SAN DIEGUITO WATER DISTRICT AGENDA REPORT

Transcription

1 ~ SAN DIEGUITO WATER DISTRICT AGENDA REPORT Meeting Date: August 21, 2013 TO: VIA: FROM: SUBJECT: Board Members Gus Vina, Distrct Sectar ~7'.. Glenn Pruim, General Manager Tim Nash, Director of Finance Bil O'Donnell, Assistant General Managttil Jeff Umbras as, Administrative Services Manager aj, Public Hearing to Consider Adoption of Resolution No , Implementing Adjustments to the District's Water Rates and Meter Service Charges for Fiscal Years 2013/14 and 2014/15. BACKGROUND: The District has not adjusted water rates for over 2 Yi years. The last rate revision consisted of a 13% increase which was implemented on January 1, Currently, the District's average residential customer (13 units of water use per month with a o/ meter) has the second lowest water bil in San Diego County (see Attachment B). At the November 16, 2011 Board Meeting, the District Board authorized staff to enter into a contract with Raftelis Financial Consultants (RFC) to prepare a Water Rate Study (Study). At that time, the Board also appointed Board Members. Muir and Bond to serve on a Water Rate Subcommittee. The original goal of the Study was to recommend rate adjustments for Summer 2012 and Winter At approximately the same time the rate study was to begin, negotiations began on a labor contract with District and City of Encinitas personnel. District staff felt it was prudent to delay the study until a new labor contract was approved and then incorporate any changes in personnel costs from the contract into the rate study. Negotiations on the labor contract went on longer than anticipated and a new contract was not imposed until August Employee benefit and pension costs from the new contract have been incorporated into the Study. During the wait for the completion ofthe labor contract, the Joint Facilities Master Plan (JFMP) was finalized in March The JFMP evaluated the infi'astructure, owned jointly with the Santa Fe Irrgation District, which is utilized to transport and treat raw water supplies. The JFMP included a 10- Year Capital Improvement Program (CIP). The projects in the recommended CIP replace aging infrastructure and/or improve health and safety. The District's share of the 10-Year CIP is approximately $17.8 milion. Prior to moving forward with the Water Rate Study, staff felt that it was necessary to analyze funding options for not only the Joint Facility CIP, but for all District capital expenditures. The funding analysis was completed and included in the Study. Last printed 8/12/2013 7:34:00 AM 08/21/2013 Item #S10A Page 1

2 At the Januar 23, 2013 Board Meeting, the Distrct Board appointed Board Member Gaspar to replace former Board Member Bond on the Water Rate Subcommittee. The Board also requested that all Water Rate Subcommittee meetings be open to the public. The Water Rate Subcommittee met on April 18 and May 2, During the meetings, the reasons for the Distrct's need to increase revenue were discussed. The two main reasons were: Potable water purchase costs are projected to rise 38.4% ($1,299,000) in FY and 5.7% ($269,000) in FY The reason for the increase is that the Distrct is projected to utilize a lower amount of local water and a higher amount of costlier imported water than in prior years due to below-average rainfall and the City of San Diego now having the ability to take their share of Lake Hodges water.. An increase in the District's contribution to the Joint Facilities CIP due to the JFMP implementation. Various rate plan scenaros were analyzed by the Subcommittee using RFC's rate model. The Subcommittee requested the inclusion of three alternative rate plans into RFC's Water Rate Study (see Attachment C). The rate plans differed in how the JFMP projects are funded and how reserves are utilized. As previously mentioned, the District's share of the JFMP 1 0- Year CIP is approximately $17.8 milion. The CIP can be financed either through PAYGO funding, which pays for projects with funds currently available, through debt financing, or a combination of the two. Also, it is important to note that while the JFMP was being developed, major capital projects at the Joint Facilities were delayed. In anticipation of futue increases in the Distrct's share of appropriations to the Joint Facilities, the Distrct continued to make an annual contrbution of $975,000 to the project. This resulted in a surplus of approximately $2.5 milion in this project. This surplus can either be utilized quickly or can be spread over a number of years. How this surplus is used does influence the Distrct's revenue requirements over the next two years. At the June 19,2013 Board Meeting, the Distrct Board was presented with the three alternative rate plans. The rate plans presented were as follows: Option 1 (PAYGO 1) This option would reduce reseres by approximately $750,000 to help mitigate rate impacts to customers. By the end of FY , reserve fud levels would be reduced to minimum target levels. The JFMP projects would be paid for with P A YGO funding. Also, the $2.5 millon surplus in the JFMP projects fud would be utilized over a number of years, which results in a steady increase in future appropriations to this fund. Under this option, rate revenues would increase 8.5% in September 2013 and up to 8.5% in July Option 2 (PAYGO 2) This option would increase reserves by approximately $165,000 in FY , but by FY reserve fund levels would be reduced to minimum target levels. P A YGO funding would be used to pay for the JFMP projects. The $2.5 milion surplus in the JFMP projects would be used more aggressively, thereby eliminating the need for any appropriation to this project in FY Under this option, rate revenues would increase 4.5% in September 2013 and up to 12.5% in July Last printed 8/12/2013 7:34:00 AM 08/21/2013 Item #S10A Page 2

3 Option 3 (Debt) This option increases reserves by approximately $165,000 in FY , but by FY reserve fund levels would be reduced to minimum target levels. The $2.5 milion surplus would be used aggressively. Also, the Distrct would utilize approximately $5 milion in debt financing to fud a portion of the JFMP projects. Under this option, rate revenues would increase 4.5% in September 2013 and up to 4.5% in July While the Distrct is proposing a two-year rate plan, RFC utilized the rate model to project rates over a five-year period for each plan so that both short-term and long-ter rate impacts for each plan could be analyzed. The projected rate revenue increase for each plan over the next five years is as follows: Compounded FY13114 FY14115 FY15/16 FY16117 FY Y ear Increase Option 1 8.5% 8.5% 6.5% 1.5% 1.5% 29.2% Option 2 4.5% 12.5% 8.5% l.5% 1.0% 30.8% Option 3 4.5% 4.5% 6.0% 6.0% 6.0% 30.1% The Distrct Board selected to move forward with Option 1 and directed staff to schedule a public hearing on August 21, 2013 in compliance with Proposition 218 requirements to consider adoption of new rates and charges. ANALYSIS: The selected rate plan consists of an 8.5% rate revenue increase in September 2013 and up to an 8.5% increase in July 2014 (see Section of the Study for the proposed rates and charges). It should be noted that the July 2014 increase is an "up to" amount. This is the maximum amount of the rate increase. Should the Distrct see higher revenues or lower expenditures than projected in FY , Distrct staff wil analyze the financial impacts and, if waranted, recommend a lower rate increase in July This plan provides the lowest projected compounded increase over five years, better balances the rate increases between the two years and since it does not include additional debt financing, it wil not diminish the District's debt capacity in future years. The Water Rate Study recommends that the Distrct continue to set water rates and meter service charges so that approximately 25% ofthe District's rate revenue comes from the fixed meter servce charge, which is a common industr standard. Currently, due to reduced water sales the Distrct is receiving approximately 27% of its revenue from meter service charges. In order to return to 25% fixed revenue, the meter service charge wil increase slightly in the first year of the proposed rate plan. Therefore, the revenue increase in the first year wil come primarily from an 11.5% increase in the variable water rate. Overall, the average Distrct customer wil see an 8.1 % increase in their water bil (see Section 6.5 of the Study for the various rate plan impacts based on usage level and rate class). Low water users wil see an even smaller increase. In the second year of the rate plan both the bi-monthly service charge and varable water rate wil increase up to 8.5%. The District's drought rates wil also be updated to incorporate the new rates. Drought rates are implemented when mandatory water use reductions are required due to a declared drought. They are designed to keep the Distrct in a revenue-neutral position as water sales are reduced. Drought rates for each rate option are shown in Section 6.6 of the Study. Last printed 8/12/2013 7:34:00 AM 08/21/2013 Item #S10A Page 3

4 Recycled water rates wil continue to be set at 85% of the associated potable water rate. Also, the Distrct wil be implementing a meter serice charge for recycled water customers to cover some of the District's fixed costs associated with the recycled water program. The recycled water meter service charge wil be equal to the potable meter serice charge, however it wil be prorated since the Distrct bils recycled water customers monthly rather than bi-monthly. A Proposition 218 Notice (Attachment D) was mailed to all property owners and water customers in the District. A total of 13,064 notices were mailed. Customers opposed to the increase in rate and charges were directed to submit a written protest to the District. If written protests against the proposed rates and charges are presented by a majority of the customers, the Distrct shall not increase the rates and charges. As of August 9, 2013, ten written protests have been received. Protests are accepted up to the conclusion of the public comment portion of the public hearing and a final tabulation of protests wil then be provided. FISCAL AND STAFF IMPACTS: The proposed rate plan wil accomplish the following:. Fund reserves at target levels;. Continue the District's commitment to effectively fund investment in the District's infrastrcture;. Provide sufficient debt service coverage; and. The District's average residential customer wil continue to have the second lowest water bil in the County. RECOMMENDATION: Receive public testimony, review and discuss the information presented, and adopt Resolution No , implementing adjustments to the District's water rates and meter service charges for fiscal years 2013/14 and LIST OF ATTACHMENTS: Attachment A - Resolution No Attachment B - Water Bil Comparson with Neighboring Agencies Attachment C San Dieguito Water District Water Rate Study Attachment D - Proposition 218 Notice Last printed 8/12/2013 7:34:00 AM 08/21/2013 Item #S10A Page 4

