ELDORADO IRRIGATION DISTRICT

Transcription

1 INFORMATION ITEM NO. September 26, 2011 ELDORADO IRRIGATION DISTRICT SUBJECT: Cost of Services Study update. Previous Board Action: February 4, The Board adopted Resolution , to approve increases to water, wastewater, and recycled water service charges; authorize implementation of increases only in 2010, 2011, and 2012 only; make findings; and direct the General Manager regarding additional District cost-cutting, a cost of services study, reconciliation of capital expenditures and funding sources, and other matters. September 1, The Board adopted policies to guide rate-setting, as recommended by the 2010 Cost of Services Study Advisory panel. October 12, The Board was provided with an update on the progress of the Cost of Services Study. November 8, The Board was provided with an update on the progress of the Cost of Services Study. December 13, The Board was provided with an update on the progress of the Cost of Services Study. January 24, The Board was provided with an update on the progress of the Cost of Services Study. March 14, The Board was provided with an update on the progress of the Cost of Services Study. April25, The Board was provided with an update on the progress of the Cost of Services Study. May 23, The Board was provided with an update on the progress of the Cost of Services Study June 13,2011- Cost of Services Study workshop Board Policies and Administrative Regulations: BP states that the Board's role is to provide oversight and direct the implementation of the District's mission. The Board will do so by deciding and monitoring policy and fiscal matters. AIS - Information Item Cost of Services Study update September 26, 20 II Page I of2

2 Summary of Issue(s): Discussion will be focused on guiding the rate-setting process, cost of services analysis and terms, revenue requirements, water, sewer and recycled water revenue requirement allocations and establishment of rates, single family residential average bill comparisons, and next steps. Board Decisions/Options: None- Information only. Supporting Documents Attached: El Dorado County Office of Education letter dated August 26, 2011 AIS - Information Item Cost of Services Study update September 26, 20 II Page 2 of2

3 El Dorado County Office of Education Attachment A Vicki L. Barber, Ed.D. Superintendent Terena Mares Deputy Superintendent Jeremy Meyers Deputy Superintendent County Board of Education Dolores Garcia John Lane Matt Boyer Gene Rasmussen Heidi Weiland August 26, 2011 Jim Abercrombie, General Manager El Dorado Irrigation District 2890 Mosquito Road Placerville, CA Dear Jim, RECEIVED AUG ELDOHAOO tarfg,4,ttofj t~~-frk;t Let me begin by thanking you for all of the support and effort you and your staff have expended in meeting with us to discuss the potential of increased water and sewer costs for schools. We understand that the issue is that Proposition 218 requires EID to insure that rates are allocated among the various classes or rate payers in such a way that there is not a subsidy from one class to another. The data that you have shared with us would indicate that schools would appear to be enjoying some benefit from other rate paying classes paying a greater proportion of the costs in comparison to schools or the class that includes schools. We have had our consultant do an extensive review of the information provided, and again want to thank your staff for providing information and responding to all of our inquiries. As noted in the attached documentation, we believe that there are some options for the EID Board to consider in addressing these issues. Our legal counsel has spoken with the EID counsel and confirmed, that the provisions of Proposition 218 only apply to the revenue received from rate payers. As a result, the Board would have the ability to mitigate any proposed increases on schools by using non-rate revenue to reduce any potential rate increases on schools. We have also appreciated the water audits that EID has conducted with schools throughout your service area and the assistance that has been offered with respect to conservation efforts that schools may be able to implement to reduce usage and thus also reduce costs. Your staff has been very helpful in providing conservation information, as well as suggesting grant funding resources that may assist schools in upgrading various infrastructure and facilities that would result in saving resources and school funding FAX info@edcoe.org 6767 Green Valley Road Placerville, CA We appreciate the opportunity to provide you with this information and respectfully request that the EID Board consider mitigating any proposed increased costs for schools. Schools throughout our county are facing unprecedented fiscal times. We have lost over $19 million in our schools in ElDorado County during the past three years and as such, saving resources for our schools is even more critical. As you are aware, we had an 18% increase from EID in March 2010 and faced an additional An Equal Opportunity Employer Commitment to serving our clients with Respect, Responsiveness and Resourcefulness

