city of lakeport water and sewer utility rate...

Final Report

City of Lakeport

Water and Sewer Utility Rate Studies July 2012

Prepared by:

HDR Engineering, Inc.

July 27, 2012

Mr. Mark Brannigan Director of Utilities 591 Martin Street Lakeport, CA 95453

Subject: Comprehensive Water and Sewer Utility Rate Studies Final Report

Dear Mr. Brannigan:

HDR Engineering, Inc. (HDR) is pleased to present the final report on the comprehensive water and sewer rate studies conducted for the City of Lakeport (City). A key objective the City’s utility rate studies was to develop a financial plan and rates that generate sufficient revenue to fund the operating and capital needs of each utility. This report outlines the approach, methodology, findings, and conclusions of each utility’s rate study.

This report was developed utilizing the City’s accounting, operating and management records. HDR has relied on this information to develop our analyses, from which we draw our findings, conclusions and recommendations. At the same time, this study was developed utilizing generally accepted utility rate setting principles. The conclusions and recommendations contained within this report are intended to provide a financial plan for each utility that meet each utility’s operating and capital needs. Finally, this report provides to the City Council the basis for developing and implementing rates that are cost-based and defensible to the City’s utility customers.

We appreciate the assistance provided by the City staff in the development of this study. More importantly, we appreciate working with City’s staff on this project. We look forward to opportunities to work serve the City in the future.

Sincerely yours,

HDR Engineering, Inc.

Cil Pierce Senior Project Manager and Financial Analyst

Water and Sewer Rate Study – Contents i City of Lakeport

Executive Summary

Introduction .................................................................................................................................... 1 Overview of the Rate Study Process .......................................................................................... 1 Summary of Study Results .......................................................................................................... 1 Water Utility Specific Findings .................................................................................................... 3 Sewer Utility Specific Findings .................................................................................................... 6 Rate Comparison ....................................................................................................................... 10 Summary ..................................................................................................................................... 11

1 Overview of Utility Rate Setting Process

1.1 Introduction .................................................................................................................... 13 1.2 Background and Context ............................................................................................. 13 1.3 Overview of the Rate Study Process .......................................................................... 14 1.4 Generally Accepted Rate Setting Principles ............................................................. 14 1.5 Prudent Financial Planning ......................................................................................... 15 1.6 Determining the Revenue Requirement ................................................................... 16 1.7 Cost of Service Analysis .............................................................................................. 17 1.8 Designing Rates ............................................................................................................ 17 1.9 Summary ........................................................................................................................ 18

2 Development of the Water Utility Rate Study 2.1 Introduction .................................................................................................................... 19 2.2 Determining the Water Utility Revenue Requirements .......................................... 19 2.3 Water Cost of Service Analysis ................................................................................... 25 2.4 Water Rate Design Analysis ........................................................................................ 27 2.5 Summary of the Water Rate Study ............................................................................ 30

3 Development of the Sewer Utility Rate Study 3.1 Introduction .................................................................................................................... 31 3.2 Determining the Sewer Utility Revenue Requirement ............................................ 31 3.3 Sewer Cost of Service Analysis ................................................................................... 36 3.4 Sewer Rate Design Analysis ........................................................................................ 37 3.5 Summary of the Sewer Rate Study ............................................................................ 40

Technical Appendices

Appendix A – Water Utility System Analyses Appendix B – Sewer Utility System Analyses Appendix C – Rate Affordability

Table of Contents

Water and Sewer Rate Study – Contents i City of Lakeport

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Water and Sewer Rate Study – Executive Summary 1 City of Lakeport

Introduction HDR Engineering (HDR) was retained by the City of Lakeport (City) to conduct a comprehensive water and sewer rate study. The objective of the comprehensive rate study was to develop a financial plan and cost-based rates for each utility necessary to meet each utility’s current and future operation and maintenance (O&M) and capital needs. This study also reviews the adequacy of existing water and sewer rates and provides the framework for any needed future adjustments.

Overview of the Rate Study Process A comprehensive rate study consists of three interrelated analyses. They are a revenue requirement analysis, cost of service analysis and rate design analysis. Provided below in Figure ES-1 is a summary of these analyses.

Figure ES – 1 Overview of the Comprehensive of Rate Study Analyses

Each of the utilities was evaluated on a “stand-alone” basis. That is, no subsidies between either utility or other City fund should occur. By viewing each utility on a stand-alone basis, the need to adequately fund both O&M and capital infrastructure must be balanced against the rate impacts to the utility’s customers.

Summary of Study Results In developing the revenue requirement, cost of service, and rate design analyses for each utility, several key assumptions and findings were made. These are as follows:

The revenue requirements were developed for each utility for a six-year period of fiscal year, (FY) 2012 – 2017.

Revenue Requirement Analysis

Cost of Service Analysis

Rate Design Analysis

Compares the sources of funds (revenue) to the expenses of the utility to determine

the overall rate adjustment required

Allocates the revenue requirements to the various customer classes of service

in a “fair and equitable" manner

Considers both the level and structure of the rate design to collect the target

level of revenue

Executive Summary


The City’s FY 2012 budgets were used as a starting point in developing the rate models, with 2011 actual revenue and expenses available for comparison and projection purposes.

Customer growth was estimated to be 0.0% through FY 2014, and 0.5% through the remainder of the test period.

All expenses are escalated for inflation, ranging between 3% and 5%. Items escalated at 5% include: benefits, chemicals, fuel, and electricity.

Revenues at present rates were calculated for FY 2012 based on actual customer data from FY 2010 and FY 2011 and the current water and sewer rate schedules.

The revenue requirements for each utility attempts to provide funding for the following types of reserves, as required by some of the funding sources the City plans to use for capital projects:

Operating Reserve of 15% of operating expenses – Equates to 55 days of operating expenses. The purpose of this reserve is to provide cash flow during times of low revenue flow.

Rate Stabilization/Debt Service Reserves equaling 2 months of rate revenue, or required bond reserve levels – This reserve is intended to eventually provide the equivalent of annual debt payment for long-term debt issues to guarantee principle and interest payments.

R&R/CIP Reserve targeting 5% of net capital assets – Given three measures for targeting a renewal and replacement reserve, this target is the lowest when compared with the other two measures: 1) 6-year average annual capital improvement expenditures, or 2) 1 – 2% of original asset value. The purpose of this reserve is to ensure funding for any infrastructure replacement emergencies.

There are various financial planning measures a utility can employ to ensure funding for infrastructure replacement. HDR recommends targeting a minimum level of annual depreciation expense on an annual basis. This level of funding allows for a utility’s infrastructure to be replaced as it is deteriorating over time. Depreciation expense does not reflect actual replacement costs, so depreciation expense should always be seen as a minimum level of funding for capital renewal and replacement projects.

Funding depreciation expense through rates also helps the utilities to meet the debt service coverage ratio requirements of the bond and loan covenants.

Four alternative funding scenarios were developed for each utility to review the impacts of various levels of depreciation funding. The final recommended rate transition plan results in neither utility achieving the minimum funding level of full depreciation expense, but the scenarios offer options to move in this direction.

Each scenario has a different level of risk mitigation with regulators, the higher the scenarios, the less risk and more sustainable approach to funding O&M and capital.

The City is working on grant funding opportunities with the USDA Rural Development program. Each utility is potentially eligible for a $1 million grant. Competition for these grants is very steep. Although the City qualifies under the small, economically disadvantaged community profile, less than $1 million is more likely, if any grant funding is provided at all. The funding under each scenario assumes only loan funding in order to make sure that enough funds are generated to fully cover costs. The City should know by November 2012 whether grant funds are available. Should the City be successful in obtaining grant funding,


the rate model(s) can be adjusted to reflect this funding, thereby reducing the level of rates needed in FY 2015 and beyond, by reducing debt service that is now assumed.

The City Council held a public hearing at the July 17, 2012 City Council meeting where Scenario 3, Option 2 rates for the water utility and Scenario 2, Option 2 results and rates for the sewer utility were presented.

The City has issued a Proposition 218 notice and will hold a public hearing September 18, 2012 for the final consideration of these rates.

Water Utility Specific Findings Revenue Requirement Analysis Using two different sets of data provided by the City, the revenues at present rates were

developed. The utility’s rate revenue has come in close to budget projections and is on target to do so in FY 2012, Therefore, HDR used the total budgeted revenue as provided by the City, and allocated it to each customer class based on the portion of revenue calculated for each customer class within the revenues at present rates calculation.

During FY 2012 through FY 2015 available reserves are used to help fund operating and capital funding deficiencies. By FY 2017 reserves achieve the minimum levels, as noted above.

Scenarios 1 funds only operations, existing debt and the reserves described above.

Scenario 2, 3, and 4 fund the USDA and SRF funded projects, plus additional projects that are projected within the Utility’s latest Master Plan. These Scenarios differ by the level of depreciation expense they are able to fund, with Scenario 4 funding the largest amount, but still not total depreciation expense.

An additional $600,000 of debt (low-interest loans) is needed in order to fully fund the Master Plan replacement projects in the latter part of the test period.

HDR initially developed a 3-year phased-in rate implementation option. The City requested a 4-year implementation/phased-in approach to funding the total revenue requirement be developed to help lower and mitigate rate impacts. The three year implementation approach meets the 1.5% rate affordability test of the SRF and it results in lower long-term monthly rates, despite the higher increases needed in the second and third years of implementation.

For the water utility, a $1 million dollar grant could reduce the average residential household rate by approximately $0.95. Therefore, each $100,000 of grant funding equates to approximately a $0.10/month savings for residential customers. Future year rates can be adjusted in the rate model, and reduced for any grant funding that the City may receive.

A summary of the water revenue requirement analysis for Scenario 3 is provided below in Table ES-1.


Actu al Bu dget

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Reven ues

Rate Revenues $1,150 $1,174 $1,174 $1,174 $1,177 $1,180 $1,183

Miscellaneous Revenues 120 107 91 92 93 94 96--------- --------- --------- --------- --------- --------- ---------

Total Reven ues $1,270 $1,281 $1,265 $1,266 $1,270 $1,274 $1,279

Expen ses

Operations & Maintenance $1,009 $1,145 $1,186 $1,229 $1,274 $1,321 $1,369

Transfers 0 42 44 46 49 51 54

Capital Funded Through Rates 9 9 45 75 105 135 165

Debt Service 254 254 254 254 564 570 591

Change in Working Capital +/- (3) (215) (41) 29 (52) 157 194--------- --------- --------- --------- --------- --------- ---------

Total Expen ses $1,269 $1,235 $1,489 $1,634 $1,940 $2,233 $2,372

Total Revenu e Requ iremen t $1,269 $1,235 $1,489 $1,634 $1,940 $2,233 $2,372

Balance/(Deficiency) of Funds $45 ($224) ($368) ($670) ($960) ($1,094)

P lus : Bad Debt (4.0% of Rate Rev.) $46 $47 $47 $47 $47 $47

Balan ce/(Def ic iency) wi th Bad Debt ($1) ($271) ($415) ($717) ($1,007) ( $1,141)

Projec ted

Table ES-1 Summary of the Water Revenue Requirements Analysis (000’s)

It should be noted that the balance or deficiencies in any single year are cumulative; any adjustments in the initial years will reduce the deficiency in the following years. Over the six-year period, rates need to be adjusted upwards in order to adequately and properly fund the water utility operations and capital improvements. The cumulative deficiency is $1.1 million, or nearly 100% of current rate revenue. This Scenario proposes the use of reserves, shown as negative values in the change in working capital line item, to help cover deficiencies through 2015. Then the reserves are replenished by FY 2017.

Table ES-1 reflects Scenario 3, funding two-thirds of annual depreciation expense, rather than one-third, or almost fully funding depreciation, Scenarios 2 and 4 respectively. Scenario 3 also allows the utility to complete the USDA and SRF loan and grant funded improvements needed, along with other needed capital improvements later in the test period, as developed within the utility’s latest Master Plan.

There was a four-year and a three-year implementation approach developed. The four-year implementation period provides a more gradual transition to fully funding the utility’s essential operating and capital needs. However, the three-year implementation option has slightly higher rate adjustments over a three year period, results in lower monthly rates overall, due to less use of reserves, so there is less need to replenish the reserves in the latter part of the test period. The three year implementation approach has a two dollar differential per month from the four-year implementation approach, for the Option 2 rates by FY 2016. No rate adjustments are assumed for FY 2017 for either option. The figure below presents all four scenarios, with the three and four year implementation options for Scenario 3, Option 1 rates.


Because the four-year implementation approach mitigates rate impacts, the City Council determined that would be more acceptable to customers.

For the water utility, either the three-year implementation option for Scenario 3 or Scenario 4 is needed to meet the SRF funding agency requirement of rates at 1.5% of median household income. Rate affordability tests were developed and provided to the City. They are provided in Appendix C at the end of this report.


The proposed rate designs were based on the results of the revenue requirement analysis. The water rates were designed to collect the targeted revenue as shown in the revenue requirement analysis. Rates were developed using “generally accepted” rate making methods and principles.

While designing rates, it was important to incorporate resource conservation goals that the City had in mind. Therefore, two rate designs were developed. The first rate option simply takes the existing rates and applies the necessary adjustments across the board to all customer classes and rate components.

Two rate designs were developed for the water utility.

Option 1 applies the necessary adjustments to all rate components and all customer classes.

Option 2 adjusts the water allotment available within Tier 1 for each customer class. It also develops a third consumption Tier for the residential customer class to encourage efficient usage.

The existing and projected residential rate schedules are presented in Table ES-2. Rate schedules for other customer classes are presented in Section 2 of this report.

Recommended Water Rates Option 2 rates for residential, and the Option 1 rates for other customer classes best meet the City’s goals and objectives for the study. Option 2 residential rates appear to strengthen the conservation signal of the residential customers by providing a third consumption tier and rate, while providing lower cost Tier 1 rates such that low water users have the possibility of better managing their water bills. Allotments within each tier in each customer class were adjusted to


reflect average usage within those tiers for each customer class. Within both rate options, each customer class generates the appropriate level of revenue expected from that class of service, based on the revenue currently generated by each class of service.

As noted previously, two rate transition plans were developed, a three-year and a four-year plan. At the July 17th public hearing the City Council selected the four-year implementation plan. Those rates are presented below.

Rates for Non-residential customers are provided in Section 2 of this report. Provided the growth, inflation and usage assumptions used to develop the revenue requirements remain the same, the rates presented above should generate the level of revenue required to meet the on-going operational and capital needs of the water utility through FY 2017.

Sewer Utility Specific Findings The sewer utility rate study process was very similar to the water utility rate process. Revenue Requirement Analysis The findings of the sewer revenue requirement analysis are provided below.

Table ES-2 Present and Projected Residential Water Rates – Options 1 and 2 for Scenario 3

4-year Implementation Approach


Using two different sets of data provided by the City, the revenues at present rates developed. Because year-to-date revenue is tracking close to the FY 2012 budgeted revenue, and this is close to the FY 2011 actual revenue, HDR used the FY 2012 budgeted revenue as a base for projections, and allocated it to each customer class based on the portion of revenue calculated for each customer class within the revenues at present rates.

Similar to the water utility, between FY 2012 and FY 2015 operating reserves are used to help cover operating and capital funding deficiencies. By FY 2017 all reserves achieve the minimum levels, as described earlier.

Scenarios 1 funds only operations, existing debt and the reserves described above.

Scenario 2, 3, and 4 fund the USDA funded projects, plus additional projects that are projected within the utility’s last Master Plan. These Scenarios differ by the level of depreciation expense they are able to fund, with Scenario 4 funding the largest amount, but still not total depreciation expense. FY 2011 depreciation was $627,000 and Scenario 4 gradually achieves approximately 50% of depreciation expense funding, or a maximum of $350,000 by FY 2017.

Funding depreciation expense from rates also helps the utility to meet the debt service coverage ratio requirements.

An additional $1.5 million of debt (assumed low-interest loans) is needed in order to complete the Master Plan capital projects.

Similar to the water utility, if the City were successful in receiving a $1 million dollar grant this could reduce the average residential household sewer rate by approximately $1.15. Each $100,000 of grant funding equates to approximately a $0.10/month savings for residential customers. Future year rates (FY 2015 and beyond) can be adjusted in the rate model and reduced for any grant funding that the City may receive.

The City’s goal in designing rates is to have the same service charge throughout the City for each customer class. HDR developed a rate design (Option 2) that phases-in this goal over a three-year period.

Initially, the revenue requirements for Scenario 3 were developed for consideration for the sewer utility. However, given the rate adjustments needed for the water utility, the regulatory requirements for both utilities, and in attempting to minimize rate impacts to customers as much as possible, the City requested that Scenario 2 be developed. Therefore, a summary of the sewer revenue requirement analysis for Scenario 2 is provided below in Table ES-3.


Budget

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Revenues

Rate Revenues $1,505 $1,505 $1,505 $1,508 $1,512 $1,516

Miscellaneous Revenues 194 194 194 194 195 196--------- --------- --------- --------- --------- ---------

Total Revenues $1,699 $1,698 $1,698 $1,703 $1,708 $1,712

ExpensesOperations & Maintenance $1,473 $1,526 $1,582 $1,640 $1,701 $1,763

Transfers 135 137 140 142 145 147

Capital Funded Through Rates 40 60 80 95 110 125

Debt Service 187 190 189 315 348 387

Change in Working Capital +/- (194) 25 111 179 246 204--------- --------- --------- --------- --------- ---------

Total Expenses $1,641 $1,939 $2,102 $2,371 $2,550 $2,627

Total Revenue Requirement $1,641 $1,939 $2,102 $2,371 $2,550 $2,627

Balance/(Deficiency) of Funds $58 ($241) ($403) ($669) ($842) ($915)

Plus: Bad Debt (4.0% of Rate Rev.) $58 $60 $60 $60 $60 $60

Balance/(Def iciency) with Bad Debt $0 ($301) ($463) ($729) ($903) ($976)

Projected

Table ES-3 Summary of the Sewer Revenue Requirements Analysis (000’s), Scenario 2

Again, the deficiencies are cumulative. Any rate adjustments made in the earlier years reduce the overall deficiency. Over the six-year period, rates need to be adjusted upwards in order to adequately and properly fund the sewer utility operations and capital improvements. The cumulative deficiency is just under $1 million with the bad debt (unpaid bills) included. This Scenario 2 proposes the use of operating reserves to help cover deficiencies through FY 2015. Then the operating reserves are replenished by FY 2017. Through the entire test period, the other reserves are gradually funded.

The primary difference between Scenario 2 and Scenario 3 for the sewer utility was an additional $300,000 of rate funding of capital improvements in Scenario 3, where in Scenario 2 these improvements are debt financed through assumed low-interest loans. Because debt is spread over a longer period of time, and potentially additional customers in the future, the rate impacts are less for Scenario 2 than for Scenario 3. The utility is still able to meet debt service coverage ratios on a stand-alone basis. Therefore, the City staff and management felt Scenario 2 would be more reasonable for City Council consideration.

The results in Table ES-3 reflect Scenario 2, funding a portion of annual depreciation expense. This scenario also allows the utility to complete the USDA loan funded improvements needed, along with other needed capital improvements later in the test period, as developed within the utility’s latest Master Plan.


Rate design, was therefore, based upon the results of the revenue requirement analysis. Cost-


based rates were designed to collect the targeted revenue as shown in the revenue requirement analysis. Rates were developed using “generally accepted” rate making methods and principles.

The City’s primary rate design goal was to bring customer throughout the City into the same rate schedule. This can ease customer understanding and rate administration. Therefore, two rate designs were developed. The first rate option simply takes the existing rates and applies the necessary adjustments across the board to all customer classes and rate components.

