Study Workshops are designed to be both educational and to seek broad direction from the Board Workshop #1 Financial Forecast & Cost of Service Water, recycled water, & sewer services Revenue requirement Cost of service Workshop #2 & 3 Customer Data Analysis & Rate Design Alternatives Customer data analysis & forecasted trends Rate design alternatives Workshop #4 & 5 Resulting Rates & Customer Impacts Calculated rates based on Workshops #1 & 2 Customer Impacts Workshop #6 Review & Public Comment Address any feedback from Workshop #4 Overview of previous presentations
The Board provided general direction on the following items: Rates to be increased gradually rather than just in time Greater recovery of fixed expenditures General Rate Structure Revisions Simplify existing structure Stabilize revenues & cost recovery Updates based on Cost of Service
At Workshop #3, the Board provided specific direction on the following items: Sewer Rate Considerations SFR: Fixed structure with 3 volumetric blocks SFR: Sewer usage proxy based on Winter Quarter Average (industry standard) Commercial: Simplify 20 classes to 3 categories (low, med, high) Water Demand Charge Calculate charge to provide increased fixed cost recovery, while still linked to demands Water Rate Structure Alternatives SFR: Revise structure to 3 tiers (from 5) and uniform rate MFR Create separate class with uniform rate for remaining classes
At Workshop #4, the Board provided the following feedback: Groundwater Recovery Facility Allocated to Base & Peak Review impact of adjusting Debt Service Coverage Ratio (DSCR) from 1.50x to 1.35x (policy target) Affirmed outlined Fixed & Demand Charge methodology Realignment of meter ratios to AWWA Standards Preference to maintain existing SFR Tier 1 usage at 1 5 CCF Eliminated uniform rate structure alternative (SFR) Recycled Water One Water Methodology Fixed + Variable structure with no demand charge Same Fixed Charge as potable customers, unique variable charge Commercial, Potable Irrigation, and Multi Family Residential (MFR) Uniform rate structure Review potential tiered rates for MFR
We are asking for Board input on conceptual rate design and preliminary results Confirmation of the Sewer Rate Design Review of Sewer Design and Rates Revenue Requirement Scenarios 1. Operation & Maintenance (O&M) and Repair & Replacement (R&R) 2. O&M, R&R, and Tunnel Project Only 3. O&M, R&R, Tunnel, and Desal Projects Review of Water Design and Rates All rates and values shown are preliminary and designed to provide a framework for discussion. All values will continue to be refined based on Board input and continued analysis.
Sewer Rate Design
Sewer: Existing sewer rates are comprised of two components and vary by customer class Fixed Charge Customer Type Existing Equivalents Existing Annual Cost SFR 1.00 $446.46 Duplex 0.66 296.53 Triplex 0.69 309.89 Fourplex 0.70 314.19 MFR 0.52 231.91 Variable Charge Residential (SFR & MFR) $1.20 per CCF Non Residential 20 separate classes with 14 unique rates Rates vary by strength Minimum charge of 1 EDU
Sewer: Assumptions can be made to better estimate sewer flows and to improve financial stability AVERAGE CONSUMPTION PER SFR ¾ ACCOUNT 13 12 13 12 11 Dec Feb could be used as Winter Quarter Average (WQA) Baseline to define sewer demand 7 7 8 8 8 9 9 9 9 9
WQA distribution analysis reveals forecasted sewer demands vary within SFR Accounts 1,000 900 800 700 600 500 400 300 200 100 Accounts by WQA Demands 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 WQA Demand (CCF) *20 includes all accounts greater than or equal to 20 CCF ** Only includes accounts with calculable WQA
Sewer: Proposed sewer rate methodology refine existing approach to provided increased stability and clarity Single Family Modeled Annual Cost WQA Allocation Block 1 0 5 CCF $550 28% Block 2 6 10 $600 49% Block 3 11+ $660 22% Note: 1) Block 2 is account default. 2)No Rate per CCF 100% fixed % of Accounts Carollo still confirming foundation for allocation to Biochemical Oxygen Demand and Total Suspended Solids components Multi Family & Commercial Multi Family $350 per dwelling unit $1.25 per ccf Commercial Simplified structure Low Strength: $5.75/ccf Medium Strength: $6.50/ccf High Strength: $8.25/ccf Board Direction Needed: 1. Variable Block Structure 2. Low, Medium, High
Revenue Requirements Analysis
