100 cubic feet. We're gonna I'm gonna use the term CCF a lot for a 100 cubic feet. The other thing I will use a lot terminology is a customer account. Essentially, that's a bill. We send out six bills a year to all of our customers, and each of those customers, I mean, may use the word customer. I may use the account. It's synonymous, as we move forward.

I do want to take a point of personal privilege and, acknowledge my team, who worked on this cost of service study over the last six months. They are a crackpot bunch of group. Kendrick Dow specifically was our lead analyst on this project. So the cost of service analysis follows a three step process that is based on principles that are widely used and generally accepted in the public utility rate setting industry. As Matt mentioned, these are this method is designed to produce rates that are equitably recovering the cost to provide service to different groups of customers.

The first the three steps are one, we take the overall revenue requirement, that $20.27 stack of dollars, and we're gonna determine and we'll break break that revenue requirement into different activities or functions. A function might be producing a bill. It might be paying King County for contract treatment costs. It could be maintaining our infrastructure to move the flow from a house to King County. The second step then is to create functional cost or demand components for each of those functions.

So for example, the cost that we incur as a as a city to produce a bill, we would develop a unit cost by taking that number and dividing it by the number of bills that we send out. Conversely, when we look at our treatment costs, how much money we spend on treatment? We would divide that by the amount of flow we send to King County, and that gives us a a pretty good equitable unit cost for that service or function. We wouldn't take treatment cost divided by customers because not every customer generates the amount of flow. My favorite restaurant does not produce the amount of flow as, you know, an apartment building.

And then the final step is once we have those unit cost by function, we'll say, well, how many units of demand is coming from our single family customer group? How many are coming from our multifamily residential, and how many are coming from our nonresidential? And that becomes their equitable share of the revenue requirement. The last step is to take those cost shares that we've assigned to each customer group and compare that to how much revenue we currently collect from them, like comparing their share of their cost against what we charge them for that service. In a perfect world, those numbers will always be the same.

I I was telling somebody last week, this worked for a while, and that's never happened for me yet. There's always gonna be a difference. And so I want to start out this conversation with this idea that a cost cost of of service analysis isn't a grade. We're not doing a test on this utility saying, are you being fair? These are checkups. These are used routinely in the industry to measure equity cost equity, and if there are differences, we make adjustments to improve that equity. We try to do these every three to five years to check on our rates to make sure we're being fair to customers. So these aren't bad grades. These aren't you know, you flunk the test. This is how we're doing, how what we can do to improve.

Okay? Next slide. Thanks. Before we go through the each step, I want to spend a bit of time talking about what we what I'll be calling customer groups or customer classes. These are those groups of customers by which we'll allocate costs to determine cost equity.

We start with the customer groups as defined in the city's sewer ordinance, and there's three of them. Single family residential, multifamily residential, and nonresidential. Single family residential, just kinda characterize these classes, the largest class by bills we send out. Most of our customers are single family homeowners by by bills. Every house is a bill. Every house gets a bill from us. Nonresidential is defined as really any other customer account that isn't a single family home and isn't an apartment or multifamily complex. It could be a restaurant. It could be a school. It could be a fire station.

It could be a high rise. So there's not a lot of uniformity in that class. Not too many accounts there. Roughly, it's a one of the smallest classes with the widest level of use variance across the class. Multifamily has 700 customer accounts. But within those 700 accounts, we have 30,000 residents. Right? So it's important to distinguish that we bill to the property. We bill to the to the account. We're not seeing bills to individual households within that account.

That plays a role when we get to the rate structure you'll see on the table here. So for single family residential, remember, one bill is one account is one home. Every home will be charged a fixed monthly charge of a $116.56 every other month. In addition to that, we will bill them for flow in increments of a 100 cubic feet or CCF, $6.75 per CCF for the first 50, and then it ramps up a bit for anything over 50. Very, very, very few of our customers ever get past that 50 CCF.

So that $6.75 is generally the factor rate that most of our customers pay. For the multifamily residential, a little unique here, $141.47, but it's not assessed to every account. It's assessed on the number of dwelling units in that property. So a 10 unit complex, they're getting one bill. It's gonna be a $141 times 10 units.