4 15% increase to water, wastewater, and recycled water services which went into effect January 1, Additional increases are anticipated in future years. We understand that any proposed increases resulting from the cost of service alignment as related to Proposition 218, would be targeted to go into effect January, Ifthe EID Board is forced to consider these additional increased costs, we would request that any increases be phased in over a five year period to allow schools to adjust to the added costs. Thank you for your consideration of our recommendations. Please feel free to contact me if any additional information would be helpful. Sincerely, 'l~~~ Vicki L. Barber, Ed.D., County Superintendent El Dorado County Office of Education Attachment cc: School District Superintendents Terena Mares Francie Heim Cathy Dominica

5 Water and Wastewater Rate Proposal El Dorado County Office of Education The El Dorado Irrigation District (EID) is in the process of conducting a rate study to adjust the way that various customer classes are charged both water and wastewater rates. As part of the process in determining this re-allocation, EID staff has provided the El Dorado County Office of Education (COE) with the methodology that will be recommended to set future rates. The COE has reviewed this methodology and is concerned as the new model places a large financial burden on the schools for both water and wastewater costs. As part of the new rate structure, only a portion of this financial burden can be controlled by conservation measures on the part of the schools. There are several legally justifiable methods for setting water and wastewater rates. EID has taken great care to develop a methodology that attempts to equally distribute the financial burden among all customer classes. However, after an in-depth review of the methodology, the El Dorado County Office of Education, along with the school districts that are included within the EID service area, have some recommendations for adjustments that can be made to this methodology to lessen the financial burden on the County's public schools, while continuing to equally distribute the financial burden among all customers. This proposal was prepared to summarize the recommendations and considerations for mitigating any fiscal impact on schools. Water Rates EID's water cost of service study allocates costs based on 5 different classifications: (1) Commodity Related Costs, (2) Capacity Related Costs, (3) Customer Related Costs, (4) Fire Protection Related Costs, and (5) Direct Assignments. Each customer class (including Single Family Residential, Multi Family Residential, Commercial and Industrial, Agricultural Irrigation, Recreational Turf, Small Farm, and Domestic Irrigation) is allocated a percentage of the above listed cost classifications. Schools are generally classified under the Recreational Turf customer class. Commodity Related Costs are allocated to customers based on actual consumption, with all customer classes paying a set rate per unit of water consumed. Capacity, Customer and Fire Protection Related Costs are all set based on several assumptions using 2009 or 2010 data and translate into fixed costs per customer class. Finally, Direct Assignments are allocated to a separate group of customers and are not factored into either of the components of the rates that impact schools. Allocating Non-Rate Revenue In order to determine the total cost that is applied to each of the cost categories identified above, EID's budget is assigned percentages for each cost category. For example, of the $9.93 million budgeted for Water Operations, 30% is assigned to Commodity Related Costs, 54.5% is assigned to Capacity Related Costs, 5% is assigned to Customer Related Costs, 8% is assigned to Fire Protection Related Costs and 2.5% is related to Direct Assignments. In total, of EID's $39.1 million 2011 Budget, $10.5 million is for Commodity Related Costs, $17.9 million is for Capacity Related Costs, $8.1 million is for Customer Related Costs, $1.7 million is for Fire Protection Related Costs, and $922,000 is for Direct Assignments. EID then applies non-rate revenues (such as property taxes and other revenues) to offset these costs on a pro rata basis

