Attachment #1 SCOPE OF WORK NOTE: All references to meeting(s) will mean face-to-face meetings and not conference calls. Phase 1: Water Budget Based Rate Structure Feasibility Analysis Task 1: Kick-off Meeting The kick-off meeting provides a solid foundation for the project and serves as a forum in which City staff can provide input on the project approach, work plan, schedule, and priorities. A successful meeting ensures that project participants are in mutual agreement as to the project goals and expectations. The consultant will develop a kick-off meeting package that contains the meeting agenda and presentation materials to guide the discussion. In addition, as a part of the kick-off meeting the consultant will discuss the evolution of rate structures, identify and work with staff to prioritize pricing objectives, develop a framework for the proposed rate structure, and evaluate the various policy options available for meeting the City s goals and objectives. This meeting serves primarily as a forum through which the City will gain insight and buy-in for the Study. Rates 101 The consultant will discuss the evolution of various rate structures leading up to the development of the water budget based rate structure (Flat Rate, Uniform, Seasonal, Inclining Tier, etc.) and the benefits and challenges associated with each rate structure. The consultant will also provide a more detailed understanding of water budgets and the benefits and challenges associated; such an understanding acts as an introductory first step towards evaluating the feasibility of developing and administering such a rate structure. Pricing Objectives The consultant will work closely with staff to discuss pricing objectives and policy framework for the Study. This mechanism of identifying and ranking pricing objectives serves to promote stakeholder ownership and subsequent buy-in of the final results. Some of the pricing objectives identified in past studies have included the following: The Need for an Effective Drought Management Tool Equity Among Customer Classes; Financial Sufficiency and Stability; Conservation and Demand Management; Defensibility; Simplicity and Ease of Implementation; Customer Understanding; Minimizing Customer Impacts; and Affordability for Essential Use.
Water Budget Framework One objective of the workshop is to establish conservation rate framework for the Study. Ultimately, our goal is to seek input from the Council regarding the policy options associated with a conservation rate structure. Establishing the framework will include the determination of which customer classes are eligible for water budget based rate structures and defining indoor and outdoor allocations and how the associated tiers will be defined. For example, a sample water budget based rate structure might include residential accounts with a Tier 1 defined as the indoor allocation, Tier 2 defined as the outdoor allocation, and Tier 3 as a percentage of the total indoor and outdoor allocation. As mentioned previously, water budget allocations for residential customers can be determined using a complex equation that accounts for numerous demographic features. For example, some demographical features considered in determining indoor water budget allocations might include the following: Average residential density per household Actual residential density per household Average water use per capita per day Drought factor (to account for drought conditions) Days of service In addition, some demographical features that might be considered in determining outdoor water budget allocations might include the following: Average irrigation area per household Actual irrigation area per household Type of plants Irrigation efficiency Average EvapoTranspiration (ET) data 1 Real time ET data* Drought factors The consultant will work with the City to identify the methodologies used to determine water budget allocations and to perform the analysis on the City s customer class demographics as necessary. In addition, the success of a program also depends on the ability to meet the customers expectations for service. Water budgets are dynamic; both changes in household size for residential customers and new regulations for commercial customers can necessitate adjustments in a customer s water budget. It may be important for the City to have a system in place that allows customers to petition for an increase in their water budget. Variance programs will help to increase the accuracy of both indoor and outdoor water budgets and customer acceptance, as well as to address unique circumstances and exceptions for some customers who genuinely need larger water budgets. Such customers include those with special medical needs, higher densities, or larger irrigation demands. It is important to note that there is a balancing act between the administrative cost associated with the variance program, level of accuracy and the respect for privacy. The 1 EvapoTranspiration refers to water loss due to evaporation and transpiration (the water loss as vapor from plants)