It's a distinction there that'll come up to play at the end of the presentation I wanted to emphasize. Within that $141, you can see that the variable charge to the right of it is $11.67, but that doesn't kick in until the first 11 CCFs are absorbed of flow. We call that an allowance. Essentially, the first 11 CCFs are built into that fixed dwelling unit charge, charge per dwelling unit. K? Finally, for nonresidential, they are assessed $13.98 per CCF unless their flow is such that it would produce a bill less than the $217.50 in which we would build them a fixed minimum amount of $2.17 50.

Just to clarify that. Per CCF. The the per CCF is for every CCF. It doesn't it doesn't have an allowance like the multifamily.

Yep. Out the gate. It starts at zero.

Mhmm. So if they only use one CCF, they'll still pay $2.17. But if they use a 100, they'll pay a 100 times that.

Correct. Okay. Yep. So just to give an idea then, when we talk about customer groups, why we why do we choose three customers groups, and why do we call them this? State law requires us to to charge customers in proportion to their cost, and it it groups customers defines customers in in terms of customer groups that your the group is using similar usages, similar characteristics.

And so look at these three different types of customers. For single family residential, 33,000 customer accounts, about 2,000,000 CCFs of flow, averages about 10 and a half CCFs per flow per account, every two months. I'm gonna, go to the multifamily then. These are these are folks who live in homes. This some homes are smaller. These are multifamily homes. I live in a in a townhome. And so in this case, we have 700 customer accounts, but they're housing 33,000, units. 1,500,000 total flow. Look at the difference between the average flow per dwell unit for multi res versus single family.

They use our services differently even though these are residential properties. And then finally, for nonresidential, 1,600 customer counts. Once again, variable, restaurants, fire stations, 1,200,000. The average is one twenty one point four CCFs, but that average is just a point estimate. There's a lot of variability in that number. So this gives you an idea of, you know, why are these groups different. It's because they use our services very differently from one another. K? So now I'll move into the actual method. Step one, I said we we take out revenue requirement, and we're going to divide it into different activities.

Four activities specifically, and these activities are used, fairly consistently across sewer cost of service analyses. We're not picking activities for Bellevue that are different from other sewer utilities. The first customer group is the customer, first function, excuse me, is the customer function, and think of that as costs that we incur as a sewer utility that really don't get affected by flow. When we produce a bill for a customer, it doesn't matter if it's a thousand CCFs or one CCF. That that cost of paper and that envelope is gonna be about the same.

This is also for a customer billing system. Low are gonna be those costs that the city incurs to basically move the flow from the customer's property to the King County transmission lines. It's not just the operating cost. It's a long term replacement of those assets. And then the treatment bucket is is is specifically and only the cost he incurs from King County to pay for transmission, treatment, discharge of sewage overflow of sewage flows.

Finally, the last function is the island of misfit toys. It's costs that really don't fit into any of those, and these would be things like tax expense. They would be things like me being here tonight, you know, as a member of the fiscal team. We do account for those costs. I'll show you how we allocate them in the process. Okay? So taking those four functions, we'll walk through this just, start with the left pie chart first. This illustrates, the 2027 revenue requirement to those four functions. The largest function is treatment. This is only King County treatment expenses incurred by the city of Bellevue.

$54,300,000 in 2027, about 52% of our expenses. Flow, those cost to move flow from a a property to King County's transmission mains is about 35% of our revenue requirement. Customer costs to produce a bill, our customer billing system, about 2% of our costs. And then the all other bucket is about $12,000,000, and that includes state and local taxes. It includes, our business administration group, any net cash flow that we produce in our rates in excess of, our revenue requirement.

And then we do have some non rate revenue for, development permit fees, for example, that can offset the revenue requirement. As I mentioned, the all other thing of that as the island of misfit toys, and so we have to account for those costs somehow. And how we do that, we roll we reallocate that all other bucket into the other three functions that have defined units of demand. The one exception to that rule is most of the all all of the all other bucket really serves city of Bellevue sewer utility. So it really serves the local portion of the customer sewer rate.

So we do not allocate any of the all other bucket to the treatment bucket. It's all being allocated to flow or customer. Step one's done. You know, we're 33% of the way there. So step two is we're gonna take identify units of demand that we can use to to develop unit cost for each of these functions.

For customer, the demand component is the number of accounts. For flow, it's the assumed or actual annual flow as metered at at the water meter. For treatment, there's a wrinkle here. We dealt the cost component based on how the city of Bellevue is charged by King County for these expenses. And King County adopts a method called, a single family residential or residential equivalent customer equivalent.

