2011-12 water rate study

2011$12%%Water%Rate%Study%

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Water Rate Study

Final Report

Prepared for: Rowland Water District

July 10, 2012

Acknowledgements

PROJECT TEAM

Rowland Water District:

Ken Deck General Manager

Sean Henry Finance Officer

Atkins:

Karyn Keese Senior Project Manager, Financial Services

i Rowland Water District Water Rate Study

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Table of Contents

Acknowledgements ........................................................................................................................ i Section 1 – Introduction ................................................................................................................ 1

1.1 Changes from the Last Study ......................................................................................... 1 1.1.1 Potable Water Purchases Decreased by 20% ......................................................... 1 1.1.2 Fixed Costs and Purchased Water Costs Increased ................................................ 2 1.1.3 Recycled Water Rates Increased ............................................................................. 2

Section 2 – Revenue Requirements ............................................................................................. 3

2.1 Revenue Requirements Discussion ............................................................................... 3 2.2 Revenue Requirements and Long Range Financial Plan Assumptions ......................... 4

Section 3 – Cost of Service ........................................................................................................... 6 Section 4 – Water Rates ............................................................................................................... 9

4.1 Service Charge .............................................................................................................. 9 4.2 Commodity Rates ......................................................................................................... 10

4.2.1 Residential Customers – Inclining Block Rates ...................................................... 10 4.2.1.1 Block Design ..................................................................................................... 11 4.2.1.2 Rates by Pumping Zone ................................................................................... 12

4.2.2 Non-residential User Rates .................................................................................... 14 4.2.3 Private Fire Service Charge ................................................................................... 15 4.2.4 Recycled Water Rates ............................................................................................ 16

Section 5 – Water Bill Impacts .................................................................................................... 17

5.1 Example Bill Calculation ............................................................................................... 17 5.1.1 Residential .............................................................................................................. 17 5.1.2 Non-residential (Commercial and Multi-family) ...................................................... 17

5.2 Bill Impacts ................................................................................................................... 18 5.2.1 Residential Bill Impacts .......................................................................................... 18 5.2.2 Non-Residential ...................................................................................................... 19

5.2.2.1 Commercial Bill Impacts ................................................................................... 19 5.2.2.2 Multi-family Bill Impacts .................................................................................... 20

Section 6 – Long Range Financial Plan ...................................................................................... 21

6.1 Summary ...................................................................................................................... 22

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Table of Contents

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Figures Figure 1 – Long Range Financial Plan ........................................................................................ 21 Tables Table 1 – Revenue Requirement .................................................................................................. 3 Table 2 – Water Purchase Cost Assumptions .............................................................................. 4 Table 3 – Revenue Requirement Classification ............................................................................ 6 Table 4 – Commodity Allocation Factor ........................................................................................ 7 Table 5 – Capacity Allocation Factor ............................................................................................ 7 Table 6 – Customer Allocation Factor ........................................................................................... 8 Table 7 – Cost of Service by User Class ...................................................................................... 8 Table 8 – Service Charge ............................................................................................................. 9 Table 9 – Residential Inclining Block Rates ................................................................................ 10 Table 10 – Blocks by Water Use ................................................................................................. 11 Table 11 – Residential Class Revenue Estimation ..................................................................... 12 Table 12 – Pumping Charges ..................................................................................................... 13 Table 13 – Residential Rates by Zone ........................................................................................ 13 Table 14 – Non-residential Commodity Rate by Zone ................................................................ 14 Table 15 – Private Fire Service Charge ...................................................................................... 15 Table 16 – Projected Recycled Water Rates .............................................................................. 16 Table 17 – Residential Bill Impacts ............................................................................................. 18 Table 18 – Commercial Bill Impacts ........................................................................................... 19 Table 19 - Multi-family Bill Impacts ............................................................................................. 20 Appendix Appendix A - Financial and Other Assumptions Appendix B - Long Range Financial Plan Appendix C - FYE 2012 to FYE 2017 Budgets Appendix D - Summary of Fixed and Variable Costs Appendix E - Rate Design Appendix F - Cost of Service Determination FYE 2013 Appendix G - Service Charge Calculation Appendix H - Purchased Water Costs

Section 1 Introduction Periodically, the Rowland Water District (District) reassesses its water rates and long range financial plan to reflect changed business conditions. This study updates the October 2008 water rate study to reflect the current costs of providing water as well as necessary changes required due to California’s drought conditions. These new costs include but are not limited to:

x New water rates and charges from the Metropolitan Water District,

x Pension funding costs,

x New debt service costs associated with recycled water projects and project costs associated with obtaining water from new sources.

This water rate study and long range financial plan was conducted in close coordination with District staff. Several objectives were identified at the onset of this study:

x Water rates should fairly and equitable allocate the utility’s expenses to customers following the principles of cost causation – thus the pumping charge to higher elevation water customers.

x Rates should plan for proper operating and capital expenses as well as reserve funding.

x Rates should promote water conservation through price signals.

x Rates should be kept simple and easy to administer and understand.

x Rate structures should conform to current industry standards and guidelines.

x Rates should balance the above goals with revenue stability – thus a portion of the capacity related costs were allocated to the service charge.

1.1 Changes from the Last Study

While this study did not change the rate structures for the District’s customers, there are three main changes from the last rate study update that impact the cost of service. They are described here.

1.1.1 Potable Water Purchases Decreased by 20% In 2008 the District decided to implement an inclining block rate structure to promote water conservation among residential customers. The District currently purchases treated water from the Metropolitan Water District (MWD) through the Three Valleys Municipal Water District – a regional wholesale agency. MWD allocates a certain amount of water to each agency, including Rowland, which is charged at a lower unit cost (Tier I). Purchases over this Tier I allocation are charged 20% more per unit (Tier II). As a result, the unit cost of water purchased by the District

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Introduction


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increases if it goes over its Tier I allocation. To the benefit of all consumers, it is the District’s policy to encourage water conservation to avoid the higher costs of purchasing Tier II water to the extent possible. Since the 2008 study the District has seen an overall 20% decrease in potable water sales from all customers. The single family residential customer’s summer average decreased from 23 HCF to 18 HCF monthly. In addition, the single family average winter month average dropped from 16 HCF to 12 HCF monthly. Most water districts in Southern California are seeing similar decreases due to the drought conditions that prevailed during that time period, the rising cost of water, and the economic recession.