Two rate designs were developed for the utility.

Option 1 applies the necessary adjustments to all rate components and all customer classes

Option 2 over a four year period rates move closer together for the north and south customers. By FY 2015 all customers within each customer class are paying the same rate as customers throughout the City’s service area.

The existing and Option 1 rate schedules are presented below. Both options apply the necessary adjustments to existing rates to generate adequate revenue from each customer class each year to fully fund sewer utility operations and capital needs.

Table ES-4 Sewer Utility Present and Projected Option 1 Rates (Existing Rate Design)

Four-year Implementation

The rates in Table ES-5 below present Option 2 rates, showing the four-year transition of rates for the north and south areas gradually merging into the same rate City-wide, by customer class, by FY 2015. At the July 17, 2012 public hearing, City Council proposed the Option 2 rates with the four-year implementation approach for the Proposition 218 notice, as shown in Table ES-5. The final public hearing is scheduled for September 18, 2012.


Table ES-5 Sewer Utility Present and Projected Rates – Option 2 Recommended Rates;


The rates presented above in Table ES-5 should provide the sewer utility with adequate revenue to properly fund operations and capital needs through FY 2017, provided the underlying assumptions contained within the revenue requirement and rate design (growth, inflation, number of customers, etc.) remain the same.

Rate Comparison A rate comparison was requested by the City. It is important to remember, when viewing bill comparisons with other utilities that rate comparisons are often like comparing apples and oranges. Each utility has different operating characteristics, procedures, customer mix, regulatory requirements, governing board decision making policies and practices, and so on. There is also no information collected about when these utilities last updated their rates. However, sometimes a view of rate comparisons can provide perspective of one utility’s rates compared to others. The distinguishing operating and infrastructure condition factors must be considered as well. Provided below are comparisons of the City’s current and proposed FY 2013 rates with FY 2012 rates of several surrounding utilities.


The rate comparison for sewer utilities is provided below, using Option 2 rates.

Summary These rate studies were developed using “generally accepted” accounting and rate-setting principles and guidelines. The results of the rate studies for both utilities indicate that each utility is significantly deficient for the projected time period reviewed, through FY 2017. Rates are based on revenue requirement results. A cost of service analysis should be repeated in three to five years to determine if any interclass differences exist.

All rate implementation scenarios, except Scenario 1, transition the utilities into a more sustainable operating environment of prudent management, where current rate revenue can


support current operations as well as certain levels of needed capital improvements. That level of support varies by Scenario. Scenarios 3 and 4 help the utilities move to a position where the utilities’ infrastructure can be maintained and managed in a prudent and proper way to allow the utilities to continue to provide the services into the future, by maintaining the infrastructure and facilities that provide these services in an on-going process.

The implementation of the Scenario 3, Option 2 proposed rate adjustments for the water utility and Scenario 2, Option 2 rates for the sewer utility should generate the additional revenue needed to meet each utility’s operating and capital needs, along with the financial test requirements of the capital project funding agencies. The proposed rate adjustments also bring equity to all customers in the sewer utility, and provide a stronger conservation signal for the water utility rates, along with the flexibility to manage ones utility bill.

Water and Sewer Rate Study – Overview of the Rate Study Process 13 City of Lakeport

1.1 Introduction HDR Engineering, Inc. (HDR) was retained by the City of Lakeport (City) to perform comprehensive utility rate studies for the City’s water and sewer utilities. A rate study determines the adequacy of the existing rates and provide the basis for adjustments for cost-based rates. This section of the report describes the methodology applied to complete these utility rate studies for the City.

1.2 Background and Context It is important to describe the services the utilities provide in order to put the context of the rate study results into perspective. High-quality drinking water and sewer systems are essential to public health, business, and quality of life. When one considers everything that tap water delivers – safe drinking water, fire protection, support for the economy, the quality of life we enjoy, it is easier to compare water and sewer utility costs with monthly cable bills and cell phone bills to get a perspective on what it costs to have these utility services we often take for granted. The American Water Works Association (AWWA), the water utility industry association, and other utility associations have documented the quantity of our water and sewer infrastructure that is aging and has determined that many communities must significantly increase their levels of investment in repair and rehabilitation of system components to protect public health and safety and to maintain environmental standards. In February, 2012, the AWWA released the most comprehensive-ever study on the need for re-investment in the nation's drinking water infrastructure, to address aging pipes and population shifts. Titled "Buried No Longer," the report evaluates drinking water infrastructure investment needs nationwide and covers the coming 25 to 40 year periods. Key findings include:

The needs are large. The cost of replacing pipes at the end of their useful lives and addressing growth will total more than $1 trillion nationwide between 2011 and 2035 and exceed $1.7 trillion by 2050.

Household water bills will go up. Although water bills will vary by community size and geographic region, for some communities the infrastructure costs alone could triple the size of a typical family's bill.

There are import differences based on system size. As with many other costs, small communities with fewer people to share in the costs face the biggest challenge.

The costs keep coming. Infrastructure renewal investments are likely to be incurred each year over several decades. For that reason, many utilities may choose to finance infrastructure replacement on a "pay-as-you-go" basis rather than through debt financing.

Postponing investment only makes the problem worse. Postponing infrastructure investment in the near-term would raise the overall cost and increase the likelihood of water main breaks and other infrastructure failures.

Water and sewer infrastructure is aging and costing more and more each year to maintain, as well as to replace. Where does a utility begin the process of rehabilitation and replacement of

Section 1 Overview of the Rate Setting Process


an infrastructure system? One approach is to initiate and manage a modern, methodical, and sustainable asset renewal process for the City’s utilities. The findings of the rate study move the utilities in this direction, while balancing these needs with the rate impacts necessary to provide for proper management of the utilities. These key findings of the AWWA study have also been determining factors in focusing the efforts in the utility rate study over the past year. The results of the analyses show that both the water and sewer utilities need rate adjustments, primarily to fully fund operations, infrastructure renewal and replacement, and to meet fire flow protection requirements. Lakeport is not alone in this reality. There are numerous utilities in California, and across the country, that need to adjust utility rates in order to properly fund and manage their systems in a prudent and responsible manner. A May 2011 Circle of Blue article noted that 30 major metropolitan areas within the U.S. had water rates that increased an average of 9% in 2010.

1.3 Overview of the Rate Study Process A comprehensive study generally consists of three interrelated analyses performed for each utility. Figure 1-1 provides an overview of these analyses.

Figure 1–1 Overview of the Comprehensive Rate Analyses

Each of these technical analyses was conducted for the City’s utilities. Each utility was reviewed on a “stand-alone” basis. At the same time HDR utilized “generally accepted” rate setting techniques and utility industry best practices in the development of each of the City’s utility rate studies.

1.4 Generally Accepted Rate Setting Principles As a practical matter, utilities should consider setting their rates around some generally accepted or global principles and guidelines. Utility rates should be:

Cost-based, equitable, and set at a level that meets the utility’s full revenue requirement Easy to understand and administer Designed to conform with generally accepted rate setting techniques

Revenue Requirement Analysis

Cost of Service Analysis


Compares the sources of funds (revenues) to the expenses of the utility to determine

the overall rate adjustment required

Allocates the revenue requirements to the various customer classes of service

in a “fair and equitable" manner

Considers both the level and structure of the rate design to collect the target

level of revenues


“Adoption of financial policies provides a

strong foundation for the long-term

financial sustainability of the

utilities . . .”

Stable in their ability to provide adequate revenues for meeting the utility’s financial, operating, and regulatory requirements

Established at a level that is stable from year-to-year from a customer’s perspective

These principles and guidelines were applied, to the degree possible, in the development of the rate analyses developed for the City.

1.5 Prudent Financial Planning The establishment of financial planning and rate setting policies are intended to provide guidance in the financial planning and rate-setting process, and in the day-to-day financial management of the City’s utilities.

Adoption of financial policies provides a strong foundation for the long-term financial sustainability of the utilities and provides the outside financial community with a better understanding of the City’s commitment to managing the utilities in a financially prudent manner. HDR also recommended some financial practices as part of developing the revenue requirement for each utility. These recommended financial policies and practices are summarized below.

ESTABLISHING MINIMUM OPERATING RESERVE BALANCE – The City strives to maintain a cash balance for each utility sufficient to meet the day-to-day cash flow requirements and operating expenses of that utility. A minimum balance equal to 15% of annual O&M expenses is the City’s targeted fund balance for each utility, or the equivalent of approximately 55 days of O&M. This provides adequate revenue to maintain adequate levels of service even when cash flows run short or don’t exactly track times of increased expenses.

ESTABLISHING MINIMUM CAPITAL RESERVE FUNDS – Capital reserves are established to fulfill the cash flow requirements of capital infrastructure construction costs, which vary significantly annually, depending on each year’s projects and the funding sources available. Within the utility industry, capital reserves are generally established based on an average of projected annual capital expenditures, excluding unusually large “one-time” capital needs. For each utility, the City should attempt to maintain a capital reserve approximately equal to one-year of renewal/replacement type projects, or a minimum of 5% of capital assets. This allows the utility to plan for renewal and replacement of the infrastructure. This reserve is also required in order to qualify for outside capital funding.

RATE STABILIZATION AND DEBT SERVICE RESERVE – This is another reserve to meet certain requirements of outside funding agencies. It is must meet a minimum of debt reserve requirements. Additionally, some revenue should be reserved to provide rate stabilization for future years.

DEBT SERVICE COVERAGE TARGET RATIO – The annual debt service coverage ratio (DSC) associated with each utility should be greater than or equal to a minimum 1.25 on all outstanding debt that carries a legal bond covenant. Targeting a higher DSC provides the City with greater flexibility in meeting this rate covenant (legal requirement) should revenues fluctuate from year to year.

RATE FUNDING FOR RENEWAL AND REPLACEMENT CAPITAL PROJECTS – The funding of on-going renewal and replacement capital projects should primarily be funded from rates. The use of long-term debt issues to fund renewal and replacement projects should be minimized


“Public utilities are . . . theoretically

operated at zero profit. As a point of reference, the City’s utilities are public

utilities.

whenever possible. In order to adequately support this funding method, each utility should budget and fund, at a minimum, an amount equal to or greater than annual depreciation expense. It should be noted that depreciation expense is not the same as replacement cost, but by providing funding at an amount at least equal to annual depreciation expense should provide a steady funding source to help fund replacement capital infrastructure. HDR reviewed the funding of capital from rates for each utility and developed a gradual implementation plan of this prudent financial practice for each utility. This will help each utility to have a consistent funding source and a more sustainable funding approach.

This concludes this brief summary of financial planning and rate setting policies related to reserves, funding of replacement capital projects, and debt service coverage ratios.

1.6 Determining the Revenue Requirement In developing the revenue requirements for each utility, each utility is analyzed on a “stand alone” basis. That is, no other utility or fund can subsidize utility services. The following paragraphs describe the general methodology and approach that HDR used to develop the City’s rate studies.

1.6.1 Establishing a Projected Time Frame Reviewing a multi-year time period is recommended to identify any major expenses that may be on the horizon. The time frame for developing each revenue requirement analysis for this study, was a six-year projected time period, FY 2011/12 to 2016/17.

1.6.2 Establishing a Methodology and Approach The second step in determining the revenue requirement for the City was to decide on the basis of accumulating costs. For the City’s revenue requirements, a cash basis approach was utilized. For municipal utilities, the “cash basis” approach is the most frequently used methodology. The actual revenue requirement developed for the City was customized to follow each utility’s system of accounts (budget documents). Table 1-1 provides a summary of the cash basis approach used to develop the each of the utility’s revenue requirements.

Table 1–1 Overview of the Utility Cash Basis Revenue Requirements for Lakeport

+ Operations and Maintenance

+ Transfers + Capital Projects Funded from Rates + Debt Service (P + I); Existing and Future = Total Revenue Requirement − Miscellaneous Revenues . = Net Revenue Requirement From Rates

In addition, some utilities may include a component for a “change in working capital” which is a use of, or additional funding for, operating or capital reserves. This component is either used to help mitigate the need for a rate adjustment, or to replenish operating and capital reserves. The “Change in Working Capital” line item was included in the development of the City’s revenue


requirement for each utility.

1.7 Cost of Service Analysis After the total revenue requirement is determined, it is allocated to the users of the service. The equitable allocation of a utility’s costs is usually accomplished via a cost of service analysis. A cost of service analysis allocates costs in a manner that fairly reflects the cost relationships for producing and delivering services.

A cost of service study requires three steps:

1. Costs are functionalized or grouped into the various cost categories related to providing service (for example, a water utility is often functionalized to source of supply, treatment, pumping, transmission, distribution, etc.). This step is largely accomplished by the utility’s accounting system.

2. The functionalized costs are then classified to specific cost components. Classification refers to the arrangement of the functionalized data into cost components. For example, a water utility’s costs are typically classified between average day needs, peak day needs, fire protection, and/or customer-related needs. Sewer utility costs are typically classified between volume of flow, strength of the wastewater, and customer related costs, etc. Solid waste or sanitation and landfill costs are allocated based on number of customers, trips, tonnage of waste, etc.

3. Once the costs are classified into components, they are allocated to the customer classes of service (residential, commercial, etc.). The allocation is based on each customer class’ relative contribution to the cost component. For example, customer-related costs are allocated to each class of service based on the total number of customers in that class of service. Once costs are allocated, the required revenues for achieving cost-based rates can be determined. Average unit costs (cost-based rates) are also determined within the cost of service and can be used as a starting point for establishing final proposed rate designs.

1.8 Designing Rates The final step of the comprehensive rate study process is the development of rates to collect the desired levels of revenues, based on the results of the revenue requirement and cost of service analysis. In reviewing rate designs, consideration is given to the level of the rates and the structure of the rates.

1.8.1 Rate Design Criteria and Considerations Prudent rate administration dictates that several criteria must be considered when setting utility rates. Some of these rate design criteria are listed below:

Rates which are easy to understand from the customer’s perspective Rates which are easy for the utility to administer Consideration of the customer’s ability to pay Continuity, over time, of the rate making philosophy Policy considerations (encourage conservation, economic development, etc.) Yield the total revenue requirements Provide long-term revenue stability Promote efficient allocation of the resource


Equitable and non-discriminatory (cost-based)

It is impossible to achieve all of these rate design goals and objectives in a single rate. Given that, these rate design goals and objectives need to be prioritized in order to be able to achieve the utility’s overall rate design goals and objectives. For the most part, a major focus should be on establishing rates which are cost-based, equitable and generate sufficient revenues from year-to-year.

1.9 Summary This section of the report has provided a brief introduction to the general principles, techniques, and economic theory used to set water and sewer rates. These principles and methodologies are the basis for the City’s analyses discussed herein. The next section of the report discusses the City’s water utility rate study.

Water and Sewer Rate Study – Water Utility Rate Study 19 City of Lakeport

2.1 Introduction A water utility rate study determines the adequacy of the existing water rates and provides the basis for adjustments to cost-based rates. This section describes the methodology, findings, and conclusions of the rate study process conducted for the City’s water utility.

2.2 Determining the Water Utility Revenue Requirements The revenue requirement analysis is the first analytical step in the comprehensive rate study process. This analysis determines the overall adequacy of the City’s water rates. From this analysis, a determination can be made as to the overall level of water rate adjustment needed to provide adequate and prudent funding for both operating and capital needs. Typically, the main objectives of a water rate study are to develop cost-based rates while attempting to minimize the impacts to the utility’s customers.

Provided below is a detailed discussion of the development of the revenue requirement analysis for the City’s water utility.

2.2.1 Projecting Water Rate and Other Miscellaneous Revenues The first step in developing the revenue requirement was to develop a projection of water rate revenues, at present rate levels. In general, this process involves developing the projected consumption or billing units for each customer class or group. At the present time, single family residential customers account for approximately 58% of the total revenue. When including

apartments, duplex, triplex and mobile home, the total residential accounts for 69% of total utility rate revenue. Commercial accounts for 24% and irrigation another 5%. There is an outside City rate differential for customers outside city limits of 60% above the base meter charge for in-city customers. The overall revenue derived from outside City customers is minimal and accounts for approximately 1% of total utility revenue.

In total, at FY 2012 rates, the utility is projected to receive approximately $1.17 million in rate revenue. Over the planning horizon of this study, customer growth was conservatively projected to be relatively flat, at 0% through 2014 and 0.5% thereafter. This results in a projection of total rate revenues of slightly more than $1.18 million in FY 2017.

In addition to rate revenues, the utility also receives a variety of miscellaneous revenues. These include miscellaneous fee revenue, investment interest, and connection fee revenue.. The utility is projected to receive approximately $106,000 in miscellaneous revenues in FY 2012. An assumed decrease in permit revenue reduces the projection of overall miscellaneous revenues to $96,000 by FY 2017.

On a combined basis, taking into account the water rate revenues along with miscellaneous

Section 2 Development of the Water Utility Rate Study


“A general financial guideline states that, at a minimum, a utility should

fund an amount of capital replacement projects equal to or greater than annual depreciation through

rates.”

revenues, the utility’s total projected revenues, at present rate levels, are projected to be approximately $1.28 million by FY 2017.

2.2.2 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the water utility to operate and maintain the existing plant in service. The costs incurred in this area are expensed during the current year and are not capitalized or depreciated. HDR utilized the City’s FY 2012 O&M expenses as a starting point and then escalated the expenses based on an appropriate cost escalation factors. Escalation factors range from 3% to 5%. Labor expenses and most miscellaneous materials and supplies are escalated at 3% per year. Staff benefits (medical) are escalated at 5%, along with chemicals, energy and transfers. Bad debt is assumed to be 4% per year.

Total operation and maintenance expenses for the utility are projected to be approximately $1.14 million in FY 2012. O&M expenses are projected to increase to approximately $1.36 million by FY 2017, as a result of assumed inflation over that time period. No other extraordinary O&M expense increases or decreases were assumed during the planning period.

2.2.3 Transfers Each utility pays a transfer to the General Fund in recognition of services provided to the utilities from staff and personnel budgeted in the General Fund. These services include services from the Finance Department, Human Resources, Planning, etc. These expenses begin at $42,000 in FY 2012 and increase to $53,600 by FY 2017, due to inflationary assumptions.

2.2.4 Projecting Capital Improvement Projects Funded From Rate Revenue Utilities incur a variety of needs for capital improvements. There are three major types of improvements: regulatory driven, growth related, and renewal and replacement capital projects. The utility’s capital improvements during the review period include a variety of needs but are primarily regulatory and replacement in nature. Capital improvements total $8.3 million through FY 17. The Capital improvements for the water utility are listed in detail in Exhibit 4 in Appendix A.

There are a number of different methods which may be used to fund the water utility’s capital improvement plan. The City has applied for a U.S.D.A. Rural Development grant and loan funding for $4.6 million in land purchase and lease and SCADA improvements for water system treatment. There are an additional $2.2 million in wellhead, new wells, pumping station and security improvements that the City applied to the State Revolving Fund (SRF) grant and loan program to fund. The financial plan (revenue requirement) assumes the funding will come in the form of a low-interest loan, or assumes the worst case scenario. This was done to be sure that adequate funding for the projects will be in place. If the City is successful in receiving a grant of up to $1 million, that can reduce future average residential household bills by approximately $0.95. Therefore, each $100,000 of grant funding equates to approximately a $0.10/month savings for residential customers. The City will have the rate models and can adjust future year rates for any grant funding that the City may receive.

The remainder of the projects, primarily main replacements and wet well improvements, are funded by capital reserves, rates and an additional $600,000 in low-interest loans. These funding sources are identified for each project in


Exhibit 4 of Appendix A.

