A novel approach to sewer capacity fees

Christopher de Groot, Water Resource Planner
Robin G. Saunders, Director of Water and Sewer Utilities
City of Santa Clara, California

The City of Santa Clara in California has instituted a novel approach to collecting sewer capacity fees from industrial users of the sanitary sewer system. Like many cities, the City of Santa Clara routinely collects sewer capacity fees when properties are developed or improved to recover money spent to make capital improvements to the sewage treatment plant. The sewer capacity fee is based on the anticipated average "peak" wastewater volume (gallons/day) multiplied by a $2.10/gal/day fee.

Santa Clara found, as have other cities, that over time some industrial facilities have increased their volume of wastewater discharged to the sewer. In some cases, facilities discharged at a higher rate than the sewer capacity for which they had paid. In 2002, Santa Clara found that such excess sewer capacity use represented $1,509,480 in uncollected revenue from the 43 industries exceeding their owned sewer capacity. For comparison purposes the City of Santa Clara Sewer Utilities operating budget was $12,190,239 during that same period.

This situation is not unique to the City of Santa Clara. Other cities have instituted penalties, fees, and/or requirements to purchase additional sewer capacity on industrial facilities that exceed the facility's purchased sewer capacity. What is different about the approach used by Santa Clara is the structure of the Excess Sewer Capacity Use Fee or Excess Use Fee (EUF).

In developing the EUF the city faced the difficult task of balancing multiple priorities including the need to collect appropriate revenue for treatment plant costs while not instituting a fee that would discourage businesses from locating or expanding within the City. In addition, the City wanted to allow the expansion of industrial facilities within the city while promoting both water conservation and reduction in wastewater discharge. By creating a responsive fee structure the City was able to strike a balance of these competing goals while giving industries an unprecedented choice regarding how to purchase needed sewer capacity.

In theory, the EUF allows the facility to pay for needed additional capacity over a five-year period rather than pay a large one-time fee. The EUF consists of two components, an incremental (purchased) sewer capacity fee (ISCF) and a sewer capacity rental fee (SCRF). The ISCF provides for the purchase of sewer capacity equal to 1/60th of the excess use in a billing period. The 1/60th increment of sewer capacity that is purchased is added to the sewer capacity owned by the facility for the next month's calculation. The SCRF is the rental of the excess sewer capacity used during the month at an interest rate of 6%. The resulting formula is:

EUF = ISCF + SCRF

Where

ISCF = Capacity Fee * ((Average Discharge Volume - Assigned Capacity) /60)

SCRF = Capacity Fee * (0.06/12) * (Average Discharge Volume - Assigned Capacity)

A first-month grace period allows industries the opportunity to appeal the assigned sewer capacity for their facility, reduce the wastewater discharge, or purchase additional capacity. The grace period also reduces the possibility of charging a facility for additional sewer use caused by an anomaly, such as an equipment malfunction. Under the EUF, the first time an industrial facility exceeds their sewer capacity during a monthly billing period, the facility receives a letter informing them that in subsequent months, they may be charged a EUF unless the volume of wastewater is reduced or additional sewer capacity is purchased. In subsequent months, if the sewer capacity is exceeded, the EUF appears on the facility's monthly sewer utility bill as a separate line item. These charges and the resulting increases in owned sewer capacity are automatically calculated and tracked by the City's utility billing system. The City's policy is to only examine a facility's need for added capacity if their average water usage exceeds 10,000 gallons per day in any month.

The EUF drastically increased the affordability of sewer capacity for industrial facilities. In 2002, the average amount by which a facility exceeded their assigned sewer capacity was 14,398 gallons per day, which corresponds to a $30,235.80 sewer capacity fee if paid as a single payment. The potential fees for the 43 industries that incurred excess sewer capacity use ranged from a low of $180 to a high of $251,928. Under the EUF the average monthly fee would have been $586. Using 2002 data, a facility paying a EUF in 2002 would have paid an average total of $3,066 in EUFs during the year. The annual total EUF ranged from a high of $22,009 to a low of $5.

In addition to improving the affordability of the sewer capacity fees, the EUF exhibits a number of advantages over collection of a one-time fee for additional sewer capacity. The EUF encourages water conservation since facilities could avoid or reduce the amount of the EUF by reducing the volume of wastewater discharged through water conservation measures. The EUF also allows for greater flexibility in the City's initial determination of sewer capacity fees for commercial and industrial development. If the applicant or developer contends that the discharge from a property would be lower than that calculated by the City, a lower initial capacity fee could be assessed since the EUF would automatically collect the additional sewer capacity fees if the sewer capacity were later exceeded. Those industries that exceed their purchased capacity always have the choice of paying a one-time fee for additional sewer capacity thereby avoiding the rental portion of the EUF or paying for additional sewer capacity through the EUF in monthly payments.

Santa Clara instituted the EUF in December 2002 with the first EUFs being charged in January 2003. In the first 10 months of implementation, the EUFs collected have totaled approximately $59,000.

Christopher de Groot is the Water Resource Planner for the City of Santa Clara. He has a master's degree in public administration from Golden Gate University and a bachelor's degree in chemistry from the University of Oregon. He can be reached at (408) 615-2014 or cdegroot@ci.santa-clara.ca.us. Robin Saunders is the Director of Water and Sewer Utilities for the City of Santa Clara and has been with the City since 1978. He has a bachelor's degree in mechanical engineering from San Jose State University. He can be reached at (408) 615-2011 or rsaunders@ci.santa-clara.ca.us.