1.1.2 Fixed Costs and Purchased Water Costs Increased Even with the reduced usage purchased water and power costs increased by 21%. The annual budget for purchased water and power increased from $7.7 million in 2008 to an estimated $9.3 million for fiscal year ending (FYE) 2013. The District’s fixed costs increased in two major areas:

x Basic pension funding increased by 28%. In addition, GASB-45 pension funding of $2.1 million is being paid off over a five-year time period (FYE2013 to FYE2017) at $420,000 per year. The District is also required to pay $435,000 to CalPERS for the Lump Sum Side Fund.

x The District issued Certificates of Participation (COPs) in 2009 to fund the expansion of their recycled water system. The annual principal and interest repayment is $1.5 million. The District is also scheduled to issue additional COPs in FYE2012 to fund the development of alternative water supplies to enhance the reliability of the District’s potable water sources and to reduce the impact of future rate increases on imported water.

1.1.3 Recycled Water Rates Increased

The District has not increased their recycled water rates since 2009. As part of this study the cost of service for recycled water customers was reviewed and the District plans to increase the recycled water rates at an amount equal to Metropolitan Water District’s annual rate adjustments. For FYE 2013 this equates to five percent.

Section 2 Revenue Requirements The District’s revenue requirement is defined as all yearly expenses required to run the water utility less any recurring non-rate revenue such as interest earnings. Yearly expenses may include operating and maintenance expenses, debt service, reserve funding and cash financed capital projects. The District’s estimated revenue requirement for the next five years is shown in Table 1.

Table 1 Revenue Requirement

Budget Component FYE13 FYE14 FYE15 FYE16 FYE17Purchased Water and Power 9,287,221$ 9,697,982$ 10,094,840$ 10,394,685$ 10,703,526$ Operating and Maintenance Expenses 1,220,000$ 1,267,200$ 1,310,887$ 1,356,168$ 1,403,105$ Administrative and Miscellaneous Expenses 900,000$ 927,000$ 954,810$ 983,454$ 1,012,958$ Salaries & Wages, Insurance, Taxes & Benefits 3,729,000$ 3,915,450$ 4,111,223$ 4,316,784$ 4,532,623$ Debt Service (Recyc & Alt Wtr) and Pension Funding 3,565,000$ 3,565,000$ 3,565,000$ 3,420,000$ 3,420,000$ Capital Reserve and Depreciation Funding 1,855,561$ 1,855,561$ 1,855,561$ 1,855,561$ 1,855,561$ Subtotal All Expenses 20,556,782$ 21,228,193$ 21,892,321$ 22,326,653$ 22,927,773$ Less Non-Operating Revenue 1,139,768$ 1,166,479$ 1,191,426$ 1,230,294$ 1,270,878$ Total Revenue Required from Rates 19,417,014$ 20,061,714$ 20,700,895$ 21,096,359$ 21,656,895$

2.1 Revenue Requirements Discussion

The revenue requirements shown in Table 1 include all the estimated expenses required to run the utility for the indicated year. The rates are designed to recover this amount – approximately $19.4 million for the fiscal year ending (FYE) 2013. This cost is allocated to users in proportion to the cost of providing service to each customer class, and within the classes of service, as shown in the cost of service study discussed in the next section. The cost of service is recovered from service charges and commodity charges [$/hundred cubic feet (hcf)]. The resulting charges, if multiplied by all the users and estimated water usage, would equal the revenue requirement shown in Table 1. Recycled water costs, which are mostly debt service ($1.5 million) for the 2009 Certificates of Participation (COPs), are included in the District’s revenue requirement. The recycled water system benefits users of potable water as well as users of recycled water by reducing the demand for potable water. The use of recycled water enables the District to avoid the higher cost of potable water which would be incurred if the District exceeds its Tier I allocation. Therefore a portion of the recycled water expansion cost has been allocated to potable water service and is reflected in the rates and charges for potable water. Tier II water costs 20% more than Tier I water. This cost would ultimately be passed on to consumers. However, shifting more water use to recycled water will assist the District in staying below its Tier I allotment for the foreseeable future.


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Revenue Requirements

2.2 Revenue Requirements and Long Range Financial Plan Assumptions

The following assumptions were incorporated in this study:

x The fixed revenue cost allocation recovered through the District’s monthly service charge increased from 22% to 31% for potable water. The fixed charge allocation now fully recovers the principal and interest on the 2009 COPs and the projected 2013 debt issue for alternative water supply construction. Debt service is a fixed cost that must be paid and the increase in fixed revenues provides for more stability during times of water sales volatility.

x The operations fund reserve goal is 25% of yearly operations and maintenance (O&M) and capital expenses. This has not changed since the 2008 study.

x Purchased water remains flat during the study period at 11,000 acre-feet per year (AFY). This is down from 13,990 in the 2008 study.

x Purchased potable water costs increase:

o January 2013 and 2014 = 5%

o 3% per year thereafter

x Inflationary assumptions are as follows o General Inflation = 3%, o Salary and Wage Inflation = 5.0%, o Construction Inflation = 4.5%, o Interest Earned on District Reserves = 1.0%

Inflationary assumptions reflect the inflationary environment of the past couple of years. Historically, inflation runs between 3% and 4%. Construction inflation reflects the prices of concrete, steel and other construction materials over the past few years. Construction materials have out-paced general inflation and construction inflation is therefore higher. The interest earned on reserves reflects the current yield on the District’s investments.

x The water purchase costs in Table 2 were assumed for the next five years;