I'll go through that here in the next slide. We use we use basically, how we incur the cost is how we allocate the cost to the customer group. And then all others I mentioned gets recirculated back into the other three buckets. Briefly land on this, residential customer equivalent here in the next slide. So King County assesses every partner in the regional sewer utility based on this concept of a residential customer equivalent.

Acronym is RCE. What that is is every every, let me get this right here. Every quarter, Bellevue and every other system under the King County system reports a number of our single family accounts and report the amount of flow we have from all other accounts. That's not just us. Every every sewer regional agency.

And then we are assessed by King County $58.28 per month for every residential customer account, single family res residential account. Excuse me. And then $58.28 for 750 every 750 cubic feet of water for all other customer groups. This is the same rate basis for every regional system in the in the county. And so we've allocated treatment costs to our customer classes based on this method.

Final step. We're almost there. Yep. Go ahead.

Okay. I thought I understood that last bullet, but I think I don't. Can you back up? And and what is how how is that determined for nonresidential?

Yeah. So, we will report the amount of, essentially water flow less irrigation and other deductions to King County. They'll take that number. Let's say it's let me make my math easy. 750,000 cubic feet. They'll divide that by 750 cubic feet of water, which equals one RCE, and then bill us $58.28 for each of those.

Okay. For the actual water used?

Less some yeah. We we we don't get billed for irrigation fees.

Right. Right. Right.

But it's deductions.

Goes into the sewer. Yeah. Okay. But after they have taken out the fifth the do they count for the because they know the number of residential units.

Yes.

So yeah. They subtract those on front and then

Great great question. We only have to report our flow for the multifamily and for the nonresidential customer classes. We So don't report any flow because they're essentially paying for single family residential being billed not for their flow, but for every customer account, essentially.

Okay.

So we have our our cost of each function. We have our demand components. So the first table is just taking that e the division. Total cost by function divided by demand units. Customer costs are reallocated based on the function of customer accounts.

So the cost to produce a bill, to run our our billing system, that equates about $10.84 per account every two months. That's the functional cost of service at a at a unit basis. Flow, it's about $10 for, per CCF of flow. For treatment costs, it's about a $146 per RCE every two months. Now that we have unit cost, we simply take those unit cost and multiply them by each of the demand components for each of the classes.

So I'll start with customer, on the second table. As I mentioned, our cut our residential customers, single family, they make up the majority of the bills we send out. So they can get the majority of our customer cost pool, 93%. For flow, we we allocate those costs based on the metered or or or estimated flow for each class. So single family will get half the cost of flow even though they make up more than 90% of the bills we send out.

And then treatment, we allocate on the proportion of residential customer equivalents. So single family would get 44% of the King County cost that Bellevue receives, from the county. We we add all those up, and that produces that total column on the right side, and that's the our estimate of the cost of service for that class. So the the billion dollar question well, the $103,872,111 question, the bottom on the bottom right hand corner is, how do those numbers compare to what we collect from each class? As I mentioned, it's not uncommon to see differences.

Let me go to next slide if you would. And and, what we're showing here are the the sum total results. It's comparing total revenue collected from that class divided by the cost of service. Think of that as the cost recovery rate. Ideally, every class is at 100%. What we cut from them is what it costs us to serve. This is the checkup portion. This is not this is not the grade portion. This is the checkup portion. So, for example, single family residential.

Actually, before I do that, let me just walk through the graph here. So you'll you'll see, sets of columns. And at the bottom of the x axis, the names of the customer classes, and then three dotted lines running across. I'm gonna start with a darker column. That's our estimate for the cost recovery rate in 2027 for each of those classes.

So 91% for single family residential, 91% for nonresidential, 123% for multifamily. The next column over to it, the kind of Celeste Green, that is our estimate of a internal cost of service that we did for Sewer back in 2019. It's helpful because it serves as a as a barometer. Like, are we getting similar results? That's a good defense kind of thing to look at. Using similar methodologies, what's changed is really the cost. Are we landing in the same places? The answer is, yeah. Generally, we are. I wanna talk to those three horizontal lines now.

That one in the middle, the dotted black one, that's just running across the 100% cost recovery level. We'd want all those columns to be right at that black dotted line. Then there's two yellow dotted lines above and below the black line, and they're running at a 11090%. In cost of service analysis work, we are dealing with a lot of data. We're dealing with point in time data.