6 However, when the actual rates are calculated, this non-rate revenue allocation is no longer simply allocated on a pro rata basis. The methodology is adjusted so that non-rate revenue is no longer applied to the Commodity Related Costs, as EID is striving for 50% of the rates to be based on actual consumption. This is demonstrated in Table 1 below: TABLE 1 Classification of Budget Fire Total2011 Commodity Capacity Customer Protection Direct Budget Related Costs Related Costs Related Costs Related Costs Assianments Total Revenue Requirement. $ 39,091,187 $ 10,504,471 $ 17,867,604 $ 8,070,688 $ 1,726,325 $ 922,100 Less: Non-Rate Revenue $ $ $ _$ $ $ Net Revenue Requirement $20,807,585 $5,591,354 $ 9,510,627 $4,294,892 $ 918,894 $ 490,819 Non-Rate Revenue After Adjustment $ 21,800,107 $5,858,062 $ 9,964,284 $4,499,758 $ 962,725 $ 514,231 Canadian Method Adiustment f50/50 Solin Fire Total2011 Commodity Capacity Customer Protection Budaet Related Costs Related Costs Related Costs Related Costs Rate Revenue Requirement $ 21,285,878 $ 10,642,939 $ 6,873,900 $ 3,104,899 $ 664,140 Rate Revenue Percentage 50% 32% 15% 3% Non-Rate Revenue Actually Applied $ - $ 11,447,361 $5,170,655 $1,106,016 Direct Assignment Costs $ 514,230 Non-Rate Revenue Actually Applied $ 431,282 Total Non-Rate Revenue Applied $ How non-rate revenue is applied is an important point of consideration as it may be utilized to lessen the burden on schools and still enable EID to meet the requirements of Proposition 218 and equally distribute the financial burden among all customer classes. This will be described in further detail in this proposal. Suggested Re-Allocation of Water Rates Given that Schools are a unique user group, it makes sense to separate Schools from other customer classes and create a new customer class, which is already done for wastewater services. Non-Rate Revenue could be used to offset some of the costs that are currently applied to the rates imposed on Schools. Remaining Non-Rate Revenue (after the amount used to offset a portion of the costs applied to schools) can be applied to each customer class instead of to cost categories. The results of these adjustments are summarized in Table 2 (to provide a detailed example of the COE's proposal), based on the numbers contained in the cost of service analysis provided to the COE dated March 25,

7 TABLE 2 Commodity Allocation 2009 or Estimated 0/o of 2010 Sales 0/o of Estimated Sales with Adjusted Customer Class (_ccf} Sales Conservation Conservation Sales Single Family Residential 6,521, % 652,122 5,869, % Multi Family Residential 665, % 66, , % Co mme rc ia 1/Ind ust ria I 757, % 75, , % Agricultural Irrigation 47, % 4,762 42, % Recreational Turf 305, % 76, , % Schools 199, % 49, , % Small Farm 40, % 4,030 36, % Domestic Irrigation 244, % 24, , % Total 8,781, % 953,885 7,827, % As shown in Table 2, for the Commodity Allocation Factor, schools are simply separated from other Recreational Turf customers. The Schools 2010 sales are based on back-up data provided by EID on June 22, The Recreational Turf sales are based on EID's analysis dated March 25, 2011 less the Schools sales data. Both categories use an estimated 25% conservation, as assumed by EID in the March 25 analysis. TABLE 3 Capacity Allocation Avg.Day Use Peaking Total Peak 0 /o of Customer Class (MGD) Factor Day Use Total Single Family Residential % Multi Family Residential % Commercia 1/Industria I % Agricultural Irrigation % Recreational Turf % Schools % Small Farm % Domestic Irrigation % Total /o As shown in Table 3, with the Capacity Allocation Factor schools are also separated from the other Recreational Turf customers. Average Day Use is estimated based on 2010 data provided by EID on June 22, and subtracted from the total Recreational Turf Average Day Use shown in the analysis dated March 25. The peaking factor used in each category is based on the 2.25 peaking factor used in the March 25 EID analysis - 3 -