Table 2 Water Purchase Cost Assumptions

Calendar Year: 2013 2014 2015 2016 2017Tier 1 $833 $874 $901 $928 $955Tier 2 $965 $1,013 $1,044 $1,075 $1,107Three Valleys' Surcharge -$ -$ -$ -$ -$ Total Tier 1 Charge* 833$ 874$ 901$ 928$ 955$ Percent Increase 5.0% 5.0% 3.0% 3.0% 3.0%* Including Three Valleys' Surcharge


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Revenue Requirements


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The Tier I and Tier II water purchase costs are taken from Metropolitan Water District projections. It is not anticipated that Three Valley’s will charge a pass through surcharge per acre foot.

x GASB-45 pension funding of $2.1 million is being paid off over a five-year time period (FYE2013 to FYE2017) at $420,000 per year. The District is also required to pay $435,000 to CalPERS for the Lump Sum Side Fund. This is included at $145,000 per year for three years starting FYE 2013.

x The average pay-go capital funding is estimated at $1.9 million per year. This amount is mainly for reservoir maintenance and excludes the recycled water and alternative water projects which are funded through annual debt service payments as discussed earlier in this section.

Section 3 Cost of Service Cost of service is defined as a method to equitably allocate the revenue requirements between the various customer classes. A cost of service study is a component of a rate study and yields the proper revenue to be collected from each user class for both service charges (fixed) and commodity charges ($/hcf). Rowland’s cost of service for FYE 2013 is derived below. The cost of service analysis for future years is derived in a similar fashion.

1) First we classify the District’s budget into either commodity, capacity or customer related costs – items 1, 2 and 3 in Table 3. We also identify private fire service costs and pumping costs.

Table 3 Revenue Requirement Classification

Item No. Revenue Component1 Total Commodity Costs 12,701,592$ 2 Total Capcity (Fixed) Related Costs 5,829,720$ 3 Total Customer Related Costs 33,000$ 4 Subtotal before Fire and Pumping Costs 18,564,312$ 5 Recycled Water Electricity 204,451$ 6 Private Fire Service Costs^ 358,452$ 7 Pumping Costs (Electricity and Pump Maint)^̂ 289,799$ 8 Total All Costs 19,417,014$

^ These costs are allocated solely to private f ire service customers^^ Pumping costs are allocated to all classes and to pumping zones 2 through 6

The customer related costs are low due to offsetting penalty revenues of $190,000. As mentioned previously, revenue requirements are expenses less off-setting non-rate revenue. Table 3 shows that the District must recover approximately $19.4 million from rates.

2) To allocate the commodity costs, which are costs recovered through the District’s

commodity rate, to each of the customer classes, we calculate the commodity allocation factor. This factor is the proportion of total historical consumption for each user class. The total estimated consumption is 4.7 million units. One unit is equal to one hundred cubic feet (hcf). Table 4 shows the commodity allocation factor calculation.

Table 4 also shows that approximately 45% of the water delivered by the District is used by residential customers therefore, 45% of the projected commodity cost is allocated to the residential user class.


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Cost of Service

Table 4 Commodity Allocation Factor

Commodity Allocation Factor

Item No. User Class Metered Consumption (HCF)

Commodity Allocation Factor

1 Residential (Single Family) 2,111,268 44.8%2 Multi-family (Apt, Condo, Mobile Park, Multi-Re 503,356 10.7%3 Commercial (Business, Const, Irrig, Public) 2,094,320 44.5%4 Total 4,708,944 100.0%

We allocate the capacity costs, which are recovered through the District’s service charge, using the capacity allocation factor. The capacity allocation factor is the proportion of hydraulically equivalent meters in each user class. Hydraulically equivalent meters are calculated using the American Water Works Association (AWWA) equivalent meter ratios, which are ratios of the safe flows or capacities which can be realized through each size meter. As previously discussed, using the AWWA factors is one of the major changes since the last rate study. The capacity allocation factor derivation is shown in Table 5. Table 5 also shows that 59.6% of capacity related cost is allocated to the residential user class.

Table 5 Capacity Allocation Factor

Capacity Allocation Factor

Item No. User ClassNumber of

Hydraulically Equivalent Meters*

Capacity Allocation Factor

1 Residential (Single Family) 12,412 59.6%2 Multi-family (Apt, Condo, Mobile Park, Multi-Re 2,075 10.0%3 Commercial (Business, Constru, Irrig, Public) 6,342 30.4%4 Total 20,829 100.0%

3) The last allocation step involves allocating customer related costs to each user class. Customer related costs include billing and collecting costs, answering customer calls among other customer related duties. These costs are allocated by the proportion of customers in each class. Since a majority of the District’s customers are residential, Table 6 shows that 88% of customer costs are allocated to residential users.


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Cost of Service

Table 6 Customer Allocation Factor

Customer Cost Allocation Factor

Item No. User Class Number of Customers*

Customer Allocation Factor

1 Residential (Single Family) 11,819 87.7%2 Multi-family (Apt, Condo, Mobile Park, Multi-Re 409 3.0%3 Commercial (Business, Constru, Irrig, Public) 1,250 9.3%4 Total 13,478 100.0%

4) Finally, we determine the cost of service for each user class by multiplying each revenue requirement component (commodity, capacity and customer) by each of the respective allocation factors in Tables 4 through 6. The results are shown in Table 7.

