Attachment_C_-_Scope_of_Services.pdf

Attachment C – Scope of Services Page 1 of 6 RFP for Water and Wastewater (Sewer) Rate Study and Annual Proposition 218 True-Up Analysis Services

Attachment C – Scope of Services

RFP for Water and Wastewater (Sewer) Rate Study and Annual Proposition 218 True-Up Analysis Service

1. Scope of Services

The following scope of services outlines the minimum tasks expected for the Comprehensive Water and Wastewater (Sewer) Rate Study. Consultants are encouraged to expand upon or enhance the scope as necessary to meet the City’s objectives as described in the Background under the Purpose and Objectives of Rate Studies section, and to describe any proposed enhancements in response to Question 10(a) in the Vendor Questionnaire. Upon award of contract, City representatives will be available to the selected Consultant for interviews, data collection, and progress meetings, and will provide policy direction and timely review comments on interim reports and other deliverables.

The City anticipates commencing the Rate Study work at contract execution currently estimated to be on or about March 1, 2027 and concluding in the spring of 2028 with the holding of required Proposition 218 hearings. The Rate Study work, as described below in the Scope of Services, involves community education and outreach along with two City Council Study Sessions (one for water and one for wastewater/sewer) to orient, inform and educate the City Council on the Rate Study process along with the community outreach and engagement process. In addition to preparing the Rate Study for the Water and Wastewater systems, the selected consultant will be responsible for providing Proposition 218 annual true-up services as described below. This work will commence after the issuance of the City’s FY 2028- 29 Annual Comprehensive Financial Report (ACFR) in December 2029 with first compliance report due within 90 days after the issuance of the ACFR on or about March 31, 2030. For information on the agreement term and contract years, see Section 8.1 of RFP -Term of the Agreement and Attachment D – Cost Proposal Form.

The Water and Wastewater Rate Study shall consider City and State plans, ordinances and policies into the rate study evaluation and calculations including but not limited to the information provided in Section 13 – Available Resources.

Proposers may use subconsultants to perform the community outreach and stakeholder engagement services described in Section 9 of this Scope of Services. The prime consultant shall remain responsible for all work performed under the agreement, including work performed by subconsultants, and shall serve as the City’s single point of contact for all tasks.

2. Project Management and Coordination

a. Designate a Project Manager as a point of contact with the City responsible for overall coordination, communication, and schedule adherence.

b. Develop a detailed project schedule/workplan including significant milestones and deliverables, review periods, public meetings, and milestones to be provided in advance of kick-off meeting to be facilitated by selected Consultant.

c. Conduct and facilitate monthly progress meetings (in-person or virtual) and provide updated project schedule/work plan and budget tracking.

i. Prepare and distribute meeting agendas at least three (3) business days prior to the meeting

ii. Lead the meetings

iii. Prepare and distribute meeting minutes within five (5) business days of meeting

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d. Submit monthly progress reports and invoices. Monthly progress reports shall include work performed, project concerns with schedule/budget impacts, and work anticipated for the upcoming month.

e. Assist City staff in maintaining SharePoint site for sharing and distribution of information and materials.

3. Data Collection and Review

a. Review the existing cost of service rate model and update it as necessary to fulfill the objectives of this study.

b. Review existing financial documents, including prior rate studies, budgets, audits, master plans, and CIP schedules.

c. Verify data accuracy for customer accounts, water consumption, billed revenue versus consumption, sewer flow and strength characteristics, meter sizes, and class groupings.

d. Evaluate historical and projected trends in consumption, conservation, and connection growth by customer class.

e. Develop customer growth and demand projections by customer class consistent with the Milpitas Metro Specific Plan (adopted February 7, 2023), which identifies capacity for up to approximately 7,000 additional residential units over its 20-year planning horizon, predominantly multi-family residential. Policy ICS 4.2 of that plan calls for additional review of available wastewater treatment capacity if development in the Metro Area exceeds 7,000 housing units. Document the assumptions used for non-residential (retail and office) development, recognizing that the timing of that development and the existing uses it displaces remain uncertain.

f. Identify and reconcile any data gaps that could affect cost allocation or demand forecasting.

