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FINAL REPORT

WATER RATE ANALYSIS BLACK & VEATCH PROJECT NO. 182708.0100

PREPARED FOR

City of Lomita

DECEMBER 18, 2014

©Black & Veatch Holding Company 2011. All rights reserved.

WATER RATE ANALYSIS | City of Lomita

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| DECEMBER 22, 2014

Table of Contents 1 Executive Summary ................................................................................................................................... 1

1.1 Finding .............................................................................................................................................................................. 1

1.2 Recommendation .......................................................................................................................................................... 2

1.3 Level of Rate Increases if Water Fund 100 Percent Reliant on Purchased Water ............................. 4

2 Introduction ................................................................................................................................................. 7

2.1 Background ..................................................................................................................................................................... 7

2.2 Scope of Work ................................................................................................................................................................ 8

2.3 Overview of Legal and Industry Best Practices for Cost-Of-Service Studies........................................ 8

2.3.1 Proposition 13 .............................................................................................................................................. 8

2.3.2 Proposition 218 ........................................................................................................................................... 8

2.3.3 Assembly Bill 2882 ..................................................................................................................................... 9

2.3.4 Proposition 26 .............................................................................................................................................. 9

2.3.5 Government Code Section §54999.7 ................................................................................................ 10

2.3.6 Generally Accepted Rate-Setting Standards ................................................................................. 10

2.4 Disclaimer ..................................................................................................................................................................... 10

3 Water Rate Update ................................................................................................................................... 11

3.1 Revenue Requirements ........................................................................................................................................... 11

3.1.1 Customer and Water Usage Projections ......................................................................................... 11

3.1.2 Revenue Projections ............................................................................................................................... 12

3.1.3 Operation and Maintenance Projections ........................................................................................ 13

3.1.4 Capital Improvement Program .......................................................................................................... 14

3.1.5 Debt Service Requirements ................................................................................................................. 15

3.1.6 Reserves ....................................................................................................................................................... 15

3.2 Operating and Capital Funding and Cash Flow Analyses .......................................................................... 16

4 Cost of Service Allocation ....................................................................................................................... 21

4.1 Functional Cost Components ................................................................................................................................ 21

4.2 Allocation to Cost Components ............................................................................................................................ 22

4.2.1 Fire Protection .......................................................................................................................................... 24

4.2.2 Allocation of Operation and Maintenance Expenses ................................................................. 24

4.2.3 Allocation of Capital Costs .................................................................................................................... 25

4.2.4 Units of Service ......................................................................................................................................... 26

4.2.5 Cost of Service Allocations ................................................................................................................... 28

5 Proposed Rate Adjustments ................................................................................................................. 30

5.1 Existing and Proposed Meter Charges .............................................................................................................. 30

5.2 Commodity Rates - Inclining Tier Method ...................................................................................................... 31

5.3 Typical Customer Bills under Recommended Rate Structure ................................................................. 32

City of Lomita | WATER RATE ANALYSIS

BLACK & VEATCH CORPORATION | Table of Contents

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5.4 Water Purchase Increases and Customer bills Assuming City 100% reliant on Purchased Water

(WBMWD) .............................................................................................................................................................................. 33


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List of Tables Table 1-1 Recommended 5-Year Water Rate Schedule ................................................ 3

Table 1-2 Existing and Proposed Residential Bill Comparison ................................. 5

Table 1-3 Hypothetical Water Rates Assuming 100% Reliance on WBMWD Water Costs

...................................................................................................................................... 5

Table 3-1 Projected Water Connections ........................................................................... 12

Table 3-2 Projected Billed Water Usage ........................................................................... 12

Table 3-3 Existing Lomita Water Rates ............................................................................. 13

Table 3-4 Rate Revenue under Existing Rates................................................................ 13

Table 3-5 Projected Operations and Maintenance Expenses ................................... 14

Table 3-6 Projected CIP............................................................................................................ 15

Table 3-7 Debt Service – Cypress Street Reservoir COPs .......................................... 15