Table 7 Cost of Service by User Class

Cost of Service

Item No. User ClassAllocated

Commodity (Variable) Costs

Allocated Capacity (Fixed) Costs

Allocated (Fixed) Customer Costs

Total Cost of Service^

1 Residential (Single Family) 5,694,794$ 3,473,968$ 28,938$ 9,197,700$ 2 Multi-family (Apt, Condo, Mobile Park, Multi-Re 1,357,719$ 580,752$ 1,001$ 1,939,472$ 3 Commercial (Business, Constru, Irrig, Public) 5,649,078$ 1,775,001$ 3,061$ 7,427,140$ 4 Total 12,701,592$ 5,829,720$ 33,000$ 18,564,312$

^These costs exclude private fire service, recycled, and pumping costs

The cost of service specifies the amount of revenue to be collected from each class. It also specifies the amount of revenue to be collected from commodity and service charges. Table 7 specifies that approximately $5.7 million should be collected from commodity charges to the residential user class. Similarly, approximately $3.5 million ($3,473,968+$28,938) should be collected from service charges from the residential class, for a total of both commodity and service charges of $9.2 million. Note that the cost of service for all user classes, $18.6 million, equals the revenue requirement before pumping and fire costs in line 4 of Table 3.

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Rowland Water District 8Water Rate Study

July 2012

Section 4 Water Rates

4.1 Service Charge

The service charge is a fixed charge based on meter size to recover capacity related costs. To allocate capacity related costs by meter size, AWWA hydraulic capacity factors were used. The factors relate the potential flow through larger meters to a 5/8-inch meter. For instance a 1-inch meter has two times the capacity of a 5/8-inch meter. The service charge by meter size for the next five years is shown in Table 8.

Table 8 Service Charge

Meter Size Cost of Service - Fixed Service ChargeNo. of Meters

Current Monthly FYE 2013 FYE 2014 FYE 2015 FYE 2016 FYE 2017

5/8" 11,166 19.31$ 23.53$ 24.24$ 24.96$ 25.12$ 25.91$ 3/4" 111 19.31$ 23.53$ 24.24$ 24.96$ 25.12$ 25.91$

1" 975 32.04$ 39.08$ 40.26$ 41.46$ 41.73$ 43.03$ 1 1/2" 529 63.85$ 77.95$ 80.31$ 82.70$ 83.24$ 85.83$

2" 567 102.03$ 124.60$ 128.37$ 132.19$ 133.05$ 137.19$ 3" 49 191.12$ 233.44$ 240.52$ 247.66$ 249.28$ 257.04$ 4" 35 318.39$ 388.93$ 400.72$ 412.62$ 415.33$ 428.24$ 6" 24 636.56$ 777.65$ 801.24$ 825.03$ 830.44$ 856.27$ 8" 18 1,018.36$ 1,244.12$ 1,281.85$ 1,319.92$ 1,328.58$ 1,369.89$

10" 4 1,463.80$ 1,788.33$ 1,842.57$ 1,897.29$ 1,909.73$ 1,969.12$ 12" 0 2,736.48$ 3,343.22$ 3,444.62$ 3,546.91$ 3,570.18$ 3,681.20$

Total 13,478

The only change to the fixed service charge in this study is the increased fixed revenue cost allocation to recover 31% of the District’s operations and capital costs from service charge revenue.


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Water Rates

4.2 Commodity Rates

4.2.1 Residential Customers – Inclining Block Rates Table 9 shows the base (Zone 1) commodity charges for the next five years. In 2008 the District decided to implement an inclining block rate structure for the residential user class. Because the cost of wholesale water to the District substantially increases if the District exceeds its Tier 1 allotment, the rate structure must take into account usage and allocate the cost of the increase to customers who could cause the District to exceed its allocation. The District adopted an inclining block rate to encourage conservation and impose the cost of overconsumption on the customers whose excessive use causes the District to potentially incur the Tier II charges. It was not feasible to establish an inclining block rate for multifamily residential, because one meter serves many residential units and it is not possible to determine the use of each residence. Likewise, commercial and industrial customers have greatly varying water needs and it is not equitable to impose a standardized water allocation on each. The needs of a single-family residential unit are similar to other customers in the same class, and an allocation which sets the same price blocks for each account is equitable and reflects the actual costs of providing service to the parcels served. The commodity rates paid by multifamily and commercial users are the same no matter how much water is used, but that rate is higher than the cost of the initial block for single family residential accounts to ensure that these classes pay their proportional share of the costs of water service. An inclining block rate structure charges a higher volumetric rate in each block of consumption. The blocks are shown in the left most portion of the table. An inclining block rate structure fosters water conservation by surcharging outdoor water use such as excessive irrigation, vehicle washing, and washing sidewalks or driveways. It is a necessary adjustment to water rates given California’s drought conditions. An inclining block rate structure helps Rowland Water District ensure that its total demand does not exceed their Tier 1 allotment by promoting efficient water use.

Table 9 Residential Inclining Block Rates

Consumption Block Consumption Rate Differential

Current Rates (Zone

1)

Cumulative Rate

Differential FY13 Revenue FY14 Revenue

0 - 16 hcf* 1,571,010 0.0% 2.30$ 0.0% 2.52$ 3,959,536$ 2.62$ 4,112,473$ 16 - 23 hcf 316,273 15.0% 2.61$ 15.0% 2.90$ 916,696$ 3.01$ 952,103$

24 + hcf 223,985 30.0% 3.30$ 45.0% 3.65$ 818,563$ 3.80$ 850,180$ Total 2,111,268 5,694,794$ 5,914,756$ *hcf = hundred cubic feet Goal 5,694,794$ Goal 5,914,756$

Consumption Block Consumption Rate Differential FY15 Revenue FY16 Revenue FY17 Revenue

0 - 16 hcf* 1,571,010 0.0% 2.71$ 4,250,307$ 2.77$ 4,355,376$ 2.84$ 4,463,600$ 16 - 23 hcf 316,273 15.0% 3.11$ 984,014$ 3.19$ 1,008,339$ 3.27$ 1,033,395$

24 + hcf 223,985 5.0% 3.92$ 878,675$ 4.02$ 900,396$ 4.12$ 922,769$ Total 2,111,268 6,112,995$ 6,264,112$ 6,419,763$


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Water Rates


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4.2.1.1 Block Design The blocks were custom designed to promote water conservation by promoting efficient outdoor water use. MWD estimates that 50% of residential water is used outside the home and this makes the residential user class the ideal class in which to implement inclining block rates. The breakpoint for the first block – 16 hcf, was the estimated average residential winter consumption. The breakpoint for the second block – 23 hcf, was the estimated average summer consumption. Outdoor water use is likely at its low-point during the winter months when it rains the most, therefore 16 hcf was assumed to constitute predominantly indoor water use. Similarly, water use above 23 hcf was considered to be predominantly outdoor water use. The middle block, 17-23 hcf was assumed to constitute mostly indoor water use with some outdoor use. Table 10 summarizes the blocks by water use.