8 TABLE 4 Customer Allocation No. of Accounts 0 /o of Customer Class (2010)_ Total Single Family Residential 34, % Multi Family Residential % Commercial/Industrial 1, % Agricultural Irrigation % Recreational Turf % Schools % Small Farm % Domestic Irrigation % Total 38, /o As shown in Table 4, the Customer Allocation Factor is only adjusted to add a new category for Schools. The number of School accounts is based on data provided by EID on June 22 and simply subtracted from the number of accounts in the Recreational Turf category on the March 25 analysis to determine the remaining number of Recreational Turf accounts. Schools and Recreational Turf accounts are both excluded from the Fire Protection Allocation Factor as well as the Direct Assignments, so no changes were made to that part of the cost of service analysis from March 25. Each of the various allocation factors can then be applied to the total 2011 EID Water Budget to determine the total revenue requirement by classification component, as shown in Table 5. TABLE 5 Total Revenue Requirement Classification Component Total Commodity $10,642,939 Capacity $18,682,636 Customer $8,438,833 Fire $1,805,071 Total $39,569,480 This can be further broken down by customer class, as shown in Table

9 TABLE 6 Allocation of Revenue Reauirements by Customer Class Fire 0 /o of Customer Class Commodity Capacity Customer Protection Total Total Single Family Residential $7,979,906 $14,484,845 $7,506,422 $1,316,768 $31,287, % Multi Family Residential $814,164 $1,161,234 $168,759 $146,920 $2,291, % Commercial/Industrial $927,378 $1,101,441 $368,794 $278,739 $2,676, % Agricultural Irrigation $58,272 $108,365 $44,742 $7,550 $218, % Recreational Turf $311,536 $692,677 $13,900 $0 $1,018, % Schools $203,261 $507,963 $10,642 $0 $721, % Small Farm/Dom. Irrigation $348,422 $ $ $55,095 $1 355, % Total $10,642,939 $18,682,636 $8,438,833 $1,805,071 $39,569,480 A portion of non-rate revenue can be applied to the costs allocated to schools both related to the commodity rate and the fixed charges. For example, if $125,000 of non-rate revenue is applied to commodity charges applied to schools, the commodity rate could be reduced, as shown in Table 7. TABLE 7 Adjusted Commodity Rates Non-Rate Commodity Commodity Revenue Revenue to be Revenue Directly Generated Commodity Customer Class Reauired Applied from Rates Rates Single Family Residential $7,979,906 $ - $7,979,906 $1.36 Multi Family Residential $814,164 $ - $814,164 $1.36 Commercial/Industrial $927,378 $ - $927,378 $1.36 Agricultural Irrigation $58,272 $ - $58,272 $1.36 Recreational Turf $311,536 $ - $311,536 $1.36 Schools $203,261 $125,000 $78,261 $0.52 Small FarrntDom. Irrigation $ $ - $348,422 $1.36 Total $10,642,939 $ 125,000 $10,517,939 A similar adjustment can be made for fixed charges. For example, if $165,000 of non-rate were applied to schools in the Capacity Cost component, the total revenue requirement for schools from fixed charges could be reduced, as shown in Table

10 TABLE 8 Fixed Charge Revenue Requirements Base Cha!Jie Non-Rate Revenue Total Directly Revenue %of Total Customer Class Capacity Customer Fire Protection Total Applied Required Revenue Single Family Residential $14,484,845 $7,506,422 $1,316,768 $23,308,034 $ - $23,308, % Multi Family Residential $1,161,234 $168,759 $146,920 $1,476,913 $ - $1,476, % Comrerc iai/industrial $1,101,441 $368,794 $278,739 $1,748,975 $ - $1,748, % Agricultural Irrigation $108,365 $44,742 $7,550 $160,657 $ - $160, % Recreational Turf $692,677 $13,900 $0 $706,577 $ - $706, % Schools $507,963 $10,642 $0 $518,605 $165,000 $353, % Small Farm/Dam. Irriqation $ $ $ $1, $ - $ % Total $18,682,636 $8,438,833 $1,805,071 $28,926,541 $165,000 $28,761,541 The remaining non-rate revenue can then be allocated among all customer classes based on each customer class' share of the remaining fixed costs to be funded from rates. As shown in Table 9, after deducting the non-rate revenue applied to Direct Assignments and Schools, approximately $17.6 million of non-rate revenue remains to be distributed. TABLE 9 Available Non-Rate Revenue Total Non-Rate Revenue $ 18,283,602 Less: Non- Rate Revenue Applied to Direct Assignments $ 431,281 Less: Non-Rate Revenue Applied to Schools $ 290,000 Remaining Non-Rate Revenue $17,562,321 The non-rate revenue can then be distributed based on each customer class' share of the total revenue required and allocated among each cost classification category based on the specific customer class' proportion of costs in each category. This is demonstrated in Table 10. TABLE 10 Fixed Charges Funded from Rates Remaining Fixed Costs Total Share to be Fire of Non-Rate Funded from Capacity Customer Protection Customer Class Revenue Rates Related Related Related Single Family Residential $14,232,310 $9,075,724 $5,640,135 $2,922,864 $512,725 Multi Family Residential $901,830 $575,083 $452,163 $65,712 $57,208 Commercial/Industrial $1,067,956 $681,019 $428,881 $143,602 $108,536 Agricultural Irrigation $98,100 $62,557 $42,196 $17,422 $2,940 Recreational Turf $431,449 $275,128 $269,716 $5,413 $0 Schools $215,918 $137,687 $134,862 $2,826 $0 Small Farm/Dom. Irrigation $614,758 $392,021 $243,796 $126,772 $21,453 Total $17,562,321 $11,199,220 $7,211,749 $3,284,609 $702,862 As a result of the changes described above, the fixed charges would need to be adjusted for all customer classes. A summary of the fixed charges for Recreational Turf customers and Schools is shown in Table