5 RESOLUTION NO A RESOLUTION OF THE BOARD OF DIRECTORS OF SAN DIEGUITO WATER DISTRICT INCREASING WATER RATES AND METER SERVICE CHARGES FOR FISCAL YEARS 2013/14 AND 2014/15 WHEREAS, notice has been given that a public hearing be held on August 21,2013 on the necessity to increase water rates and meter service charges for fiscal years 2013/14 and 2014/15; and WHEREAS, said notice of public hearing was done in accordance with Proposition 218 and all other statutory requirements; and WHEREAS, such hearing was duly convened at the Council Chambers of the City of Encinitas and at said hearing all interested persons were given an opportunity to be heard and present wrtten protests against said increases; and WHEREAS, the Board of Directors find and determine that at the close of the public comment portion of the public hearing insuffcient protests were filed pursuant to Proposition 218 to invalidate said increases; and WHEREAS, the Board of Directors finds that it is in the interest of the District to increase its water rates and meter service charges; NOW, THEREFORE, IT IS HEREBY RESOLVED, DETERMINED AND ORDERED by the Board of Directors of San Dieguito Water District as follows: 1. That the water rates and meter service charges for fiscal year shall be and they are fixed as set forth in Exhibit "A" which is attached hereto, effective with all bilings sent on or after September 1, That the water rates and meter service charges for fiscal year shall be and they are fixed as set forth in Exhibit "A" which is attached hereto, effective with all bilings sent on or after July 1, 20l4. 3. That drought rates for fiscal years 2013/l4 and shall be implemented when mandatory water reductions are adopted by the District at rates fixed as set forth in Exhibit "B" which is attached hereto. When mandatory reductions fall between the i 0% increment levels, drought rates shall be pro-rated between the two levels the reduction falls between. 4. That a recycled water meter service charge is hereby established and shall be and it is fixed as set forth in Exhibit "A" which is attached hereto, effective with all bilings sent on or after September i, Last printed 8/12/2013 7:34:00 AM 08/21/2013 Item #S10A Page 5

6 5. That the water rates and meter service charges established by this resolution do not exceed the estimated amounts required to provide the services for which the rates and charges are levied. 6. That the foregoing changes and establishments of water rates and meter service charges of the District are for the purpose of meeting operating expenses of the District, purchasing and leasing supplies, equipment and materials, meeting financial reserves needs and requirements, and to obtain funds for capital projects necessary to maintain service within existing service areas, constitute a revision in the existing rates of the District, and, therefore, the foregoing changes and establishment of such rates and charges are exempt from the provisions of the California Environmental Quality Act. PASSED AND ADOPTED at a meeting of the Board of Directors of San Dieguito Water District held on August 21, 2013, by the following vote: AYES: NOES: ABSENT: ABSTAIN: ATTEST: Lisa Shaffer, President Gus Vina, Secretary Last printed 8/12/2013 7:34:00 AM 08/21/2013 Item #S10A Page 6

7 Exhibit "A" Proposed Potable Water Meter Bi-Monthly Service Charge 5/8" & 3/4" $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ 1, " $ 1, $ 1, $ 1, Proposed Fire Meter Bi-Monthly Service Charge 1" $ 7.05 $ 7.05 $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ Proposed Recycled Water Meter Monthly Service Charge 5/8" N/A $ $ /4" N/A $ $ " N/A $ $ " N/A $ $ " N/A $ $ " N/A $ $ " N/A $ $ " N/A $ $ " N/A $ $ Proposed Residential and Non-Residential Commodity Charges Per Hundred Cubic Feet (HCF) of Water (748 Gallons) Single-Family Residential (SFR) 12 $ 2.26 $ $ 3.37 $ $ 3.98 $ $ 5.03 $ Multi-Family Residential (MFR) 8 $ 2.26 $ (Block per dwelling) 12 $ 3.37 $ $ 3.98 $ $ 5.03 $ Agriculture Flat $ 2.80 $ 3.13 $ 3.40 Commercial Flat $ 3.16 $ 3.53 $ 3.83 Government Flat $ 3.16 $ 3.53 $ 3.83 Public Flat $ 3.16 $ 3.53 $ 3.83 Construction Flat $ 3.98 $ 4.44 $ SFR and MFR customers with qualifying agriculture or commercial uses pay the same respective SFR and MFR rates with the exception of the last tier which reverts to the Agriculture or Commercial rate. 08/21/2013 Item #S10A Page 7

8 Exhibit lib" Proposed September 1,2013 Drought Rates Per Hundred Cubic Feet (HCF) of Water (748 Gallons) Single-Family Residential (SFR) 12 $ 2.52 $ 2.76 S 3.03 $ 3.47 $ 4.14 $ $ 3.76 S 4.12 $ 4.51 $ 5.17 $ 6.17 S S 4.44 S 4.86 $ 5.33 S 6.11 S 7.29 S $ 5.62 $ 6.15 $ 6.74 S 7.72 S 9.22 S Multi-Family Residential (MFR) 8 $ 2.52 S 2.76 S 3.03 $ 3.47 $ 4.14 S 5.06 (Block per dwelling) 12 $ 3.76 S 4.12 $ 4.51 $ 5.17 S 6.17 S $ 4.44 $ 4.86 $ 5.33 S 6.11 S 7.29 S $ 5.62 $ 6.15 $ 6.74 S 7.72 $ 9.22 $ Agriculture Flat $ 3.13 $ 3.29 $ 3.48 $ 3.74 S 4.07 S 4.54 Commercial Flat S 3.53 $ 3.73 $ 3.98 S 4.30 $ 4.73 S 5.34 Government Flat S 3.53 $ 3.73 $ 3.98 S 4.30 $ 4.73 $ 5.34 Public Flat $ 3.53 $ 3.73 $ 3.98 $ 4.30 $ 4.73 $ 5.34 Construction Flat $ 4.44 $ 4.74 S 5.12 $ 5.60 $ 6.25 S 7.16 Proposed July 1, 2014 Drought Rates Per Hundred Cubic Feet (HCF) of Water (748 Gallons) Single-Family Residential (SFR) 12 $ 2.73 $ 2.99 S 3.29 $ 3.76 S 4.49 S $ 4.08 S 4.47 $ 4.89 S 5.61 $ 6.69 $ S 4.82 S 5.27 $ 5.78 S 6.63 $ 7.91 $ S 6.10 $ 6.67 $ 7.31 $ 8.38 $ S Multi-Family Residential (MFR) 8 $ 2.73 S 2.99 $ 3.29 S 3.76 $ 4.49 $ 5.49 (Block per dwelling) 12 $ 4.08 $ 4.47 $ 4.89 S 5.61 $ 6.69 S S 4.82 $ 5.27 S 5.78 $ 6.63 $ 7.91 S $ 6.10 $ 6.67 S 7.31 $ 8.38 $ $ Agriculture Flat S 3.40 $ 3.57 S 3.78 $ 4.06 S 4.42 S 4.93 Commercial Flat $ 3.83 $ 4.05 S 4.32 $ 4.67 S 5.13 $ 5.79 Government Flat $ 3.83 S 4.05 $ 4.32 S 4.67 $ 5.13 $ 5.79 Public Flat S 3.83 S 4.05 $ 4.32 S 4.67 $ 5.13 S 5.79 Construction Flat S 4.82 $ 5.14 S 5.56 $ 6.08 S 6.78 S 7.77 'SFR and MFR customers with qualifying agriculture or commercial uses pay the same respective SFR and MFR rates with the exception of the last tier which reverts to the Agriculture or Commercial rate. 08/21/2013 Item #S10A Page 8

9 Water Bill Comparison with Neighboring Agencies (Monthly bills based upon a %" water meter and 13 units of consumption) $ c:. $60.00 Żw S50.00 ~ J: U c: $40.00 l= c: r- r- - m m (D 1"- Average = $ i..:; l!") - r- ~. " co co co E' EA - - r- - ~ lo N a (D E' 0 r- lo ~ ;; ('- r- - r- N N lo a 0 r- r- E' oj) ~ r- - N cr r- co e r- 'l "' 0 ~ ~'ic'.. cr q en 0 e e - 1'- 1'- lo 'l r- co CD r- r- E' E' l.i) to CD CD - E' EA 0 ;; (D CD E' e ~ OJ (: lo CD e CD 'l E' e l.i) E: : $10.00 $-...?)rt ~ rt~ "'~ rt~ ~-s ~~e ~oq, o~ ~() ~'S e;q 9~ ~...t.. ~+ ')e.be t:,.-.n,~ '" ~~ ~o o tje.,,.,, ",4. tf ~b ~e~ d ~,e ;:~ -#'t r-"'~ v't ee 60,~~ ~~'t ~", ~.A~ ~~- ú'" ~.. ~c; t,o ~o ~ I(~ ~'t ~'t ~ -J e;.: ~~'~J'~~' Note: SDWD bills Include SDWCA Infrastructure Access Charge (lac) pass-through (currently $2.65 per month) 08/21/2013 Item #S10A Page 9

10 ATTACHMENT C 08/21/2013 Item #S10A Page 10

11 Table of Contents 1 Executive Summary Review Findings Review of Revenue Requirements Revenue Increase Drivers Cost of Service (COS) Rate Design ~eserves Recommendations Bi-Monthly Fixed Charge and Commodity Rates Drought Rates Fire Service Charges Introduction Project Overview Current Environment Study Scope Water System and Current Water Rate Structure...; Water Sources...; Existing Water Rate Structure Growth Development of Revenue Options Option 1 (PAYGO 1)...; Option 2 (PAYGO 2) Option 3 (Debt) Five-Year Projections for Rate Options Revenue Requirements Projected Revenues Operating and Capital Expenses Debt Coverage Reserves...22 Raftelis Financial Consultants, Inc. Page 3 08/21/2013 Item #S10A Page 11

12 5.4.1 Operating Reserves Rate Stabilization Reserve Capital Replacement Reserves Proposed Revenue Adjustments Proposed Rates and Customer Impacts Overview of Rate Setting Cost of Service Analysis Unit Costs of Service Proposed Water Rate Structure and Rates Single Family Residential (SFR) Commodity Rates Multi Family Residential (MFR) Commodity Rates Commercial Commodity Rates Landscaping and Construction Commodity Rates Agricultural Commodity Rates Recycled Commodity Rates Customer Rate Impacts Drought Rates Fire Service Charges Comparison of Bills with Surrounding Agencies Conclusion...52 Raftelis Financial Consultants, Inc. Page 4 08/21/2013 Item #S10A Page 12