Table 10 Blocks by Water Use

Since the implementation of the three tier structure in 2008, the District’s customers have decreased their usage by 20%. The average single family winter water usage has dropped from 16 to 12 hcf and the average summer has dropped from 23 to 18 hcf. As it is unclear that these are permanent changes in water usage patterns it was decided that the tier breakpoints would not be adjusted in this study. If this trend continues the District may want to adjust the tier breakpoints during their next water rate study. Residential Revenue Calculation excluding Pumping Costs Table 11 shows the estimated residential revenue under the FYE 2013 rates before pumping costs in each zone. Table 11 uses historical consumption and the number of residential meters to calculate revenue. Note that the estimated commodity and service charge revenue is equal to the costs allocated to residential users in Table 7 ($9.2 million).

Block (hcf) Water Use0 to 16 Indoor17 to 23 Mostly indoor, some outdoor

24 + Mostly outdoor

Water Rates

Table 11 Residential Class Revenue Estimation

Consumption Block

Estimated Consumption

FYE 2009 Commodity Rate

Commodity Revenue

0 - 16 hcf 1,571,010 2.52$ 3,959,536$ 16 - 23 hcf 316,273 2.90$ 916,696$ 24 + hcf 223,985 3.65$ 818,563$

Total 2,111,268 5,694,794$

Meter Size FYE 2009

Meter Charge No. of Residential

Meters Meter Charge

Revenue

5/8" 23.53$ 11,031 3,114,368$ 3/4" 23.53$ 107 30,209$ 1" 39.08$ 629 294,948$

1 1/2" 77.95$ 37 34,609$ 2" 124.60$ 13 19,437$ 3" 233.44$ 0 -$ 4" 388.93$ 2 9,334$

Total 11,819 3,502,906$

Total Estimated Revenue from Residential Customers 9,197,700$

4.2.1.2 Rates by Pumping Zone The District pumps water to six different pumping zones. The commodity rate for Zone 1 is the base rate before pumping charges. The pumping rate for each zone is added to the charge for each lower elevation zone. In other words, a customer in Zone 6 would pay the pumping charges for Zones 2 through 6 since the water must be pumped through each zone and therefore incurs the associated pumping costs. Pumping charges are applied to all user classes. Table 12 shows the derivation of the pumping costs for each zone over the next four years. The rate is the pumping cost divided by the water sold in each zone.


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Water Rates

Table 12 Pumping Charges

Pumping Charges Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 TotalPercentage sold in each zone 76.6% 16.0% 4.2% 1.3% 0.9% 1.1% 100.0%Water Sold (hcf) in each zone 3,609,318 751,177 196,018 59,534 40,034 52,864 4,708,944

FYE Pumping Costs by Zone 145,061$ 54,078$ 50,205$ 22,925$ 17,529$ 289,799$ 2013 Pumping Rate 0.19$ 0.28$ 0.84$ 0.57$ 0.33$





Table 13 combines the base rate with the pumping charges in each zone to show the resulting rates by zone for the next four years.

Table 13 Residential Rates by Zone

Residential Rate ($/hcf) w/Pumping Charges Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 62.30$ 2.43$ 2.54$ 2.98$ 3.23$ 3.41$

BlockFYE 0 - 16 HCF 2.52$ 2.71$ 2.99$ 3.83$ 4.40$ 4.73$ 2013 16 - 23 HCF 2.90$ 3.09$ 3.37$ 4.21$ 4.78$ 5.11$

23+ HCF 3.65$ 3.84$ 4.12$ 4.96$ 5.53$ 5.86$

FYE 0 - 16 HCF 2.62$ 2.82$ 3.10$ 3.97$ 4.56$ 4.90$ 2014 16 - 23 HCF 3.01$ 3.21$ 3.49$ 4.36$ 4.95$ 5.29$

23+ HCF 3.80$ 4.00$ 4.28$ 5.15$ 5.74$ 6.08$

FYE 0 - 16 HCF 2.71$ 2.91$ 3.20$ 4.09$ 4.70$ 5.05$ 2015 16 - 23 HCF 3.11$ 3.31$ 3.60$ 4.49$ 5.10$ 5.45$

23+ HCF 3.92$ 4.12$ 4.41$ 5.30$ 5.91$ 6.26$

FYE 0 - 16 HCF 2.77$ 2.98$ 3.28$ 4.20$ 4.83$ 5.19$ 2016 16 - 23 HCF 3.19$ 3.40$ 3.70$ 4.62$ 5.25$ 5.61$

23+ HCF 4.02$ 4.23$ 4.53$ 5.45$ 6.08$ 6.44$

FYE 0 - 16 HCF 2.84$ 3.06$ 3.37$ 4.32$ 4.96$ 5.33$ 2017 16 - 23 HCF 3.27$ 3.49$ 3.80$ 4.75$ 5.39$ 5.76$

23+ HCF 4.12$ 4.34$ 4.65$ 5.60$ 6.24$ 6.61$

Current Rates (Tier 1)


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Water Rates

4.2.2 Non-residential User Rates Non-residential users (commercial and multi-residential users) are charged a uniform commodity rate. That is, they are charged a flat rate regardless of water usage. This type of commodity rate does send a conservation signal since a user’s bill increases as more water is used. However, the conservation price signal is not as pronounced as the residential inclining block rate structure. The District determined to adopt a uniform commodity rate for non-residential users because of the impracticality of assigning appropriate usage allocations among such users. While the rate does not change with increased use; the unit price of water charged to these users is higher than the initial block rate for single family residential users to ensure that these customers pay the melded rate of all the residential block rates. Table 14 shows the non-residential commodity rate by zone for the next five years.