4. Financial Plan and Revenue Requirements

a. Develop a five-year financial plan and rate forecast for both the water and wastewater/sewer utilities, covering Fiscal Years 2028-29 through 2032-33 compliant with California Constitution Article XIII D, Section 6, also referred to as Proposition 218 and all other legal requirements.

b. Align the financial plan with the City’s adopted five-year Capital Improvement Plan (CIP), including known, anticipated, and unfunded project costs as identified through the City’s master plans, condition assessments, and staff input.

c. Provide a 10-year financial outlook to illustrate the long-term sustainability of the utilities beyond the 5-year rate period and to account for potential future or unfunded capital needs.

d. Establish revenue requirements covering:

i. Operations and maintenance (O&M) costs

ii. Capital improvement funding (pay-as-you-go and debt-financed)

iii. Reserve funding (operating, capital, rate stabilization, and emergency)

iv. Bonded Debt Service Coverage requirements, including maintaining the City’s ability to bond and cover current and future debt obligations. Net revenues of at least 1.15 times annual debt service, as required by the rate covenants for the water and wastewater revenue bonds, together with a recommended policy coverage target above the legal minimum.

v. Wholesale water purchase costs (SFPUC and Valley Water)

vi. Regional Wastewater Treatment and Capital contribution costs

vii. Inflationary cost escalation factors (labor, energy, construction).

e. Incorporate sensitivity analysis for variables such as water sales decline, imported water cost

Attachment C – Scope of Services Page 3 of 6 increases, and inflation volatility.

5. Cost of Service Analysis

a. Allocate costs to major functional components (supply, treatment, storage, distribution, collection, pumping, customer service).

b. Assign costs to customer classes based on proportional use and service demands.

c. Identify fixed versus variable cost ratios to improve revenue stability during reduced demand conditions.

d. Develop cost-of-service based recycled water quantity and meter charges, reflecting the

City’s purchase of recycled water from the South Bay Water Recycling Program and its operation and maintenance of SBWR-owned facilities under the City’s reimbursement agreement.

e. Provide analysis of the following:

i. Impact of proposed rate/charge/fee changes for City’s water and wastewater/sewer customers by customer class.

ii. Impact of drought and water conservation efforts on operating revenues to ensure water and wastewater/sewer rates and charges will generate sufficient revenue to operate and maintain the systems during periods when less water is consumed.

iii. Current and proposed City rates, charges and fees as compared to other local water and wastewater/sewer agencies.

iv. Proportional cost of service for each proposed rate/charge/fee.

v. Separate revenue requirement and cost of service analysis to be developed for each utility.

vi. Unit costs for wastewater strength (biochemical oxygen demand and total suspended solids) and recommended extra-strength charges for applicable customer classes.

f. Consultant will use the cost allocation process based on the industry standard methodologies published in the AWWA’s Manual M1, Principles of Water Rates, Fees, and Charges and the WEF’s Manual of Practice No. 27, Financing and Charges for Wastewater Systems.

6. Rate Design Alternatives

a. Develop and evaluate at least two (2) rate structure alternatives for each utility (for example, uniform versus tiered volumetric water rates and alternative fixed and variable charge ratios), and recommend a preferred alternative with supporting rationale.

b. Include pass-through mechanisms under Government Code §53756 for wholesale and treatment cost adjustments, and evaluate drought or emergency surcharge provisions.

c. Design rates to be implemented beginning in FY 2028-29, with adjustments programmed through FY 2032-33.

d. Analyze customer bill impacts under each alternative.