13 1 Executive Summary The San Dieguito Water District (District) engaged Raftelis Financial Consultants, Inc. (RFC) to conduct a comprehensive water rate study that included a review of revenue requirements, user classifications, costs of services, the design of a system of user charges for the District's water service that would promote water conservation, and adjustments to those user charges that could be implemented in the instance of drought. RFC developed a financial plan with alternative rate structures to help implement a revenue program that provides financial stabilty and meets the District's objectives for the next two years. This report documents the results of the study and suggests changes to cost allocations and the water rate structures that will serve to better meet the District's pricing objectives during Fiscal Year (FY) and beyond. The specific objectives of this study include the development of a rate structure that:. is consistent with the cost of providing service;. establishes adequate reserve levels;. provides adequate debt service coverage;. provides financial sufficiency to meet the expenses of the District; and. provides revenue stability. 1.1 Review Findings Review of Revenue Requirements The District's principal source of revenue is from rates. Estimates show the District's total revenue requirements for fiscal year FY 2014 to be approximately $13.6 millon and $14 million in FY The Capital Improvement Program (CIP) can be financed either through PAYGO funding, which is financing expenditures with funds currently available, or through debt financing. The District has not raised rate since January 2011 (approximately 2.5 years). Most agencies typically raise rates on a yearly basis. In order to sustain operations, adequately fund reserves, and meet debt coverage requirements, RFC proposes the following rate revenue increase options: Option 1 (PAYGO 1) This option would fund capital projects through rate revenue, capacity fees and capital replacement reserves. Rate revenues would increase 8.5% in September 2013 and up to 8.5% in July Option 2 (PAYGO 2) This option would fund capital projects through rate revenue, capacity fees and capital replacement reserves. Rate revenues would increase 4.5% in September 2013 and up to 12.5% in July Option 3 (Debt) This option would fund capital projects through rate revenue, capacity fees, capital replacement reserves and utilize debt financing in the amount of $5 milion in FY Rate revenues would increase 4.5% in September 2013 and up to 4.5% in July Rafielis Financial Consultants, Inc. Page 5 08/21/2013 Item #S10A Page 13

14 For all options, the 2014 increase is an "Up to" amount. This is the maximum amount of the rate increase. Should the District see higher revenues or lower expenditures than projected in FY 2014, District staff will analyze the financial impacts, which may lead to a lower rate increase recommendation for FY Revenue Increase Drivers There are two main reasons for the need to increase revenues:. Increased cost to purchase water. The supply of local (and less expensive) water from Lake Hodges is expected to drop from 4,000 acre feet (AF) in FY 2013 to 2,430 AF in FY 2014 and beyond. This will require the District to purchase more expensive water from the San Diego County Water Authority. Potable water purchase costs for the District are expected to increase by 38.4% in FY Increased capital costs. Capital costs are expected to ramp up in the coming years. Major improvements are proposed for the R.E. Badger Filtration Plant, San Dieguito Reservoir and accompanying facilities jointly owned with the Santa Fe Irrigation District (SFID). The District's share of the proposed lo-year Capital Improvement Program (CIP) is $17.8 millon. The District's previous annual appropriation for these facilities was $975, Cost of Service (COS) The cost of service allocations conducted in this study are based on the Base-Extra Capacity method endorsed by the American Water Works Association (AWWA), a nationally recognized industry group. Under the Base-Extra Capacity method, revenue requirements are allocated to the different user classes proportionately to their use of the water system. Allocations are based on average day (Base), maximum day peak (Max Day) usage, maximum hour peak (Max Hour) usage, meters and services, and billing and customer service Rate Design The rate structures proposed as part of this study are unchanged from the existing rate structure. The District's goal is to set water rate and meter service charges 50 that approximately 25% of the District's rate revenue comes from the fixed meter service charge, which is a typical industry standard. Currently due to reduced water sales the District is receiving approximately 27% of its revenue from meter charges. In order to return to 25% fixed revenue, the meter service charges either does not increase or increases slightly in the first year of the proposed rate plans. Therefore, a majority or in some cases all of the revenue increase will come from an increase in variable rates Reserves The District reserves consist ofthe following: an operating reserve, a capital replacement reserve, and a rate stabilization reserve. (The District also has a recycled water fund and debt service reserve.) Although the District will draw down reserves to mitigate some of the significant operating and capital cost increases, the reserve balances will remain within the following existing targets:. Operating Reserve - 60 days worth of annual operating expenses. Rate Stabilization Reserve - 15% of annual rate revenue. Capital Replacement Reserve - between 2 and 3 times average annual capital expenditures Raftelis Financial Consultants, Inc. Page 6 08/21/2013 Item #S10A Page 14

15 1.2 Recommendations District Staff and RFC presented these three options to the District Board at a meeting on June 19/ 2013 and recommended implementing Option 1 (PAYGO 1). The District Board selected Option 1 and instructed staff to proceed to notify its customers of the proposed water rate and meter service charge adjustments per Proposition 218 requirements. The following sections outline the rates associated with PAYGO Bi-Monthly Fixed Charge and Commodity Rates Table 1-1 outlines the Option 1 Proposed Rates. TABLE 1-1 CURRENT AND PROPOSED RATES (PAYGO 1) Bi-Monthly Service Charge Existing Proposed Proposed Meter Service Servi ce Cha rge Servi ce Cha rge Size Charge 9/1/2013 7/1/2014 5/8" & 3/4" $ $ $ " $ $ $ /2" $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ 1, " $ 1/ $ 1, $ 1, Commodity Rates (per hd) Customer Existing Proposed Proposed Class Blocks Rates 9/1/2013 7/1/2014 SFR 0-12 $ 2.26 $ 2.52 $ $ 3.37 $ 3.76 $ $ 3.98 $ 4.44 $ $ 5.03 $ 5.62 $ 6.10 MFR 0-8 $ 2.26 $ 2.52 $ $ 3.37 $ 3.76 $ $ 3.98 $ 4.44 $ $ 5.03 $ 5.62 $ 6.10 Agriculture $ 2.80 $ 3.13 $ 3.40 Commercial $ 3.16 $ 3.53 $ 3.83 Landscaping $ 3.98 $ 4.44 $ 4.82 Public $ 3.16 $ 3.53 $ 3.83 Government $ 3.16 $ 3.53 $ 3.83 Constructi on $ 3.98 $ 4.44 $ 4.82 Recycled 85% of potable rate Note: Residential with Agriculture or Commercial customers pay the same respective rates exceptfor the last tier which reverts to the Agriculture or Commercial rate. Recycled water customers wil pay at 85 percent of the equivalent potable rate. Rafielis Financial Consultants, Inc. Page 7 08/21/2013 Item #S10A Page 15

16 The proposed water rates are consistent with the existing rate structure. A bi-monthly meter charge will continue to be assessed to each customer and wil vary depending on the customer's meter size. Recycled water customers had not previously been paying this fixed meter charge; our proposed rate plan recommends that they begin to. As recycled water customers are billed monthly, their meter charges will be Yi of the equivalent bi-monthly meter charge for potable customers. The remaining revenue requirements will be recovered from a volumetric or consumption charge. The volume rate per hundred cubic feet varies by customer class. Details and proposed modifications to the commodity rate structure are outlined in the following sections Drought Rates Although the District service area is not currently in drought, drought conditions were present as recently as Having drought rates available and ready to be implemented prior to drought conditions being declared allows the District to ensure revenue requirements are met when consumption decreases due to drought conservation. Tables 1-2 and 1-3 outline an update to the Drought Rates that were developed as part ofthe previous rate study conducted by RFC in Raftelis Financial Consultants, Inc. Page 8 08/21/2013 Item #S10A Page 16

17 TABLE 1-2 PROPOSED DROUGHT RATES FY 2014 (PAYGO 1) No 10% 20% 30% 40% 50% Stage: Reduction Reduction Reduction Reduction Reduction Reduction $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR w/ Ag MFR w/comm Agriculture Commercial landscaping Public Government Construction Raftelis Financial Consultants, Inc. Page 9 08/21/2013 Item #S10A Page 17

18 TABLE 1-3 PROPOSED DROUGHT RATES FY 2015 (PAYGO 1) No 10% 20% 30% 40% 50% Stage: Reducti on Reduction Reduction Reducti on Reducti on Reducti on $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR w/ Ag MFR w/comm Agriculture Commercial Landscaping Public Government Construction Fire Service Charges The District has to size its system to provide fire service. There are costs associated with maintenance of the system to provide this service. These costs are shared between public and private services in proportion to the demand they place on the system. Costs to the public system are redistributed in the potable bi-monthly service charges. The charges for private fire service are then determined for the several different sizes of private fire service connections. A schedule of private fire service charges is shown in Table 1-4. Raftelis Financial Consultants, Inc. Page 10 08/21/2013 Item #S10A Page 18

19 TABLE 1-4 (PAYGO 1) PROPOSED BI-MONTHLY PRIVATE FIRE SERVICE CHARGES Existing Proposed Proposed Meter Servi ce Servi ce Cha rge Servi ce Cha rge Size Cha rge 9/1/2013 7/1/2014 1" $ 7.05 $ 7.05 $ /2" $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ Raftelis Financial Consultants, Inc. Page 11 08/21/2013 Item #S10A Page 19

20 2 Introduction 2.1 Project Overview The San Dieguito Water District (District) engaged Raftelis Financial Consulting, Inc. (RFC) to perform a water rate study. The key deliverables of the study were a financial plan and water rates that would ensure the financial stabilty of the District during normal and drought conditions. The rates were developed in a financial planning and rate model to be used to evaluate alternative rate structures and to provide more detailed forecasts in future years. The goal of the study was to revise and update the current water rates to ensure revenue requirements are met in a manner that reflect cost of service. Accordingly, RFC developed the Rate Model to assist the District in evaluating various water rate alternatives and the impacts on customers, drought rates and the associated impacts, and reserve funding policies. 2.2 Current Environment The District currently serves a population of over 37,000 people, with approximately l1a70 water services. The District purchases imported water from the San Diego County Water Authority (SDCWA) and also has rights to local water stored in Lake Hodges. The amount of water available from Lake Hodges varies from year to year; in fiscal year 2014 (FY14), the District projects to use 2A30 acre feet (AF) of local water from Lake Hodges and 4,107 AF from SDCWA. The District also sells recycled water received from the San Elijo Joint Powers Authority (SEJPA). The District's current conservation objectives are driven by the limited water resources, regional drought conditions, rapidly increasing costs of imported water and the volatility of local water supply. 2.3 Study Scope The scope of this study results in the development of cost-based water user rates through a comprehensive cost of service and rate design study process. Figure 2-1 provides a graphical representation of the various steps involved in the comprehensive cost of service and rate design process. The steps involved are:. Financial Planning: Revenue requirements are projected for FY14. Financial planning involves estimation of annual Operating and Maintenance (O&M) and capital expenditures, reserve targets, operating and capital revenue sources and the determination of required annual user revenues from rates and charges.. Cost of Service Analysis: Cost of service analysis involves identifying and apportioning annual revenue requirements to the different user classes proportionate to their demand on the water system.. Rate Design: Rate design involves the development of a fixed and variable schedule of rates for different user classes to proportionately recover the costs attributable to them. Policy objectives, such as encouraging conservation, are considered at this stage. Raftelis Financial Consultants, Inc. Page 12 08/21/2013 Item #S10A Page 20