A general financial guideline for funding renewal and replacement projects states that, at a minimum, a utility should fund from rates an amount equal to or greater than annual depreciation expense. Annual depreciation expense reflects the current investment in plant being depreciated or “losing” its useful life. Therefore, this portion of plant investment should be replaced, or put into reserves for future replacement to maintain the existing infrastructure. It must be kept in mind that, in theory, annual depreciation expense reflects an investment in infrastructure an average of 30 to 40 years ago, assuming a 60 to 80 year depreciable life. As a point of reference, the projected FY 2012 depreciation expense for the water utility is estimated to be greater than $250,000. It is assumed the utility’s depreciation expense is greater than $250,000 because water main depreciation is not included in the current records available. The estimate of greater than depreciation is based on experience with similar sized utilities.

At the present time, it appears that the City is funding approximately $9,000 of capital projects from rates. This is far below the suggested minimum funding level of annual depreciation expense. Therefore, the water revenue requirement Scenarios developed a gradual increase in this funding toward depreciation expense at varying levels for each Scenario, as described below.

Scenario 1 – Assumes no increase, only operations are funded.

Scenario 2 – Gradually implements approximately 1/ 3rd of the estimated depreciation expense over the five year time period.

Scenario 3 – Gradually implements approximately 2/ 3rds of the estimated depreciation expense over the five year time period.

Scenario 4 – Gradually implements approximately

The gradual adjustment of rate funded capital, or of funding depreciation expense is done to help moderate rate impacts. In reviewing the various Scenarios with City staff and management, Scenario 3 was determined to be the best option in moving the utility into a more financially stable position, while funding the necessary capital improvements. This Scenario will allow the utility to begin to prepare for infrastructure replacements of pipe lines in poor condition that are necessary to maintain the current level of service, while also complying with various regulatory requirements. This scenario allows the utility to complete the USDA and SRF loan and grant funded improvements needed, along with other needed capital improvements later in the test period, as developed within the utility’s 2006 Master Plan.

It should also be noted that simply funding an amount equal to annual depreciation expense will not be sufficient to fully fund the replacement of the existing or depreciated facilities. Replacement costs typically are a minimum of twice depreciation expense. Scenario 3 allows the City to gradually move into a position of funding at least depreciation expense. It is important that the City continue to monitor the funding of capital replacements and increase the rate funding level whenever possible.

2.2.5 Projecting Debt Service The water utility currently has two debt obligations, a revenue bond and a low-interest loan, with an annual payment of approximately $255,000. By FY 2017, given the assumptions above of additional low-interest loans, there will be an additional $336,000 in loan repayments on an annual basis. As noted earlier, any grant funding the water utility receives will help to reduce this principal and interest payment.


Revenue bonds contain rate covenants requiring rates to be set at an adequate level to assure meeting specified minimum debt service coverage (DSC) ratio. This is a financial measure of the utility’s ability to repay the debt. In general, the DSC is set at a level such that revenues less operating expenses should be at least 1.25 times greater than the maximum annual debt service on the outstanding debt. Given this minimum DSC, it is often prudent to plan or set rates at a level which exceeds this minimum. This guarantees meeting the minimum DSC, and at the same time, provides a slight cushion for unexpected changes. A higher DSC ratio can also strengthen the City’s potential to receive a higher bond rating with lower interest on bonds in the future. Bond rating agencies would review the City’s past financial strength and ability to repay the bonds. Within this study the minimum DSC ratio is 1.25 for all debt, including the low-interest loans because City staff has stated that this level of DSC requirement is required within the loan documents. Total debt payments by FY 2017 would be $590,000. The water utility is projected to require a rate adjustment in 2012 to meet the minimum 1.25 requirement, and additional rate adjustments through FY 2015 in order to maintain the DSC ratio of 1.25.

2.2.6 Summary of the Revenue Requirements Given the above projections of revenues and expenses, a summary of the revenue requirement for the City’s water utility can be developed. In developing the final water revenue requirement, consideration was given to the City’s financial forecast and reserve policies. In particular, emphasis was placed on attempting to minimize rates, while maintaining adequate funds to support the operational activities, capital requirements, and minimum reserve levels throughout the projected time period. Presented in Table 2-1 is a summary of the water revenue requirement for Scenario 3. Detailed analysis can be found in Exhibit 3 of Appendix A.


Table 2-1 Summary of the Water Revenue Requirements Analysis (000’s),

Scenario 3

Table 2-1 reflects water utility Scenario 3, funding two-thirds of annual depreciation expense, rather than one-third, or almost fully funding depreciation, which are reflected in Scenarios 2 and 4 respectively. It should be noted that the balance or deficiencies in any single year are cumulative; any adjustments in the initial years will reduce the deficiency in the following years. Over the six-year period, rates need to be adjusted upwards in order to adequately and properly fund the water utility operations and capital improvements. The cumulative deficiency is $1.1 million, or nearly 100% of current rate revenue. This Scenario proposes the use of reserves, shown as negative values in the change in working capital line item, to help cover deficiencies through 2015. Then the reserves are replenished by FY 2017.

As noted earlier, an indication of a utility’s financial standing is the debt service coverage ratio. Table 2-2 shows that on a stand-alone basis, the water utility needs the proposed rate adjustments in order to meet the minimum DSC requirements of a minimum of 1.25.

There was a four-year and a three-year implementation approach developed. The four-year implementation period provides a more gradual transition to fully funding the utility’s essential operating and capital needs. However, the three-year implementation option with slightly higher adjustments over a three year period, results in lower monthly rates overall, due to less use of reserves, so there is less need to replenish reserves in the latter part of the test period. The three year implementation approach has a two dollar differential per month from the four-year implementation approach, for the Option 2 rates by FY 2016. No rate adjustments are assumed

Bu dget

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Reven u es

Rate Revenues $1,174 $1,174 $1,174 $1,177 $1,180 $1,183


Total Reven u es $1,281 $1,265 $1,266 $1,270 $1,274 $1,279

Expen ses

Operations & Maintenance $1,145 $1,186 $1,229 $1,274 $1,321 $1,369

Transfers 42 44 46 49 51 54


Debt Service 254 254 254 564 570 591

Change in Working Capital +/- (215) (41) 29 (52) 157 194--------- --------- --------- --------- --------- ---------

Total Expen ses $1,235 $1,489 $1,634 $1,940 $2,233 $2,372

Total Reven u e Requ iremen t $1,235 $1,489 $1,634 $1,940 $2,233 $2,372

Balance/(Deficiency) of Funds $45 ($224) ($368) ($670) ($960) ($1,094)

Plu s : Bad Debt ( 4.0% of Rate Rev.) $46 $47 $47 $47 $47 $47

Balan ce/( Def ic ien cy) wi th Bad Debt ( $1) ( $271) ($415) ( $717) ($1,007) ( $1,141)

Debt Service Coverage Ratio

Before Rate Adjustment 0.53 0.31 0.14 0.00 0.00 0.00After Proposed Rate Adjustment 0.53 1.37 1.77 1.26 1.68 1.78

Projec ted


for FY 2017 for either option. The figure below presents all four scenarios, with the three and four year implementation options for Scenario 3, Option 1 rates. Because the four-year implementation approach mitigates rate impacts, the City Council determined that would be more acceptable to customers.

For the water utility, either the three-year implementation option for Scenario 3 or Scenario 4 is needed to meet the SRF funding agency requirement of rates at 1.5% of median household income. Rate affordability tests were developed and provided to the City.

2.2.7 Review of the Reserve Levels Reserves are an important part of a utility’s financial picture. There can be many different purposes for reserves, as described in Section 1 of this report. The water utility had an estimated balance of $615,000 at the beginning of FY 2012. For the water utility, the operating reserve runs below the minimum target through FY 2016, but reaches the target by the end of the review period in FY 2017. During the planning period the Rate Stabilization/Debt Service Reserve is maintained at the minimum level required for the bond reserve and to meet USDA and SRF requirements. Additionally, the R&R/CIP reserve is gradually increased to meet the funding agency requirements, meeting those requirements by FY 2017.

2.2.8 Consultant Observations of the Revenue Requirement Scenario 3 will put the utility on the path toward sustaining the existing level of service by gradually funding more infrastructure replacement projects from rates. It will be important for the City to continue to monitor rate funding of capital replacement projects. As the utility’s infrastructure continues to age, replacement costs will only continue to rise. Debt financing of facility replacements will not be possible on an on-going basis. It is important to move toward partial rate funding of replacement projects in order to maintain financial stability for the utility in the long-term. Scenario 3 is a reasonable approach toward gradual implementation of such a plan, while balancing rate impacts to customers at the same time.


“Following the generally-accepted guidelines and

principles of a cost of service analysis will

inherently lead to rates which are equitable, cost-

based, and not viewed as arbitrary or

capricious in nature.”

Terminology of a Water Cost of Service

Analysis

Functionalization – The arrangement of the cost data by functional category (e.g. source of supply, treatment, etc.).

Classification – The assignment of functionalized costs to cost components (e.g. commodity, capacity, customer and fire protection related).

Allocation – Allocating the classified costs to each class of service based upon each class’s proportional contribution to that specific cost component.

Commodity Costs – Costs that are classified as commodity related vary with the total flow of water (e.g. chemical use at a treatment plant).

Capacity Costs – Costs classified as capacity related vary with peak day or peak hour usage. Facilities are often designed and sized around meeting peak demands.

Fire Protection Costs – Costs that are related to fire protection services (e.g. hydrants).

Customer Costs – Costs classified as customer related vary with the number of customers on the system, e.g. metering costs.

Direct Assignment – Costs that can be clearly identified as belonging to a specific customer group or group of customers.

2.3 Water Cost of Service Analysis While the revenue requirement analysis focused on the total level of funding needed to fully fund the utility’s needs, a cost of service analysis is concerned with the equitable allocation of the total revenue requirement between the various customer classes of service (e.g., residential, commercial, etc.). The previously developed revenue requirement was utilized in the development of the cost of service analysis.

In recent years, increasing emphasis has been placed on cost of service studies by government agencies, customers, utility regulatory commissions, and other interested parties. This interest has been generated in part by continued inflationary trends, increased

operating and capital expenditures, and concerns of equity in rates among customers. Following the generally-accepted guidelines and principles of a cost of service analysis will inherently lead to rates which are equitable, cost-based, and not viewed as arbitrary or capricious in nature.

2.3.1 Objectives of a Cost of Service Study

There are two primary objectives in conducting a cost of service study: Allocate the revenue requirement among the customer

classes of service Derive average unit costs for subsequent rate designs

The second rationale for conducting a cost of service analysis is to ensure that the rate is designed such that it properly reflects the costs incurred by the City. For example, a water utility incurs costs related to flow, both average day and peak day, fire protection, and customer cost components. A water utility must build sufficient capacity to meet summer peak capacity needs. Therefore, those customers creating this summer peak requirement should pay their fair share of the cost to meet this peak demand. Each of these types of costs may be collected in a slightly different manner as to allow for the development of rates that collect costs in the same manner as they are incurred.

2.3.2 General Cost of Service Procedures In order to determine the cost to serve each customer class of service on the City’s system, a


cost of service analysis is conducted. A cost of service study utilizes a three-step approach to review costs. These were previously discussed in our generic discussion in Section 1, and take the form of functionalization, classification, and allocation. Provided below is a detailed discussion of the water cost of service study conducted for the City, and the specific steps taken within the analysis.

2.3.2.1 Functionalization of Costs The first analytical step in the cost of service process is called functionalization. Functionalization is the arrangement of expenses and asset (plant) data by major operating functions within each utility. For example, treatment, pumping, distribution, etc. Within this study, the functionalization of the cost data was largely accomplished through the City’s system of accounts.

2.3.2.2 Classification of Costs The second analytical task performed in a water cost of service study is the classification of the costs. Classification determines why the expenses were incurred or what type of need is being met. The City’s plant accounts and revenue requirement were reviewed and classified using the following cost classifiers:

Commodity Related Costs Capacity Related Costs Customer Related Costs Public Fire Protection Related Costs Revenue Related Costs Direct Assignments

2.3.3 Key Cost of Service Assumptions A number of key assumptions were used within the City’s cost of service study. Below is a brief discussion of the major assumptions used.

The test period used for the cost of service analysis was FY 2013, for rate setting purposes.

A “cash basis” approach was utilized which conforms to generally accepted water cost of service approaches and methodologies.

The classification of plant in service was developed based upon generally accepted cost allocation techniques. Furthermore, they were developed using the City specific data, when available. When the City specific data was not available, HDR estimated the classification based upon its experience with previous water cost of service studies of a similar nature.

2.3.4 Summary of Cost of Service Results In summary form, the City’s water cost of service analysis began by functionalizing the City’s plant asset records and then the operating expenses. The functionalized plant and expense accounts were then classified into their various cost components. The individual classification totals were then allocated to the customer classes based upon the appropriate allocation factors. The allocated expenses for each class were then aggregated to determine each customer class’s overall revenue responsibility. For the purposes of cost of service, all residential customer classifications were combined. A summary of the detailed cost responsibility developed by customer class is shown below.


When cost of service results by customer class are within 5%+ of the overall utility’s need for a rate adjustments, the results are considered to be within cost of service. Based on the findings of the cost-of-service analyses conducted, all customer classes were within 5% of the overall results, with the exception of the motel/B&B customer class and irrigation customer class. With irrigation paying the same rates as other water customers, this would be expected. It is generally understood that irrigation customers contribute to peak demands on the system. Therefore, they are allocated costs based on usage and peaking factors.

At the current time, given the level of rate adjustments required, the City’s primary goal is to generate adequate revenue to fully fund operating and capital costs for the water utility. Given the necessary revenue adjustments, it is recommended that no cost of service adjustments be implemented at this time. When cost of service interclass adjustments are implemented, rate impacts can be much greater than the overall average adjustment for some customers. Additionally, this is the first comprehensive rate study HDR has completed for the City, and the first rate study for the City in a number of years. It will be important to repeat a cost of service analysis in three to five years to determine if results are consistent with these cost of service results. At that time, the City can determine if the results dictate that interclass differences do exist and whether to make interclass adjustments. Therefore rates were based on the results of the revenue requirement analysis.

2.4 Rate Design Analysis The proposed rate designs were based on the results of the revenue requirement analysis. The water rates were designed to collect the targeted revenue as shown in the revenue requirement analysis. Rates were developed using “generally accepted” rate making methods and principles. While designing rates, it was important to incorporate resource conservation goals that the City had in mind. Therefore, two rate designs were developed. The first rate option simply takes the existing rates and applies the necessary adjustments across the board to all customer classes and rate components. Option 2 adjusts the water allotment available within Tier 1 for each customer class. It also develops a third consumption Tier for the residential customer class to encourage efficient usage. The existing and projected rate schedules are presented in the following tables.


Meter charges are the same for both options, but for Option 2 residential, there are three consumption tiers.

Table 2-2 Present and Projected Residential Water Rates – Options 1 and 2 for Scenario 3

4-year Implementation Approach


2.4.1 Recommended Water Rates

Option 2 rates for residential, and the Option 1 rates for other customer classes best meet the City’s goals and objectives for the study. Option 2 residential rates appear to strengthen the conservation signal of the residential customers by providing a third consumption tier and rate, while providing lower cost Tier 1 rates such that low water users have the possibility of better managing their water bills. Allotments within each tier in each customer class were adjusted to reflect average usage within those tiers for each customer class. Within both rate options, each customer class generates the appropriate level of revenue expected from that class of service, based on the revenue currently generated by each class of service.

As noted previously, two rate transition plans were developed, a three-year and a four-year plan. The three year meets the SRF financial affordability test sooner, and results in lower rates in the long-run. However, the City requested that a four-year implementation plan be developed. The City Council has elected to move forward with staff’s recommendation for Option 2 rates for the

Table 2-3 Present and Projected Multi-unit and Commercial Water Rates

Scenario 3, 4-year Implementation


residential customer class. The rates for other customer classes: duplex, mobile home, apartments, motel, bed and breakfast and commercial are shown in the Table 2-3. For these customers, the existing rate structure is maintained, but the allotments for each tier are adjusted to reflect current average water usage by meter size. City Council also approved this Option 1 rate proposal for the other customer classes.

Provided the growth, inflation and usage assumptions used to develop the revenue requirements remain the same, the rates presented above should generate the level of revenue required to meet the on-going operational and capital needs of the water utility through FY 2017.

2.4.2 Rate Comparison A rate comparison was requested by the City. It is important to remember, when viewing bill comparisons with other utilities that rate comparisons are often like comparing apples and oranges. Each utility has different operating characteristics, procedures, customer mix, regulatory requirements, governing board decision making policies and practices, and so on. There is also no information collected about when these utilities last updated their rates or whether they may be under moratoriums or have regulatory compliance orders.

However, sometimes a view of rate comparisons can provide perspective of one utility’s rates compared to others. The distinguishing operating and infrastructure condition factors must be considered as well. Provided below are comparisons of the City’s current and proposed FY 2013 rates with FY 2012 rates of several surrounding utilities.

2.5 Summary of the Water Rate Study The analyses completed for the water utility were completed using generally accepted rate setting principles and guidelines, based on the City’s accounting records and utility billing data. The results of the revenue requirement indicate that the existing rate revenue is deficient for meeting future operating and capital needs of the utility. Provided the growth, inflation and usage assumptions used to develop the revenue requirements remain the same, the rates presented above should generate the level of revenue required to meet the on-going operational and capital needs of the water utility through FY 2017.

Water and Sewer Rate Study – Sewer Utility Rate Study 31 City of Lakeport

3.1 Introduction This section describes the development of the sewer rate study for the City. Similar to the water rate study, a revenue requirement, cost of service and rate design analysis was conducted for the sewer utility. One of the main objectives of a sewer rate study is to develop cost-based rates while attempting to minimize the impacts to the utility’s customers. Provided below is a detailed discussion of the technical analyses, along with our findings, conclusions and recommendations.

3.2 Determining the Sewer Utility Revenue Requirement Similar to the water utility, the sewer revenue requirement assumes the full and proper funding on a stand-alone basis needed to operate and maintain the system on a financially sound and prudent basis. The primary financial inputs in this process were the utility’s historical billing records, current and projected operating budgets, and projected capital improvement plan. The sewer revenue requirement analysis was developed using the cash basis approach presented and discussed in Section 1 of this report.

3.2.1 Projecting Sewer Rate and Other Miscellaneous Revenues The first step in developing the sewer revenue requirement was to develop a projection of rate revenues, at present rate levels. In general, this process involved developing projected billing units for each customer group. The billing units for each customer group were then multiplied by the current applicable sewer rates. This method of independently calculating sewer rate revenues verifies that the projected revenues used within the analysis related directly to the projected billing units. The projected billing units by class of service were based on historical billing records.

Currently, the City has three major sewer classes of service: residential, apartments and commercial. Based on the billing records, roughly 60% of the utility’s rate revenues are derived from residential customers. In total, at present rates, the City is projected to receive approximately $1.5 million in rate revenue in FY 2012. With the same conservative annual growth estimates as estimated for the water utility (0% for through 2014, 0.5% FY 2015 though FY 2017) rate revenue is projected to total $1.51 million by FY 2017.

In addition to rate revenues, the utility also receives a variety of miscellaneous revenues which include Basin 2000 revenue, County Service revenue, lease revenue, miscellaneous revenue and interest income. Other miscellaneous revenue averages $195,000 per year through the review period. On a combined basis, taking into account the rate revenues along with miscellaneous revenues, the utility’s total projected revenues are expected to be approximately $1.69 million in FY 2012 and increasing to $1.71 million by FY 2017.