7. Capital Funding and Reserve Analysis

a. Assess long-term capital funding needs consistent with the City’s five-year CIP and master plans.

b. Evaluate alternative funding mechanisms, including debt issuance, pay-as-you-go, and developer contributions, and evaluate the potential prepayment or refunding of the 2019 Water and Wastewater Revenue Bonds when they become callable in 2029.

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c. Review and recommend reserve policy adjustments to ensure compliance with the City’s adopted standards (a capital reserve of approximately 30% of annual operating and maintenance expenses for water and 25% for sewer; a Rate Stabilization Reserve of at least 16.67% of annual operating expenditures; an annual set-aside of at least $2 million for infrastructure replacement in each utility; and debt service coverage of at least 1.15 times).

8. Long-Term Financial Resilience

a. Incorporate conservation-adjusted demand projections to maintain fiscal stability under lower per-capita water use.

b. Evaluate financial health indicators such as coverage ratios, reserve balances, and net position trends.

9. Community Outreach and Stakeholder Engagement

a. Plan, coordinate, and lead three (3) onsite public workshops, one each for (1) residential customers, including multi-family property managers; (2) business customers, including restaurants and large water and wastewater users; and (3) institutional customers, including the school district and recycled water customers; and at least one (1) Proposition 218 onsite public hearing as outlined in Section 10 below.

b. Prepare presentation materials, charts, and summaries suitable for public understanding.

c. In addition to the meetings/workshops described in Section 9(a), hold two (2) onsite City

Council Study Sessions, one for water system and one for wastewater/sewer system to orient, inform and educate the City Council on the Rate Study process along with the community outreach and engagement process.

d. Present the findings of the rate study at a City Council meeting and respond to questions from the Council and the public.

e. Provide clear and consistent messaging that explains how the proposed rates support system reliability, regulatory compliance, and reinvestment.

f. Develop community outreach materials in coordination with City staff, consisting of up to eight (8) print and online pieces, including water and wastewater fact sheets, meeting invitations, social media content, graphics and exhibits, website content (with support for posting and updates on the City’s website), and presentation materials. Materials shall explain the need for the proposed rates, how the revenue will be spent, and how system improvements benefit customers and the community. Include customer class-specific fact sheets for classes affected by changes in rate structure (for example, restaurants, mobile home parks, and institutional customers). Printing and postage costs are not included.

g. Coordinate stakeholder engagement for the meetings and workshops in Section 9(a), including outreach to property managers, community organizations, the Milpitas Chamber of Commerce, the school district, and large customers, and provide one-on-one engagement with customers and stakeholders to answer questions and provide information.

h. Optional Task: Upon written authorization by the City, plan, coordinate, and lead up to two

(2) additional onsite workshops for customer groups identified by the City, including preparation of materials and stakeholder coordination as described in Sections 9(f) and 9(g).

Proposers shall price this task separately on a per-workshop basis. Optional task pricing will not be included in the cost evaluation.

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10. Proposition 218 Process Support

a. Prepare draft Proposition 218 notice content, rate tables, and supporting documentation for City review.

b. Coordinate with City staff and the City Attorney’s Office on notice approval, mailing, and hearing requirements.

c. Assist City staff in developing presentation materials and messaging for the onsite Proposition 218 public hearing. Attend Proposition 218 public hearing to present study findings and respond to questions from City Council and the public.

11. Annual Proposition 218 True-Up

a. Provide ongoing annual review of actual revenue collections and expenditures for each of the five (5) fiscal years covered by the study to ensure continued Proposition 218 compliance and make recommendations for rate adjustments that do not exceed the maximum rates noticed and adopted through the Proposition 218 process. Each annual review shall be completed within ninety (90) days after issuance of the City’s ACFR for the fiscal year under review.