21 FINANCIAL PLANNING siep1 FIGURE 2-1 COST OF SERVICE/RATE DESIGN. PROCESS..... ;... ~... "':!:.. :... ~ -- a ~...~~ siep2 ~::;.. ~--. ;.: - I;. :. : , - ~~~Jig~ ""3 ~ m:14 l'jhtlmj= ;;;~ ''"'4 r 1. ;wiiiil=i.l!mß ~ RATE DESIGN "~5 t~_o===_~-i Raftelis Financial Consultants, Inc. Page 13 08/21/2013 Item #S10A Page 21

22 3 Water System and Current Water Rate Structure This section of the report presents a brief overview of the water sources, existing rates, and user/usage characteristics. 3.1 Water Sources The District's customers include residential, commercial, and agricultural users. The District serves its potable customers with local water from Lake Hodges and imported water through the San Diego County Water Authority (SDCWA). The District serves recycled water purchased from San Elijo Joint Powers Authority (SEJPA). The local water supply in Lake Hodges is not always reliable due to drought and hydrological conditions. During years in which local water is in limited supply, the District must purchase a greater percentage of its potable water supply through SDCWA. Because local water supply is less expensive than imported water, the District's water supply costs are subject to large fluctuations from year to year. 3.2 Existing Water Rate Structure The District currently implements a tiered rate structure for residential customers and a uniform water rate structure for non-residential customers. Some agriculture and commercial customers also have residential dwellng units as part ofthe property, so the first 40 units of usage bi-monthly are biled at the single family residential (SFR) or multi-family residential (MFR) rates and any remaining usage is billed at the agriculture or commercial rate. One billng unit is equal 100 cubic feet (hcf) or 748 gallons. This rate structure also includes a meter service charge that varies with meter size. Billng is done on a bi-monthly basis. The District last increased its rates January 1, Table 3-1 outlines existing rates. 3.3 Growth The District is mostly built out and is only expected to grow at a 0.5% rate in FV14 and each year over the life of this study. Water usage is expected to grow approximately 2% per year due to new growth and a slight rebound in consumption from the recent drought. Raftelis Financial Consultants, Inc. Page 14 08/21/2013 Item #S10A Page 22

23 TABLE 3-1 EXISTING BI-MONTHLY WATER RATE STRUCTURE Bi-Monthly Bi-Monthly Meter Service Fire Size Charge Charge 5/8" & 3/4" $ N/A 1" $ $ " $ $ " $ $ " $ $ " $ $ " $ $ " $ 1, $ Commodity Rates (hd) Customer Existing Existing Class Block Rates SFR 12 $ $ $ $ 5.03 SFR w/ Ag. 12 $ $ $ $ 2.80 SFR wi Commercial 12 $ $ $ $ 3.16 MFR 8 $ $ $ 3.98 $ 5.03 MFR w/ Ag. 8 $ $ $ $ 2.80 MFR w/ Commercial 8 $ $ $ $ 3.16 Agriculture $ 2.80 Commercial $ 3.16 Landscaping $ 3.98 Public $ 3.16 Government $ 3.16 Construction $ 3.98 Raftelis Financial Consultants, Inc. Page 15 08/21/2013 Item #S10A Page 23

24 4 Development of Revenue Options Utilizing the rate model, RFC worked with District staff to analyze a variety of revenue plan options. From this analysis, three alternative revenue plans were developed. The plans are described in detail below. 4.1 Option 1 (PAYGO 1) This option would reduce reserves by $754,345 to help mitigate rate impacts to customers. By FY 2015, reserve fund levels would be reduced to minimum target levels. Also, as the Joint Facilities Master Plan was being developed, major capital improvement projects to the R.E. Badger Filtration Plant and associated infrastructure were delayed. In anticipation of future increases in the District's share of the Joint Facilities Capital Improvement Projects, the District continued to make an annual contribution of $975,000 to the project. This has resulted in a $2.5 millon surplus in this project. This surplus would be utilized over a number of years to slowly increase contributions to the Joint Facilities Master Plan CIP. Projected appropriations to this project would be as follows: i l FY20~ FY 2015 FY 20g; FY_2Q1Z... ~ FY 2918 Beginning Project Balance $ 2,539,069 $ 2,549,269 $ 1,405,869 $ 598,269 $ 10,269 Annual Appropriation $ 1,300,000 $ 1,300,000 $ 1,500,000 $ 1,500,000 $ 1,750,000 Project Expenditures $ (1,289,800) $ (2,443,400) $ (2,307,600) $ (2,088,000) $ (1,346,000) Ending Project Balance $ 2,549,269 $ 1,405,869 $ 598,269 $ 10,269 $ 414,269 Under this option, rate revenues would increase 8.5% in September 2013 and up to 8.5% in July Option 2 (PA YGO 2) This option increases reserves by $164,984 in FY 2014, however by FY 2015, reserve fund levels would be reduced to minimum target levels. Also, the $2.5 million surplus in the Joint Facilities Master Plan CIP project would be used more aggressively thereby eliminating the need for any appropriation in FY Projected appropriations to this fund would be as follows: i!..!i _ II Fl:~Q.!4 _ Beginning Project Balance $ 2,539,069 - "'...- ~ f.x~0!5 _ Fl.~Ol J'!2017_~_ FY "- $ 1,249,269 $ 405,869 $ 98,269 $ 10,269 Annual Appropriation $ $ 1,600,000 $ 2,000,000 $ 2,000,000 $ 1,800,000 Project Expenditures $ (1,289,800) Ending Project Balance $ 1,249,269 $ (2,443,400) $ (2,307,600) $ (2,088,000) $ (1,346,000) $ 405,869 $ 98,269 $ 10,269 $ 464,269 Under this option, rate revenues would increase 4.5% in September 2013 and up to 12.5% in July Raftelis Financial Consultants, Inc. Page 16 08/21/2013 Item #S10A Page 24

25 4.3 Option 3 (Debt) This option increases reserves by $164,984, however by FY 2015, reserve fund levels would be reduced to minimum target levels. The $2.5 million surplus in the Joint Facilities Master Plan fund would be used aggressively. Also, a $5 millon loan would be obtained in FY 2015 to fund a portion ofthe Joint Facilities (IP. The loan would reduce the District's debt coverage to approximately 150% under this option, which reduces the District's capacity to issue further debt in the near term. Projected appropriations to this fund would be as follows: FY 2011 FV~Oa FV 2016 FV 2017 FY 2018 Beginning Project Balance $ 2,539,069 $ 1,249,269 $ 16,069 $ 16,069 $ 16,069 Annual Appropriation $ $ $ $ 605,800 $ 1,900,000 Project Expenditures $ (1,289,800) $ (2,443,400) $ (2,307,600) $ (2,088,000) $ (1,346,000) Private Loan $ 1,210,200 $ 2,307,600 $ 1,482,200 Ending Project Balance $ 1,249,269 $ 16,069 $ 16,069 $ 16,069 $ 570,069 Under this option, rate revenues would increase 4.5% in September 2013 and up to 4.5% in July Five-Year Projections for Rate Options While the District is proposing a two-year rate plan, the rate model was used to project rates over a fiveyear period for each plan. This allowed short-term and long-term rate impacts for each plan to be analyzed. The projected rate revenue increase for each plan over the next five years is as follows: l FV 2014 FV 2015 FV 2016 FV 2017 FY 2018 Compounded i.?.:y~!!j! r!.a.le i Option 1 (PAVGO 1) 8.5% 8.5% 6.5% 1.5% 1.5% 29.2% Option 2 (PAVGO 2) 4.5% 12.5% 8.5% 1.5% 1.0% 30.3% Option 3 (DEBT) 4.5% 4.5% 6.0% 6.0% 6.0% 30.1% Raftelis Financial Consultants, Inc. Page 17 08/21/2013 Item #S10A Page 25

26 5 Revenue Requirements A review of a District's revenue requirements is a key first step in the rate design process. The review involves an analysis of annual operating revenues under existing rates, O&M expenses, capital expenditures, reserves, and transfers between funds. This section of the report provides a discussion of the projected revenues, operating and capital expenditures, debt coverage requirements, reserve funding policies, and the revenue adjustments required to ensure the financial stability of the water enterprise. From this section of the report onward, the results are dependent upon the three revenue options described in Section 4. While all rate options are two-year plans, long-term financial impacts are analyzed. Therefore, the graphs and tables show five years worth of data. 5.1 Projected Revenues The following charts outline the projected revenues and revenue requirements under the three proposed revenue options. $20 en $18 5 $16 :: $14 :æ $12 FIGURE 5-1 REVENUE REQUIREMENTS (PAYGO 1) $10 $8 $6 $4 $2 $ i: O&M Expenses _ Operations Reserve Funding -0 Revenue Under Proposed Rates I! Debt Service -+ Revenue Under Existing Rates _.. _""-~.-_"'",,, '.""''' ~~'.._"-e,y_'",,- ~,,_~,,-_ Raftelis Financial Consultants, Inc. Page 18 08/21/2013 Item #S10A Page 26

27 San Dieguito Water DistrictWater Rate Study FIGURE 5-2 REVENUE REQUIREMENTS (PAYGO 2) $20 CI $18 5 $16 := $14 :: $12 $10 $8 $6. $4 $2 $ c: O&M Expenses ~ Operations Reserve Funding.-_ _.~. -0 Revenue Under Proposed Rates ~ Debt Service -+ Revenue Under Existing Rates FIGURE 5-3 REVENUE REQUIREMENTS (DEBT) $20 CI $18 5 $16 :: $14 :: $12 $10 $8 $Ei $4 $2 $ c: O&M Expenses _ Operations Reserve Funding -0 Revenue Under Proposed Rates li Debt Service -+ Revenue Under Existing Rates ~.._.,.._,..=,..._.o-'... "',,,.~,,.,_....._ "'..."'...,~. _ '-,.,...~,.,"". "' ,.._.. As you can see from the red line in Figures 5-1 through 5-3, the District's existing rate revenue stream is insufficient to meet current and future revenue requirements. Revenue adjustments will be needed. Raftelis Financial Consultants, Inc. Page 19 08/21/2013 Item #S10A Page 27