3.2.2 Projecting Operation and Maintenance Expenses Operation and maintenance (O&M) expenses are incurred by the utility to operate the sewer utility and maintain the existing plant in service in a sustainable manner. The costs incurred in this area are expensed during the current year and are not capitalized or depreciated over time.

Section 3 Development of the Sewer Utility Rate Study


“Operation and maintenance (O&M)

expenses are ... costs incurred in this area are

expensed during the current year and are not

capitalized or depreciated over time”

“A general financial guideline states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation through

rates”

Escalation factors were developed for the basic types of expenses the sewer utility incurs: labor, benefits, materials and supplies, utilities, insurance, and miscellaneous expenses. Consistent with the water utility, the medical benefit escalation factor was assumed to be 5% per year over the planning horizon, along with chemicals, energy and transfers, the same factors as those used for the water utility. Bad debt is also assumed to be 4% per year. Most expense types used 3% per year escalation, including labor.

HDR reviewed the utility’s FY 2011 and 2012 budget and used them as the basis for projected expenses into future years. Given the FY 20112 O&M expenses, HDR then escalated the O&M expenses based on the escalation factors described above. Total operation and maintenance expenses for the utility are projected to be approximately $1.47 million in FY 2012 and are projected to increase to approximately $1.76 million by FY 2017, primarily as a result of assumed inflation over the time period. No other changes to sewer O&M expenses were assumed through FY 2017.

3.2.3 Transfers Each utility pays transfers to the General Fund for services provided to the utilities from staff and personnel budgeted in the General Fund. These services include Management and Administration, services from Human Resources, Clerk’s Office, the Finance Department, Planning, etc. These expenses begin at $45,000 in FY 2012 and increase to $57,000 by FY 2017.

In addition, the sewer utility transfers Basin 2000 expenses to pay for debt associated with past improvements. This expense is offset by the Basin 2000 revenue that is received from North service area customers.

3.2.4 Projecting Capital Improvement Projects Funded From Rate Revenue The sewer utility has several replacement and improvement projects scheduled for the collection system as well as the treatment plant. Projects include sewer line replacements, life station replacements, Infiltration and Inflow (I&I) reduction program (which also includes pipe replacements), equipment replacement and repairs and modifications at the treatment plant. Specific projects include Martin Street, Main Street, Lakeshore Blvd. and North High Street parallel lines, Main Street sewer replacement, Clearlake lift station replacement, and several others. These improvements are needed to maintain the existing level of service, replace system components no longer functioning properly, and to meet regulatory requirements. In total, there is approximately $5.4 million in projected capital projects through FY 2017. Funding is assumed to be $3.2 million as a U.S.D.A. Rural Development low-interest loan. Another $1.7 million is assumed to be other future year low-interest loans, and $500,000 of rate funding over the next five years.

As described in Section 1 and 2, a general financial guideline for financial stability states that, at a minimum, a utility should fund an amount equal to or greater than annual depreciation expense through rates. Annual depreciation expense reflects the current investment in plant being depreciated or “losing” its useful life. Therefore, this portion of plant investment needs to be replaced to maintain the existing level of infrastructure. Simply funding an amount


equal to annual depreciation expense will not be sufficient to replace the existing or depreciated facility. The sewer utility’s depreciation expense for FY 2011 was $627,000. As additional capital improvements are completed, depreciation expense will increase. Replacement cost, on average, is roughly two times annual depreciation. Therefore, consideration should be given to funding within rates some amount greater than annual depreciation expense for renewals and replacements.

Similar to the water rate study, four funding scenarios were developed, adjusting the gradual level of rate funding of depreciation expense at varying levels for each Scenario, as described below.

Scenario 1 – Assumes no increase, only operations are funded. Scenario 2 – Gradually implements approximately 1/ 3rd of the estimated depreciation

expense over the five year time period. Scenario 3 – Gradually implements approximately 2/ 3rds of the estimated depreciation

expense over the five year time period. Scenario 4 – Gradually implements approximately

The gradual adjustment of rate funded capital, or of funding depreciation expense is done to help moderate rate impacts. In reviewing the various Scenarios with City staff and management, Scenario 2 was determined to be the best option in moving the utility into a more financially stable position, while funding the necessary capital improvements. This Scenario will allow the amount of capital improvements funded to increase gradually, from approximately $40,000 in FY 2012 to $125,000 over this planning horizon. The sewer utility achieves less rate funding of capital than the water utility, as staff and management felt that a lower level of rate funding for the sewer utility should be recommended to minimize the rate impacts to the degree possible.

Whenever possible, the City should continue to increase rate funding of capital projects to move closer to funding the minimum of depreciation expense over time.

3.2.5 Projecting Debt Service The final component of the sewer revenue requirement is debt service. At the present time, the sewer utility has one outstanding debt issue, a 2007 revenue bond with debt payments of approximately $187,000 annually. There is new debt assumed for the U.S.D.A loan and other low-interest loans. The U.S.D.A. loan will have an annual payment of approximately $122,000 estimated to begin in FY 2015. The other low-interest loan payments are estimated to begin in FY 2015 at $4,000 per year and increase to $76,000 by FY 2017. In total, the annual debt payments are projected to be $387,000 by FY 2017.

It is important to note that the City has applied for grant funding for a portion of the U.S.D.A. loan. If successful, the City could receive up to $1 million in grant funding, with the remainder of the total costs through the low-interest loan. This could potentially reduce debt payments by $37,000 per year, or the equivalent of approximately a 1.5% to 2% reduction in projected rates, or $1.15 reduction in the monthly payment for an average residential bill. This equates to approximately a $0.10 savings per month on average residential monthly bills per each $100,000 of grant funding that potentially replaces loan funding. The City is scheduled to find out in November 2012 the mix of loan and possible grant funding. The City will have the rate models and can update rate projections for future years depending on what financing becomes available.

To meet requirements of the revenue bond and U.S.D.A. loans a utility must meet a debt service coverage requirement (DSC; a covenant of the revenue bonds) of 1.25. That means that the


utility would have 25% more than the highest annual debt payment in all years, or 125% of the highest principal and interest payment over the term on the bond. The sewer utility is barely meeting this requirement in FY 2012 and a significant rate adjustment is needed to meet the requirement in FY 2013. In future years, additional rate increases are needed to continue to meet this financing requirement.

3.2.6 Summary of the Revenue Requirement Given the above projections of revenues and expenses, a summary of the revenue requirement for the sewer utility was developed. In developing the final revenue requirement, consideration was given to the financial planning considerations of the City. In particular, emphasis was placed on attempting to minimize rates, yet maintain adequate funds to support the operational activities and capital projects throughout the projected time period. As part of the rate study, Scenario 3 was initially developed and presented to the City for consideration. Upon review and further consideration the City determined that Scenario 2 would best meet the needs of the utility while maintaining rates as low as possible. Presented in Table 3-1 is a summary of the sewer revenue requirement for Scenario 2. Detailed analysis can be found in Exhibit 3 of Appendix B.

Table 3-1 Summary of the Sewer Revenue Requirements Analysis (000’s), Scenario 2

It is important to remember that the annual deficiencies in the Table 3-1 are cumulative. That is, any adjustments in the initial years will reduce the deficiency in the later years. Over the projected time period the deficiency in FY 2017 is $976,000. For the average residential bills

Budget

FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Rate Revenues $1,505 $1,505 $1,505 $1,508 $1,512 $1,516


Total Revenues $1,699 $1,698 $1,698 $1,703 $1,708 $1,712

ExpensesOperations & Maintenance $1,473 $1,526 $1,582 $1,640 $1,701 $1,763

Transfers 135 137 140 142 145 147


Debt Service 187 190 189 315 348 387

Change in Working Capital +/- (194) 25 111 179 246 204--------- --------- --------- --------- --------- ---------

Total Expenses $1,641 $1,939 $2,102 $2,371 $2,550 $2,627

Total Revenue Requirement $1,641 $1,939 $2,102 $2,371 $2,550 $2,627

Balance/(Deficiency) of Funds $58 ($241) ($403) ($669) ($842) ($915)

Plus : Bad Debt ( 4.0% of Rate Rev.) $58 $60 $60 $60 $60 $60

Balance/( Def ic iency) wi th Bad Debt $0 ($301) ($463) ($729) ( $903) ( $976)

Debt Service Coverage RatioBefore Rate Adjustment 1.21 0.90 0.62 0.20 0.02 0.00After Proposed Rate Adjustment 1.21 2.49 3.07 2.51 2.61 2.39

Projected


this equates to approximately $29.00/month over the five year period, or an average of approximately $6.00/year adjustment in the average monthly bills. These adjustments are necessary in order to maintain the existing level of service, adequately fund the utility’s O&M and capital infrastructure needs, and to meet debt service financial requirements. These needed adjustments are primarily driven by the need to increase the funding of capital improvements from rates (“Capital Funding from Rates”), debt payments, and inflationary increases in O&M expenses.

As discussed previously, funding of capital improvements from rates for renewal and replacement projects is an important financial concept. It also helps the utility to meet the DSC coverage requirement. With proper maintenance and rehabilitation of the City’s sewer system, the useful life of the system can be maximized.

3.2.7 Review of the Reserve Levels A review of reserves was also completed. Reserves are an important part of a utility’s financial picture. There are many different purposes for reserves, as described in Section 1 of this report. This section reviews each of the necessary reserves for the sewer utility. The sewer utility operation reserve, with a target of 15% of operating expenses, begins FY 2012 with approximately $525,000 and ends FY 2017 with a balance of $270,000. Operating reserves are used, as necessary, to meet expenses of the utility to aide in levelizing rate adjustments to the degree possible. This reserve provides cash flow for the utility’s on-going expenses. In the mid-years of the review period the fund balance drops below this minimum requirement (FY 2013 – 2016) but ends the review period at the minimum reserve level.

During the review period the Rate Stabilization/Debt Service Reserve and the R&R/CIP Reserve are gradually built to meet the minimum level required for the bond reserve and to meet USDA requirements. By FY 2017 the utility is able to meet all reserve requirement minimum balances.

3.2.8 Consultant’s Conclusions for Sewer Revenue Requirement Based on the Scenario 2 revenue requirement analysis, there is a deficiency of funds over the entire projected time period. Adjustments to the existing rates are necessary and recommended to adequately fund the operations, maintenance and capital needs of the utility. It will be important for the City to continue to monitor rate funding of capital replacement projects. As the utility’s infrastructure continues to age, replacement costs will only continue to rise. Debt financing of facility replacements will not be possible on an on-going basis. It is important to continue to gradually increase rate funding of replacement projects in order to maintain financial stability for the utility and to meet debt service coverage requirements in the long-term. Scenario 2 is an approach toward gradual implementation of such a plan, while balancing rate impacts to customers at the same time.

The next subsection discusses the allocation of the sewer revenue requirements to the various customer classes of service.


Terminology of a Sewer Cost of Service

Analysis

Functionalization – The arrangement of the cost data by functional category (e.g. treatment, collection etc.).

Classification – The assignment of functionalized costs to cost components (e.g. volume, strength, and customer related).

Allocation – Allocating the classified costs to each class of service based upon each class’s proportional contribution to that specific cost component.

Volume Costs – Costs that are classified as volume related vary with the total flow of sewer (e.g. chemical use at a treatment plant).

Strength Costs – Costs classified as strength related refer to the wastewater treatment function. Typically, strength-related costs are further defined as biochemical oxygen demand (BOD) and suspended solids (SS). Different types of customers may have high wastewater strength characteristics and high strength wastewater costs more to treat. Facilities are often designed and sized around meeting these costs.

Customer Costs – Costs classified as customer related vary with the number of customers on the system, e.g. billing costs.

Direct Assignment – Costs that can be clearly identified as belonging to a specific customer group or group of customers.

3.3 Sewer Cost of Service Analysis A cost of service analysis is a method to equity allocate the total revenue requirements to the various customer classes of service served by the utility. For the sewer cost of service study, the customer classes of service were defined as residential, commercial and apartments.

The same generally accepted rate setting principles and methodologies, as used for the water utility, were applied to develop the sewer cost of service analysis. This process functionalized, classified and allocated the sewer revenue requirement to the customer classes in the manner in which the utility incurs the expense. When available, utility specific data was utilized. When the City specific data was not available, HDR estimated the classification based upon its experience with previous sewer cost of service studies of a similar nature.

3.3.1 Objectives of a Cost of Service Study

There are two primary objectives in conducting a cost of service study: Allocate the revenue requirement among the customer

classes of service Derive average unit costs for subsequent rate designs

3.3.2 Classification of Costs The cost classifiers for the sewer utility differ from the water utility. Classification determines why the expenses were incurred or what type of need is being met. The City’s plant accounts and revenue requirement were reviewed and classified using the following cost classifiers: Volume Related Costs Strength Related Costs Customer Related Costs Revenue Related Costs Direct Assignments

3.3.3 Summary of the Cost of Service Results In summary form, this cost of service analysis began by functionalizing the utility’s plant asset records and then the operating expenses. The functionalized plant and expense accounts were then classified into their various cost components.

The individual classification totals were then allocated to the various customer groups based upon the appropriate allocation factors. The allocated expenses for each customer group were then aggregated to determine each


customer group’s overall revenue responsibility. A summary of the detailed cost responsibility developed by customer class is shown below.

The allocation of costs attempted to equitably allocate facilities and costs to each customer class reflecting their respective benefit. The cost of service results indicated that some costs differences exist between the customer classes of service. A general “rule of thumb” that can be used as a guide when reviewing a cost of service analysis is if a class is within +/- 5% of the overall required adjustment the class is paying its “fair share”. The results are close to within this particular guideline, however, results also show an interclass cost differential. This analysis is completed on one year’s data and customer information, and flow characteristics change over time. This is the first comprehensive rate study HDR has completed for the City, and that the City has had completed in several years. It would be appropriate to repeat the cost of service analysis during the next rate study and determine whether these findings are consistent over time, then adjust as appropriate.

3.3.4 Consultant’s Conclusions and Recommendations

Based upon the findings of the cost-of-service analyses conducted, the residential customer class is within 4% of the overall results. However there are interclass differences with the apartments and commercial customer classes. As noted earlier, there were discrepancies in the data when calculating the revenues at present rates. Therefore, these results could be skewed by incomplete data. Given the overall objective for the sewer utility to be financially stable and self sufficient, it is recommended the overall level of rates be adjusted to collect the revenue requirements over the test period. Therefore, all customer class rates are adjusted equally.

A cost of service analysis should be completed a minimum of every five years to determine if revenue is received according to the impact each customer class has on the system.

3.4 Sewer Rate Design Analysis The final step of the sewer rate study process is the design of sewer rates to collect the desired levels of revenues, based on the results of the revenue requirement analysis. In reviewing sewer rate designs, consideration is given to the level and the structure of the rates.

3.4.1 Review of the Overall Rate Adjustments As indicated above, the priority for the sewer utility was to adjust and transition the overall level of the sewer rates to meet the overall financial needs of the utility for both operations and


capital replacement needs, while minimizing rate impacts to the degree possible.

3.4.2 Present and Proposed Sewer Rates In developing the proposed rate designs, the City’s existing rate structures were reviewed. The existing rates are comprised of a monthly charge by class of service for residential and apartments, and for commercial there is an additional consumption charge per hundred cubic feet of usage. There are currently differing rates between the north and south service areas. This difference, in part, is related to the Basin 2000 charges.

The City’s primary rate design goal was to apply the same rate schedule to customers within each class of service, throughout the City. This can ease customer understanding and City administration. Therefore, two rate designs were developed. The first rate option simply takes the existing rates and applies the necessary adjustments across the board to all customer classes and rate components.

Two rate designs were developed for the utility.

Option 1 applies the necessary adjustments to all rate components and all customer classes

Option 2 over a four year period, rates move closer together for the north and south customers. By FY 2015 all customers within each customer class are paying the same rate throughout the City’s service area.

The existing and Option 1 rate schedules are presented below.

Table 3-2 Sewer Utility Present and Projected Option 1 Rates (Existing Rate Design)


Both options apply the necessary adjustments to existing rates for each customer class to generate adequate revenue to fully fund sewer utility operations and capital needs each year.


The rates in Table 3-3 below present Option 2 rates, showing the four-year transition of rates for the north and south areas gradually merging into the same rate City-wide, by customer class, by FY 2015.

Table 3-3 Sewer Utility Present and Projected Rates – Option 2 Recommended Rates;


The rates presented above in Table 3-3 should provide the sewer utility with adequate revenue to properly fund operations and capital needs through FY 2017, provided the underlying assumptions contained within the revenue requirement and rate design (growth, inflation, number of customers, etc.) remain the same. The City Council proposed these rates to be presented in Proposition 218 documents to the utility’s customers and property owners.

3.4.3 Rate Affordability

The City of Lakeport is designated as an economically disadvantaged community. As such, it is eligible for more grant funding and lower interest loans for some capital projects, especially if rates begin to reach a level considered by funding agencies to be unaffordable. Various government funding agencies consider individual residential utility rates between 1.5% and 2.5% of the median household income to be an affordability issue. This level of rate typically qualifies a jurisdiction for lower cost capital project funding. For example, if the sewer utility monthly rate is 1.5% of the median household income, the City may qualify for the grant funding from the U.S.D.A.

The affordability test was completed for Scenario 3 and Scenario 2 for the sewer utility, and had similar results. Results for Scenario 2 are provided in Appendix C at the end of this report. The utility’s existing rates already fail the 1.5% affordability test. That is, they are considered less affordable, especially in a disadvantaged community. As the necessary rate adjustments are applied out in future years, this “failed” test status remains and increases to beyond the 2% affordability test by FY 2015. It should be noted that for this analysis, the City provided the


median household income and no adjustment or increase was made to the median household income in calculating the percentage of household income in future years.

3.4.4 Rate Comparison

The City also requested a bill comparison for the sewer utility with other similar sized local utilities. It is important to remember, when viewing bill comparisons with other utilities that these comparisons are often like comparing apples and oranges. Each utility has different operating characteristics, procedures, customer mix, regulatory requirements, governing board decision making policies and practices, and so on. There is also no information collected about when these utilities last updated their rates.

That said, sometimes a view of rate comparisons can provide perspective of one utility’s rates compared to others. However, the distinguishing operating and infrastructure condition factors must be considered as well. Provided below are comparisons of the City’s current and proposed FY 2013 rates with FY 2012 rates of several surrounding utilities.

It does appear that the existing as well as proposed rates are higher than sewer rates of surrounding utilities. This is, in part, why City management looked toward Scenario 2 as a more reasonable option for the sewer utility. It is still imperative to remember that operating and capital costs must be fully funded fop the utility to continue to provide these services within the constraints of water quality regulations that are imposed on the City. It is not known how many other utilities are also considering adjustments to their rates.

3.5 Summary of the Sewer Rate Study This completes the analysis for the City’s sewer utility. The rate adjustments and corresponding rate designs were developed using generally accepted rate setting methodologies and are based on accounting and budgeting information provided by the City. The proposed rates are intended to provide adequate revenue to maintain the sewer utility system in a sustainable manner.