The flows we get this year may be different next year, and the flows we get today may be different from last year. And so we put a a range of reasonableness on the results of plus or minus 10%. Essentially, if a class falls within that range, it could all be argued their their their rates are within cost of service guidelines. If they are outside that range, what that tells us is there is a subsidy occurring. If a rate class cost recovery rate is over a 100, what that means is that their rates are being used to subsidize other classes, and the converse holds true.

A rate class below 100%, that means that they are being subsidized by other rate classes. It is okay. It is common to have subsidies in public utility rates as long as they're intentional. We have subsidized we subsidized low income rates in the city of Bellevue, and many utilities do that. That's an intentional subsidy. What is not considered good practice is having unintentional subsidies. That's what we wanted to work towards eliminating. I think we're gonna move on. I'm gonna take it. This is the time to breathe.

We've covered all the technical results. I wanna take this time just to answer any questions or go back to slides because the next part of the presentation is really how do we take these numbers and put them to work in terms of improving cost equity. But I wanted to make sure we have a clear understanding together before we move on to that that part.

So so my question is, were actions taken after the 2019 analysis? Because it looks like those numbers have gotten less good.

Great question. Yeah. So so one of the reasons why we so the the short answer is no. One of the reasons why we recommend doing cost of service analysis every three to five years, is you can build up a trend over time. You can see if the results are really an anomaly or if they're really holding. The cost of service study that was conducted in 2019, it had been many years since one had been done prior to that. So you were dealing with really one data point. Now we have two, results, while they are getting worse, they they are

They're they're close. And and I understand you would not wanna make drastic changes based on what could have been an anomaly of that one time period.

Yeah. So did that answer your question?

Yes. Thank you.

Commissioner DuPertis, any questions?

No questions, but I do wanna say I'm tracking the whole thing, and I think it's very high quality, and thank you.

Great. Thank you, commissioner Dupuytis. Commissioner Margolis, any questions?

Yeah. Thank you for the for the work. Can you explain why maybe I missed this. Why is multifamily selected, it sounds like intentionally, as the class to subsidize the others?

Yes. So this would be an example of an unintentional subsidy. So it is it's a finding we we want to present options to correct.

Got it. Okay. Thank you.

So we go before I go into kind of how we put the the the, the results to work, I think it's important to to kinda talk why did we get these results both in 2027 and in the previous one as well. So and it all comes down to the unique rate structure that we have for the multi residential customer class. And I kinda tease at the beginning that we we only send one bill out to every apartment, but we our rates are based on the number of apartment units in the in that, in that building, and that's gonna play a role in these results. Earlier in the presentation, I talked to how the fixed charge is a $141 for a multifamily property per dwelling unit. I can just here.

And in that $141, there's an assumed allowance of an 11 CCFs of flow for every dwelling unit. The issue is could you go to the next next box, please? But in reality, the average flow coming out of of a dwelling unit in an apartment building or a duplex or a fourplex is only seven and a half. So what what that essentially means is is our rates are structured to provide an allowance that it that it really is in excess of what a customer actually uses, and that's resulting in the high cost recovery rate. It's a function of our rate design, not really a function of how we allocated costs, if that makes sense.

This is the fundamental reason for the results you're seeing today, and I wanted to pause to see if there's any questions on this. It's one of those things that once you see it, oh, that makes sense. But, know, it's like you're you're slamming your head against the table for four months trying to figure it out. So, okay. So we're gonna talk now about how we use these types of analyses to make policy options and choices, to improve cost equity, ensuring that our prices are fair, to each customer group.

And these policy actions come in two flavors. We're gonna talk about the first one a lot tonight, and we're gonna talk about the second one in November. And the reason we're gonna hold off on the second one is the second set of options is because they really get triggered based on what you talk about today on the first set. There there's a sequence to it. So the first set of policy actions are, hey. We have a result. We see an unintentional subsidy. Question is, what should we do about it? Do we correct it all at once? Do we correct it over time?

That's really the core question for this first set of options. Do we make a corrective action, and how quickly do we make it? The second set of actions are, are there things that we can do to the actual rates that we charge to our customers to not just improve cost equity for the class, but maybe there are things that we can do to improve cost equity within that class. So not all customers should have the same amount of flow. Can we do things that make not just their class revenue equitable, but every single build more equitable?

