1a - powerpoint presentation workshop #5
TRANSCRIPT
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 #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 #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
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 Scenarios1. Operation & Maintenance (O&M) and
Repair & Replacement (R&R)2. O&M, R&R, and Tunnel Project Only3. 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 ChargeCustomer 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
13
12 13
12
11
8
7 7
8
9
8
9 9 9 9
AVERAGE CONSUMPTION PER SFR ¾” ACCOUNT
Dec – Feb could be used as Winter Quarter Average (WQA) Baseline to define sewer demand
WQA distribution analysis reveals forecasted sewer demands vary within SFR
‐
100
200
300
400
500
600
700
800
900
1,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Accoun
ts
WQA Demand (CCF)
Accounts by WQA Demands
*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
WQAAllocation
ModeledAnnualCost
% of Accounts
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
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
Carollo still confirming foundation for allocation to Biochemical Oxygen Demand and Total Suspended Solids components
Board Direction Needed:1. Variable Block Structure2. Low, Medium, High
Revenue RequirementsAnalysis
As no debt is being issued, there is no concern with meeting DSCR
Scenario #1: Annual O&M and R&R OnlyFuture R&R average of $10.8M exceeds recent historical average of $5.5M
$‐
$100
Millions Total Reserve Analysis
Targets based on Existing Board Policies
Cash on Hand ‐ Total Reserves Fund Target Max Fund Target Min
$0
$20
$40
$60
$80
FYE2015
FYE2016
FYE2017
FYE2018
FYE2019
FYE2020
FYE2021
FYE2022
FYE2023
FYE2024
FYE2025
Millions
Preliminary Results: 7% revenue increases through 2021, 3% thereafterOperating Expenditures Capital (Rate Funded & Reserve Funded)Non‐Operating Expenditures Capital (Annual Debt Service)Total Revenues
Scenario #2: Annual O&M, R&R, & Tunnel Project OnlyAlthough 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 ProjectsDesal’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 32. 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 CalculationWater 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
FY ‘17 Modeled RateMeter Size
CurrentRate
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
• Blue area represents underutilized fixed costs (capital and distribution)
• Based on 2nd highest month– Minimizes adjustments
• Individualized per account
• Encourages Conservation
Water Revenue Requirement $19.2 Million
Fixed Expenditures $11.0 Million
Allocated to Demand Charge $5.5 Million
Account’s Peak Month Demand (CCF) 314,000
Annual Rate per CCF of Peak Month Consumption $17.55
Shown at Workshop #4
Water: Tiered rates are sized and designed to reflect SFR demand patterns and trends
0%
20%
40%
60%
80%
100%
‐
200
400
600
800
1,000
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
Cumulative % of A
ccou
nts
Accoun
ts
Cumulativey Demand (CCF)
SFR Monthly Demand Patterns
Sep‐15 Jan‐15 % of Accounts ‐ Sept % of Accounts ‐ Jan
Alt 1Tiers % Share
Alt 2Tiers % Share
Alt 3Tiers % 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 1Tiers % Share $/CCF
Alt 2Tiers % Share $/CCF
Alt 3Tiers % 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 MillionMFR 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
Higher Commercial uniform rate (relative to MFR) reflects commercial’s higher peaking
Comm. Variable Allocation $2.58 MillionCommercial Demand
(Annual CCF) 935,000
Rate per CCF $2.77
Existing Rate per CCF $4.13
Shown at Workshop #4
Water: Impact to the 5 largest Commercial users based on May 2015
Existing Rates – 6% Fixed
$24,794 $27,623
$25,042
$17,459
$9,753
$‐ $5,000
$10,000 $15,000 $20,000 $25,000 $30,000 $35,000
Existing Fixed Existing Variable
Modeled FY ‘17 Rates – 44% Fixed
$28,821 $30,498 $27,573
$19,038
$11,106
$‐ $5,000
$10,000 $15,000 $20,000 $25,000 $30,000 $35,000
Modeled Fixed Modeled Demand Modeled Variable
Proposed rate structure stabilizes revenue volatilityShown at Workshop #4
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
Higher uniform rate (relative to MFR) reflects higher peaking
Potable IrrigationVariable 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
Shown at Workshop #4
Recycled Water Rate Design
Recycled Water: Two cost of service methodology alternatives are available
Alternative #1 – Independent 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
• Views Recycled Water as a self‐sufficient enterprise
• Recycled Water users fully fund all expenditures– ACWRF– Capital– G&A
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 One Water: Fixed + Variable• Same Fixed Rate as potable customers
• No Demand Charge– Demand Charge allocation
built into Variable rate
• Recycled water costs are treated similar to Groundwater Recovery Facility
• Recycled Water is simply another customer class
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 4th 1:00 – 4:00 PMReview & Public Comment• Further refinements to methodology and calculations•Overview of previous presentations
Workshop #6 (New)Proposed February 4th 1:00 – 4:00 PMReview & 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
Next Steps•Review & Public Comment•Prepare Draft Cost of Service Report•Outline Schedule for Proposition 218 Process
End