Technical Appendices

Appendix A

Water Utility System Analyses

Actual Budget

FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

Revenues

Rate Revenues $1,150,341 $1,174,000 $1,174,000 $1,174,000 $1,176,935 $1,179,877 $1,182,827

Miscellaneous Revenues 119,871 106,576 91,071 91,940 92,712 93,896 95,891

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------

Total Revenues $1,270,212 $1,280,576 $1,265,071 $1,265,940 $1,269,647 $1,273,773 $1,278,718

Expenses

Operations and Maintenance Expense $1,008,880 $1,144,949 $1,186,420 $1,229,492 $1,274,230 $1,320,703 $1,368,982

Transfers 0 42,000 44,100 46,305 48,620 51,051 53,604

Capital Funded Through Rates 9,300 9,300 45,000 75,000 105,000 135,000 165,000

Debt Service 254,159 254,069 253,884 254,093 564,023 569,617 590,571

Change in Working Capital +/- (3,106) (215,048) (40,644) 29,103 (52,131) 157,058 194,267

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------

Total Expenses $1,269,233 $1,235,270 $1,488,760 $1,633,993 $1,939,742 $2,233,428 $2,372,423

Total Revenue Requirement $1,269,233 $1,235,270 $1,488,760 $1,633,993 $1,939,742 $2,233,428 $2,372,423

Balance/(Deficiency) of Funds $979 $45,306 ($223,689) ($368,053) ($670,095) ($959,655) ($1,093,705)

Incr. as a % of Pres. Rates -0.1% -3.9% 19.1% 31.4% 56.9% 81.3% 92.5%

Plus: Bad Debt (4.0% of Rate Rev.) $0 $46,014 $46,960 $46,960 $46,960 $47,077 $47,195

Balance/(Deficiency) with Bad Debt $979 ($707) ($270,649) ($415,013) ($717,055) ($1,006,732) ($1,140,900)

Incr. as a % of Rate Rev. w/ Bad Debt -0.1% 0.1% 23.1% 35.4% 60.9% 85.3% 96.5%

Proposed Rate Adjustments 0.0% 0.0% 23.0% 20.0% 18.0% 12.8% 0.0%

Additional Revenue from Adjustment $0 $0 $270,020 $414,422 $716,565 $1,006,609 $1,140,973

Total Balance/(Deficiency) of Funds $979 ($707) ($629) ($591) ($489) ($123) $72

Additional Rate Adjustment Required -0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%

Average Residential Bill - $/ Month $28.25After CPI Rate Adjustment - January 1st implementation $28.25 $28.25 $34.75 $41.70 $49.20 $55.50After Proposed Rate Adjustment - January 1st implementation $34.75 $41.70 $49.20 $55.50 $55.50

Debt Service Coverage RatioBefore Rate Adjustment 1.03 0.53 0.31 0.14 0.00 0.00 0.00After Proposed Rate Adjustment 1.03 0.53 1.37 1.77 1.26 1.68 1.78

City of LakeportWater Utility - Scenario 3 - Funding 2/3 of Depreciation

Exhibit 1SUMMARY OF THE REVENUE REQUIREMENT

Projected

Page 1 of 19

City of LakeportWater Utility - Scenario 3 - Funding 2/3 of DepreciationExhibit 2ESCALATION FACTORS

Actual BudgetFY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Notes

Rate Implemenation DateCurrent Rates N/A N/A 1 2 2 2 2 1=July FY; 2=Jan FYProposed Rates N/A N/A 1 2 2 2 2 1=July FY; 2=Jan FY

Revenues 4 5 6 7 8Rate Revenues [1] Actual Calculated 0.0% 0.0% 0.0% 0.0% 0.0%Miscellaneous Revenues Actual Budget 1.0% 1.0% 1.0% 1.0% 1.0%Growth Actual Budget 0.0% 0.0% 0.5% 0.5% 0.5%

ExpensesLabor Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Benefits Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Materials & Supplies Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Chemicals Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Fuel Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Equipment Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Energy Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Utilities Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Miscellaneous Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Transfers Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Bad Debt 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Interest 0.2% 0.4% 0.4% 0.5% 0.8% 1.0% 1.0%

Current USDA LoanYear 40 40 40 40 40 40 40Interest Rate 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25%

SRF LoanYear 20 20 20 20 20 20 20Interest Rate 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Future USDA LoanYear 40 40 40 40 40 40 40Interest Rate 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Notes:[1] Based on the third quarter reporting period San Francisco Bay CPI

Projected

Page 2 of 19

City of Lakeport Page 1 of 4Water Utility - Scenario 3 - Funding 2/3 of DepreciationExhibit 3SOURCES AND APPLICATIONS OF FUNDS

Actual BudgetFY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Notes:

REVENUES

Rate Revenues [2] [3]Residential $670,897 $684,696 $684,696 $684,696 $686,407 $688,123 $689,844 As Rate Revenues [1]Duplex, Triplex, and Mobile Home 91,496 93,378 93,378 93,378 93,611 93,845 94,080 As Rate Revenues [1]Apartments 30,460 31,087 31,087 31,087 31,165 31,242 31,321 As Rate Revenues [1]Motel, Rec. Vehicle, and B&B 23,342 23,822 23,822 23,822 23,882 23,941 24,001 As Rate Revenues [1]Commercial 276,514 282,202 282,202 282,202 282,907 283,614 284,323 As Rate Revenues [1]Irrigation 57,631 58,816 58,816 58,816 58,963 59,111 59,258 As Rate Revenues [1]

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Rate Revenues $1,150,341 $1,174,000 $1,174,000 $1,174,000 $1,176,935 $1,179,877 $1,182,827

Other RevenuesConnection Fees $1,000 $500 $505 $510 $515 $520 $526 As Miscellaneous RevenuesSundry 0 100 101 102 103 104 105 As Miscellaneous RevenuesNon-Operating Revenue 5,544 0 0 0 0 0 0 As Miscellaneous RevenuesMiscellaneous Fees 108,243 105,000 90,000 90,900 91,809 92,727 93,654 As Miscellaneous RevenuesInterest Income 5,084 976 465 428 285 545 1,606 Calculated

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Other Revenues $119,871 $106,576 $91,071 $91,940 $92,712 $93,896 $95,891

TOTAL REVENUES $1,270,212 $1,280,576 $1,265,071 $1,265,940 $1,269,647 $1,273,773 $1,278,718

Projected

Page 3 of 19



Projected

OPERATIONS AND MAINTENANCE EXPENSE

Water Utility (501)Salaries [4] $458,730 $445,618 $458,986 $472,756 $486,939 $501,547 $516,593 As LaborBenefits 217,511 211,294 221,859 232,952 244,599 256,829 269,671 As BenefitsMaterials and Supplies 326,675 324,476 334,210 344,237 354,564 365,201 376,157 As Materials & SuppliesChemicals 0 40,000 42,000 44,100 46,305 48,620 51,051 As ChemicalsFuel 0 10,000 10,300 10,609 10,927 11,255 11,593 As FuelEnergy 0 104,860 110,103 115,608 121,389 127,458 133,831 As EnergyTravel and Training 5,337 7,786 8,019 8,260 8,508 8,763 9,026 As MiscellaneousOther [5] 627 915 942 970 999 1,029 1,060 As Miscellaneous

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Water Utility (501) $1,008,880 $1,144,949 $1,186,420 $1,229,492 $1,274,230 $1,320,703 $1,368,982

TOTAL O&M EXPENSES $1,008,880 $1,144,949 $1,186,420 $1,229,492 $1,274,230 $1,320,703 $1,368,982

TransfersTransfer Out $0 $42,000 $44,100 $46,305 $48,620 $51,051 $53,604 As Transfers

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Transfers $0 $42,000 $44,100 $46,305 $48,620 $51,051 $53,604

CAPITAL FUNDED THROUGH RATES (Exh. 4) $9,300 $9,300 $45,000 $75,000 $105,000 $135,000 $165,000 Approx. Deprec. $250K for FY '12

Debt Service1998 Water Project - Series 2000 $171,939 $171,849 $171,664 $171,872 $171,473 $171,468 $171,831 Debt Service ScheduleRefunding of 1993 Water Loan 82,221 82,221 82,221 82,221 82,221 82,221 82,221 Debt Service ScheduleUSDA Loan $4.6M [6] 0 0 0 0 175,784 175,784 175,784 Calculated at 40 years; 2.2%SRF Loan [6] 0 0 0 0 134,545 134,545 134,545 Calculated at 20 years; 2%New Debt Service 0 0 0 0 0 5,600 26,190 Calculated at 40 years; 3%

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Debt Service $254,159 $254,069 $253,884 $254,093 $564,023 $569,617 $590,571

Change in Working Capital +/-Transfers To - Operating Reserve ($3,106) ($215,048) ($40,644) ($20,897) ($74,131) $107,058 $105,267Transfers To - Rate Stabilization/Debt Service Reserve 0 0 0 0 0 0 0Transfers To - R&R/CIP Reserve 0 0 0 50,000 22,000 50,000 89,000

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Transfers to Reserves ($3,106) ($215,048) ($40,644) $29,103 ($52,131) $157,058 $194,267

Page 4 of 19



Projected

TOTAL REVENUE REQUIREMENT $1,269,233 $1,235,270 $1,488,760 $1,633,993 $1,939,742 $2,233,428 $2,372,423

Balance/(Deficiency) of Funds $979 $45,306 ($223,689) ($368,053) ($670,095) ($959,655) ($1,093,705)

Incr. as a % of Pres. Rates -0.1% -3.9% 19.1% 31.4% 56.9% 81.3% 92.5%

Plus: Bad Debt (4.0% of Rate Rev. per year) $0 $46,014 $46,960 $46,960 $46,960 $47,077 $47,195 As Bad Debt

Balance/(Deficiency) Including Bad Debt $979 ($707) ($270,649) ($415,013) ($717,055) ($1,006,732) ($1,140,900)

Incr. as a % of Pres. Rates with Bad Debt -0.1% 0.1% 23.1% 35.4% 60.9% 85.3% 96.5%

July 1st 2012 Jan 1st 2014 Jan 1st 2015 Jan 1st 2016 Jan 1st 2017Proposed Rate Adjustment 0.0% 0.0% 23.0% 20.0% 18.0% 12.8% 0.0%

Additional Revenue from Rate Increase $0 $0 $270,020 $414,422 $716,565 $1,006,609 $1,140,973

Balance/Deficiency of Funds $979 ($707) ($629) ($591) ($489) ($123) $72

Deficiency as a % of Rate Revenues -0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%

Notes:[1] CPI increases are applied to expenses, if CPI exceeds the 3% for general expenses and fuel and 5% for chemicals and electric costs per the third quarter reporting period San Fancisco Bay CPI, then CPI can be adjusted.[2] Rate adjustment is implemented January 1st each year.[3] Projected rate revenues include growth.[4] Salaries and Benefits were combined in the 2011 Actuals report and 2012 budget. Each sum was separtated based on the 2011 financial statement salaries and benefits split.[5] Includes Property Tax Assestments.[6] Estimated for payments to begin after project is completed.

Average Residential Bill - $/ Month $28.25 (Includes monthly service charge + 9 CCF)After CPI Rate Adjustment - January 1st implementation $28.25 $28.25 $34.75 $41.70 $49.20 $55.50After Proposed Rate Adjustment - January 1st implementation $28.25 $34.75 $41.70 $49.20 $55.50 $55.50Monthly $ Difference $0.00 $6.50 $6.95 $7.51 $6.30 $0.00

Debt Service Coverage RatioBefore Rate Adjustment 1.03 0.53 0.31 0.14 0.00 0.00 0.00 Minimum 1.25After Proposed Rate Adjustment 1.03 0.53 1.37 1.77 1.26 1.68 1.78 Minimum 1.25

Page 5 of 19



Projected

Operating ReserveBeginning Fund Balance $354,753 $351,647 $136,599 $95,955 $75,058 $927 $107,984Plus: To Operating Reserve (3,106) (215,048) (40,644) (20,897) (74,131) 107,058 105,267Transfers to Capital Reserve 0 0 0 0 0 0 0Less: Capital From Rates 0 0 0 0 0 0 0Ending Reserve Balance $351,647 $136,599 $95,955 $75,058 $927 $107,984 $213,251

Target Reserve = 15% Oper. Expenses $151,000 $172,000 $178,000 $184,000 $191,000 $198,000 $205,000

Rate Stabilization/Debt Service ReserveBeginning Fund Balance $263,340 $263,867 $264,922 $265,982 $267,312 $269,317 $272,010Transfer In from Operations 0 0 0 0 0 0 0Interest Earnings 527 1,055 1,060 1,330 2,005 2,693 2,720Use of Reserves 0 0 0 0 0 0 0Ending Reserve Balance $263,867 $264,922 $265,982 $267,312 $269,317 $272,010 $274,730

Target Reserve = Min. 263,340 Debt Reserve $189,000 $193,000 $193,000 $193,000 $193,000 $194,000 $194,000

R&R/CIP ReserveBeginning Fund Balance $0 $0 $0 $0 $50,000 $72,458 $123,432Transfer In from Operations 0 0 0 50,000 22,000 50,000 89,000Interest Earnings 0 0 0 0 458 975 1,679Use of Reserves 0 0 0 0 0 0 0Ending Reserve Balance $0 $0 $0 $50,000 $72,458 $123,432 $214,111

Target Reserve = 5% of Capital Assets [1] $203,000 $203,000 $203,000 $203,000 $203,000 $203,000 $203,000

Total Cash Reserves $615,513 $401,521 $361,936 $392,369 $342,701 $503,426 $702,093Total Target Cash Reserves $543,000 $568,000 $574,000 $580,000 $587,000 $595,000 $602,000

Balance/(Deficiency) of Reserves $72,513 ($166,479) ($212,064) ($187,631) ($244,299) ($91,574) $100,093

Water Expansion FundBeginning Fund Balance $0 $315,928 $77,714 $88,045 $98,510 $109,286 $120,429Capital Outlay/CIP (Fund 502) 0 (250,000) 0 0 0 0 0Revenue (Interest Earnings) 0 786 331 465 776 1,143 1,254Expansion Fees 0 11,000 10,000 10,000 10,000 10,000 10,000Ending Fund Balance $0 $77,714 $88,045 $98,510 $109,286 $120,429 $131,683

[1] Capital Assets, Net of Depreciation, from the City's Statement of Net Assets, Year-Ended June 30, 2011, page 21.

Page 6 of 19

City of LakeportWater Utility - Scenario 3 - Funding 2/3 of DepreciationExhibit 4CAPITAL IMPROVEMENT PROJECTS

Actual BudgetFY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Total Notes:

Capital Water Improvement ProgramUSDA Projects

Purchase Land & Renew LeaseTreatment Plant SCADA upgradeWater System Profibus Telemetry SystemTotal Projects in USDA Loan $0 $0 $2,302,200 $2,302,200 $0 $0 $0 $4,604,400

SRF ProjectsScotts Creek Well Heads & DischargeSecurity InstallsInstall New Wells and Pumping StationTotal Projects in SRF Loan $0 $0 $1,100,000 $1,100,000 $0 $0 $0 $2,200,000

Miscellaneous ProjectsMain Replacement 6" to 10" $0 $0 $17,000 $0 $0 $0 $0Install 10' Main on Southern School 0 0 0 0 0 0 210,000Wet Well Improvements 0 0 0 0 0 165,000 0Replace Existing Main - Along Hartley St. 0 0 0 29,084 57,706 42,210 0Replace Existing Main - Along Lakeport Blvd. 0 0 0 0 0 0 372,000Total Miscellaneous Projects $0 $0 $17,000 $29,084 $57,706 $207,210 $582,000 $893,000

Vehicles $0 $0 $15,000 $15,450 $15,914 $16,391 $16,883 $79,638 As EquipmentShop/Other Equipment 7,000 7,000 25,000 25,750 26,523 27,319 28,139 139,731 As EquipmentOffice Equipment 2,300 2,300 2,369 2,440 2,513 2,588 2,666 14,876 As EquipmentLand, Structure & Improvements 350,000 350,000 10,000 10,300 10,609 10,927 11,255 403,091 As Equipment

Unidentified Capital Projects $0 $0 $0 $0 $0 $0 $0 $0

Total Capital Water Improvement Program $359,300 $359,300 $3,471,569 $3,485,224 $113,265 $264,435 $640,943 $8,334,736

CapitalTransfer to Capital Reserve Fund $0 $0 $0 $0 $0 $0 $0

-------------- -------------- -------------- -------------- -------------- -------------- --------------Total Capital $0 $0 $0 $0 $0 $0 $0 $0

Total Capital Improvements and Capital $359,300 $359,300 $3,471,569 $3,485,224 $113,265 $264,435 $640,943 $8,334,736

Less: Funding Sources Other Than RatesOperating Reserves $0 $0 $0 $0 $0 $0 $0 $0Capital Reserve Funds 0 0 24,369 8,024 8,265 0 0 40,658USDA Loan Proceeds 0 0 2,302,200 2,302,200 0 0 0 4,604,400SRF Loan Proceeds 0 0 1,100,000 1,100,000 0 0 0 2,200,000General Fund Loan 350,000 350,000 0 0 0 0 0 700,000New Low Interest Loan 0 0 0 0 0 129,435 475,943 605,378

-------------- -------------- -------------- -------------- -------------- -------------- --------------Total Funding Sources Other Than Rates $350,000 $350,000 $3,426,569 $3,410,224 $8,265 $129,435 $475,943 $7,800,436

CAPITAL FUNDED THROUGH RATES $9,300 $9,300 $45,000 $75,000 $105,000 $135,000 $165,000 $534,300 Approx. Deprec. $250K for FY '12

ProjectedFY 2012 - FY

2017

Page 7 of 19

City of Lakeport Page 1 of 5Water Utility - Scenario 3 - Funding 2/3 of DepreciationExhibit 14REVENUE AT PRESENT RATES

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 TOTALRESIDENTIALMeter Rate

Meter Size Mo. Rate3/4" $17.45 1,568 1,568 1,568 1,568 1,568 1,568 1,568 1,568 1,568 1,568 1,568 1,568 1,5681" 34.87 1 1 1 1 1 1 1 1 1 1 1 1 1

Outside Residential3/4" $27.92 17 17 17 17 17 17 17 17 17 17 17 17 171" 55.79 2 2 2 2 2 2 2 2 2 2 2 2 2

Consumption (per ccf)Tier 1 $1.20 11,592 12,257 12,197 11,178 10,512 6,308 6,560 6,646 6,002 6,253 9,998 10,048 109,551Tier 2 2.98 8,569 12,696 10,448 6,980 3,468 1,319 1,368 1,420 1,141 1,346 2,302 3,447 54,504Total Consumption 20,161 24,953 22,645 18,158 13,980 7,627 7,928 8,066 7,143 7,599 12,300 13,495 164,055

RevenuesMeter Charge $27,983 $27,983 $27,983 $27,983 $27,983 $27,983 $27,983 $27,983 $27,983 $27,983 $27,983 $27,983 $335,792Water Consumption Charge 39,446 52,542 45,771 34,214 22,949 11,500 11,949 12,207 10,603 11,515 18,858 22,330 293,883

Total Revenue $67,429 $80,525 $73,754 $62,197 $50,932 $39,483 $39,931 $40,189 $38,585 $39,497 $46,840 $50,312 $629,675

DUPLEX and MOBILE HOMEMeter Rate

Meter Size Mo. Rateeach unit $13.08 331 331 331 331 331 331 331 331 331 331 331 331 331

Consumption (per ccf)0 - 8 CCF $1.20 1,390 1,654 1,773 1,517 1,797 1,451 1,653 1,564 1,393 1,444 1,630 1,177 18,443Above 8 CCF 2.98 296 952 520 493 294 138 278 210 121 146 300 208 3,956Total Consumption 1,686 2,606 2,293 2,010 2,091 1,589 1,931 1,774 1,514 1,590 1,930 1,385 22,399


Total Revenue $6,880 $9,151 $8,007 $7,619 $7,362 $6,482 $7,142 $6,832 $6,362 $6,497 $7,179 $6,362 $85,874