Can we do things to improve other goals of our utility, affordability goals, revenue stability. Those are really the second sets of policy options, because the first set of policy actions really determine our revenue target for each class, how quickly we're gonna achieve cost equity. And once we know that number, we can build rates off of it. Okay? So, recommendation number one from this is a staff recommendation to the to the commission, and we have several options for you all to consider, is that we recommend at the very least that we make incremental improvements to cost equity, over time and not all at once.

And the reason we're recommending this is that because single family residential customers are being subsidized right now, if we were to correct it all at once, instead of being an 11% rate increase next year, it's gonna be a 20% rate increase. And we can there's no requirement we make the corrective actions all at once. We need to demonstrate progress towards improved cost equity. For this reason, we're recommending somewhere between three and five years. We'll show you both options to kind of stair step our way towards full cost recovery.

So I'm gonna show you one option. The first option is if we were to get to achieve a 100% cost equity for every class over the next five years from 2027 to 2031. I'm gonna spend most time talking about the graph. The tables are there for more numerical f reference if you wanna know the the the precise numbers. So for each of the for on the graph, you have, you know, five years and then three columns for each, each year.

The first column, the darkest column, is single family residential rate increases. The next one's the multi the nonresidential, and the final one is the multifamily. There's a dotted line that runs across the the graph. That's the across the board revenue increase we need, to fund the revenue requirement. So think that that's the average rate increase, for the utility each year, around 11.

But a big picture to do a five year phasing, what that would mean is that whatever our revenue requirement each year is for the average for the utility, single family would have to be two percentage points higher than that number. So if it's 11% per year, single family would need to be 13 or 14%. For the nonresidential, it would be 2% higher every year compared to the average rate increase. And then for multi res, it would actually be five points below the average. So if we need 11% next year, the rate increase would only be six and a half or so.

That's over five years. As we compress the transition period, it's gonna make the the subsidized subsidized classes pay more a lot more early on, and the subsidizing customers pay a lot less. And I wanna show you the three year here. So you can see for the three year, it does require higher rate increases for single family. Overall rate increase, over the next several years is 11%.

For single family, it's gonna be three to five percentage points higher than that average. For nonresi, it'd be about four points higher than the average. And then for multifamily, it would actually be seven points lower than the average. You know, kind of the the sticker shock for me is you see 11% is what we're projecting overall sewer sewer revenue requirements. Under the three year phase in, we would only raise multifamily rates by about four points four percentage points each year.

It allows them to grow into their existing rates So that by year three, by year 2029, look at that bottom table in in that green column, you can see every class's cost recovery rate is really close to a 100%. So kind of bring both options together so you can compare and contrast. First of all, I wanted to bring up the question. So why aren't we looking on on options beyond five years? Well, one of the reasons is I mentioned we we want to do these types of studies every three to five years.

So by setting a five year outlook, we can make decisions now, and then five years from now, do another checkup. If we wait seven years, we could see, even more drastic changes that we didn't account for. So it's important to do these these studies fairly frequently. The longer you wait to do them, the more often you're gonna see surprising results. So aligning our phase in plan with the next sewer cost of service study is a great way to say, we have a five year plan.

Let's check-in five years and see how good we're doing. The table, here just shows you the rate increases for the single family residential class. The the bold first row is status quo. Essentially, we just raise every class's customer rates across the board the same level, around 11% each year for a single family. Under the five year phase in plan, it would be more fourteens and thirteens.

Under the three year plan, it'd be, you know, sixteen, 15, and then and then stabling out out in the outer years. And just for other reference I think I I had a slide, I promise, that had the other classes here. I'll make sure it gets included. This one has the biggest impact for the most bills. I'll point that out.

So that's what we wanna present tonight. I do have some discussion points for you all, that we can talk through. Before we go there, just in terms of big picture, we covered the draft results of the technical analysis tonight. We talked to the phase in options to improve cost equity, providing a three and a five year option. We don't need decision tonight.

What I'd love to hear is kind of your thoughts on both options. And then in November, we'll come back and say, well, you've had time to think about it. Is there one that you all are leaning more than than the other? And then also follow-up with here are some things that we can do to improve intraclass equity in our rates. Once again, we need to know that the the first policy option timing before we can give you some good numbers on the rate side.

Based on the discussions we have here and the draft results that we've come up with, the plan would be to bring the technical results of the city to city council because these are these are big findings, when you see these these levels of of of cost equities to improve. And then, ideally, incorporate the recommendations into our sewer rate financial plan for the twenty seven, twenty twenty eight budget process. The reason once again that we're not making these changes next year is we've already adopted rates for '26. The the next year that we would be looking to make rate changes would be 2027. I hope you enjoyed I love this stuff.