28 Without revenue increases, the District will be running a deficit by FY 15 or FY16 depending on the option. 5.2 Operating and Capital Expenses The District's FY 14 and FY 15 budgets were utilized in the rate model to develop a long-term forecast. Various escalation rates were used to project future O&M expenses. Nearly all O&M expenses are subject to an annual 3 percent inflation increase (based on historical CPI), while others have an additional escalation factor related to growth. Notable escalation factors and expenditures are as follows: Imported water purchase costs and other related fixed costs were escalated according to projections done by SDCWA. These increases range from 2.7% to 9% depending on the year.. Personnel/Labor (including benefits) escalate at 1.5%. The District's current detailed Capital Improvement Program (CIP) extends through FY18. The CIP is shown in Tables 5-1 through 5-3 for the various rate options. The appropriations to the Joint Facilities Master Plan Projects is the only item that changes between the rate options. Capital Projects Joint Facilities Master Plan Projects (Annual) Joint Facilities Master Plan Projects (Annual) Loan Joint Facilities Capital Acquisitions (Annual) Water Infrastructure Improvements (Annual) Meter Replacement and Automation Program (Annual) Motorized Actuators for Transmission Lines SDWD Rate Study Update (2-year) Ashbury Street Water Main Replacement SDWD Emergency Power Generator SDWD Urban Water Management Plan Update (5-year) SDWD Water Master Plan Update (10-year) Return of Funds From Closed Projects TABLE 5-1 CAPITAL IMPROVEMENTS (PAYGO 1) $ 975,000 $1,300,000 $ 1,300,000 $1,500,000 $1,500,000 $1,750,000 $ 40,000 $ 190,000 $ 190,000 $ 190,000 $ 190,000 $ 190,000 $ 486,096 $ 200,000 $ 200,000 $ 600,000 $ 600,000 $ 600,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ (50,000) $ 50,000 $ 50,000 $ 113,904 $ 50,000 $ (92,012) $ 50,000 Total $1,722,988 $1,890,000 $1,990,000 $ 2,490,000 $ 2,540,000 $ 2,740,000 Raftelis Financial Consultants, Inc. Page 20 08/21/2013 Item #S10A Page 28

29 TABLE 5-2 CAPITAL IMPROVEMENTS (PAYGO 2) Capital projects Joint Facilities Master Plan Projects (Annual) Joint Facilities Master Plan Projects (Annual) Loan Joint Facilities Capital Acquisitions (Annual) Water Infrastructure Improvements (Annual) Meter Replacement and Automation Program (Annual) Motorized Actuators for Transmission Lines SDWD Rate Study Update (2-yea r) Ashbury Street Water Main Replacement SDWD Emergency Power Generator SDWD Urban Water Management Plan Update (5-year) SDWD Water Master Plan Update (10-year) Return of Funds From Closed Projects $ 975,000 $ 1,600,000 $ 2,000,000 $ 2,000,000 $ 1,800,000 $ 40,000 $ 190,000 $ 190,000 $ 190,000 $ 190,000 $ 190,000 $ 486,096 $ 200,000 $ 200,000 $ 600,000 $ 600,000 $ 600,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ (50,000) $ 50,000 $ 50,000 $ 113,904 $ 50,000 $ (92,012) $ 50,000 Total $1,722,988 $ 590,000 $ 2,290,000 $ 2,990,000 $ 3,040,000 $ 2,790,000 TABLE 5-3 CAPITAL IMPROVEMENTS (DEBT) Capital Projects Joint Facilities Master Plan Projects (Annual) Joint Facilities Master Plan Projects (Annual) Loan Joint Facilities Capital Acquisitions (Annual) Water I nfrastructure I mprovements (Annual) Meter Replacement and Automation Program (Annual) Motorized Actuators for Transmission Lines SDWD Rate Study Update (2-year) Ashbury Street Water Main Replacement SDWD Emergency Power Generator SDWD Urban Water Management Plan Update (5-year) SDWD Water Master Plan Update (10-year) Return of Funds From Closed Projects $ 975,000 $ $ $ $ 605,800 $1,900,000 $ 1,210,200 $ 2,307,600 $1,482,200 $ 40,000 $ 190,000 $ 190,000 $ 190,000 $ 190,000 $ 190,000 $ 486,096 $ 200,000 $ 200,000 $ 600,000 $ 600,000 $ 600,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ 100,000 $ (50,000) $ 50,000 $ 50,000 $ 113,904 $ 50,000 $ (92,012) $ 50,000 Total $1,722,988 $ 590,000 $1,900,200 $ 3,297,600 $ 3,128,000 $ 2,890, Debt Coverage The District must ensure that its revenues are sufficient to meet the Revenue Bond debt coverage requirements of 115% of annual debt service. Failure to meet its coverage ratio could potentially damage the District's credit rating, resulting in higher interest rates when the District returns to the debt market in the future. The District is currently meeting its coverage requirements and under the proposed revenue projections the District will continue to meet coverage during the planning period. Raftelis Financial Consultants, Inc. Page 21 08/21/2013 Item #S10A Page 29

30 5.4 Reserves The District reserves consist of the following: an operating reserve, a capital replacement reserve, and a rate stabilization reserve. The District's reserves are above minimum target levels currently. In the near term, the District may draw on these reserves to mitigate rate impacts on its customer while still maintaining balances within targeted levels. Reserve fund cash flows are shown in Figures 5-2 through Operating Reserves Operating reserves are used for working capital requirements to meet the ongoing expenses of the District. Because the District's fixed rate revenue is 25% oftotal rate revenue, the District's cash flows are relatively stable and the District's current target of 2 months of annual operating expenses is appropriate. As shown in Figures 5-4 through 5-6, the District would meet its targeted level. $2.5 ø 5 $2.0 :! $1.5 FIGURE 5-4 OPERATING RESERVE (PAYGO 1) ~ $1.0 $0.5 $ I I I i= Ending Fund Balance -Target Operating Reserve Raftelis Financial Consultants, Inc. Page 22 08/21/2013 Item #S10A Page 30

31 In c.2 $2.5 $2.0 :E $1.5 $1.0 $0.5 $0.0 FIGURE 5-5 OPERATING RESERVE (PAYGO 2) ~ , , I I ~ i=ending Fund Balance -itarget Operating Reserve -_.._.,_. FIGURE 5-6 OPERATING RESERVE (DEBT) In c.2 $2.5 $2.0 :E $1.5 $1.0 $0.5 $0.0 ~..., " ,......".,..., , '......,..., , ,..,......,...,...,...,...,. I I i i=ending Fund Balance -ltarget Operating Reserve....,._, ~,- ~ Rate Stabilzation Reserve Rate stabilization reserves are used to help offset unexpected or unforeseen costs for purchased water or system repair. True to its purpose, the District has used this reserve to absorb some ofthe unexpected revenue decreases due to drought in recent years. However, it is currently at its target level Raftelis Financial Consultants, Inc. Page 23 08/21/2013 Item #S10A Page 31

32 and is expected to remain there in the near future. The Rate Stabilization Reserve is shown in Figures 5-7 through 5-9. FIGURE 5-7 RATE STABILIZATION RESERVE (PAYGO 1) $3.0 ~ $2.5 o ~ $2.0 $ ru - Lj- _=i _U'...~... u $ $0.5 $0.0 I I i i: Ending Fund Balance -D-Target Rate Stabilization Reserve FIGURE 5-8 RATE STABILIZATION RESERVE (PAYGO 2) $3.0 ~ $2.5.2 ~ $2.0 $1.5 $ "..., ,... D...,U'. :u -...::...~. F"'......"....,..., U.!' ,..., I. $0.5 $0; "... i i i: Ending Fund Balance -o-target Rate Stabilization Reserve ""~.~--""",..-_..~~ Raftelis Financial Consultants, Inc. Page 24 08/21/2013 Item #S10A Page 32

33 FIGURE 5-9 RATE STABILIZATION RESERVE (DEBT) $3.0 ~ $2.5 o i $2.0 $1.5 $1.0 $0.5 $0.0 - u - "U......, :fl 'LT =L' -.,...,...,...,...,...,..., ~--..., , ,... I i: Ending Fund Balance -D-Target Rate Stabilization Reserve Capital Replacement Reserves Capital replacement reserves are used to ensure adequate funding for capital needs. The District's current target is a range with the lower and upper bounds of two times and three times the five-year average annual capital costs. This reserve is being drawn down to fund capital projects, but remains at acceptable levels throughout the forecast. The capital reserve and target are shown in Figures 5-10 through fi c.2 :E $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 - FIGURE 5-10 CAPITAL REPLACEMENT RESERVE (PAYGO 1) L"n Ending Fund Balance Min -Max."., -""_... -",... "" _.."'_ _..~._,. Raftelis Financial Consultants, Inc. Page 25 08/21/2013 Item #S10A Page 33

34 FIGURE 5-11 CAPITAL REPLACEMENT RESERVE (PAYGO 2) f/ c ~ i $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $ ~ 'Wi Ending Fund Balance Min -Max -._~.,. ~..=-...i FIGURE 5-12 CAPITAL REPLACEMENT RESERVE (DEBT) f/ c ~ :E $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0...u...u...~...u i= Ending Fund Balance 'ri '..~."...,,~...~,~..-..."" ~.....'..~...-. "_ Min -Max Raftelis Financial Consultants, Inc. Page 26 08/21/2013 Item #S10A Page 34