Page 8 of 19


Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 TOTALAPARTMENTSMeter Rate

Meter Size Mo. Rateeach unit $10.47 136 136 136 136 136 136 136 136 136 136 136 136 136

Consumption (per ccf)0 - 6 CCF $1.20 363 364 371 329 372 337 355 384 345 376 423 393Above 6 CCF 2.98 208 271 312 205 144 146 141 132 106 150 152 116Total Consumption 571 635 683 534 516 483 496 516 451 526 575 509 6,495

RevenuesMeter Charge $1,424 $1,424 $1,424 $1,424 $1,424 $1,424 $1,424 $1,424 $1,424 $1,424 $1,424 $1,424 $17,087Water Consumption Charge 1,055 1,244 1,375 1,006 876 839 846 854 730 898 961 817 11,502

Total Revenue $2,479 $2,668 $2,799 $2,430 $2,299 $2,263 $2,270 $2,278 $2,154 $2,322 $2,384 $2,241 $28,589

MOTEL and BED & BREAKFASTMeter Rate

Meter Size Mo. Rateper room w.o kitchen (5ccf) $8.73 58 58 58 58 58 58 58 58 58 58 58 58 58per room w kitchen (6ccf) $10.47 59 59 59 59 59 59 59 59 59 59 59 59 59

Consumption (per ccf)0 - 5 CCF $1.20 197 178 225 163 139 108 83 75 85 100 125 172 1,649Above 5 CCF 2.98 42 53 38 10 24 0 0 0 0 0 0 14 180Total Consumption 239 231 263 172 162 108 83 75 85 100 125 185 1,828

0 - 6 CCF $1.20 155 155 155 135 130 125 99 109 87 102 118 137 1,507Above 6 CCF 2.98 285 308 197 149 63 49 40 35 9 45 113 82 1,375Total Consumption 440 463 352 284 193 174 139 144 96 147 231 219 2,882

RevenuesMeter Charge $1,124 $1,124 $1,124 $1,124 $1,124 $1,124 $1,124 $1,124 $1,124 $1,124 $1,124 $1,124 $13,489Water Consumption Charge 1,397 1,475 1,156 829 580 426 338 325 233 377 628 655 8,419

Total Revenue $2,521 $2,599 $2,280 $1,953 $1,704 $1,550 $1,462 $1,449 $1,357 $1,501 $1,752 $1,779 $21,908

Page 9 of 19


Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 TOTALCOMMERCIALMeter Rate

Meter Size Mo. Rate3/4" $17.45 222 222 222 222 222 222 222 222 222 222 222 222 2221" 34.87 29 29 29 29 29 29 29 29 29 29 29 29 29

1.5" 72.64 21 21 21 21 21 21 21 21 21 21 21 21 212" 104.60 17 17 17 17 17 17 17 17 17 17 17 17 173" 209.31 4 4 4 4 4 4 4 4 4 4 4 4 44" 348.86 2 2 2 2 2 2 2 2 2 2 2 2 26" 671.47 1 1 1 1 1 1 1 1 1 1 1 1 1

Consumption (per ccf)0 - 10 CCF $1.20 1,219 1,329 1,366 1,222 1,238 1,011 1,046 1,078 965 984 1,204 1,149 13,811Above 10 CCF 2.98 1,066 1,344 1,351 938 718 473 667 558 435 668 724 604 9,546Total Consumption 2,285 2,673 2,717 2,160 1,956 1,484 1,713 1,636 1,400 1,652 1,928 1,753 23,357



0 - 60 CCF $1.20 691 723 687 684 653 591 593 666 650 365 710 696 7,709Above 60 CCF 2.98 978 1,563 1,729 1,122 1,175 943 1,156 1,092 936 347 1,438 1,231 13,710Total Consumption 1,669 2,286 2,416 1,806 1,828 1,534 1,749 1,758 1,586 712 2,148 1,927 21,419

0 - 120 CCF $1.20 289 298 301 256 244 175 197 200 165 66 248 236 2,675Above 120 CCF 2.98 44 264 253 120 1 0 10 1 0 0 15 122 830Total Consumption 333 562 554 376 245 175 207 201 165 66 263 358 3,505


0 - 385 CCF $1.20 57 70 69 38 26 1 1 4 7 0 5 28 306Above 385 CCF 2.98 0 0 0 0 0 0 0 0 0 0 0 0 0Total Consumption 57 70 69 38 26 1 1 4 7 0 5 28 306


Total Revenue $23,484 $27,063 $28,930 $22,480 $22,199 $18,438 $20,112 $19,661 $18,137 $16,364 $21,753 $20,903 $259,525

Page 10 of 19


Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 TOTALIRRIGATIONMeter Rate

Meter Size Mo. Rate3/4" $17.45 26 26 25 27 26 16 11 9 9 7 18 21 181" 34.87 6 6 6 6 5 5 4 3 3 3 5 5 5

1.5" 72.64 6 6 6 6 6 1 0 3 2 1 5 6 42" 104.60 4 4 4 4 4 2 1 1 1 1 3 2 3

Consumption (per ccf)0 - 10 CCF $1.20 209 224 215 217 200 103 64 63 32 31 103 140Above 10 CCF 2.98 783 1,133 1,007 885 210 20 52 27 14 15 53 113Total Consumption 992 1,357 1,222 1,102 410 123 116 90 46 46 156 253 5,913

0 - 20 CCF $1.20 77 79 85 74 56 51 36 18 16 29 77 79Above 20 CCF 2.98 200 371 497 323 59 209 27 0 0 0 45 290Total Consumption 277 450 582 397 115 260 63 18 16 29 122 369 2,698

0 - 40 CCF $1.20 240 240 240 240 224 1 0 18 12 2 197 220Above 40 CCF 2.98 792 1,068 945 582 301 0 0 0 0 0 249 282Total Consumption 1,032 1,308 1,185 822 525 1 0 18 12 2 446 502 5,853

0 - 60 CCF $1.20 240 240 240 171 117 61 42 11 7 8 47 91Above 60 CCF 2.98 280 327 276 186 72 52 0 0 0 0 0 98Total Consumption 520 567 516 357 189 113 42 11 7 8 47 189 2,566

RevenuesMeter Charge $1,517 $1,517 $1,500 $1,535 $1,482 $735 $436 $584 $512 $404 $1,165 $1,186 $12,573Water Consumption Charge 7,043 9,579 9,057 6,731 2,630 1,097 406 212 122 129 1,543 2,969 0

Total Revenue $8,560 $11,096 $10,556 $8,265 $4,112 $1,832 $842 $797 $634 $533 $2,708 $4,155 $54,090

Page 11 of 19


Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 TOTALSUMMARYNumber of Customers

Residential 1,588 1,588 1,588 1,588 1,588 1,588 1,588 1,588 1,588 1,588 1,588 1,588 1,588Duplex and Mobile Homes 331 331 331 331 331 331 331 331 331 331 331 331 331Apartments 136 136 136 136 136 136 136 136 136 136 136 136 136Motels and B&Bs 117 117 117 117 117 117 117 117 117 117 117 117 117Commercial 296 296 296 296 296 296 296 296 296 296 296 296 296Irrigation 42 42 41 43 41 24 16 16 15 12 31 34 30

2,510 2,510 2,509 2,511 2,509 2,492 2,484 2,484 2,483 2,480 2,499 2,502 2,498

ConsumptionResidential 20,161 24,953 22,645 18,158 13,980 7,627 7,928 8,066 7,143 7,599 12,300 13,495 164,055Duplex and Mobile Homes 1,686 2,606 2,293 2,010 2,091 1,589 1,931 1,774 1,514 1,590 1,930 1,385 22,399Apartments 571 635 683 534 516 483 496 516 451 526 575 509 6,495Motels and B&Bs 679 694 615 456 355 282 222 219 181 247 356 404 4,710Commercial 6,496 7,829 8,461 6,110 5,995 4,265 4,945 4,869 4,179 3,178 5,752 5,388 67,467Irrigation 2,821 3,682 3,505 2,678 1,239 497 221 137 81 85 771 1,313 17,030

32,414 40,399 38,202 29,946 24,176 14,743 15,743 15,581 13,549 13,225 21,684 22,494 282,156

Total RevenueResidential $67,429 $80,525 $73,754 $62,197 $50,932 $39,483 $39,931 $40,189 $38,585 $39,497 $46,840 $50,312 $629,675Duplex and Mobile Homes 6,880 9,151 8,007 7,619 7,362 6,482 7,142 6,832 6,362 6,497 7,179 6,362 85,874Apartments 2,479 2,668 2,799 2,430 2,299 2,263 2,270 2,278 2,154 2,322 2,384 2,241 28,589Motels and B&Bs 2,521 2,599 2,280 1,953 1,704 1,550 1,462 1,449 1,357 1,501 1,752 1,779 21,908Commercial 23,484 27,063 28,930 22,480 22,199 18,438 20,112 19,661 18,137 16,364 21,753 20,903 259,525Irrigation 8,560 11,096 10,556 8,265 4,112 1,832 842 797 634 533 2,708 4,155 54,090

$111,353 $133,103 $126,327 $104,944 $88,608 $70,048 $71,758 $71,206 $67,229 $66,715 $82,618 $85,752 $1,079,661

FY 2012 Budget (Service Charges) $1,174,000($94,339)

-8.04%

FY 2011 Actual (Service Charges) $1,150,341($70,680)

-6.14%

Page 12 of 19

City of LakeportWater Utility - Summary of Rate DesignProposed Rate Transition

PRESENTRATES Sept 18/2012 Jan 1/2014 Jan 1/2015 Jan 1/2016 Jan 1/2017

RESIDENTIALOption 2Meter Rate

Option 2 - 3/4" $17.45 $21.60 $26.05 $30.90 $34.85 $34.851" $34.87 43.20 52.10 61.80 69.70 69.70

Outside Residential (60% of Residential metered rates)Option 2 -

3/4" $27.92 $34.55 $41.70 $49.45 $55.75 $55.751" 55.79 69.10 83.35 98.90 111.50 111.50

Consumption (per ccf)Option 2 - 3/4" Meter 1" Meter

Tier 1 0 - 6 0 - 12 N/A $1.20 $1.44 $1.70 $1.92 $1.92Tier 2 7 - 12 13 - 24 N/A 2.10 2.52 2.98 3.36 3.36Tier 3 Over 12 Over 24 N/A 3.72 4.46 5.27 5.94 5.94

DUPLEX and MOBILE HOMEMeter Rate

each unit $13.08 $16.20 $19.55 $23.15 $26.15 $26.15

Consumption (per ccf) Current ProposedTier 1 each unit 0 - 8 0 - 5 $1.20 $1.40 $1.68 $1.98 $2.23 $2.23Tier 2 each unit > 8 > 5 2.98 3.47 4.17 4.91 5.54 5.54

APARTMENTSMeter Rate

each unit $10.47 $12.95 $15.65 $18.55 $20.90 $20.90

Consumption (per ccf) Current ProposedTier 1 each unit 0 - 6 0 - 3 $1.20 $1.40 $1.68 $1.98 $2.23 $2.23Tier 2 each unit > 6 > 3 2.98 3.47 4.17 4.91 5.54 5.54

MOTEL and BED & BREAKFASTMeter Rate Allotments (CCF; each unit)

Current Proposedper room w.o kitchen (5ccf) 0 - 5 0 - 3 $8.73 $10.80 $13.05 $15.45 $17.45 $17.45per room w kitchen (6ccf) 0 - 6 0 - 4 $10.47 $12.95 $15.65 $18.55 $20.90 $20.90

Consumption (per ccf) Current ProposedTier 1 0 - 5 0 - 3 $1.20 $1.40 $1.68 $1.98 $2.23 $2.23Tier 2 > 5 > 3 2.98 3.47 4.17 4.91 5.54 5.54

COMMERCIAL & IRRIGATIONMeter Rate Allotments (CCF; each unit)

Current Proposed3/4" 0 - 10 0 - 6 $17.45 $21.60 $26.05 $30.90 $34.85 $34.851" 0 - 20 0 - 12 34.87 43.20 52.10 61.80 69.70 69.70

1.5" 0 - 40 0 - 24 72.64 89.90 108.45 128.65 145.10 145.102" 0 - 60 0 - 36 104.60 129.50 156.15 185.20 208.90 208.903" 0 - 120 0 - 72 209.31 259.10 312.45 370.65 418.10 418.104" 0 - 200 0 - 120 348.86 431.85 520.80 617.75 696.80 696.806" 0 - 385 0 - 230 671.47 831.15 1,002.40 1,189.00 1,341.20 1,341.20

Consumption (per ccf)Tier 1 $1.20 $1.40 $1.68 $1.98 $2.23 $2.23Tier 2 2.98 3.47 4.17 4.91 5.54 5.54

Allotments (CCF)

See above; by meter sizeSee above; by meter size

See below

See below

0 - 8

0 - 6Allotments (CCF)

PROPOSED RATES

Allotments (CCF)

Allotments (CCF)

See below

See below

Page 13 of 19

Consumption Present Proposed Difference Present Proposed Difference Present Proposed Difference Present Proposed Difference(per CCF) Rates Rates Amount Rates Rates Amount Rates Rates Amount Rates Rates Amount

Assuming a 3/4" Meter0 $17.45 $21.60 $4.15 $21.60 $26.05 $4.45 $26.05 $30.90 $4.85 $30.90 $34.85 $3.951 18.65 22.80 4.15 22.80 27.49 4.69 27.49 32.60 5.11 32.60 36.77 4.172 19.85 24.00 4.15 24.00 28.93 4.93 28.93 34.30 5.37 34.30 38.69 4.394 22.25 26.40 4.15 26.40 31.81 5.41 31.81 37.70 5.89 37.70 42.53 4.836 24.65 28.80 4.15 28.80 34.69 5.89 34.69 41.10 6.41 41.10 46.37 5.278 27.05 33.00 5.95 33.00 39.73 6.73 39.73 47.06 7.33 47.06 53.09 6.039 28.25 35.10 6.85 35.10 42.25 7.15 42.25 50.04 7.79 50.04 56.45 6.4110 29.45 37.20 7.75 37.20 44.77 7.57 44.77 53.02 8.25 53.02 59.81 6.7916 47.33 49.80 2.47 49.80 59.89 10.09 59.89 70.90 11.01 70.90 79.97 9.0720 59.25 71.16 11.91 71.16 85.49 14.33 85.49 101.14 15.65 101.14 114.05 12.9130 89.05 108.36 19.31 108.36 130.09 21.73 130.09 153.84 23.75 153.84 173.45 19.61

Metered Base Charge Metered Base Charge Metered Base Charge Metered Base Charge Metered Base Charge3/4" 3/4" $21.60 3/4" $26.05 3/4" $30.90 3/4" $34.851" 1" 43.20 1" 52.10 1" 61.80 1" $69.70

Consumption (per ccf) Consumption (per ccf) Consumption (per ccf) Consumption (per ccf) Consumption (per ccf)Tier 1 Tier 1 $1.20 Tier 1 $1.44 Tier 1 $1.70 Tier 1 $1.92Tier 2 Tier 2 2.10 Tier 2 2.52 Tier 2 2.98 Tier 2 $3.36

Tier 3 3.72 Tier 3 4.46 Tier 3 5.27 Tier 3 $5.94

City of Lakeport

Jan 1, 2016 Proposed Rates


Water Utility - RESIDENTIAL Monthly Bill ComparisonProposed Rate Transition - Option 2 - Three Consumption Tiers

Sept 18, 2012 Proposed Rates Jan 1, 2014 Proposed Rates Jan 1, 2015 Proposed Rates

Note: Outside-city customer rates include a 60% outside city charge on the metered base rate only.

Present Rates Sept 18, 2012 Proposed Rates Jan 1, 2014 Proposed Rates Jan 1, 2015 Proposed Rates

Page 14 of 19

Present Proposed $ Present Proposed $ Present Proposed $Consumption (per CCF) Rates Rates Difference Rates Rates Difference Rates Rates Difference

0 $13.08 $16.20 $3.12 $16.20 $19.55 $3.35 $19.55 $23.15 $3.601 14.28 17.60 3.32 17.60 21.23 3.63 21.23 25.13 3.902 15.48 19.00 3.52 19.00 22.91 3.91 22.91 27.11 4.203 16.68 20.40 3.72 20.40 24.59 4.19 24.59 29.09 4.504 17.88 21.80 3.92 21.80 26.27 4.47 26.27 31.07 4.805 19.08 23.20 4.12 23.20 27.95 4.75 27.95 33.05 5.106 20.28 26.67 6.39 26.67 32.12 5.45 32.12 37.96 5.847 21.48 30.14 8.66 30.14 36.29 6.15 36.29 42.87 6.588 22.68 33.61 10.93 33.61 40.46 6.85 40.46 47.78 7.329 25.66 37.08 11.42 37.08 44.63 7.55 44.63 52.69 8.0610 28.64 40.55 11.91 40.55 48.80 8.25 48.80 57.60 8.8012 34.60 47.49 12.89 47.49 57.14 9.65 57.14 67.42 10.2814 40.56 54.43 13.87 54.43 65.48 11.05 65.48 77.24 11.7616 46.52 61.37 14.85 61.37 73.82 12.45 73.82 87.06 13.2418 52.48 68.31 15.83 68.31 82.16 13.85 82.16 96.88 14.7220 58.44 75.25 16.81 75.25 90.50 15.25 90.50 106.70 16.20

Monthly Base Charge Monthly Base Charge Monthly Base Charge Monthly Base Chargeper customer $13.08 per customer $16.20 per customer $19.55 per customer $23.15

Consumption (per ccf) Consumption (per ccf) Consumption (per ccf) Consumption (per ccf)0 - 8 CCF $1.20 0 - 5 CCF $1.40 0 - 5 CCF $1.68 0 - 5 CCF $1.98Above 8 CCF 2.98 Above 5 CCF 3.47 Above 5 CCF 4.17 Above 5 CCF 4.91

2011/2012 Present Rates Sept 18, 2012 Proposed Rates Jan 1st 2014 Proposed Rates Jan 1st 2015 Proposed Rates

City of LakeportWater Utility - DUPLEX and MOBILE HOMES Monthly Bill ComparisonProposed Rate Transition - Option 1 - Across the Board Adjustment

Sept 18, 2012Proposed Rates Jan 1st 2014 Proposed Rates Jan 1st 2015 Proposed Rates

Page 15 of 19


0 $10.47 $12.95 $2.48 $12.95 $15.65 $2.70 $15.65 $18.55 $2.901 11.67 14.35 2.68 14.35 17.33 2.98 17.33 20.53 3.202 12.87 15.75 2.88 15.75 19.01 3.26 19.01 22.51 3.503 14.07 17.15 3.08 17.15 20.69 3.54 20.69 24.49 3.804 15.27 20.62 5.35 20.62 24.86 4.24 24.86 29.40 4.545 16.47 24.09 7.62 24.09 29.03 4.94 29.03 34.31 5.286 17.67 27.56 9.89 27.56 33.20 5.64 33.20 39.22 6.027 20.65 31.03 10.38 31.03 37.37 6.34 37.37 44.13 6.768 23.63 34.50 10.87 34.50 41.54 7.04 41.54 49.04 7.509 26.61 37.97 11.36 37.97 45.71 7.74 45.71 53.95 8.2410 29.59 41.44 11.85 41.44 49.88 8.44 49.88 58.86 8.98

Monthly Base Charge Monthly Base Charge Monthly Base Charge Monthly Base Chargeper unit $10.47 per unit $12.95 per unit $15.65 per unit $18.55