And and like I said, the the goal of these technical studies is to give you all rational information to make informed policy choices. I had the easy job of crunching and doing the math. The more difficult job is putting them to work. And so really interested to hear your y'all's thoughts.

Okay. So my question is I I see the three and the five year were tell me about your thought process of considering even longer. I mean, the, the fourteen and fifteen and and almost 16% increases there are kinda eye popping. Did you consider, like, a seven year even kind of analysis? And then in five years from now, we can look at it and say, oh, yeah. We're on that track of that seven year plan.

Yeah. We certainly we did we did look at a seven one, and we we had to come up with two package. We could come up with, like, several packages. We came with two, but if you wanna see the seven year numbers, we can certainly share those with you. I'm gonna grab them here, actually.

That that was just my first analysis and looking at those percent increases over over five years. Those are all hefty increases.

And, yeah, I mean, let me let me provide as a follow-up then the seven year schedule. That that is yeah. That's a good point. Do you wanna Sure.

I would just say as you as you get into, like, seven and even ten years, you're you're not gonna make a significant dent in those. So you're not getting down, for instance, to, like, single digit rate increases. It's still in the range of for a single family, you know, eleven, twelve, something like that. I'm just without seeing the number, I'm just guessing. It it's just it makes a little bit of a difference, but nothing significant, just just so you kinda have an idea of the order of magnitude.

Well, and as you say, so the baseline is 11.2. So nonresidential and single family have to go up above that at some point to to make up this difference.

That's exactly right. Yep.

Any other questions or discussion topics from any of the other commissioners?

I appreciate the analysis, and I think that you all provided a lot of great background for us to understand context for the analysis and proactively answered many of the questions that we have. I agree with Kurt about your questions about what's that kind of length of time, you know, that when something is askew to that extent, it something so abrupt or, you know, kind of would cause a lot of sticker shock that perhaps would be unnecessary to do something so abrupt. So I too kind of lean towards, yeah, what does that time horizon look like that we're moving towards, you know, what we believe or calculate to be better equity, but recognize that there's still variables in, you know, these forecast years ahead. And we could overshoot in some way. And then the next conversation's about, well, remember when we did this in three years, we should have done it in five.

Or so that that would be interesting to see that information. Thank you.

I'm just wondering if you guys have an opportunity to, like, do like, as we're kind of deliberating on potential options, kind of doing outreach to single resident customer or single family customers, non resident customers on kind of potential options and how that would might impact them.

I'm going to cowardly walk away and say I'm the finance manager. Yeah.

So a part part of the outreach would would be through DSC, would be through city council. We would we would obviously we have public meetings as we go through the budget process where we reach out to residents directly, go to community groups. So, yeah, all all those things are possible to try to to try to walk them through this and help them understand what goes into their rate. I think that can be really helpful for people to understand what's behind the numbers. We'll definitely make a point to do that.

That, one of the one of the the goals of that second set of policy options is it's always more, it's less worse news if you provide more options for customers to control their bill. Like, yes, across the board, this would be the rate increase. However, if we give you more control of your bill by changing rate structures, then then you could proactively adjust your bill. And the example I will give to you is multifamily. Today, most customers bill is just based on that fixed charge because they never go over the allowance.

Right? So they can't do anything. A property can't really do too much to change the size of their bill apart from abandoning units. Right? And there's ways that we can restructure that rate so there's more control, that more of your bills can be based on flow, and you can influence flow a lot more by installing efficient fixtures and things like that. So there there are other ways, to provide, there are multiple ways to provide, more control and flexibility in any customers build we wanna explore with you all.

Yeah. I had that thought, specifically with multifamily. As you said, that, your analysis shows that, generally they're under that, allowance. And that I would think in a multifamily situation, broadly, they're looking at less square feet, fewer toilets, fewer residents per housing unit, that if we can incentivize that rate structure to encourage as well acknowledge those facts, to to recognize those facts, and then to encourage conservation.

You bring up a great point because now I'm thinking about my apartment complex and whether I'm paying the same rate as someone with, I don't know, three bathrooms because I only have one. So I don't know. Great point.

Any questions from commissioner Margolis or DuPardis?