Table 14 Non-residential Commodity Rate by Zone

Non-Residential ($/hcf) w/Pumping Charge Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6

Current Rate Per HCF 2.32$ 2.45$ 2.56$ 3.00$ 3.25$ 3.43$

2013 Commodity Rate* 2.70$ 2.80$ 3.08$ 3.92$ 4.49$ 4.82$

2014 Commodity Rate 2.80$ 3.00$ 3.28$ 4.15$ 4.74$ 5.08$

2015 Commodity Rate 2.90$ 3.10$ 3.39$ 4.28$ 4.89$ 5.24$

2016 Commodity Rate 2.97$ 3.18$ 3.48$ 4.40$ 5.03$ 5.39$

2017 Commodity Rate 3.04$ 3.26$ 3.57$ 4.52$ 5.16$ 5.53$


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Water Rates

4.2.3 Private Fire Service Charge The District has updated its fire service charge to reflect the potential demand used for fire fighting purposes. This potential demand can be estimated based on the size of the connection (meter) and the potential flow through that connection (using the Hazen-Williams equation for pressurized flow through conduits). The District estimates that private fire services account for approximately 2% of yearly expenses, totaling $360k as shown in Table 3. Distributing this $360k across the various sized connections yields the private fire service charges shown in Table 15. It should be noted that due to the increase in fire service connections since 2008 no rate adjustment is needed at this time to accommodate the 14% increase in operational costs. Fire flow demands are not constant or predictable. Nevertheless, the District must size and operate its facilities as well as store water sufficient to meet high flow demands when the need arises, which constitutes a cost to the District. These specific costs of sizing and operating the facilities as well as providing stored water to meet fire flows are reflected in Table 3. These costs are allocated by means of the private fire service charge to customers with fire service meters.

Table 15 Private Fire Service Charge

Size of

Connection (in)

No. in Service

Current Bi-monthly Fire

Charge

Proposed Bi-monthly Charge

1.5 0 NA NA2 2 $19.92 $19.923 1 $28.88 $28.884 46 $36.75 $36.756 159 $73.50 $73.508 174 $169.81 $169.7710 50 $305.37 $305.3112 2 $493.26 $493.15

Total: 434


July 2012

15

Water Rates

4.2.4 Recycled Water Rates

The District has not increased their recycled water rates since 2009. As part of this study the cost of service for recycled water customers was reviewed and the District plans to increase the recycled water rates at an amount equal to Metropolitan Water District’s annual rate adjustments. For FYE 2013 this equates to five percent. The projected recycled water rates for the next five years are summarized in Table 16.

Table 16 Projected Recycled Water Rates

FYE

MWD Projected Increase

Recycled Water per hcf

2012 1.46$ 2013 5% 1.53$ 2014 5% 1.61$ 2015 3% 1.66$ 2016 3% 1.71$ 2017 3% 1.76$


July 2012

Section 5 Water Bill Impacts

5.1 Example Bill Calculation

The general water bill equation, except private fire service, is as shown; Water Bill = Service charge + (monthly water usage x commodity rate ($/hcf))

5.1.1 Residential The commodity rate for residential bills is zone specific and increases for each block of consumption. The previous equation for residential users can be modified as follows; Residential Bill = Service charge + (monthly usage in 1st block x 1st block commodity rate ($/hcf)) + (monthly usage in 2nd block x 2nd block commodity rate) + (monthly usage in 3rd block x 3rd block commodity rate) Assuming a Zone 1 residential customer with a 5/8-inch meter uses 25 hcf the bill would be calculated as follows; Bill = $23.53 + (16 x $2.52) + ((23-16) x $2.90)) + ((25-23) x $3.65)) = $91.45 A customer in another zone would substitute that zone’s commodity rates (which include pumping charges) in place of the Zone 1 commodity rates. A Zone 2 customer using 15 hcf would calculate their bill as; Bill = $23.53 + (15 x $2.71) = $64.18

5.1.2 Non-residential (Commercial and Multi-family) The commodity rate for non-residential users is zone specific only and the bill equation is as follows; Water Bill = Service charge + (monthly water usage x commodity rate ($/hcf)) Assuming 100 hcf and a 2-inch meter, the bill calculation for a commercial user in Zone 1 is; Bill = $124.60 + (100 x $2.70) = $394.60


July 2012

Water Bill Impacts

5.2 Bill Impacts

5.2.1 Residential Bill Impacts Table 16 shows the percent increase for Zone 1 residential customers for different levels of consumption. The District’s average residential customer uses approximately 15 hcf. Table 17 shows that for FYE 2013, the average bill will increase approximately 14% or $7.52 per month.

Table 17 Residential Bill Impacts

5 2.30$ 11.50$ 19.31$ 30.81$ 2.52$ 12.60$ 23.53$ 36.13$ 5.32$ 17.3%10 2.30$ 23.00$ 19.31$ 42.31$ 2.52$ 25.20$ 23.53$ 48.73$ 6.42$ 15.2%15 2.30$ 34.50$ 19.31$ 53.81$ 2.52$ 37.81$ 23.53$ 61.33$ 7.52$ 14.0%16 2.30$ 36.80$ 19.31$ 56.11$ 2.52$ 40.33$ 23.53$ 63.85$ 7.74$ 13.8%20 2.61$ 47.24$ 19.31$ 66.55$ 2.90$ 51.92$ 23.53$ 75.45$ 8.90$ 13.4%23 2.61$ 55.07$ 19.31$ 74.38$ 2.90$ 60.62$ 23.53$ 84.14$ 9.76$ 13.1%25 3.30$ 61.67$ 19.31$ 80.98$ 3.65$ 67.92$ 23.53$ 91.45$ 10.47$ 12.9%30 3.30$ 78.17$ 19.31$ 97.48$ 3.65$ 86.20$ 23.53$ 109.72$ 12.24$ 12.6%35 3.30$ 94.67$ 19.31$ 113.98$ 3.65$ 104.47$ 23.53$ 128.00$ 14.02$ 12.3%40 3.30$ 111.17$ 19.31$ 130.48$ 3.65$ 122.74$ 23.53$ 146.27$ 15.79$ 12.1%45 3.30$ 127.67$ 19.31$ 146.98$ 3.65$ 141.01$ 23.53$ 164.54$ 17.56$ 11.9%50 3.30$ 144.17$ 19.31$ 163.48$ 3.65$ 159.29$ 23.53$ 182.82$ 19.34$ 11.8%55 3.30$ 160.67$ 19.31$ 179.98$ 3.65$ 177.56$ 23.53$ 201.09$ 21.11$ 11.7%60 3.30$ 177.17$ 19.31$ 196.48$ 3.65$ 195.83$ 23.53$ 219.36$ 22.88$ 11.6%