Scenario #1: Annual O&M and R&R Only Future R&R average of $10.8M exceeds recent historical average of $5.5M Millions $80 $60 $40 Preliminary Results: 7% revenue increases through 2021, 3% thereafter Operating Expenditures Capital (Rate Funded & Reserve Funded) Non Operating Expenditures Capital (Annual Debt Service) Total Revenues $20 Millions $0 $100 FYE 2015 FYE 2016 FYE 2017 FYE 2018 Total Reserve Analysis Targets based on Existing Board Policies FYE 2019 FYE 2020 FYE 2021 FYE 2022 FYE 2023 FYE 2024 FYE 2025 As no debt is being issued, there is no concern with meeting DSCR $ Cash on Hand Total Reserves Fund Target Max Fund Target Min
Scenario #2: Annual O&M, R&R, & Tunnel Project Only Although Tunnel is included, issuing debt enables incurred costs to be deferred and amortized over 30 years Debt Coverage ratio is lowest in FYE 2022 (2.09x), following the inclusion of the first Debt Service payment
Scenario #3: Annual O&M, R&R, Tunnel, & Desal Projects Desal s timing (2020) and additional debt service burden requires greater increases With proposed revenue increases, DSCR decreases to 1.30x in FYE 2022. Below District Debt Policy Target (1.50x), but above Legal obligation of 1.25x
Revenue Requirement Summary Forecasted CIP (Repair & Replacement) drives needs for immediate rate increases CIP was reviewed with staff to determine reasonableness of program and ability to defer projects Initial increases provide natural rate smoothing for forecasted Tunnel and Desal Project funding DSCR only material in Scenario 3 Reserves, in the near term, are drawn down to fund capital projects Board Direction Needed: 1. Proceed with Scenario 1, 2, or 3 2. Direction for use of reserves 3. Direction for DSCR to fall below existing District Debt Policy
Water Rate Design
Water: Based on previous workshops, modeled water rate design responds to the Board s request Existing Rate Design Two Components Fixed + Variable Charge SFR 5 Tiers MFR Uniform Commercial Uniform Potable Irrigation Tiered Allocation Recycled Water 90% of Commercial Rate Modeled Rate Design Three Components (Potable) Fixed + Demand + Variable Class specific variable design SFR 3 Tiers MFR Uniform & Tiered Commercial Uniform Potable Irrigation Uniform Recycled Water Fixed + Variable
Water: Rate design philosophy is founded on cost of service principles and SCWD s system & utilization Three rate components designed to reflect Cost of Service (pertains to all potable water classes): 1. Fixed Charge Recovers fixed costs based on provided capacity Collected on the tax roll 2. Demand Charge Recovers fixed costs based on utilized capacity Collected on the tax roll 3. Variable Charge Volumetric based charge, per CCF, based on variable costs Billed monthly Shown at Workshop #4
Water: Proposed Fixed Service Charges are set to recover half of fixed costs FY 17 Fixed Charge Calculation Water Revenue Requirement $19.2 Million Fixed Allocation $11.0 Million Allocated to Fixed Charge $5.5 Million ¾ Meter Equivalents 20,565 Annual Rate per ME $267.65 Meter Size FY 17 Modeled Rate Current Rate Proposed Ratios** July 2016 (Rate * Ratio) 3/4" $294.20 30/30 = 1.00 $267.65 1" 529.56 50/30 = 1.67 446.05 1.5" 1,182.69 100/30 = 3.33 892.10 2" 2,100.60 160/30 = 5.33 1,427.40 3" 4,727.83 350/30 = 11.67 3,122.35 4" 8,399.48 630/30 = 21.00 5,620.20 6" 18,896.62 1300/30 = 43.33 11,597.25 Shown at Workshop #4 ** Ratios based on gallon per minute (gpm) flows relative to a ¾ meter. For example, a 1 meter with a flow of 50 gpm is divided by the ¾ flow of 30 gpm to achieve a 1.67 ratio
Water: Remaining fixed costs to be recovered through the new Demand Charge FY 17 Demand Charge Calculation FY 17 Methodology Water Revenue Requirement Fixed Expenditures Allocated to Demand Charge $19.2 Million $11.0 Million $5.5 Million Account s Peak Month Demand (CCF) Annual Rate per CCF of Peak Month Consumption Shown at Workshop #4 314,000 $17.55 Blue area represents underutilized fixed costs (capital and distribution) Based on 2 nd highest month Minimizes adjustments Individualized per account Encourages Conservation
Water: Tiered rates are sized and designed to reflect SFR demand patterns and trends SFR Monthly Demand Patterns Accounts 1,000 800 600 400 200 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 Cumulativey Demand (CCF) Sep 15 Jan 15 % of Accounts Sept % of Accounts Jan 100% 80% 60% 40% 20% 0% Cumulative % of Accounts Alt 1 Tiers % Share Alt 2 Tiers % Share Alt 3 Tiers % Share Tier 1 1 9 CCF 73% 1 7 CCF 63% 1 5 CCF 49% Tier 2 10 18 20% 8 18 30% 6 18 44% Tier 3 19+ 7% 19+ 7% 19+ 7%