No. Thank you for the presentation. The other comments have covered some of my questions. Thank you.

Okay. Then maybe if I can just ask some clarifying questions for me just to kinda put this all into context here. So the whole point is the cost of service analysis is to ensure that there's equity across the three classes. Right? And state law has some guidance as to that. Does the state law require equity within a certain time frame? Because you're presenting us with options that go from three, five. Commissioners are asking about seven, fourteen. Does the state law dictate Yeah. We have to make up the gap between a certain time period, or can we say, heck. Let's do twenty five years even. What is the driving force here?

You know, when I was a consultant, I would feel free to talk freely about that, but now there's a city attorney's office. I have to be more careful about that. If I can put on my my speak freely hat, is what I have seen in doing these studies across Washington State is two things that are important, is if you have a if you come across a finding that there is subsidies that you've demonstrated there is progress being done. That that is the most important thing as opposed to saying, I've gotten this feedback from doing these studies five times in a row, and I still just don't acknowledge or do anything about it. I think that's the most important litmus test.

I have come up with rate plans. I've extended ten years out. Wouldn't recommend that if if I were, you know, running that organization because you wanna really align your your phase and plan around when you do these checkups anyway. And you the longer you wait, the more surprises you get. So that's how I would answer it, but but I also would defer that if the attorney's office tells me I'm wrong, then I'm wrong. Just

just to be clear, it's not prescribed specifically in the law that there is a time frame. But I I think to Matt's point, you know, when you when you see results like this, you you know better and you wanna do better, but there's not a time frame that's specifically in the RCW.

Okay. And then I may be overreading this, but I know in the years where we talk about the capital, CIP, and all the investments, there's a city policy, and you generally are trying to not have rates spike. Right? And that, in this scenario, would also lead you to whatever longer time frame it is because it's smoother than the shortest time frame you have on the board here. The three year time frame is definitely a a spike up, if you will. Right? So is that part of the thinking as you go through your recommendation here?

Absolutely. You know, I brought the this is the copy of the city's financial policies. And I was like, if you remember, there was a US senator named Robert Byrd, and he'd always carry the copy of the US constitution. I'm not Robert Byrd, but I am carrying my financial policy. So, yes, there are natural policies related to gradual rate increases, predictable rate increases, and so it's a balancing act. Right? And we're trying to to identify what is that that right balance working with you all, working with the city council eventually. Like I said, this isn't the we've done all the quantitative work, and, really, the policy work is where this begins and determining what is that right balance on what is too too abrupt of a rate change. Yep. Yeah.

Excellent point.

And then my last question has to do with the fact that you presented this as a cost analysis willing to sewer. And doesn't the utility bill that go out to customers cover more than just sewer? Does. So it are the numbers here the total bill increase that a single family resident account would see, or is it just the sewer component? The sewer component.

Yes. Right? Okay. So I think for me, in assessing the options, I don't know if you can do this projecting out to 2027. Given the other components of the bill, what does that look like? I mean, if it I mean, eleven, fourteen, 16% look pretty huge, but I know is not the only thing. If you add the other ones and blend them all together, what percentage are we talking about? That would be very helpful for me at least to kinda consider as you're moving forward.

Right.

Well, if I can I have to write the memo anyway, so I'll put that in the agenda memo for the November meeting? Okay. Alright. Yep.

And, well, do you do similar analysis for the other components? And just this year, you're doing sewer?

Correct. So sort of on a rotating basis. In 2026, we have stormwater scheduled, and then after that, we'll do water. Okay.

Alright. And then we'll be doing the same equity reconciliation every time you do these analysis.

You'll be looking at, yeah, the equity between customer classes with each one of these.

Okay. Alright.

Any other questions? Alright. Thank you so much. Appreciate it. Joe, you wanna review the calendars?

I do. I'm gonna

get this out of my way here. So I led you if it's okay with the commission, I'd like to revisit one of the comments that we had on the bylaws Okay. For clarity and and to get make sure I'm going the right path. I led you maybe astray by just so I'm showing you what I, had in my presentation, this this, summary of the article related to the ordinance sixty eight sixty five limiting to two consecutive terms on any advisory board and commission. And the word, operating word, I think, is any.

Any. Thank you. And so in the bylaws in that are draft in the strike draft is and Kurt is correct. It does say on the commission for more than two consecutive terms, which could if you if you as we continue reading this, I highlighted the area that I think the, our attorney was was thinking about is right here. And I have my computer getting in my way.