Consumption (hcf)

Current Commodity

Rate

Current Monthly

Commodity Charge

Current Fixed Mtr.

Charge

Proposed Total

Current Total Bill

Proposed Commodity

Rate

Proposed Monthly

Commodity Charge

Proposed Fixed Mtr.

Charge

FYE 2013

Dollar Change % Change


July 2012

18

Water Bill Impacts

5.2.2 Non-Residential 5.2.2.1 Commercial Bill Impacts Table 18 shows the bill impacts for the commercial user class for FYE 2013. The average commercial use is approximately 150 hcf, resulting in a 17.6 % increase.

Table 18 Commercial Bill Impacts

Zone 1

10 2.32$ 23.20$ 102.03$ 125.23$ 2.70$ 26.97$ 124.60$ 151.57$ 21.0%20 2.32$ 46.40$ 102.03$ 148.43$ 2.70$ 53.95$ 124.60$ 178.54$ 20.3%30 2.32$ 69.60$ 102.03$ 171.63$ 2.70$ 80.92$ 124.60$ 205.52$ 19.7%40 2.32$ 92.80$ 102.03$ 194.83$ 2.70$ 107.89$ 124.60$ 232.49$ 19.3%50 2.32$ 116.00$ 102.03$ 218.03$ 2.70$ 134.87$ 124.60$ 259.46$ 19.0%60 2.32$ 139.20$ 102.03$ 241.23$ 2.70$ 161.84$ 124.60$ 286.44$ 18.7%70 2.32$ 162.40$ 102.03$ 264.43$ 2.70$ 188.81$ 124.60$ 313.41$ 18.5%80 2.32$ 185.60$ 102.03$ 287.63$ 2.70$ 215.79$ 124.60$ 340.38$ 18.3%90 2.32$ 208.80$ 102.03$ 310.83$ 2.70$ 242.76$ 124.60$ 367.36$ 18.2%

100 2.32$ 232.00$ 102.03$ 334.03$ 2.70$ 269.73$ 124.60$ 394.33$ 18.1%110 2.32$ 255.20$ 102.03$ 357.23$ 2.70$ 296.71$ 124.60$ 421.30$ 17.9%120 2.32$ 278.40$ 102.03$ 380.43$ 2.70$ 323.68$ 124.60$ 448.28$ 17.8%130 2.32$ 301.60$ 102.03$ 403.63$ 2.70$ 350.65$ 124.60$ 475.25$ 17.7%140 2.32$ 324.80$ 102.03$ 426.83$ 2.70$ 377.63$ 124.60$ 502.22$ 17.7%150 2.32$ 348.00$ 102.03$ 450.03$ 2.70$ 404.60$ 124.60$ 529.20$ 17.6%160 2.32$ 371.20$ 102.03$ 473.23$ 2.70$ 431.57$ 124.60$ 556.17$ 17.5%170 2.32$ 394.40$ 102.03$ 496.43$ 2.70$ 458.55$ 124.60$ 583.14$ 17.5%180 2.32$ 417.60$ 102.03$ 519.63$ 2.70$ 485.52$ 124.60$ 610.12$ 17.4%190 2.32$ 440.80$ 102.03$ 542.83$ 2.70$ 512.49$ 124.60$ 637.09$ 17.4%200 2.32$ 464.00$ 102.03$ 566.03$ 2.70$ 539.47$ 124.60$ 664.06$ 17.3%210 2.32$ 487.20$ 102.03$ 589.23$ 2.70$ 566.44$ 124.60$ 691.04$ 17.3%220 2.32$ 510.40$ 102.03$ 612.43$ 2.70$ 593.41$ 124.60$ 718.01$ 17.2%230 2.32$ 533.60$ 102.03$ 635.63$ 2.70$ 620.39$ 124.60$ 744.98$ 17.2%240 2.32$ 556.80$ 102.03$ 658.83$ 2.70$ 647.36$ 124.60$ 771.96$ 17.2%250 2.32$ 580.00$ 102.03$ 682.03$ 2.70$ 674.33$ 124.60$ 798.93$ 17.1%260 2.32$ 603.20$ 102.03$ 705.23$ 2.70$ 701.31$ 124.60$ 825.90$ 17.1%270 2.32$ 626.40$ 102.03$ 728.43$ 2.70$ 728.28$ 124.60$ 852.88$ 17.1%280 2.32$ 649.60$ 102.03$ 751.63$ 2.70$ 755.25$ 124.60$ 879.85$ 17.1%290 2.32$ 672.80$ 102.03$ 774.83$ 2.70$ 782.23$ 124.60$ 906.82$ 17.0%300 2.32$ 696.00$ 102.03$ 798.03$ 2.70$ 809.20$ 124.60$ 933.80$ 17.0%

FYE 2013

Consumption (hcf)

Current Commodity

Rate

Current Monthly

Commodity Charge

Current Fixed Mtr. Charge 2"

% ChangeProposed

TotalCurrent

Total

Proposed Commodity

Rate

Proposed Monthly

Commodity Charge

Proposed Fixed Mtr. Charge 2"


July 2012

19

Water Bill Impacts

5.2.2.2 Multi-family Bill Impacts Table 19 shows the bill impacts for the multi-family, condominium, and mobile home user classes for FYE 2013. The average multi-family use is approximately 100 hcf per month per account, resulting in a 17.5 % increase.