Table 3-8 Operating Cash Flow with Projected Rate Revenue Increases ........... 17

Table 3-9 Capital Funding Plan ............................................................................................. 18

Table 4-1 Total Costs to be Recovered from Rates – Test Year 2016 ................... 21

Table 4-2 O&M Allocation Percentage – TY 16 .............................................................. 24

Table 4-3 Allocation of O&M Expenses to Functional Cost Components ............ 25

Table 4-4 Allocation of Net Capital Costs to Functional Cost Components ........ 25

Table 4-5 Units of Service for TY 16 ................................................................................... 27

Table 4-6 Unit Costs of Service for TY 16 ......................................................................... 28

Table 4-7 Allocation of COS to Customer Classes .......................................................... 29

Table 4-8 Comparison of Adjusted COS with Revenues under Existing Rates .. 29

Table 5-1 Meter Equivalencies .............................................................................................. 31

Table 5-2 Existing and Proposed Meter Charges .......................................................... 31

Table 5-3 Existing and Proposed Commodity Rates .................................................... 32

Table 5-4 Existing and Proposed Residential Bill Comparison ............................... 33

Table 5-5 Historical and Projected Water Supply Rates ............................................ 34


(compare to Table 5-4) ..................................................................................... 35

List of Figures Figure 1-1 Projected Revenue Requirements (Status Quo) ........................................ 2

Figure 1-2 Projected Reserves Balance (Status Quo) .................................................... 2

Figure 1-3 Projected Revenue Requirements with Proposed Rate Adjustments3

Figure 1-4 Projected Reserves Balance with Proposed Rate Adjustments .......... 4

Figure 1-5 Differences in Projected Water Supply Costs ............................................. 6

Figure 3-1 Historical and Projected Revenue Requirements ................................... 18


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Figure 3-2 Historical and Projected Capital Projects and Funding ........................ 19

Figure 3-3 Historical and Projected COP Debt Coverage ........................................... 19

Figure 3-4 Historical and Projected Reserves ................................................................ 20

Figure 4-1 Cost of Service Allocation Methodology ..................................................... 22

Figure 4-2 Water Cost of Service Concepts ...................................................................... 23

Figure 5-1 Monthly Residential Bill Comparison – ¾ Inch Meter with 10 hcf Water

Consumption ......................................................................................................... 33

Figure 5-2 Differences in Projected Water Supply Costs ........................................... 34


BLACK & VEATCH CORPORATION | Executive Summary

1

1 Executive Summary This report was prepared for the City of Lomita (City) and its water enterprise fund (Water

Fund) to document the update of a water multi-year financial plan, cost of service analysis, and rate

structure for the City. The specific goals of the study were to:

Evaluate the adequacy of projected revenues under existing water service and commodity

charges to meet projected revenue requirements;

Update the cost of service and rate model for the Water Fund covering a five-year study period

for both ongoing operations and planned capital improvements;

Allocate projected revenue requirements to the various customer classes in accordance with

the respective service requirements; and

Develop projected reserve level scenarios for future capital needs.

1.1 FINDING Water service charge revenues at current levels will not be sufficient over the next five

years to meet the increasing cost of Water Fund operating and capital expenses without negatively

affecting fund balance levels1. In the absence of charge adjustments (the status quo), projections

show that the Water Fund would deplete the operating reserve fund balance by the end of Fiscal

Year (FY) 2015/16. Figure 1-1 on the next page illustrates the projected financial picture without

recommended water rate adjustments. The result would be annual deficits each year of the study

period with net operating losses increasing each year. Figure 1-2 shows the status of the reserve

fund balance projections assuming no additional revenues are generated to operations and capital

needs.

1 Strictly speaking, the term “fund balance” refers to the remaining amounts available after short-term liabilities

(monies owed) are paid off with the agency’s available cash and other financial resources (such as receivables). The fund balance includes reserved and unreserved components. For the purposes of this Study, this term refers to “available cash excluding reserved monies” and the term “fund” refers to either the Operating or Capital account in which these monies reside.