Okay. The limitation to those two consecutive terms means service on the the commission for two successive terms or service on another city board or commission for one term followed by service on the commission for another term and whereby a term is defined as a service of two years or longer. Each of the commissions and boards are getting these bylaws. So whether you're coming out of this commission or going on to another, I think this part of the bylaw of this, four six addresses your concern?

I don't think it does. So

Can you help me understand why? I I just wanna make sure I

Okay. So so that last highlighted part you've got, let's say it's four years on transportation commission and then four years on environmental services, right, where it talks about or service on another board followed by service on the commission. So that's limiting. But then if they wanted to go back to transportation

They'll the the commission the transportation bylaws will have this as well. And so the back and forth, I'm I don't think it's possible to go back and I I I I would just ask that you

have the lawyer look at it.

I will run it by the attorney.

And and I would say in that first sentence, change the word the to any, and then it and then it follows the language of what the city council resolution was.

Okay.

And then I think it makes it really clear. K. But I'm not a lawyer. I just play one on TV.

I know. And I also just wanna I just wanna address your your comment.

I

Make sure we can get it right and not do it back too much because I wanna bring it back in a final form.

Well, being the lawyer then, I will just say I mean, Kurt's comment, I think I I agree with it that I think that it the word the and the word any commission is an issue in this case. But I also think that your highlighted language down below doesn't it it doesn't cover all the scenarios because it only covers someone coming being on the another commission for four years and then coming to the commission, our commission.

Right.

There's also a scenario where it's the reverse.

With the bylaws and the other commissions and boards being identical in reverse, if that makes sense.

Yeah. Well, yeah. But, you know, in our bylaw, it'll say, you can come to our commission for four years if you've only served on another commission for four years. Right? Right. But what if the person is coming from our commission after four years and then going to another commission? Their well, their

Their bylaws

laws will cover that? That's what I want Yes. To make sure.

Yes. In fact, in the ordinance itself, it speaks to every Bellevue City code and commission called out by number. Okay. So it it that's the intent. Now whether it does satisfies the intent that what I'm hearing Right. I'll talk to our attorney.

Oh, Kurt just wants it to be just double checked. I think that's fair. That. Yeah. This

is the city council resolution here, and and and it has the word any in it. So and because it's talking about the whole city rather than a singular commission.

Yeah.

Yeah. It calls them a lot. Okay. I will follow I'll follow-up on that. Like, let me see if calendars make this a little bit bigger. Commission calendar. November, as you can see, ESC bylaws, we've talked about that. Solid waste programs update memo. We've been in the progress of getting our, survey completed and and collated, and we'll have some, some of that information into the memo. And then the COSA, sewer cost and service rate design, that's the COSA discussion we just briefed on.

And then, this was deferred, I believe, from September, the utility bill assistance program. Couple of the commissioners have been asking about this, and we will be bringing a presentation on the utility bill assistance programs. December, is this we do this every year. We sit down. We'll, have a off-site evening, call it a mini retreat at best, but, we don't meet here, and, we'll look at the year interview and do some planning for probably a lot of I I see budget in our future in next year. So

Heavy budget, in fact.

Yes. On council calendar, storm and sewer pipe defect repair 2024. Keep in mind, these titles are when we start doing design. So you might see a water main phase 01/2023, and that's when we we call it that because that's the year we start the design work. So these projects take some time. Yeah. December, Kelsey Creek Culvert at Lake Hills Boulevard, sewer pipe defect repair 2025, and Monterey replacement '25 phase two in PRVs. So that covers the calendar, and we wind down and we kick it off again in 2026. Any questions?

Joe, one question for me on the if you can go back to the previous calendar. Yeah. The solid waste program update memo Mhmm. That's with Republic Services. Right?

Correct.

Will that also include an update on timeline perhaps on when we start relooking at the new contract? Because I remember that's been brought up before.

I will I will talk to Scott Edwards and John Guyer about whether that's in the memo itself on Republic. I don't know if that it would make sense to have it in that memo, the body of that, but, certainly get an update.

Yeah. If we can at least get us that

update there. On it. Yeah.

Great. Thank you. Alright. Well, with that, we are at the end of the meeting. May I have a motion to adjourn?

Move to adjourn.

And a second?

I second.

Thank you. We are adjourned at 07:52PM. Thank you, everyone. Good evening.