Consumption (per ccf) Consumption (per ccf) Consumption (per ccf) Consumption (per ccf)0 - 6 CCF $1.20 0 - 3 CCF $1.40 0 - 3 CCF $1.68 0 - 3 CCF $1.98Above 6 CCF 2.98 Above 3 CCF 3.47 Above 3 CCF 4.17 Above 3 CCF 4.91


City of LakeportWater Utility - APARTMENTS Monthly Bill Comparison

Proposed Rate Transition - Option 1 - Across the Board AdjustmentSept 18, 2012

Proposed Rates Jan 1st 2014 Proposed Rates Jan 1st 2015 Proposed Rates

Page 16 of 19


Unit With a Kitchen (5ccf) -0 $8.73 $10.80 $2.07 $10.80 $13.05 $2.25 $13.05 $15.45 $2.405 14.73 21.94 7.21 21.94 26.43 4.49 26.43 31.21 4.7810 29.63 39.29 9.66 39.29 47.28 7.99 47.28 55.76 8.4812 35.59 46.23 10.64 46.23 55.62 9.39 55.62 65.58 9.9614 41.55 53.17 11.62 53.17 63.96 10.79 63.96 75.40 11.4416 47.51 60.11 12.60 60.11 72.30 12.19 72.30 85.22 12.9218 53.47 67.05 13.58 67.05 80.64 13.59 80.64 95.04 14.4020 59.43 73.99 14.56 73.99 88.98 14.99 88.98 104.86 15.8822 65.39 80.93 15.54 80.93 97.32 16.39 97.32 114.68 17.36

Unit WithOut a Kitchen (6ccf) -0 $10.47 $12.95 $2.48 $12.95 $15.65 $2.70 $15.65 $18.55 $2.9010 29.59 39.37 9.78 39.37 47.39 8.02 47.39 55.93 8.5420 59.39 74.07 14.68 74.07 89.09 15.02 89.09 105.03 15.9430 89.19 108.77 19.58 108.77 130.79 22.02 130.79 154.13 23.3435 104.09 126.12 22.03 126.12 151.64 25.52 151.64 178.68 27.0440 118.99 143.47 24.48 143.47 172.49 29.02 172.49 203.23 30.7445 133.89 160.82 26.93 160.82 193.34 32.52 193.34 227.78 34.4450 148.79 178.17 29.38 178.17 214.19 36.02 214.19 252.33 38.1455 163.69 195.52 31.83 195.52 235.04 39.52 235.04 276.88 41.84

Monthly Base Charge Monthly Base Charge Monthly Base Charge Monthly Base Chargeper unit w/out kitchen $8.73 per unit w/out kitchen $10.80 per unit w/out kitchen $13.05 per unit w/out kitchen $15.45per unit w/ kitchen $10.47 per unit w/ kitchen $12.95 per unit w/ kitchen $15.65 per unit w/ kitchen $18.55

Consumption (per ccf) Consumption (per ccf) Consumption (per ccf) Consumption (per ccf)0 - 5 CCF / 0 - 6 CCF $1.20 0 - 5 CCF / 0 - 6 CCF $1.40 0 - 5 CCF / 0 - 6 CCF $1.68 0 - 5 CCF / 0 - 6 CCF $1.98Above 5 CCF / 6 CCF 2.98 Above 5 CCF / 6 CCF 3.47 Above 5 CCF / 6 CCF 4.17 Above 5 CCF / 6 CCF 4.91


City of LakeportWater Utility - B&B and MOTELS Monthly Bill Comparison



Page 17 of 19


Assuming a 3/4" Meter0 $17.45 $21.60 $4.15 $21.60 $26.05 $4.45 $26.05 $30.90 $4.852 19.85 24.40 4.55 24.40 29.41 5.01 29.41 34.86 5.454 22.25 27.20 4.95 27.20 32.77 5.57 32.77 38.82 6.056 24.65 30.00 5.35 30.00 36.13 6.13 36.13 42.78 6.658 27.05 36.94 9.89 36.94 123.91 86.97 123.91 194.70 70.7910 29.45 43.88 14.43 43.88 133.92 90.04 133.92 228.77 94.8512 35.41 50.82 15.41 50.82 158.77 107.95 158.77 262.85 104.0814 41.37 57.76 16.39 57.76 183.62 125.86 183.62 296.92 113.3016 47.33 64.70 17.37 64.70 208.48 143.78 208.48 331.00 122.5218 53.29 71.64 18.35 71.64 233.33 161.69 233.33 365.07 131.7420 59.25 78.58 19.33 78.58 258.18 179.60 258.18 399.15 140.9725 74.15 95.93 21.78 95.93 320.32 224.39 320.32 484.34 164.0230 89.05 113.28 24.23 113.28 382.45 269.17 382.45 569.52 187.0835 103.95 130.63 26.68 130.63 444.58 313.95 444.58 654.71 210.1340 118.85 147.98 29.13 147.98 506.71 358.73 506.71 739.90 233.1945 133.75 165.33 31.58 165.33 568.85 403.52 568.85 825.09 256.2450 148.65 182.68 34.03 182.68 630.98 448.30 630.98 910.28 279.30

Metered Base Charge Metered Base Charge Metered Base Charge Metered Base Charge3/4" $17.45 3/4" $21.60 3/4" $26.05 3/4" $30.901" 34.87 1" 43.20 1" 52.10 1" 61.801.5" 72.64 1.5" 89.90 1.5" 108.45 1.5" 128.652" 104.60 2" 129.50 2" 156.15 2" 185.203" 209.31 3" 259.10 3" 312.45 3" 370.654" 348.86 4" 431.85 4" 520.80 4" 617.756" 671.47 6" 831.15 6" 1,002.40 6" 1,189.00

Consumption (per ccf) Consumption (per ccf) Consumption (per ccf) Consumption (per ccf)Tier 1 $1.20 New 1 $1.40 New 1 $1.68 New 1 $1.98Tier 2 2.98 New 2 3.47 New 2 4.17 New 2 4.91


City of LakeportWater Utility - COMMERCIAL Monthly Bill Comparison



Page 18 of 19


Assuming a 3/4" Meter0 $17.45 $21.60 $4.15 $21.60 $26.05 $4.45 $26.05 $30.90 $4.852 19.85 24.40 4.55 24.40 29.41 5.01 29.41 34.86 5.454 22.25 27.20 4.95 27.20 32.77 5.57 32.77 38.82 6.056 24.65 30.00 5.35 30.00 36.13 6.13 36.13 42.78 6.658 27.05 36.94 9.89 36.94 123.91 86.97 123.91 194.70 70.7910 29.45 43.88 14.43 43.88 133.92 90.04 133.92 228.77 94.8512 35.41 50.82 15.41 50.82 158.77 107.95 158.77 262.85 104.0814 41.37 57.76 16.39 57.76 183.62 125.86 183.62 296.92 113.3016 47.33 64.70 17.37 64.70 208.48 143.78 208.48 331.00 122.5218 53.29 71.64 18.35 71.64 233.33 161.69 233.33 365.07 131.7420 59.25 78.58 19.33 78.58 258.18 179.60 258.18 399.15 140.9725 74.15 95.93 21.78 95.93 320.32 224.39 320.32 484.34 164.0230 89.05 113.28 24.23 113.28 382.45 269.17 382.45 569.52 187.0835 103.95 130.63 26.68 130.63 444.58 313.95 444.58 654.71 210.1340 118.85 147.98 29.13 147.98 506.71 358.73 506.71 739.90 233.1945 133.75 165.33 31.58 165.33 568.85 403.52 568.85 825.09 256.2450 148.65 182.68 34.03 182.68 630.98 448.30 630.98 910.28 279.30

Metered Base Charge Metered Base Charge Metered Base Charge Metered Base Charge3/4" $17.45 3/4" $21.60 3/4" $26.05 3/4" $30.901" 34.87 1" 43.20 1" 52.10 1" 61.801.5" 72.64 1.5" 89.90 1.5" 108.45 1.5" 128.652" 104.60 2" 129.50 2" 156.15 2" 185.20

Consumption (per ccf) Consumption (per ccf) Consumption (per ccf) Consumption (per ccf)Tier 1 $1.20 New 1 $1.40 New 1 $1.68 New 1 $1.98Tier 2 2.98 New 2 3.47 New 2 4.17 New 2 4.91


City of LakeportWater Utility - IRRIGATION Monthly Bill Comparison



Page 19 of 19

Appendix B

Sewer Utility System Analyses

Actual BudgetFY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017

RevenuesRate Revenues $1,439,606 $1,504,600 $1,504,600 $1,504,600 $1,508,362 $1,512,132 $1,515,913Miscellaneous Revenues 233,458 194,073 193,710 193,799 194,335 195,422 196,255

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Revenues $1,673,064 $1,698,673 $1,698,310 $1,698,399 $1,702,696 $1,707,554 $1,712,168

ExpensesOperations and Maintenance Expense $1,295,246 $1,472,770 $1,526,496 $1,582,311 $1,640,301 $1,700,557 $1,763,173Transfers $93,348 $135,000 $137,250 $139,613 $142,093 $144,698 $147,433Capital Funded Through Rates 15,500 40,200 60,000 80,000 95,000 110,000 125,000Debt Service 189,460 187,260 189,960 188,746 315,451 348,405 387,252Change in Working Capital +/- 0 (194,141) 25,340 110,962 178,598 246,357 204,393

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Expenses $1,593,554 $1,641,089 $1,939,046 $2,101,632 $2,371,443 $2,550,017 $2,627,250

Total Revenue Requirement $1,593,554 $1,641,089 $1,939,046 $2,101,632 $2,371,443 $2,550,017 $2,627,250

Balance/(Deficiency) of Funds $79,510 $57,584 ($240,736) ($403,233) ($668,747) ($842,462) ($915,082)

Increase as a % of Present Rate Revenues -5.5% -3.8% 16.0% 26.8% 44.3% 55.7% 60.4%

Plus: Bad Debt (at 4.0% per year) $0 $57,584 $60,184 $60,184 $60,184 $60,334 $60,485

Balance/(Deficiency) Includeing Bad Debt $107,253 $0 ($300,920) ($463,417) ($728,931) ($902,797) ($975,567)

Increase as a % of Pres. Rates with Bad Debt -7.5% 0.0% 20.0% 30.8% 48.3% 59.7% 64.4%

Proposed Rate Adjustments 0.0% 0.0% 20.0% 18.0% 9.5% 6.0% 0.0%

Additional Revenue from Adjustment $0 $0 $300,920 $463,417 $728,931 $902,797 $975,567

Total Balance/(Deficiency) of Funds $107,253 $0 $0 $0 $0 $0 $0

Additional Rate Adjustment Required 7.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Average Residential Rate - $/ Month $46.79 (South Residential Customer)After CPI Rate Adjustment - January 1st implementation $46.79 $46.79 $56.15 $66.25 $72.55 $76.90After Proposed Rate Adjustment - January 1st implementation $46.79 $56.15 $66.25 $72.55 $76.90 $76.90Monthly $ Difference $0.00 $9.36 $10.10 $6.30 $4.35 $0.00

Debt Service Coverage RatioBefore Rate Adjustment 2.14 1.21 0.90 0.62 0.20 0.02 0.00After Proposed Rate Adjustment 2.14 1.21 2.49 3.07 2.51 2.61 2.39

City of LakeportSewer Utility - Scenario 2 - Funding 2/3 of Depreciation

Exhibit 1SUMMARY OF THE REVENUE REQUIREMENT

Projected

Page 1 of 13

City of LakeportSewer Utility - Scenario 2 - Funding 2/3 of DepreciationExhibit 2ESCALATION FACTORS

Actual BudgetFY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Notes

Rate Implemenation Date

Current Rates N/A N/A 1 2 2 2 2 1=July FY; 2=Jan FY

Proposed Rates N/A N/A 1 2 2 2 2 1=July FY; 2=Jan FY

Revenues $4.000000 $5.000000 $6.000000 $7.000000 $8.000000Rate Revenues [1] Actual Budget 0.0% 0.0% 0.0% 0.0% 0.0%Miscellaneous Revenues Actual 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%Growth Actual 0.0% 0.0% 0.0% 0.5% 0.5% 0.5%

ExpensesLabor Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Benefits Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Materials & Supplies Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Chemicals Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Fuel Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Equipment Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Energy Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Utilities Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Miscellaneous Actual 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%Transfers Actual 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%Bad Debt 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Interest Actual 0.4% 0.4% 0.5% 0.8% 1.0% 1.0%

Current USDA LoanYear 40 40 40 40 40 40 40Interest Rate 2.25% 2.25% 2.25% 2.25% 2.25% 2.25% 2.25%

Future USDA LoanYear 40 40 40 40 40 40 40Interest Rate 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Notes:[1] Based on the third quarter reporting period San Francisco Bay CPI

Projected

Page 2 of 13

City of Lakeport Page 1 of 4Sewer Utility - Scenario 2 - Funding 2/3 of DepreciationExhibit 3SOURCES AND APPLICATIONS OF FUNDS


REVENUES

Rate Revenues [2] [3]Residential $869,538 $908,795 $908,795 $908,795 $911,067 $913,345 $915,629 As Rate Revenues [1]Apartments 66,475 69,476 69,476 69,476 69,650 69,824 69,999 As Rate Revenues [1]Commercial 503,593 526,328 526,328 526,328 527,644 528,963 530,286 As Rate Revenues [1]

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Rate Revenues $1,439,606 $1,504,600 $1,504,600 $1,504,600 $1,508,362 $1,512,132 $1,515,913

Other RevenuesCLMSD Basin 2000 $93,348 $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 As FlatCLMSD M&O Tax 1,237 1,249 1,262 1,274 1,287 1,300 1,313 As Miscellaneous RevenuesCounty Service 108,314 75,000 75,000 75,000 75,000 75,000 75,000 As Rate Revenues [1]Property Leases 30,000 25,000 25,250 25,503 25,758 26,015 26,275 As Miscellaneous RevenuesConnection Charge 0 1,000 1,010 1,020 1,030 1,041 1,051 As Miscellaneous RevenuesMiscellaneous Fees 0 100 101 102 103 104 105 As Miscellaneous RevenuesInterest Income 559 1,723 1,087 900 1,157 1,962 2,511 Calculated

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Other Revenues $233,458 $194,073 $193,710 $193,799 $194,335 $195,422 $196,255

Transfers: In $27,743 $0 $0 $0 $0 $0 $0

TOTAL REVENUES $1,700,807 $1,698,673 $1,698,310 $1,698,399 $1,702,696 $1,707,554 $1,712,168

Projected

Page 3 of 13



Projected

OPERATIONS AND MAINTENANCE EXPENSE

Sewer Utility (601)Salaries [4] $471,791 $421,430 $434,073 $447,095 $460,508 $474,324 $488,553 As LaborBenefits 299,522 267,551 280,928 294,975 309,723 325,209 341,470 As BenefitsMaterials and Supplies 334,042 355,777 366,451 377,444 388,767 400,430 412,443 As Materials & SuppliesTreatment Chemicals 0 18,000 18,900 19,845 20,837 21,879 22,973 As ChemicalsFuel 0 16,175 16,660 17,160 17,675 18,205 18,751 As FuelEnergy 0 191,590 201,170 211,228 221,789 232,879 244,523 As EnergyTravel and Training 5,095 5,427 5,589 5,757 5,930 6,108 6,291 As MiscellaneousOther [5] 184,796 196,820 202,725 208,807 215,071 221,523 228,169 As Miscellaneous

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Sewer Utility (601) $1,295,246 $1,472,770 $1,526,496 $1,582,311 $1,640,301 $1,700,557 $1,763,173

TOTAL O&M EXPENSES $1,295,246 $1,472,770 $1,526,496 $1,582,311 $1,640,301 $1,700,557 $1,763,173

TransfersTransfer Out $0 $45,000 $47,250 $49,613 $52,093 $54,698 $57,433 As TransfersBasin 2000 93,348 90,000 90,000 90,000 90,000 90,000 90,000 As Flat

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Transfers $93,348 $135,000 $137,250 $139,613 $142,093 $144,698 $147,433

CAPITAL FUNDED THROUGH RATES (Exh. 4) $15,500 $40,200 $60,000 $80,000 $95,000 $110,000 $125,000 Approx. Deprec. $627K for FY '11

Debt ServiceCSCDA Wastewater Revenue bonds Series 2007A $189,460 $187,260 $189,960 $187,560 $190,060 $187,460 $189,760 Debt Service ScheduleUSDA Loan [6] 0 0 0 0 121,725 121,725 121,725 Calculated at 40 years; 2.2%New Debt Service 0 0 0 1,186 3,667 39,221 75,767 Calculated at 40 years; 3%

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Debt Service $189,460 $187,260 $189,960 $188,746 $315,451 $348,405 $387,252

Change in Working Capital +/-Transfers To - CLMSD Utility M&O Fund (601) $0 ($194,141) ($120,160) ($59,538) $8,098 $75,857 $33,893Transfers To - Rate Stabilization/Debt Service Reserve 0 0 29,000 54,000 54,000 54,000 54,000Transfers To - R&R/CIP Reserve 0 0 116,500 116,500 116,500 116,500 116,500

---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------------Total Transfers to Reserves $0 ($194,141) $25,340 $110,962 $178,598 $246,357 $204,393

Page 4 of 13



Projected

TOTAL REVENUE REQUIREMENT $1,593,554 $1,641,089 $1,939,046 $2,101,632 $2,371,443 $2,550,017 $2,627,250

Balance/(Deficiency) of Funds $107,253 $57,584 ($240,736) ($403,233) ($668,747) ($842,462) ($915,082)

Increase as a % of Present Rate Revenues -7.5% -3.8% 16.0% 26.8% 44.3% 55.7% 60.4%

Plus: Bad Debt (at 4.0% per year) $0 $57,584 $60,184 $60,184 $60,184 $60,334 $60,485 As Bad Debt

Balance/(Deficiency) Includeing Bad Debt $107,253 $0 ($300,920) ($463,417) ($728,931) ($902,797) ($975,567)

Increase as a % of Pres. Rates with Bad Debt -7.5% 0.0% 20.0% 30.8% 48.3% 59.7% 64.4%

Sept 18, 2012 Jan 1st 2014 Jan 1st 2015 Jan 1st 2016 Jan 1st 2017Proposed Rate Adjustment [7] 0.0% 0.0% 20.0% 18.0% 9.5% 6.0% 0.0%

Additional Revenue from Rate Increase $0 $0 $300,920 $463,417 $728,931 $902,797 $975,567

Balance/Deficiency of Funds $107,253 $0 $0 $0 $0 $0 $0

Deficiency as a % of Rate Revenues -7.5% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Notes:[1] CPI increases are applied to expenses, if CPI exceeds the 3% for general expenses and fuel and 5% for chemicals and electric costs per the third quarter reporting period San Fancisco Bay CPI, then CPI can be adjusted.[2] Rate adjustment is implemented January 1st each year.[3] Projected rate revenues include growth.[4] Salaries and Benefits were combined in the 2011 Actuals report and 2012 budget. Each sum was separtated based on the 2011 financial statement salaries and benefits split.[5] Includes Property Tax Assestments.[6] Estimated for payments to begin after project is completed.[7] FY 2013 adjustment includes last adjustment of Resolution No. 2308 (2007).