consultant will also provide some insightful recommendations regarding the development of variance programs. Policy Options As a part of the workshop, the consultant will present several policy options and the objectives associated with those options to the City for evaluation. For example, when considering the methodology used for determining indoor water budget allocations, different options for evaluating household size; each with its own set of benefits and drawbacks aimed at meeting various objectives. Using actual residential density in determining indoor allocations, as compared to average residential density provides a greater degree of accuracy and is a more rigorous approach, but the drawbacks might include a high cost of administration. Going a step further, selecting a higher household density value as opposed to a lower value provides for a more generous budget, which has the benefit of providing a more generous allocation (thus a smaller variance program and lower cost of implementation and administration), at the cost of additional water savings that could be realized with a lower allocation. As another example, when considering the methodology used for determining outdoor water budget allocations, there are different options for estimating landscape, for example: measuring using GIS, using 30 percent of lot size or using varying percentage of lot size by lot size bins. The objectives associated with estimating landscape areas include low administrative cost, individualized needs, scientific method and rewarding past outdoor conservation. If administrative cost and rewarding past outdoor conservation are considered the most important, then 30 percent of lot size option could be recommended. Similar exercises will be completed for all the policy options. The consultant will work closely with City staff to identify the policy options that meet the Council s buy-in approval. Meeting(s)/Conference(s): One (1) meeting with City Staff Deliverable(s): Meeting materials Task 2: Workshop with City Council Based on the discussion with City staff during the kick-off meeting, the consultant will conduct the Policy and Rate Setting Framework Workshop with City Council and Public Works Commission. The Workshop will begin with a review of the evolution of rate structures and the benefits and challenges associated with each structure, including uniform rate, seasonal rates, inclining tiered rates, and water budget rate structures. The goal of this discussion and the Pricing Objective Overview, below, is for the City to share with the consultant its understanding of available rate structures and for the consultant to provide the City an overview of all applicable alternatives according to the City s priorities and currently observed best management practices. Pricing Objectives Overview Once rate structure alternatives and the City s preliminary preferences have been discussed, the consultant will present an overview of pricing objectives. Pricing objectives could include but not limited to those listed in the score card above. Those criteria have been recapitulated below. Promotion of efficient water use; Reduction in total water use; Affordability for essential use;
Need for an effective drought management tool; Financial sufficiency and stability; Rate stability; Reduction in peak demand; Simplicity and ease of implementation; Customer understanding; and Minimization of customer impacts. The consultant will provide the workshop presentation materials and pricing objectives exercise to City staff and the City Manager for distribution to the Council. Taking the time to cover these foundational topics builds the framework for informed collaboration as the Study progresses. Based on the Council s ranking of pricing objectives and other input gathered during the preceding workshop, the consultant will provide the Council with the basis for recommending an alternative rate structure, as appropriate. The goal of the workshop is for the Council to select and provide direction on which rate structure to evaluate in Phase 2 of the Study. Meeting(s)/Conference(s): One (1) meeting with City Council Deliverable(s): Meeting materials Task 3: Business Case Analysis Based on the results of the Kickoff Meeting and Workshop with City Council, the consultant will determine the cost and feasibility of developing and implementing a new rate structure. The City has expressed an interest in adopting a water budget based rate structure. The City has also expressed that in order to do so it is likely necessary first to procure new billing software. The consultant will identify the technological opportunities and benefits and costs associated with alternative billing software, as well as the necessary staffing levels and allocation of billing service resources necessary to maintain the proposed water budget based rate structure. Based on the analysis of the City s billing system and service and the input obtained from the Council regarding the proposed water rate structure, the consultant will evaluate the resources necessary for successful implementation and administration of the proposed rate structure and provide alternatives, as required. This will include an evaluation of the costs associated with modifying or acquiring new billing system software, an analysis regarding the staffing levels and resources necessary to implement and administer the proposed rate structure, and a reallocation and redistribution of billing service resources to meet the needs of a budget based billing service. Meeting(s)/Conference(s): One (1) meeting with the City s Billing Department. Deliverable(s): Task 4: Second City Council Workshop After evaluating the results from the pricing objectives exercise from Task #2 and determining the costs of developing a new rate structure, the consultant will meet with the City Council to discuss which rate structure best meets the City s objectives. During this task, the consultant will help the City determine whether to keep the current inclining tier rate base structure and develop new rates or to adopt a new water budget based rate