11 TABLE 11 Summary of Water Rate Proposal Proposed Basic Charges Meter Size Rec. Turf Schools 5/8" $ $ /4" $ $ " $ $ " $ $ ''T $ $ " $ $ ''T $ $ " $ $ ''T $ $ " $ $ ''T $ $ " $ $ ''T $1, $ ''T $2, $1, ''T $4, $3, This proposed methodology maintains the overall methodology used by EID in the recent cost of service analysis by distributing costs based on the five cost categories. It further allocates non-rate revenue to schools to offset a portion of the wastewater costs before allocating such non-rate revenue to other customer classes. Wastewater Rates EID's wastewater cost of service study allocates costs based on 4 different classifications: (1) Volume Related Costs, (2) Strength Related Costs, (3) Customer Related Costs, and (4) Direct Assignments. Each customer class (including Single Family Residential, Multi Family Residential, various Commercial categories, and Schools) is allocated a percentage of the above listed cost classifications. Schools have their own designated customer class, with all costs are translated into a fixed cost per students/staff served. In order to determine the total cost that is applied to each of the cost categories identified above, EID's wastewater budget is assigned percentages for each cost category, as was done for the water budget. In total, of EID's $25.1 million 2011 Wastewater Budget, $10.1 million is for Volume Related Costs, $10.1 million is for Strength Related Costs, $3.9 million is for Customer Related Costs, and $1.1 million is for Direct Assignments. EID then applies non-rate revenues (such as property taxes and other revenues) to offset these costs on a pro rata basis. When considering the Wastewater Rates proposed by EID, similar to the Water Rate analysis, non-rate revenue can be applied in an alternative manner while still meeting the requirements set forth by Proposition

12 Suggested Re-Allocation of Wastewater Rates The COE would propose the following adjustments to the cost of service model with Non Rate Revenue used to offset some of the costs currently applied to the rates imposed on schools. Remaining Non-Rate Revenue (after the amount used to offset a portion of the costs applied to schools) can be applied to each customer class instead of to cost categories. The results of these adjustments are summarized below (to provide a detailed example of the COE's proposal), based on the numbers contained in the cost of service analysis provided to the COE dated March 25, The allocations used in EID's model from March 25 would remain the same. Each of the various allocation factors can then be applied to the total 2011 EID Wastewater Budget to determine the total revenue requirement by classification component, as shown in Table 12. TABLE 12 Total Revenue Requirements Classification Total Revenue Components Requirements Volume $ 10,073,680 Treatment BOD $ 5,025,777 TSS $ 5,025,777 Customer Related $ 3,898,175 Direct Assignment $ Total $ 25,073,441 A portion of non-rate revenue can be applied to the costs allocated to schools. For example, if $110,000 of non-rate revenue is applied to the costs applied to schools, the amount funded from school wastewater rates could be reduced, as shown in Table