12. Deliverables

a. Provide all work products and supporting materials necessary for City review, public communication, and formal adoption of the study, including:

i. Draft and Final Comprehensive Water and Wastewater/Sewer Rate Study report and supporting administrative record.

ii. Fully functional and City-owned rate model in Excel format, with the ability for staff to update key assumptions and scenarios. The model shall include a summary dashboard that allows staff to adjust demand, revenue, and cost forecast assumptions, including consumption and flows for individual large customers or customer classes, and compare the resulting revenue requirements and rates.

iii. PowerPoint presentation decks for community meetings, stakeholder workshops, and Proposition 218 public hearing.

iv. Community outreach materials described in Section 9(f), in editable electronic format.

b. Presentation of study findings at a City Council meeting, including responses to questions from Council and the public.

c. Prepare annual Proposition 218 “true-up” and make recommendations for annual increase/decrease consistent with public noticing conducted as part of the Rate Studies.

d. All data sources, working files, and final documentation in electronic format, and hard copies of the final report in the quantity requested by the City.

13. Available Resources

• FY 2025-26 Adopted Operating Budget -https://www.milpitas.gov/DocumentCenter/View/8641/COM_Operating_Budget_2025- 2026_Exported_on_9-26-2025_Web

• FY 2026-27 Adopted Operating Budget -https://www.milpitas.gov/235/Budget-Financial-Plans https://www.milpitas.gov/DocumentCenter/View/8641/COM_Operating_Budget_2025-2026_Exported_on_9-26-2025_Web https://www.milpitas.gov/DocumentCenter/View/8641/COM_Operating_Budget_2025-2026_Exported_on_9-26-2025_Web

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• FY 2026-2030 Adopted Capital Improvement Program -https://www.milpitas.gov/DocumentCenter/View/8639/B_Final-2026-2030-Capital- Improvement-Program--4

• FY 2027-2031 Adopted Capital Improvement Program

• FY 2024-2025 Annual Comprehensive Financial Report -https://www.milpitas.gov/Archive.aspx?ADID=1490

• Official statements and continuing disclosure filings for the City’s outstanding water and wastewater revenue bonds, available on the Municipal Securities Rulemaking Board’s EMMA website (emma.msrb.org)

• City of Milpitas Master Plans and Reports, including the Milpitas Metro Specific Plan (adopted

February 7, 2023), the 2020 Water Master Plan, the Sewer Master Plan, the Sewer System Management Plan, and General Plan 2040 – https://www.milpitas.gov/874/Master-Plans-Reports.

The 2003 Financial Utility Master Plan posted on that page is provided for historical reference only.

• 2025 Urban Water Management Plan https://www.milpitas.gov/752/Urban-Water-Management-Plan#docaccess- 688a93790dda55a931aa75e88782082a

• 2025 Water Shortage Contingency Plan https://www.milpitas.gov/752/Urban-Water-Management-Plan#docaccess-e88ce5fc5abfd750b8147e1c597098d4

• City of Milpitas Water and Wastewater Rate Study – Study Report (March 3, 2023) found within the March 21, 2023 City Council Meeting Agenda Packet https://milpitasca.portal.civicclerk.com/event/994/files/agenda/2662 Item #15 (Water Rates): Staff Report starts on page 192; Rate Study starts on page 206 Item #16 (Sewer Rates): Staff Report starts on page 278; Rate Study starts on page 293 https://www.milpitas.gov/DocumentCenter/View/8639/B_Final-2026-2030-Capital-Improvement-Program--4 https://www.milpitas.gov/DocumentCenter/View/8639/B_Final-2026-2030-Capital-Improvement-Program--4 https://www.milpitas.gov/235/Budget-Financial-Plans https://www.milpitas.gov/Archive.aspx?ADID=1490 https://www.milpitas.gov/874/Master-Plans-Reports https://www.milpitas.gov/752/Urban-Water-Management-Plan https://www.milpitas.gov/752/Urban-Water-Management-Plan https://www.milpitas.gov/752/Urban-Water-Management-Plan https://www.milpitas.gov/752/Urban-Water-Management-Plan https://milpitasca.portal.civicclerk.com/event/994/files/agenda/2662