structure. As a part of this task, the consultant will seek approval for proceeding to the second phase of the Study. Meeting(s)/Conference(s): One (1) meeting with City Council Deliverable(s): Business Case Analysis materials, meeting materials. Phase 2: Model Development Task 5: Rate Study Analysis Task 5.1A: Water Budget Rate Model Development If the Council opts to change the City s rates to Water Budget rates then the consultant will develop a Water Budget Rate Model that will calculate revenue and customer impacts and conduct sensitivity analyses. This model will be informed by the water budget framework developed in Task 4. This task also includes the integration of parcel data from GIS (if available) and consumption data from billing system for single family residential customers. The Water Budget Rate Model will have the following features: Allocation for Water Budget. The ability to evaluate different policy options associated with defining indoor and outdoor use efficiency such as landscape area and weather. Rate Calculations and Customer Impact Analyses. The model determines the revenues recovered in each tier and the associated price for each tier. In addition, the model will be able to easily update rates, based on the future revenue requirements. For instance, WFA rates could be updated and the associated new rates calculated. OR Task 5.1 B: Inclining Tier Water Rate Model Development If the Council chooses to retain the inclining tiered rate structure, the consultant will develop a Water Rate Model that will calculate revenue and customer impacts and conduct sensitivity analyses based on the revised rates. This model s rates will be based on the results of the framework developed in Task 4. Task 5.2: Recycled Water Rate Development The City currently charges a recycled water rate that is 75% of potable water rates. The City would like the consultant to conduct a rate study to determine the costs associated with providing recycled water services. The consultant will evaluate the costs associated with acquisition and delivery of recycled water and formulate new rates for the City. Meeting(s)/Conference(s): Three (3) meetings with City staff as needed. Deliverable(s): Water Budget or redeveloped inclining tiers model. Recycled Water Rate Model. Task 6: Rate Workshops Task 6.1 Rate Design Workshop with Staff Following the completion of the Financial Plan and Water Model, the consultant will hold up to two webinars with City staff to develop different rate scenarios. The goal of these conference calls is to identify the water rates that will be presented at the rate workshop with the City s Council. The consultant will conduct a half-day Rate Workshop with City Staff/Management. The consultant will present the interim proposed rates and discuss the benefits and challenges associated with each proposed rate alternative, demonstrated through the
Water Rate Model. Changes and suggestions from Staff will be incorporated into the analyses prior to presenting the results to the Council. Task 6.2 Rate Design Workshop with Council The Consultant s Project Manager will present the results of the Study to the City s Council prior to providing public notification of the proposed water rates. The presentation will highlight the collaborative process used to identify and prioritize the important issues facing the City. The proposed rates and miscellaneous fees (ie: reconnect fee, broken lock, meter install, etc.) will be presented along with other recommendations resulting from the Study. Meeting(s)/Conference(s): Up to two (2) webinars with City staff to review rate scenarios, one (1) workshop with City staff, one (1) workshop with City s Council Deliverable(s): Presentation materials Phase 3: Rate Adoption Task 7: Final Report Preparation and Council Workshop Task 7.1: Report Preparation The process for developing the proposed rates will be described in a draft report. This draft report will include an executive summary highlighting the major issues and decisions and an overview of operations, CIP, the financial plan and the final rates resulting from the Study. The discussion on rate structure selection from the report developed in Phase 1 will be presented as a comprehensive section on the rate design assumptions and methodologies used to develop the user-rate calculations and financial planning. Comments from City staff will be incorporated into the Report as appropriate, and the Model will be refined to reflect appropriate issues or concerns raised by stakeholders. The report will be submitted to the City and will include appropriate supporting data from the Model to address the requirements of Proposition 218. Meetings(s)/Conference(s): Up to three (3) meetings with City Staff Deliverable(s): Draft & Final Reports Task 8: Proposition 218 Notice and Public Hearing The consultant will assist the City with developing a Proposition 218 notice for mailing within the required 45- day noticing period prior to holding the Public Hearing. The notice will outline the proposed rate changes and explain the right to challenge the rates and will meet and comply with all noticing requirements of Proposition 218. The consultant will be available to the City for guidance on preparing for the public outreach process. The consultant will prepare the presentation materials and handouts summarizing the methodologies and assumptions used in the Study, key findings and results of the Study along with the proposed rates. Finally, the consultant will present at the Public Hearing to adopt the recommended rates and will be available to answer any questions. Meeting(s)/Conference(s): Up to two (2) meetings with City staff and one (1) on-site Public Hearing Deliverable(s): Proposition 218 notice, presentation materials for Public Hearing