Table 19 Multi-family Bill Impacts

10 2.32$ 23.20$ 63.85$ 87.05$ 2.70$ 26.97$ 77.95$ 104.92$ 20.5%20 2.32$ 46.40$ 63.85$ 110.25$ 2.70$ 53.95$ 77.95$ 131.90$ 19.6%30 2.32$ 69.60$ 63.85$ 133.45$ 2.70$ 80.92$ 77.95$ 158.87$ 19.0%40 2.32$ 92.80$ 63.85$ 156.65$ 2.70$ 107.89$ 77.95$ 185.84$ 18.6%50 2.32$ 116.00$ 63.85$ 179.85$ 2.70$ 134.87$ 77.95$ 212.82$ 18.3%60 2.32$ 139.20$ 63.85$ 203.05$ 2.70$ 161.84$ 77.95$ 239.79$ 18.1%70 2.32$ 162.40$ 63.85$ 226.25$ 2.70$ 188.81$ 77.95$ 266.76$ 17.9%80 2.32$ 185.60$ 63.85$ 249.45$ 2.70$ 215.79$ 77.95$ 293.74$ 17.8%90 2.32$ 208.80$ 63.85$ 272.65$ 2.70$ 242.76$ 77.95$ 320.71$ 17.6%100 2.32$ 232.00$ 63.85$ 295.85$ 2.70$ 269.73$ 77.95$ 347.68$ 17.5%110 2.32$ 255.20$ 63.85$ 319.05$ 2.70$ 296.71$ 77.95$ 374.66$ 17.4%120 2.32$ 278.40$ 63.85$ 342.25$ 2.70$ 323.68$ 77.95$ 401.63$ 17.3%130 2.32$ 301.60$ 63.85$ 365.45$ 2.70$ 350.65$ 77.95$ 428.60$ 17.3%140 2.32$ 324.80$ 63.85$ 388.65$ 2.70$ 377.63$ 77.95$ 455.58$ 17.2%150 2.32$ 348.00$ 63.85$ 411.85$ 2.70$ 404.60$ 77.95$ 482.55$ 17.2%160 2.32$ 371.20$ 63.85$ 435.05$ 2.70$ 431.57$ 77.95$ 509.52$ 17.1%170 2.32$ 394.40$ 63.85$ 458.25$ 2.70$ 458.55$ 77.95$ 536.50$ 17.1%180 2.32$ 417.60$ 63.85$ 481.45$ 2.70$ 485.52$ 77.95$ 563.47$ 17.0%190 2.32$ 440.80$ 63.85$ 504.65$ 2.70$ 512.49$ 77.95$ 590.44$ 17.0%200 2.32$ 464.00$ 63.85$ 527.85$ 2.70$ 539.47$ 77.95$ 617.42$ 17.0%210 2.32$ 487.20$ 63.85$ 551.05$ 2.70$ 566.44$ 77.95$ 644.39$ 16.9%220 2.32$ 510.40$ 63.85$ 574.25$ 2.70$ 593.41$ 77.95$ 671.36$ 16.9%230 2.32$ 533.60$ 63.85$ 597.45$ 2.70$ 620.39$ 77.95$ 698.34$ 16.9%

FYE 2013

Consumption (hcf)

Current Total

Proposed Commodity

Rate

Current Fixed Mtr.

Charge

Current Monthly

Commodity Charge

% ChangeProposed Total

Proposed Fixed Mtr.

Charge 1 1/2"

Proposed Monthly

Commodity Charge

Current Commodity

Rate


July 2012

Section 6 Long Range Financial Plan The long range financial plan was developed to ensure the long term financial health of the District. This plan models yearly ending reserve balances as a result of the new water rates. The graph in Figure 1 shows a summary of three reserves over the study period; operation, rate stabilization, and capital improvement reserves. The operating reserve meets its goal for every year in the graph. Bond financing generally requires that the District maintain adequate debt coverage ratios. Implementing rates which support appropriate operating reserves will help the District meet debt coverage ratios required by future bond financing. For this graph, the operating reserve goal equals approximately 3 months worth (25%) of yearly District expenditures including debt service. The rate stabilization reserve declines slightly yet remains at approximately $2 million for the study time period.

Figure 1 Long Range Financial Plan

$-

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

FYE 13 FYE 14 FYE 15 FYE 16 FYE 17

Mill

ions

Summary of Ending Reserve Balances

Rate Stab. Res. Oper. Reserve Cap. Imp. Res.


July 2012

Long Range Financial Plan

6.1 Summary

The outcome of this rate study is to provide the District with balanced funding based on the assumption of a zero based budget (revenues equal expenses and reserves are not used to buy down potential rate adjustments. Table 20 summarizes the average single family users (15 hcf monthly) projected rates for the next five years. After the FYE 2013 rate adjustment to fund existing debt service and pension obligations, the average rate adjustment per year is 2.8%

Table 20 Projected Rates

Average Single Family Residential User

FYEAverage

RateDollar

Change % Change2012 53.81$ 2013 61.33$ 7.52$ 14.0%2014 63.51$ 2.17$ 3.5%2015 65.54$ 2.04$ 3.2%2016 66.71$ 1.17$ 1.8%2017 68.52$ 1.81$ 2.7%

A water rate model was prepared for this study. The output of this model, which supports all charges discussed in this report, is included in the appendices to this report.


July 2012

2011-12 water rate study

Documents

water costs

recycled water rates

water bill impacts

potable water purchases

block rates

water rate study final

commodity rates

user rates