35 5.4.4 Proposed Revenue Adjustments The pro forma operations statement or cash flow summary presented in Tables 5-4 through 5-6 provides a basis for evaluating the timing and level of water revenue adjustments (shown on lines 3 and 4 of the following tables) required to meet the projected revenue requirements for the study period. In order to meet projected revenue requirements and to maintain desired reserve fund balances, revenue increase options are as follows:. PAYGO 1-8.5% in September 2013 and up to 8.5% in July PAYGO 2-4.5% in September 2013 and up to 12.5% in July DEBT - 4.5% in September 2013 and up to 4.5% in July 2014 Li ne Revenue No. 1 Revenue from Existing Rates Additional Revenue Required: Months FY Percent Effective TABLE 5-4 CASH FLOW (PAYGO 1) Budget 2013 Projected 2014 Projected 2015 $11,639,938 $ 11,824,504 $ 12,012, % 12 $ $ $ % 10 $ 837,600 $ 1,021, % 12 $ 1,107,900 5 Total Revenue from Rates $11,639,938 $ 12,662,104 $ 14,141,527 6 Misc. Operating Revenue $ 2,338,135 $ 2,045,078 $ 2,114,000 7 Total Revenue $ 13,978,073 $14,707,182 $16,255,527 8 Revenue Requirements 9 O&M Expenses $ 10,511,088 $ 11,882,091 $12,257, Transfer to Debt Service Fund $ 1,655,650 $ 1,647,075 $ 1,652, New Transfer to DSF $ $ $ 12 ABAG Advances $ 85,000 $ $ 13 Administrative $ 12,500 $ $ 14 Total Revenue Requirements $ 12,264,238 $ 13,529,166 $13,910, Net Annual Cash Balance $ 1,713,835 $ 1,178,016 $ 2,345,352 Raftelis Financial Consultants, Inc. Page 27 08/21/2013 Item #S10A Page 35

36 TABLE 5-5 CASH FLOW (PAYGO 2) Budget Projected Projected Li ne Revenue No. 1 Revenue from Existing Rates $ 11,639,938 $ 11,824,504 $ 12,012,527 Additional Revenue Required: Months FY Percent Effective % 12 $ $ $ % 10 $ 443,400 $ 540, % 12 $ 1,569,100 5 Tota I Revenue from Rates $ 11,639,938 $ 12,267,904 $ 14,122,227 6 Misc. Operating Revenue $ 2,338,135 $ 2,045,078 $ 2,114,000 7 Total Revenue $ 13,978,073 $14,312,982 $ 16,236,227 8 Revenue Requirements 9 O&M Expenses $ 10,511,088 $ 11,882,091 $ 12,257, Tra nsfer to Debt Servi ce Fund $ 1,655,650 $ 1,647,075 $ 1,652, New Transfer to DSF $ $ $ 12 ABAG Advances $ 85,000 $ $ 13 Administrative $ 12,500 $ $ 14 Total Revenue Requirements $ 12,264,238 $13,529,166 $13,910, Net Annual Cash Balance $ 1,713,835 $ 783,816 $ 2,326,052 Raftelis Financial Consultants, Inc. Page 28 08/21/2013 Item #S10A Page 36

37 TABLE 5-6 CASH FLOW (DEBT) Budget Projected Projected Li ne Revenue No. 1 Revenue from Existing Rates $11,639,938 $ 11,824,504 $ 12,012,527 Additional Revenue Required: Months FY Percent Effective % 12 $ $ $ % 10 $ 443,400 $ 540, % 12 $ 564,900 5 Total Revenue from Rates $ 11,639,938 $12,267,904 $ 13,118,027 6 Misc. Operating Revenue $ 2,338,135 $ 2,045,078 $ 2,114,000 7 Total Revenue $ 13,978,073 $ 14,312,982 $ 15,232,027 8 Revenue Requirements 9 O&M Expenses $ 10,511,088 $ 11,882,091 $12,257, Tra nsfer to Debt Servi ce Fund $ 1,655,650 $ 1,647,075 $ 1,652, New Transfer to DSF $ $ $ 480, ABAG Advances $ 85,000 $ $ 13 Admi ni strative $ 12,500 $ $ 14 Total Revenue Requirements $ 12,264,238 $ 13,529,166 $ 14,390, Net Annual Cash Balance $ 1,713,835 $ 783,816 $ 841,186 Raftelis Financial Consultants, Inc. Page 29 08/21/2013 Item #S10A Page 37

38 6. Proposed Rates and Customer Impacts The recommended water rates are calculated based on the projected revenue requirements for FY14. As mentioned in the previous section, these revenue requirements are forecasted using the FY13 budget as a base year. The rate model is designed to accommodate annual updates for each year's budget and is a tool for evaluating rate and financial impacts of proposed budget changes. 6.1 Overview of Rate Setting As an enterprise fund, water operations are financed and operated as a distinct business. Appropriate fees and charges should be established to ensure that the water operations can operate on a selfsustaining basis. For a water utility, the majority of revenue is normally derived through user charges. These service fees, rates, and bilings are charged to the beneficiaries of the water services. Development of a user charge system is defined as the total process of identifying costs, allocating costs to the water beneficiaries, and designing a rate structure to recover allocated costs. 6.2 Cost of Service Analysis One of the key objectives was to evaluate the consistency of the existing water rate structure with the actual cost of service for each of the existing customer classes. In order to evaluate this, the Rate Model included a cost of service analysis based on FY13 as a test year to determine more appropriate allocation of costs among the customer classes. The total cost of water service is analyzed by system function in order to equitably distribute costs of service to the various classes of customers. For this analysis, water utility costs of service are assigned to three basic functional cost components: base costs, extra capacity costs, and customer service related costs. Base costs are those operating and capital costs ofthe water system associated with serving customers at a constant average rate of use. Extra capacity costs represent those operating and capital costs incurred to meet customer peak demands for water in excess of average day usage. Total extra capacity costs are subdivided into costs associated with maximum day and maximum hour demands. RFC used the District's peaking factors to allocate among base, maximum day and maximum hour, shown below in Table 6-1. TABLE 6-1 SYSTEM PEAKING FACTORS Factors Base 1.00 Max Day 1.70 Max Hour 3.00 Customer costs are subdivided into customer service and meter costs. Customer service costs are uniform for all customers and include expenses such as meter reading, billing, accounts receivables, and accounting. Meter costs include maintenance and capital costs associated with meters and services. These costs are assigned based on meter size or meter capacity. In addition, some of the peaking costs Raftelis Financial Consultants, Inc. Page 30 08/21/2013 Item #S10A Page 38

39 may be assigned to meter costs to ensure a stable source of revenues. The separation of costs of service into these principal components provides the means for further allocation of such costs to the customer classes on the basis of their demands. The cost of service analysis is based upon the premise of generating annual revenues adequate to meet the estimated annual revenue requirements. Deductions from revenue requirements include miscellaneous operating revenues and interest revenue. Adjustments are also made to account for cash balances and mid-year rate increases to avoid collecting more revenue than is shown in the operating cash flow. This methodology ensures revenue accuracy, and adjusts requirements based on changing costs for operations and capital. 6.3 Unit Costs of Service In order to allocate costs of service to the different user classes, unit costs of service need to be developed for each cost category. The unit costs of service are developed by dividing the total annual costs allocated to each parameter by the total annual units ofthe respective category. Different units are used for the different cost categories. The volume related cost categories are based on volumetric units of one hundred cubic feet. The extra capacity categories of maximum day and maximum hour are based on a rate of usage so they are calculated in hcf per day and per hour. Customer service related cost categories are based on accounts and meter-related costs on equivalent meters. Once the total number of units is known they can be used to calculate unit costs. The allocated costs are simply divided by the total number of units for each category to determine the unit costs of each category. 6.4 Proposed Water Rate Structure and Rates The proposed water rates are consistent with the existing rate structure. A bi-monthly meter charge will continue to be assessed to each customer and will vary depending on the customer's meter size. The bimonthly meter charge includes a customer service component and a meter cost component. In addition to the maintenance and costs related to meters and services, the meter cost component is adjusted to recover a portion of capital costs. The meter cost component varies based on meter size by reflecting the difference in potential demand that can be placed on the system by different sized meters. Recycled water customers had not previously been paying this fixed meter charge; our proposed rate plan recommends that they begin to. As recycled water customers are biled monthly, their meter charges will be Yi of the equivalent bi-monthly meter charge for potable customers. The remaining revenue requirements will be recovered from a volumetric or consumption charge. The volume rate per hundred cubic feet varies by customer class. Details and proposed modifications to the commodity rate structure are outlined in the following sections Single Family Residential (SFR) Commodity Rates RFC recommends that the District retain its four-tier inclining rate structure for SFR customers. The District's existing tiers-at 12, 20 and 40 units (a unit is equal to 100 cubic feet or 748 gallons) bi- Raftelis Financial Consultants, Inc. Page 31 08/21/2013 Item #S10A Page 39

40 monthly-allow for sufficient usage for many of its customers before they are billed at the higher rates. This will continue to ensure that customers can receive essential usage needs, while those using water beyond that wil pay the higher tiers. This wil send a strong signal for conservation as high volume consumers of water will pay larger bils. SFR with Agriculture and SFR with Commercial customers will have the identical rate structure as SFR customers except they will have a reduced rate in the fourth tier. The proposed rates are summarized in Tables 6-2 through Multi Family Residential (MFR) Commodity Rates RFC recommends that the District retain its four-tier inclining rate structure for MFR customers. The tiers allow for essential usage while sending a strong pricing signal for conservation. MFR with Agriculture and MFR with Commercial wil have a rate structure identical to the MFR customers except for the lower fourth tier. The proposed rates are summarized in Tables 6-2 through Commercial Commodity Rates RFC recommends that the District retain the uniform commodity rate for this customer class (which includes those designated as Public and Government by the District) since these customers are very nonhomogenous and it is difficult to apply a standard tiered rate structure to these customers without being overly-punitive to large customers. In addition, they are motivated to control costs and therefore limit unnecessary water use. Also, their lower peaking characteristics result in lower average rates than for the residential class. The proposed rates are summarized in Tables 6-2 through Landscaping and Construction Commodity Rates These customers typically have high peaking factors. RFC recommends keeping them as individual customer classes so that their rates can be set to reflect the cost of extra system capacity needed to serve them. The proposed rates are summarized in Tables 6-2 through Agricultural Commodity Rates The District's Agricultural customers use drip irrigation systems on a more continuous basis than commercial customers resulting in lower peaking factors and correspondingly lower rates. The proposed rates are summarized in Tables 6-2 through Recycled Commodity Rates Recycled water customers will continue to pay 85% of the equivalent potable rate shown in Tables 6-2 through 6-4. Raftelis Financial Consultants, Inc. Page 32 08/21/2013 Item #S10A Page 40