Average Residential Rate - $/ Month $46.79 (South Residential Customer)After CPI Rate Adjustment - January 1st implementation $46.79 $46.79 $56.15 $66.25 $72.55 $76.90After Proposed Rate Adjustment - January 1st implementation $46.79 $56.15 $66.25 $72.55 $76.90 $76.90Monthly $ Difference $0.00 $9.36 $10.10 $6.30 $4.35 $0.00

Debt Service Coverage RatioBefore Rate Adjustment 2.14 1.21 0.90 0.62 0.20 0.02 0.00 Minimum 1.25After Proposed Rate Adjustment 2.14 1.21 2.49 3.07 2.51 2.61 2.39 Minimum 1.25

Page 5 of 13



Projected

CLMSD Utility M&O Fund (601)Beginning Fund Balance $527,925 $527,925 $333,784 $209,728 $150,190 $158,288 $234,144Plus: To Operating Reserve 0 (194,141) (120,160) (59,538) 8,098 75,857 33,893Transfers to Capital Reserve 0 0 0 0 0 0 0Less: Capital From Rates 0 0 3,896 0 0 0 0Ending Reserve Balance $527,925 $333,784 $209,728 $150,190 $158,288 $234,144 $268,037

Target Reserve = 15% Operating Expenses $194,000 $221,000 $229,000 $237,000 $246,000 $255,000 $264,000

Rate Stabilization/Debt Service ReserveBeginning Fund Balance $0 $0 $0 $29,000 $83,420 $138,524 $194,179Transfer In from Operations 0 0 29,000 54,000 54,000 54,000 54,000Interest Earnings 0 0 0 420 1,104 1,655 0Use of Reserves 0 0 0 0 0 0 0Ending Reserve Balance $0 $0 $29,000 $83,420 $138,524 $194,179 $248,179

Target Reserve = 2 Months of Rate Revenue $237,000 $247,000 $247,000 $247,000 $248,000 $249,000 $249,000

R&R/CIP ReserveBeginning Fund Balance $0 $0 $0 $116,500 $234,311 $353,736 $474,356Transfer In from Operations 0 0 116,500 116,500 116,500 116,500 116,500Interest Earnings 0 0 0 1,311 2,926 4,120 0Use of Reserves 0 0 0 0 0 0 0Ending Reserve Balance $0 $0 $116,500 $234,311 $353,736 $474,356 $590,856Target Reserve = 5% of Capital Assets [1] $586,000 $586,000 $586,000 $586,000 $586,000 $586,000 $586,000FY 2011 Depreciation Expense $627,000 $627,000 $627,000 $627,000 $627,000 $627,000 $627,000

Total Cash Reserves $527,925 $333,784 $355,228 $467,921 $650,548 $902,680 $1,107,072Total Target Cash Reserves $1,017,000 $1,054,000 $1,062,000 $1,070,000 $1,080,000 $1,090,000 $1,099,000

Balance/(Deficiency) of Reserves ($489,075) ($720,216) ($706,772) ($602,079) ($429,452) ($187,320) $8,072

CLMSD Expansion Fund (602)Beginning Fund Balance $454,290 $446,087 $437,852 $430,016 $423,203 $417,385 $411,509Capital Outlay/CIP (Fund 602) 0 0 0 0 0 0 0Revenue (Interest Earnings) 1,797 1,764 2,164 3,188 4,182 4,124 0CLMSD Service Fee 10,000 10,000 10,000 10,000 10,000 10,000 10,000Ending Fund Balance $446,087 $437,852 $430,016 $423,203 $417,385 $411,509 $401,509

[1] Capital Assets, Net of Depreciation, from the City's Statement of Net Assets, Year-Ended June 30, 2011, page 21.

Page 6 of 13

City of LakeportSewer Utility - Scenario 2 - Funding 2/3 of DepreciationExhibit 4CAPITAL IMPROVEMENT PROJECTS

Actual BudgetFY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 Total Notes

Capital Improvement ProgramUSDA Projects

Main Street Sewer ReplacementLift Station Radio Telemetry and SCADA Improve.I&I Reduction ProgramClearlake Lift Station ReplacementTreatment Plant - Repair Aeration Basin & Remove SludgeTotal Projects in USDA Loan $0 $0 $1,594,200 $1,594,200 $0 $0 $0 $3,188,400

Miscellaneous ProjectsTreatment Plant - Inspect & Clean Chlorine Gas System $0 $0 $0 $0 $0 $0 $80,000Treatment Plant - Modify Recycle Pump Station No. 1 0 0 0 25,000 0 0 0I&I Reduction Program 0 0 0 0 0 282,000 282,000Linda Lane Lift Station Odor Control 0 0 0 12,000 0 0 0Lakeshore Blvd and N High St Parallel 0 0 0 0 0 180,000 0Main St. Parallel Sewer 0 0 0 0 29,151 150,000 535,849N High St Sewer Replacement 0 0 0 4,602 55,398 0 0Martin St Parallel Sewer 0 0 0 0 0 250,000 0Total Miscellaneous Projects $0 $0 $0 $41,602 $84,549 $862,000 $897,849 $1,886,000

Automobiles and Trucks $0 $0 $15,000 $15,450 $15,914 $16,391 $16,883 $79,638 As EquipmentShop and Other Equipment 0 17,000 25,000 25,750 26,523 27,319 28,139 149,731 As EquipmentOffice Equipment and Furnishings 0 3,700 3,811 3,925 4,043 4,164 4,289 23,932 As EquipmentLand, Structures, & Improvements 0 19,500 20,085 20,688 21,309 21,948 22,606 126,136 As Equipment

Unidentified Capital improvement Projects $0 $0 $0 $0 $0 $0 $0 $0

Total Capital Improvements $0 $40,200 $1,658,096 $1,701,615 $152,338 $931,822 $969,766 $5,453,837

CapitalTransfer to R&R/CIP Reserve Fund $0 $0 $0 $0 $0 $0 $0

-------------- -------------- -------------- -------------- -------------- -------------- --------------Total Capital $0 $0 $0 $0 $0 $0 $0 $0

Total Capital Improvements and Capital $0 $40,200 $1,658,096 $1,701,615 $152,338 $931,822 $969,766 $5,453,837

Less: Funding Sources Other Than RatesOperating Reserves $0 $0 $3,896 $0 $0 $0 $0 $3,896Capital Reserve Funds 0 0 0 0 0 0 0 0 USDA Grant Funding 0 0 0 0 0 0 0 0USDA Loan Proceeds 0 0 1,594,200 1,594,200 0 0 0 3,188,400SRF Loan Proceeds 0 0 0 0 0 0 0 0New Low Interest Loan 0 0 0 27,415 57,338 821,822 844,766 1,751,341

-------------- -------------- -------------- -------------- -------------- -------------- --------------Total Funding Sources Other Than Rates $0 $0 $1,598,096 $1,621,615 $57,338 $821,822 $844,766 $4,943,637

CAPITAL FUNDED THROUGH RATES $0 $40,200 $60,000 $80,000 $95,000 $110,000 $125,000 $510,200 Approx. Deprec. $627K for FY '11

Projected

Page 7 of 13

City of Lakeport Page 1 of 2Sewer Utility - Scenario 2 - Funding 2/3 of DepreciationExhibit 14REVENUE AT PRESENT RATES

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 TOTALRESIDENTIAL

Mo. RateNorth Customers $35.41 635 635 635 635 635 635 635 635 635 635 635 635 635South Customers $46.79 1,096 1,096 1,096 1,096 1,096 1,096 1,096 1,096 1,096 1,096 1,096 1,096 1,096

Consumption (per ccf)All Consumption $0.00 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386

Total Consumption 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 124,632

RevenuesMeter Charge $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $885,206Water Consumption Charge 0 0 0 0 0 0 0 0 0 0 0 0 0

Total Revenue $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $885,206

APARTMENTSMo. Rate

North Customers $26.57 63 63 63 63 63 63 63 63 63 63 63 63 63South Customers $36.05 110 110 110 110 110 110 110 110 110 110 110 110 110

Consumption (per ccf)All Consumption $0.00 536 536 536 536 536 536 536 536 536 536 536 536

Total Consumption 536 536 536 536 536 536 536 536 536 536 536 536 6,436

RevenuesMeter Charge $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $67,673Water Consumption Charge 0 0 0 0 0 0 0 0 0 0 0 0 0

Total Revenue $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $5,639 $67,673

COMMERCIALMo. Rate

North Customers $35.41 19 19 19 19 19 19 19 19 19 19 19 19 19South Customers $46.79 402 402 402 402 402 402 402 402 402 402 402 402 402

Consumption (per ccf)0 - 8 CCF $0.00 1,695 1,791 1,815 1,720 1,727 1,473 1,598 1,669 1,530 1,433 1,845 1,849Above 8 CCF 5.36 5,480 6,732 7,261 4,846 4,623 3,071 3,569 3,419 2,830 1,992 4,263 3,944

Total Consumption 7,175 8,523 9,076 6,566 6,350 4,544 5,167 5,088 4,360 3,425 6,108 5,792 72,174


Total Revenue $48,855 $55,566 $58,401 $45,457 $44,262 $35,943 $38,612 $37,808 $34,651 $30,159 $42,332 $40,620 $512,667

Page 8 of 13

City of Lakeport Page 2 of 2Sewer Utility - Scenario 2 - Funding 2/3 of DepreciationExhibit 14REVENUE AT PRESENT RATES

Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 TOTALSUMMARYNumber of Customers

Residential 1,731 1,731 1,731 1,731 1,731 1,731 1,731 1,731 1,731 1,731 1,731 1,731 1,731Apartments 173 173 173 173 173 173 173 173 173 173 173 173 173Commercial 421 421 421 421 421 421 421 421 421 421 421 421 421

2,325 2,325 2,325 2,325 2,325 2,325 2,325 2,325 2,325 2,325 2,325 2,325 2,325

ConsumptionResidential 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 10,386 124,632Apartments 536 536 536 536 536 536 536 536 536 536 536 536 6,436Commercial 7,175 8,523 9,076 6,566 6,350 4,544 5,167 5,088 4,360 3,425 6,108 5,792 72,174

18,097 19,445 19,998 17,488 17,272 15,466 16,089 16,010 15,282 14,347 17,030 16,714 203,242

Total RevenueResidential $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $73,767 $885,206Apartments 5,639 5,639 5,639 5,639 5,639 5,639 5,639 5,639 5,639 5,639 5,639 5,639 67,673Commercial 48,855 55,566 58,401 45,457 44,262 35,943 38,612 37,808 34,651 30,159 42,332 40,620 512,667

$128,262 $134,972 $137,808 $124,864 $123,668 $115,350 $118,019 $117,215 $114,058 $109,566 $121,739 $120,026 $1,465,546

FY 2012 Budget (Service Charges) $1,504,600($39,054)

-2.60%

FY 2011 Actual (Service Charges) $1,514,954($49,408)

-3.26%

Page 9 of 13

City of LakeportSewer Utility - Summary of Rate DesignOPTION 2 - North and South Same Rate Transition

PRESENTSEWER RATES Sept. 18, 2012 Jan. 1, 2014 Jan. 1, 2015 Jan. 1, 2016 Jan. 1, 2017

RESIDENTIALMeter Rate

Meter Size Mo. RateNorth Customers* $35.41 $53.25 $62.52 $70.07 $74.25 $74.25South Customers $46.79 $55.60 $65.00 $70.07 $74.25 $74.25

APARTMENTSMeter Rate


COMMERCIALMeter Rate


Consumption (per ccf)0 - 8 CCF $0.00 $0.00 $0.00 $0.00 $0.00 $0.00Above 8 CCF 5.36 6.43 7.59 8.31 8.81 8.81

PROPOSED RATES

Page 10 of 13

Present Proposed $ Present Proposed $ Present Proposed $ Present Proposed $Rates Rates Difference Rates Rates Difference Rates Rates Difference Rates Rates Difference

North Customer [1] $44.91 $53.25 $8.34 $53.25 $62.52 $9.27 $62.52 $70.07 $7.55 $70.07 $74.25 $4.18

South Customers $46.79 $55.60 $8.81 $55.60 $65.00 $9.40 $65.00 $70.07 $5.07 $70.07 $74.25 $4.18

Base Charge Base Charge Base Charge Base Charge Base ChargeNorth $35.41 North $43.75 North $53.02 North $60.57 North $64.75South 46.79 South 55.60 South 65.00 South 70.07 South $74.25

Basin 2000 $9.50 Basin 2000 [1] $9.50 Basin 2000 [1] $9.50 Basin 2000 [1] $9.50 Basin 2000 [1] $9.50Rate [1]


Note: [1] Basin 2000 Rate is only applied to the North customers.

City of LakeportSewer Utility - RESIDENTIAL Monthly Bill Comparison

Proposed Rate Transition - Option 2 - North & South Same Monthly Charge

Proposed Rates Jan 1, 2014 Proposed Rates Jan 1, 2015 Proposed RatesSept 18,2012


Present Rates Sept 18, 2012 Proposed Rates Jan 1, 2014 Proposed Rates Jan 1, 2015 Proposed Rates

Page 11 of 13

Present Proposed $ Present Proposed $ Present Proposed $Rates Rates Difference Rates Rates Difference Rates Rates Difference

North Customer [1] $36.07 $42.40 $6.33 $42.40 $49.30 $6.90 $49.30 $54.00 $4.70

South Customers $36.05 $42.70 $6.65 $42.70 $49.80 $7.10 $49.80 $54.00 $4.20

Metered Base Charge Metered Base Charge Metered Base Charge Metered Base ChargeNorth $26.57 North $32.90 North $39.80 North $44.50South 36.05 South 42.70 South 49.80 South 54.00

Basin 2000 Rate [1] $9.50 Basin 2000 Rate [1] $9.50 Basin 2000 Rate [1] $9.50 Basin 2000 Rate [1] $9.50



Sewer Utility - APARTMENTS Monthly Bill ComparisonProposed Rate Transition - Option 2 - North & South Same Monthly Charge

Sept 18,2012 Proposed Rates Jan 1st 2014 Proposed Rates Jan 1st 2015 Proposed Rates

City of Lakeport

Page 12 of 13


North Customer [1]0 $44.91 $53.25 $8.34 $53.25 $62.52 $9.27 $62.52 $70.07 $7.552 44.91 53.25 8.34 53.25 62.52 9.27 62.52 70.07 7.554 44.91 53.25 8.34 53.25 62.52 9.27 62.52 70.07 7.556 44.91 53.25 8.34 53.25 62.52 9.27 62.52 70.07 7.558 44.91 53.25 8.34 53.25 62.52 9.27 62.52 70.07 7.5510 55.63 66.11 10.48 66.11 77.70 11.59 77.70 86.69 8.9912 66.35 78.97 12.62 78.97 92.88 13.91 92.88 103.31 10.4314 77.07 91.83 14.76 91.83 108.06 16.23 108.06 119.93 11.8716 87.79 104.69 16.90 104.69 123.24 18.55 123.24 136.55 13.31

South Customers0 $46.79 $55.60 $8.81 $55.60 $65.00 $9.40 $65.00 $70.07 $5.072 46.79 55.60 8.81 55.60 65.00 9.40 65.00 70.07 5.074 46.79 55.60 8.81 55.60 65.00 9.40 65.00 70.07 5.076 46.79 55.60 8.81 55.60 65.00 9.40 65.00 70.07 5.078 46.79 55.60 8.81 55.60 65.00 9.40 65.00 70.07 5.0710 57.51 68.46 10.95 68.46 80.18 11.72 80.18 86.69 6.5112 68.23 81.32 13.09 81.32 95.36 14.04 95.36 103.31 7.9514 78.95 94.18 15.23 94.18 110.54 16.36 110.54 119.93 9.3916 89.67 107.04 17.37 107.04 125.72 18.68 125.72 136.55 10.83

Metered Base Charge Metered Base Charge Metered Base Charge Metered Base ChargeNorth $35.41 North $43.75 North $53.02 North $60.57South 46.79 South 55.60 South 65.00 South 70.07

Basin 2000 Rate [1] $9.50 Basin 2000 Rate [1] $9.50 Basin 2000 Rate [1] $9.50 Basin 2000 Rate [1] $9.50

Volume (per ccf) Volume (per ccf) Volume (per ccf) Volume (per ccf)0 - 8 CCF $0.00 0 - 8 CCF $0.00 0 - 8 CCF $0.00 0 - 8 CCF $0.00Over 8 CCF 5.36 Over 8 CCF 6.43 Over 8 CCF 7.59 Over 8 CCF 8.31



City of LakeportSewer Utility - COMMERCIAL Monthly Bill Comparison

Proposed Rate Transition - Option 2 - North & South Same Monthly Charge

Proposed Rates Jan 1st 2014 Proposed Rates Jan 1st 2015 Proposed RatesSept 18,2012

Page 13 of 13

Appendix C

Rate Affordability Analyses

Rate Affordability The City of Lakeport is designated as an economically disadvantaged community. As such, it is eligible for more grant funding and lower interest loans for some capital projects, especially if rates begin to reach an affordability level. Various government agencies consider individual utility rates between 1.5% and 2.5% of the median household income to be an affordability issue. This level of rate typically qualifies a jurisdiction for better capital project funding. For example, if the water rate is 1.5% of the median household income, the City can qualify for SRF or grant funding and lower cost loan terms from the USDA for project funding. The affordability test was completed for Scenario 3 for both utilities, and also for Scenario 2 for the sewer utility.

For the water utility, the three-year rate implementation approach reaches the 1.5% affordability level by 2015; the recommended rate are projected to reach 1.5% by 2016, as shown below.

The City provided the median household income. No adjustment or increase was made to the median household income in calculating the percentage of household income in future years.

These results reflect Option 1 rates, existing rate structure with the necessary rate adjustments applied. Affordability tests were also calculated for the Option 2 rates, resulting in the same affordability results as the Option 1 rates.

City of LakeportReview of Utility Rate Affordability

1.50% 2.00% 2.50%

Median Household Income $41,064

Annual Bill at Affordability Limit $615.96 $821.28 $1,026.60Monthly Bill at Affordability Limit $51.33 $68.44 $85.55

Water Utility ‐ 4‐year rate adjustment scenario

Residential rate: 3/4" meter, 9 ccf usage: 2011 was $28.25

Rate ‐ FY 2013 $34.75 Pass Pass Pass

Percentage of median household income 1.02%

Rate ‐ FY 2014 $41.70 Pass Pass PassPercentage of median household income 1.22%

Rate ‐ FY 2015 $49.21 Pass Pass Pass


Rate ‐ FY 2016 $55.50 Fail Pass Pass


Range of Affordability

Sewer Utility ‐ 4‐year rate adjustment scenario, Option 2 Rates

Residential rate: Southside Customer ‐ 2011 was $46.79Rate ‐ FY 2013 $55.60 Fail Pass Pass


Rate ‐ FY 2014 $65.00 Fail Pass Pass


Rate ‐ FY 2015 $70.07 Fail Fail Pass


Rate ‐ FY 2016 $74.25 Fail Fail Pass


The City’s existing residential sewer rates are already at 1.4% of median household income. All rate adjustment Options meet the 1.5% test and in the last two years (FY 2015 and 2016) the rates will meet the 2% affordability test, as shown below.

The sewer Option 2 rates showed the same affordability test results as the Option 1 rates; that is, the same fail and pass results.

In these circumstances, when rates fail the affordability tests, one rate option some utilities implement is a low-income senior/disabled rate which is discounted from the regular utility rate. Discounts typically range from 15% to 75% reduction. This provides some rate relief to those most in need. The ways to implement such a rate are many. Funding can be from customer donations, social service agencies, general fund, etc. By implementing Option 2 rates for the water customers, with lower rates in the lower use Tiers, the rate structure itself gives low water users a way to keep their bills lower. Low-income seniors typically fit a low water use profile. For sewer customers, because the rate is a flat rate for residential customers, as the rates increase, a discount for low-income/fixed income households may become more important. Should the City decide to pursue this rate option, HDR can provide rate alternatives for consideration.

city of lakeport water and sewer utility rate...

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