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Figure 1-1 Projected Revenue Requirements (Status Quo)

Figure 1-2 Projected Reserves Balance (Status Quo)

1.2 RECOMMENDATION Per the updated analysis contained within this report, Black & Veatch recommends Water

Fund water rates be adjusted to reflect current costs of providing water service to customers within

the City’s service area. This recommendation includes adjusting total revenue from rates each year

beginning July 2015 and continuing with rate increases each July thereafter until the final year of

increases in FY 2019/20. The current and proposed rates are shown in Table 1-1. The amount of

rate increases is needed to meet Water Fund operational, capital and reserve needs over the next 5

years. Based on City-approved rate adjustments, the projected financial picture of the Water Fund is

demonstrated in Figure 1-3 and Figure 1-4 for reserves balance.

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 FY 2023

Projected Revenue and Revenue Requirements

O&M Expenses Water Supply Costs Debt Service

Transfers Revenue

($12,000,000)

($10,000,000)

($8,000,000)

($6,000,000)

($4,000,000)

($2,000,000)

$0

$2,000,000

$4,000,000


Revenue Fund Balance Requirements

Cumulative Cash Balance Cumulative Cash Balance - Target



3

Table 1-1 Recommended 5-Year Water Rate Schedule

Figure 1-3 Projected Revenue Requirements with Proposed Rate Adjustments

Meter Current Eff. March 2015 FY 17 Charge FY 18 Charge FY 19 Charge FY 20 Charge

5/8" x 3/4" $41.93 $36.90 $39.73 $42.90 $46.78 $50.31

3/4" $41.93 $36.90 $39.73 $42.90 $46.78 $50.31

3/4" x 1" $55.91 $49.20 $52.97 $57.20 $62.38 $67.08

1" $69.89 $61.50 $66.21 $71.51 $77.97 $83.85

1 1/2" $139.78 $123.00 $132.42 $143.01 $155.95 $167.71

2" $223.64 $196.81 $211.88 $228.82 $249.52 $268.33

3" $419.33 $369.01 $397.27 $429.03 $467.85 $503.13

4" $698.88 $615.02 $662.11 $715.05 $779.74 $838.54

6" $1,397.77 $1,230.05 $1,324.23 $1,430.11 $1,559.49 $1,677.09

8" $2,236.43 $1,968.07 $2,118.76 $2,288.17 $2,495.18 $2,683.34

10" $2,807.21 $2,838.82 $3,056.18 $3,300.55 $3,599.14 $3,870.55

Fire Service

4" $201.84 $164.44 $176.82 $191.69 $211.51 $227.61

6" $273.92 $328.87 $353.65 $383.38 $423.01 $455.22

8" $344.16 $526.20 $565.84 $613.40 $676.82 $728.35

Current & Proposed Service Charge ($/month)

Tier Current Eff. March 2015 FY 17 Rate FY 18 Rate FY 19 Rate FY 20 Rate

Residential

Tier 1 (0-20 HCF) $3.22 $3.53 $3.81 $4.12 $4.43 $4.79

Tier 2 (21-35 HCF) $3.29 $3.63 $3.93 $4.24 $4.56 $4.94

Tier 3 (> 35HCF) $3.69 $4.13 $4.46 $4.82 $5.18 $5.61

Non-Resid'l $3.39 $3.63 $3.93 $4.24 $4.56 $4.94

Current & Proposed Commodity Charge ($/HCF)

$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000




Transfers Revenue


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Figure 1-4 Projected Reserves Balance with Proposed Rate Adjustments

1.3 LEVEL OF RATE INCREASES IF WATER FUND 100 PERCENT RELIANT ON PURCHASED WATER

As part of this analysis, the City asked Black & Veatch to calculate the impact on customer

rates and reserves assuming the City did not blend water and was 100 percent reliant on purchased

water through the West Basin Municipal Water District (WBMWD), as opposed to the

purchased/local source water ratio of 60/40 utilized in the cost of service analysis. Using the same

analysis contained with this report, Black & Veatch calculated this impact assuming the same

targeted reserve fund balances at the end of year 5 of the study period as those found in the

proposed rate scenarios presented above in this section.