Water: Single Family variable rates revised to reflect updated Cost of Service results Notional Rates 2016/17 under Scenario #3 Water Supply Cost (MWDOC) = $923.50/AF => $2.12/CCF Alt 1 Tiers % Share $/CCF Alt 2 Tiers % Share $/CCF Alt 3 Tiers % Share $/CCF Tier 1 1 9 CCF 73% $2.28 1 7 CCF 63% $2.24 1 5 CCF 49% $2.19 Tier 2 10 18 20% $2.78 8 18 30% $2.73 6 18 44% $2.65 Tier 3 19+ 7% $3.62 19+ 7% $3.54 19+ 7% $3.43 Board Direction Needed: 1. Tier 1 size (5, 7, or 9)
Water: Multi Family class and rate created to reflect distinct uses and updated Cost of Service results MFR Variable Rate Separate rate better reflects MFR user characteristics Uniform rate provides simplicity, ease of understanding, and ease of application FY 17 Modeled Rate MFR Variable Allocation $0.56 Million MFR Water Demand (Annual CCF) 224,000 Rate per CCF $2.54 Existing Rate per CCF $4.13 Shown at Workshop #4
Water: Commercial class and rate created to reflect distinct uses and updated Cost of Service results Commercial Variable Rate Best reflects class heterogeneous needs Uniform rate provides simplicity, ease of understanding, and ease of application FY 17 Modeled Rate Comm. Variable Allocation $2.58 Million Commercial Demand (Annual CCF) 935,000 Rate per CCF $2.77 Existing Rate per CCF $4.13 Higher Commercial uniform rate (relative to MFR) reflects commercial s higher peaking Shown at Workshop #4
Water: Impact to the 5 largest Commercial users based on May 2015 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ Existing Rates 6% Fixed $24,794 $27,623 $25,042 $17,459 $9,753 Modeled FY 17 Rates 44% Fixed $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $ $28,821 $30,498 $27,573 $19,038 $11,106 Existing Fixed Existing Variable Modeled Fixed Modeled Demand Modeled Variable Shown at Workshop #4 Proposed rate structure stabilizes revenue volatility
Water: Potable Irrigation class and rate created to reflect distinct uses and updated Cost of Service results Potable Irrigation Variable Rate Existing Tiered Allocation structure is complex and creates greater revenue volatility Uniform rate provides simplicity, ease of understanding, and ease of application Modeled FY 17 Rate Potable Irrigation Variable Allocation $0.86 Million Potable Irrigation Demand (Annual CCF) 270,000 Rate per CCF $3.18 Tier 1 Existing Rate per CCF $4.18 Tier 2 Existing Rate per CCF 6.27 Tier 3 Existing Rate per CCF 8.36 Higher uniform rate (relative to MFR) reflects higher peaking Shown at Workshop #4
Recycled Water Rate Design
Recycled Water: Two cost of service methodology alternatives are available Alternative #1 Independent Views Recycled Water as a self sufficient enterprise Recycled Water users fully fund all expenditures ACWRF Capital G&A Alternative #2 One Water Views Recycled Water as a component of Water Recycled Water is a water supply, just like any other Use of RW reduces potable purchases or capital needs Board provided general direction to pursue One Water approach
Recycled Water: Under the One Water approach, costs are blended throughout the water system One Water Concept Recycled water costs are treated similar to Groundwater Recovery Facility Recycled Water is simply another customer class One Water: Fixed + Variable Same Fixed Rate as potable customers No Demand Charge Demand Charge allocation built into Variable rate Recycled Water Allocation $1.1 Million RW Demand Charge Allocation $0.25 Million Recycled Water Demand (CCF) 390,000 Annual Cost per CCF $3.57 Higher uniform rate (relative to potable irrigation) reflects demand charge costs.
Next Steps Finalize Revenue Requirements Analysis Based on recommended Scenario Final review of reserves (updated balances) Final review of CIP & forecasted timing Revenue Sensitivity Analysis (based on demand bookends) Confirm Demands (Water & Sewer) Accounts, meter counts, and demands Rate Design (based on Board direction) Proposed 5 year rate schedule to Board Drafting of Administrative Record (report) QA/QC Process
Future workshops will continue to refine the overall cost of service process and address next steps Workshop #6 (New) Proposed February 4 th 1:00 4:00 PM Review & Public Comment Further refinements to methodology and calculations Overview of previous presentations Next Steps Review & Public Comment Prepare Draft Cost of Service Report Outline Schedule for Proposition 218 Process
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