13 TABLE 13 Allocation of Revenues by Cost Component Strength Custom er Class Volume BOD TSS Customer Total Single Family Residenti al $7,643,518 $3,332,235 $3,467,229 $3,688,670 $18,131,652 Multi Family Residentia I $1,140,655 $497,276 $517,421 $63,261 $2,218,612 Commercial - Laundroma t $8,528 $3,718 $4,139 $744 $17,130 Commercial - Repair Sh ops/service Stations $59,868 $26,100 $33,204 $11,908 $131,080 Commercial - Light Ind ustrial $56,546 $72,124 $76,166 $10,419 $215,255 Commercial - Market $119,840 $136,884 $142,430 $2,977 $402,131 Commercial - Restaura nt $216,646 $371,191 $257,486 $17,862 $863,185 Commercial - Other $668,126 $540,572 $489,681 $101,590 $1,799,968 Schools $159,954 $45,677 $38,022 $744 $244,397 Total $10,073,680 $5,025,777 $5,025,777 $3,898,175 $24,023,409 Non-Rate Revenue Total Directly Revenue % oftotal Customer Class Total Applied Required Revenue Single Famil y Residential $18,131,652 $ - $18,131, % Multi Family Residential $2,218,612 $ - $2,218, % Commercial - Laundromat $17,130 $ - $17, % Commercial - Repair Shops/Service Stations $131,080 $ - $131, % Commercial - Light Industrial $215,255 $ - $215, % Commercial - Market $402,131 $ - $402, % Commercial - Restaurant $863,185 $ - $863, % Commercial - Other $1,799,968 $ - $1,799, % Schools $ $ $ % Total $24,023,409 $110,000 $23,913,409 The remaining non-rate revenue can then be allocated among all customer classes based on each customer class' share of the remaining fixed costs to be funded from rates. As shown in Table 14, after deducting the non-rate revenue applied to Direct Assignments and Schools, approximately $6.5 million of non-rate revenue remains to be distributed. TABLE 14 Available Non-Rate Revenue Total Non-Rate Revenue Less: Non-Rate Revenue Applied to Direct Assignments Less: Non-Rate Revenue Applied to Schools Remaining Non-Rate Revenue $ 6,646,829 $ 50,000 $ $6,486,829 The non-rate revenue can then be distributed based on each customer class' share of the total revenue required and allocated among each cost classification category based on the specific customer class' proportion of costs in each category. This is demonstrated in Table

14 TABLE 15 Fixed Charges Funded by Rates Remaining Adjusted Total Share Fixed Costs Fixed Costs of Non-Rate to be Funded to be Funded Customer Class Revenue from Rates from Rates Single Family Residential $4,918,451 $13,213,201 $14,640,227 Multi Family Residential $601,828 $1,616,784 $1,791,397 Commercial - Laundromat $4,647 $12,483 $13,831 Commercial - Repair Shops/Service Stations $35,557 $95,523 $105,839 Commercial - Light Industrial $58,391 $156,864 $173,806 Commercial - Market $109,083 $293,047 $324,696 Commercial - Restaurant $234,150 $629,034 $696,970 Commercial - Other $488,265 $1,311,703 $1,453,367 Schools $36,457 $97,940 $ Total $6,486,829 $17,426,580 $19,308,651 As a result of the changes described above, the fixed charges would need to be adjusted for all customer classes. The resulting charge for Schools would equate to $5.88 per student/staff, as shown in Table 16. Summary of Wastewater Rate Proposal TABLE 16 Wastewater Rate for Schools Costs to Be Funded from Rates $108,518 # Students/Staff Rate Per Student/Staff $5.88 As with the water rate analysis, this proposed methodology maintains the overall methodology used by EID in the recent cost of service analysis by distributing costs based on the four cost categories. It applies non-rate revenue to offset a portion of the costs assigned to schools and allocates non-rate revenue based on customer class