Strength Based Billing: An Updated Cost Allocation and Billing Framework for San Diego's Metro Wastewater System

This presentation explains how San Diego is using an inclusive and rigorous approach to update and improve regional cost allocation processes in place for over 20 years. The City's 'Strength Based Billing' project is being undertaken by a diverse and multi-disciplinary team comprising representatives from the City of San Diego Public Utilities Department (PUD), the Metro Wastewater Joint Powers Authority (JPA), and Stantec. The project is developing a new cost allocation and billing framework for the City of San Diego's Metro wastewater system, ensuring a viable and efficient solution for billing the participating agencies (PAs) while promoting transparency and ease of understanding. The existing inter-jurisdictional agreement required an update due to recent developments related to the City's investment in its Pure Water advanced water purification program. Additionally, the potential for similar investment by some of the PAs in additional reuse projects necessitated a comprehensive assessment of cost allocation factors to ensure fair distribution of costs among the participants while not disincentivizing future reuse opportunities. The project recognized the importance of delivering a viable solution that could be implemented efficiently and effectively. The multi-disciplinary team, consisting of engineering, finance, and operations experts, collaborated closely to develop a cost allocation and billing framework that minimized complications for the City in billing the agencies for service and ensured the PAs could understand and plan for their bills every year. To achieve this, the team conducted a comprehensive analysis of cost causative factors using a functional-design basis to develop cost allocation factors for the City's major conveyance and wastewater treatment assets. As with all cost of service analyses, these factors were developed using imperfect data and a significant level of ambiguity, requiring in-depth conversations between technical experts with deep and diverse understandings of the City's conveyance and treatment infrastructure and future capital plans and needs. These asset-based allocation factors allowed for the allocation of categories of costs and offsetting revenues to measurable parameters, including flow, COD, TSS, brine, and capacity. Allocation factors accounted for technical drivers, regulatory considerations, and the role each facility played in the greater treatment system. By considering these factors, the team aimed to create a framework that accurately reflected the usage and capacity characteristics of the system, aligning those characteristics with the evolving needs of each agency, leading to fair and transparent billing. The financial experts on the team explored alternative rate design and billing approaches, taking into account the specific perspectives and requirements of the PAs and the City. Rate design alternatives focused on various approaches to fixed and variable revenue recovery and the basis for recovering operations and maintenance costs vs. capital costs. This discussion also focused on developing billing structures that were easy to understand, allowing the agencies to grasp why their bills were what they were. The team aimed to ensure that the billing process was predictable and consistent, enabling the PAs to plan for their bills effectively and to explain the level of charges and the reason for any changes to their local communities and elected officials while also recognizing that the rate design and billing is expected to be robust and dynamic enough to accommodate known and projected changes in water and wastewater over the coming decades. By including representatives from both the City and the PAs throughout the project, stakeholder engagement was prioritized to gather valuable feedback and insights from all parties. This collaborative approach ensured that the proposed cost allocation and billing framework was practical, feasible, and aligned with the agencies' expectations. By actively involving the agencies in the process, the team fostered transparency, increased understanding, and reduced potential complications during implementation. The project has now reached the stage where the initial framework proposal will soon be presented to the PAs for detailed feedback and discussion. This iterative process will allow for further refinement and validation of the proposed framework, ensuring that it meets the needs of both the City and the PAs, and minimizes potential complications in billing or planning. The Stantec team, in close collaboration with the representatives from San Diego and the Metro JPA, will ultimately develop a cost allocation and billing framework that is not only fair and equitable but also efficient and user-friendly. By ensuring that the final product is a viable solution, the team aims to simplify the billing process for the City and enhance the participating agencies' ability to understand and plan for their bills, ultimately supporting the region's sustainable water management goals.