41 TABLE 6-2 CURRENT AND PROPOSED RATES (PAYGO 1) Bi-Monthly Service Charge Existing Proposed Proposed Meter Service Servi ce Cha rge Servi ce Cha rge Size Charge 9/1/2013 7/1/2014 5/8" & 3/4" $ $ $ " $ $ $ /2" $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ 1, " $ 1, $ 1, $ 1, Commodity Rates (per hd) Customer Existing Proposed Proposed Class Blocks Rates 9/1/2013 7/1/2014 SFR 0-12 $ 2.26 $ 2.52 $ $ 3.37 $ 3.76 $ $ 3.98 $ 4.44 $ $ 5.03 $ 5.62 $ 6.10 MFR 0-8 $ 2.26 $ 2.52 $ $ 3.37 $ 3.76 $ $ 3.98 $ 4.44 $ $ 5.03 $ 5.62 $ 6.10 Agriculture $ 2.80 $ 3.13 $ 3.40 Commercial $ 3.16 $ 3.53 $ 3.83 Landscaping $ 3.98 $ 4.44 $ 4.82 Public $ 3.16 $ 3.53 $ 3.83 Government $ 3.16 $ 3.53 $ 3.83 Construction $ 3.98 $ 4.44 $ 4.82 Recycled 85% of potable rate Raftelis Financial Consultants, Inc. Page 33 08/21/2013 Item #S10A Page 41

42 TABLE 6-3 CURRENT AND PROPOSED RATES (PAYGO 2) Bi-Monthly Service Charge Existi ng Proposed Proposed Meter Service Servi ce Cha rge Servi ce Cha rge Size Charge 9/1/2013 7/1/2014 5/8" & 3/4" $ $ $ " $ $ $ /2" $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ 1, " $ 1/ $ 1, $ 1, Commodity Rates (per hd) Customer Existing Proposed Proposed Class Blocks Rates 9/1/2013 7/1/2014 SFR 0-12 $ 2.26 $ 2.40 $ $ 3.37 $ 3.58 $ $ 3.98 $ 4.23 $ $ 5.03 $ 5.34 $ 6.01 MFR 0-8 $ 2.26 $ 2.40 $ $ 3.37 $ 3.58 $ $ 3.98 $ 4.23 $ $ 5.03 $ 5.34 $ 6.01 Agriculture $ 2.80 $ 2.97 $ 3.34 Commercial $ 3.16 $ 3.36 $ 3.78 Landscaping $ 3.98 $ 4.23 $ 4.76 Public $ 3.16 $ 3.36 $ 3.78 Government $ 3.16 $ 3.36 $ 3.78 Constructi on $ 3.98 $ 4.23 $ 4.76 Recycled 85% of potable rate Raftelis Financial Consultantsi Inc. Page 34 08/21/2013 Item #S10A Page 42

43 TABLE 6-4 CURRENT AND PROPOSED RATES (DEBT) Bi-Monthly Service Charge Existing Proposed Proposed Meter Service Servi ce Cha rge Servi ce Cha rge Size Charge 9/1/2013 7/1/2014 5/8" & 3/4" $ $ $ " $ $ $ /2" $ $ $ " $ $ $ " $ $ $ " $ $ $ " $ $ $ 1, " $ 1, $ 1, $ 1, Commodity Rates (per hd) Customer Existing Proposed Proposed Class Blocks Rates 9/1/2013 7/1/2014 SFR 0-12 $ 2.26 $ 2.40 $ $ 3.37 $ 3.58 $ $ 3.98 $ 4.23 $ $ 5.03 $ 5.34 $ 5.58 MFR 0-8 $ 2.26 $ 2.40 $ $ 3.37 $ 3.58 $ $ 3.98 $ 4.23 $ $ 5.03 $ 5.34 $ 5.58 Agriculture $ 2.80 $ 2.97 $ 3.10 Commercial $ 3.16 $ 3.36 $ 3.51 Landscaping $ 3.98 $ 4.23 $ 4.42 Public $ 3.16 $ 3.36 $ 3.51 Government $ 3.16 $ 3.36 $ 3.51 Constructi on $ 3.98 $ 4.23 $ 4.42 Recycled 85% of potable rate Note: Residential with Agriculture or Commercial customers pay the same respective rates except for the lost tier which reverts to the Agriculture or Commerciol rate. Recycled water customers wil poy at 85 percent of the equivalent potable rate. Over the past few years, the District has realized a target percentage of 25% for its fixed rate revenue. The recent drought has caused this level to increase to approximately 27%. These proposed rates will ensure fixed rate revenue returns to approximately 25%. 6.5 Customer Rate Impacts An important component of the rate study was an analysis of how the proposed rate structure would impact the bi-monthly bills of water customers. RFC worked closely with District staff to ensure that appropriate revenue requirements would be recovered, while still paying close attention to the related impacts on customers. Raftelis Financial Consultants, Inc. Page 3S 08/21/2013 Item #S10A Page 43

44 The proposed water rate structure results in meter charges and different volume charges for all customer classes. Tables 6-5 through 6-19 demonstrate the impacts of the proposed rates on the District's regular potable customers across varying usage levels under each scenario. TABLE 6-5 (PAYGO 1) FY 2014 BI-MONTHLY SFR RATE IMPACT - 3/4" METER Bi-Monthly Existing Proposed Usage Charges Charges 6 $ $ $ 12 $ $ $ 18 $ $ $ 20 $ $ $ 26 $ $ $ 31 $ $ $ 34 $ $ $ 42 $ $ $ 48 $ $ $ 66 $ $ $ 80 $ $ $ 26 units = SFR average $ Increase % Increase 3.33% 5.16% 6.76% 7.13% 8.08%1 8.61% 8.85% 9.38% 9.72% 10.33% 10.60% TABLE 6-6 (PAYGO 1) FY 2014 BI-MONTHLY MFR RATE IMPACT - 3/4" METER (4 UNIT BUILDING) Bi-Monthly Existing Proposed Usage Charges Charges 4 $ $ $ 7 $ $ $ 10 $ $ $ 12 $ $ $ 14 $ $ $ 18 $ $ $ 22 $ $ $ 25 $ $ ' $ 28 $ $ $ 34 $ $ $ $ Increase % Increase 5.98% 7.53% 8.62% 9.12% 9.52% 10.11% 10.49% 10.67% 10.81% 11.00% Raftelis Financial Consultants, Inc. Page 36 08/21/2013 Item #S10A Page 44

45 TABLE 6-7 (PAYGO 1) FY 2014 BI-MONTHLY COMMERCIAL RATE IMPACT -1" METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 25 $ $ $ % 50 $ $ $ % 100 $ $ $ % 125 $ $ $ % 150 $ $ $ % 175 $ $ $ % 200 $ $ $ % TABLE 6-8 (PAYGO 1) FY 2014 BI-MONTHLY LANDSCAPING RATE IMPACT - 2" METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 50 $ $ $ % 100 $ $ $ % 150 $ $ $ % 200 $ $1, $ % 250 $ 1, $1, $ % 300 $ 1, $1, $ % 350 $ 1, $1, $ % 400 $ 1, $1, $ % TABLE 6-9 (PAYGO 1) FY 2014 BI-MONTHLY AGRICULTURAL RATE IMPACT - 2/1 METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 50 $ $ $ % 100 $ $ $ % 150 $ $ $ % 200 $ $ $ % 250 $ $ $ % 300 $ 1, $1, $ % 350' $ 1, $1, $ % 400 $ 1, $1, $ % Raftelis Financial Consultants, Inc. Page 37 08/21/2013 Item #S10A Page 45

46 TABLE 6-10 (PAYGO 2) FY 2014 BI-MONTHLY SFR RATE IMPACT - 3/4" METER Bi-Monthly Existing Proposed Usage Charges Charges 6 $ $ $ 12 $ $ $ 18 $ $ $ 20 $ $ $ 26 $ $ $ 31 $ $ $ 34 $ $ $ 42 $ $ $ 48 $ $ $ 66 $ $ $ 80 $ $ $ 26 units = SFR average $ Increase % Increase 1.78% 2.77% 3.64% 3.84% 4.36%1 4.65% 4.79% 5.07% 5.23% 5.51% 5.64% TABLE 6-11 (PAYGO 2) FY 2014 BI-MONTHLY MFR RATE IMPACT - 3/4" METER (4 UNIT BUILDING) MFR 3/4" Bi-Monthly Bill (4 Unit Building) Bi-Monthly Existing Proposed $ Usage Charges Charges Increase 4 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ % Increase 3.21% 4.05% 4.64% 4.91% 5.14% 5.43% 5.60% 5.69% 5.75% 5.83% Raftelis Financial Consultants, Inc. Page 38 08/21/2013 Item #S10A Page 46

47 TABLE 6-12 (PAYGO 2) FY 2014 BI-MONTHLY COMMERCIAL RATE IMPACT -1/1 METER Bi-Monthly Usage Commercial 1" Bi-Monthly Bil Existing Proposed $ % Charges Charges Increase Increase $ $ $ 5.00 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ % 4.73% 5.42% 5.58% 5.69% 5.77% 5.84% TABLE 6-13 (PAYGO 2) FY 2014 BI-MONTHLY LANDSCAPING RATE IMPACT - 2/1 METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 50 $ $ $ % 100 $ $ $ % 150 $ $ $ % 200 $ $1, $ % 250 $ 1, $1, $ % 300 $ 1, $la31.13 $ % 350 $ 1, $1, $ % 400 $ 1, $1, $ % TABLE 6-14 (PAYGO 2) FY 2014 BI-MONTHLY AGRICULTURAL RATE IMPACT - 2" METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 50 $ $ $ % 100 $ $ $ % 150 $ $ $ % 200 $ $ $ % 250 $ $ $ % 300 $ 1, $1, $ % 350 $ 1, $1, $ % 400 $ 1, $1, $ % Raftelis Financial Consultants, Inc. Page 39 08/21/2013 Item #S10A Page 47

48 TABLE 6-15 (DEBT) FY 2014 BI-MONTHLY SFR RATE IMPACT - 3/4" METER Bi-Monthly Existing Proposed Usage Charges Charges 6 $ $ $ 12 $ $ $ 18 $ $ $ 20 $ $ $ 26 $ $ $ 31 $ $ $ 34 $ $ $ 42 $ $ $ 48 $ $ $ 66 $ $ $ 80 $ $ $ 26 units = SFR average $ Increase % Increase 1.78% 2.77% 3.64% 3.84% 4.36%1 4.65% 4.79% 5.07% 5.23% 5.51% 5.64% TABLE 6-16 (DEBT) FY 2014 BI-MONTHLY MFR RATE IMPACT - 3/4" METER (4 UNIT BUILDING) Bi-Monthly Existing Proposed Usage Charges Charges 4 $ $ $ 7 $ $ $ 10 $ $ $ 12 $ $ $ 14 $ $ $ 18 $ $ $ 22 $ $ $ 25 $ $ $ 28 $ $ $ 34 $ $ $ $ Increase % Increase 3.21% 4.05% 4.64% 4.91% 5.14% 5.43% 5.60% 5.69% 5.75% 5.83% Raftelis Financial Consultants, Inc. Page 40 08/21/2013 Item #S10A Page 48

49 TABLE 6-17 (DEBT) FY 2014 BI-MONTHLY COMMERCIAL RATE IMPACT -1" METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 25 $ $ $ % 50 $ $ $ % 100 $ $ $ % 125 $ $ $ % 150 $ $ $ % 175 $ $ $ % 200 $ $ $ % TABLE 6-18 (DEBT) FY 2014 BI-MONTHLY LANDSCAPING RATE IMPACT - 2" METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 50 $ $ $ % 100 $ $ $ % 150 $ $ $ % 200 $ $1, $ % 250 $ 1, $1, $ % 300 $ 1, $1, $ % 350 $ 1, $1, $ % 400 $ 1, $1, $ % TABLE 6-19 (DEBT) FY 2014 BI-MONTHLY AGRICULTURAL RATE IMPACT - 2" METER Bi-Monthly Existing Proposed $ % Usage Charges Charges Increase Increase 50 $ $ $ % 100 $ $ $ % 150 $ $ $ % 200 $ $ $ % 250 $ $ $ % 300 $ 1, $1, $ % 350 $ 1, $1, $ % 400 $ 1, $1, $ % Raftelis Financial Consultants, Inc. Page 41 08/21/2013 Item #S10A Page 49

50 6.6 Drought Rates Although the District service area is not currently in drought, drought conditions were present as recently as Having drought rates available and ready to be implemented prior to drought conditions being declared allows the District to ensure revenue requirements are met when consumption decreases due to drought conservation. Setting rates for such conditions involves the following steps. First, the variable expenses that would decrease due to reduced consumption are deducted from the base scenario rate revenue requirement. The next step involves making estimates on how the drought scenarios would impact consumption patterns and, therefore, the rate revenue stream. For example, higher level SFR users have a greater ability to conserve due to having more discretionary water usage. The following tables (6-20 and 6-25) outline the commodity drought rates (bi-monthly fixed charges remain as outlined in Table 6-2 through 6-4) calculated for five stages of drought should one be declared in FY14 and FY15. Drought stages that fall in between these levels are pro-rated in between the two scenarios in which it falls. Rafielis Financial Consultants, Inc. Page 42 08/21/2013 Item #S10A Page 50

51 TABLE 6-20 PROPOSED DROUGHT RATES FOR FY 2014 (PAYGO 1) No 10% 20% 30% 40% 50% Stage: Reducti on Reducti on Reducti on Reducti on Reducti on Reducti on $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR w/ Ag MFR w/comm Agriculture Commercial La nds ca pi ng Public Government Cons tructi on Raftelis Financial Consultants, Inc. Page 43 08/21/2013 Item #S10A Page 51

52 TABLE 6-21 PROPOSED DROUGHT RATES FOR FY 2015 (PAYGO 1) No 10% 20% 30% 40% 50% Stage: Reducti on Reducti on Reducti on Reducti on Reducti on Reducti on $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR w/ Ag MFR w/comm Agri culture Commercial Landscaping Public Government Constructi on Raftelis Financial Consultants, Inc. Page 44 08/21/2013 Item #S10A Page 52

53 TABLE 6-22 PROPOSED DROUGHT RATES FOR FY 2014 (PAYGO 2) No 10% 20% 30% 40% 50% Stage: Reducti on Reduction Reduction Reducti on Reducti on Reducti on $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR wi Ag MFR w/comm Agri culture Commercial La nds ca pi ng Public Government Constructi on Raftelis Financial Consultants, Inc. Page 45 08/21/2013 Item #S10A Page 53

54 TABLE 6-23 PROPOSED DROUGHT RATES FOR FY 2015 (PAYGO 2) No 10% 20% 30% 40% 50% Stage: Reduction Reduction Reduction Reduction Reduction Reduction $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR w/ Ag MFR w/comm Agri culture Commercial Landscaping Public Government Construction Raftelis Financial Consultants, Inc. Page 46 08/21/2013 Item #S10A Page 54

55 TABLE 6-24 PROPOSED DROUGHT RATES FOR FY 2014 (DEBT) No 10% 20% 30% 40% 50% Stage: Reduction Reducti on Reducti on Reducti on Reducti on Reducti on $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR w/ Ag MFR w/comm Agriculture Commercial Landscaping Public Government Construction Raftelis Financial Consultants, Inc. Page 47 08/21/2013 Item #S10A Page 55

56 TABLE 6-25 PROPOSED DROUGHT RATES FOR FY 2015 (DEBT) No 10% 20% 30% 40% 50% Stage: Reducti on Reducti on Reducti on Reducti on Reducti on Reduction $ $ $ $ $ $ SFR SFR w/ Ag SFR w/comm MFR MFR w/ Ag MFR w/comm Agri culture Commercial La nds ca pi ng Public Government Constructi on Fire Service Charges Fire service systems, including hydrants, automatic sprinkler systems, standpipes, etc., benefit the properties being served by improving control over fire, decreasing damage to property and injury to personnel, and reducing insurance costs. This benefit may be based on the value of the property. However, to avoid conflicts in assessing real estate and personal properties, the value of this service is based on the cost of providing service rather than on the value of the protection offered to the customer. The District currently does not charge directly for public fire service. The public fire service capacity is provided to all customers and absorbed in the water service charges of the District. The District has to size its system to provide fire service. There are costs associated with maintenance of the system to provide this service. These costs are shared between public and private services in Raftelis Financial Consultants, Inc. Page 48 08/21/2013 Item #S10A Page 56

57 proportion to the demand they place on the system. Costs to the public system are redistributed in the service charges. The charges for private fire service are then determined for the several different sizes of private fire service connections. A schedule of private fire service charges is shown in Tables 6-20 through TABLE 6-26 (PAYGO 1) PROPOSED BI-MONTHLY PRIVATE FIRE SERVICE CHARGES Existing Proposed Proposed Meter Servi ce Servi ce Cha rge Servi ce Cha rge Size Charge 9/1/2013 7/1/2014 1" $ 7.05 $ 7.05 $ /2" $ $ $ " $ $ $ " $ 61.8 $ $ " $ $ $ " $ $ $ " $ $ $ TABLE 6-27 (PAYGO 2) PROPOSED BI-MONTHLY PRIVATE FIRE SERVICE CHARGES Existing Proposed Proposed Meter Servi ce Servi ce Cha rge Servi ce Cha rge Size Charge 9/1/2013 7/1/2014 1" $ 7.05 $ 7.05 $ /2" $ $ $ " $ $ $ " $ $ 61.8 $ " $ $ $ " $ $ $ " $ $ $ TABLE 6-28 (PAYGO 3) PROPOSED BI-MONTHLY PRIVATE FIRE SERVICE CHARGES Existing Proposed Proposed Meter Servi ce Servi ce Cha rge Servi ce Cha rge Size Charge 9/1/2013 7/1/2014 1" $ 7.05 $ 7.05 $ /2" $ $ $ " $ $ $ " $ 61.8 $ $ " $ $ $ " $ $ $ " $ $ $ Raftelis Financial Consultants, Inc. Page 49 08/21/2013 Item #S10A Page 57

58 6.8 Comparison of Bills with Surrounding Agencies Figures 6-1 through 6-3 compare the average District customer's water bill with surrounding water agencies. The average District customer uses 13 hcf per month and has a %" water meter. The District collects an Infrastructure Access charge in the amount of $2.65 per month and this has been added to the District's total bill amount. Although the District bills bi-monthly, water bil totals were converted to monthly since many agencies bil on a monthly basis. FIGURE 6-1 (PAYGO 1) MONTHLY BILL COMPARISON WITH SURROUNDING AGENCIES $90.00 $80.00 $70.00 $60.00 $50.00 $40.00 $30.00 $ r- '" '" CD CX '" -.- a.. ir ir CX ~ '" CX W I g '".. w 00.- ~ U) N a tó w - r- - a.. ;; "l ir.. N N U) a.... w fi '".. "" ci Ó ó w w - p lõ "" '",. ai CD...- lì if; ~.. ir ir CD CD W W CD CD W W CD ~ CD :(1. w w W ai tó U), U) w w,.1 - U) $10.00 $-,,'I ~ é' *e ~~.e(j ~~ \S 9~' ~Q ": ~Q i,,~e e(:-:..es' *+.~e 'le ",'" ri(: o (je,.'bo: qo 0" 'bo: ',e tf ~'I.:l ~ e~ 'b(ce ~~. ~~ $' ~o ~..~ _~-t N ~,,, 0'"..'b.r;(j 0(: ~o òl ",0r;'b ~'b(: o?:'" (J'I!\ ~.:ee ~ 0 f: ~'i Qe,.se ~",(jo ~ "'V,..s'O..,V",,-$ FIGURE 6-2 (PAYGO 2) MONTHLY BILL COMPARISON WITH SURROUNDING AGENCIES $ r-.- U) '" '" CX '" $80.00 CD ~ a ir ir ~.. CX CX $70.00 $60.00 $50.00 $ r- C'.. w 00 - ~ U) N a tó w r- - r- N a.. tõ "l ir.. N U) a.... w '".. "" ci Ó Ó ;: w w.- ~ lõ "" '",. ai CD.... ir w.-.. ir CD CD W W w a CD CD W W CD "" CD ~ w W w ai tó U) U) w w I '" CX W W $30.00 I~f $20.00 $10.00 $-,,'I ~ é' *e ~~.e(j ~. i,,~e e~..es'.~ \S 9~' ~Q ": ~o ~~.,~i~, *+.~e 'le ",'" ri(: o (je,.'bo: qo ~ ~ ~ ~ ~ ~ ~ ~.~ 0".e"" ~ 'I 'b ~~. $'..~ (j~ ~'i r;q'" v 'b~'" ~.:fù eè 'b~ c 0 ~",(j 0(: Q~ ~'i ~e..'b 0(: òl r;'b ~,,, (j ~o ~o ~(: (c$:'o (l'i Raftelis Financial Consultants, Inc. Page 50 08/21/2013 Item #S10A Page 58