The difference in reserve balances is striking. Under the blended water scenario, the

proposed customer rate increases yield an ending operating reserves balance of approximately $1.9

million in FY 2019/20. Keeping the level of proposed rate revenue increases held constant, the

reserves balance in five years under the 100 percent purchased water scenario yields a deficit of

approximately $3.5 million.

The difference between the Water Fund using a blended water supply versus being solely

reliant on purchased water is roughly $5.4 million over the study period. To absorb this additional

expense, rate revenue increases would likely need to be doubled in several years of the study

period. Clearly, the blending of purchased water and local water has financially benefitted the

ratepayers of the Lomita Water Fund.

The following tables and figure show the magnitude of the difference in water supply costs.

Table 1-2 presents sample residential bills using the current and proposed rate structures for each

fiscal year presented in this study. This table shows the residential bi-monthly water bill (with ¾

inch meter) under the proposed water rate structure format for the following types of water use:

Single-Family Residential customer within Tier 1 usage (20 hcf use per billing period), Low-Use

Residential customer (10 hcf use per billing period), and High-Use Residential customer (40 hcf use

per billing period).

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000






5

Table 1-3 shows the projected customer bills under the assumption that the City was still 100

percent reliant on WBMWD water. This scenario was derived using the same reserve balance

projections utilized throughout this study and maintaining at least a 1.25x debt coverage ratio on

the COPs to show an “apples to apples” comparison between the rate study-recommended rates

and the hypothetical rates generated by 100 percent reliance on imported water.

Table 1-2 Existing and Proposed Residential Bill Comparison


Residential Customer Existing Eff. March 2015 FY 17 FY 18 FY 19 FY 20

Low Use Residential

Bil l - 10 Units $74.13 $72.18 $77.87 $84.10 $91.10 $98.24

Bill Difference ($) ($1.95) $5.69 $6.22 $7.00 $7.15

Bill Difference (%) -3% 8% 8% 8% 8%

Typical Use

Residential Bil l - 20

Units $106.33 $107.46 $116.02 $125.29 $135.41 $146.18

Bill Difference ($) $1.13 $8.56 $9.27 $10.12 $10.76

Bill Difference (%) 1% 8% 8% 8% 8%

High Use


Units $190.58 $200.77 $216.92 $234.25 $252.63 $272.96

Bill Difference ($) $10.19 $16.15 $17.33 $18.38 $20.33


Residential Customer Bill Comparisons


Low Use Residential

Bil l - 10 Units $74.13 $74.15 $86.18 $94.48 $102.85 $109.56

Bill Difference ($) $0.02 $12.03 $8.30 $8.37 $6.71

Bill Difference (%) 0% 16% 10% 9% 7%

Typical Use


Units $106.33 $113.83 $132.46 $145.43 $158.22 $168.93

Bill Difference ($) $7.50 $18.63 $12.97 $12.79 $10.71

Bill Difference (%) 7% 16% 10% 9% 7%

High Use


Units $190.58 $218.78 $254.88 $280.19 $304.67 $325.97

Bill Difference ($) $28.20 $36.10 $25.31 $24.48 $21.30

Bill Difference (%) 15% 16% 10% 9% 7%



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Finally, Figure 1-5 demonstrates the projected water supply cost savings over the study

period due to the current supply blending arrangement. For each year, this graph shows the

projected water supply costs assuming 100 percent reliance on water from WBMWD and the

projected water supply costs under the current situation of blending local and imported water due

to the operation of the production facility.

Figure 1-5 Differences in Projected Water Supply Costs

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

FY 16FY 17

FY 18FY 19

FY 20

Blended Water Costs - 60% Import/ 40% Local 100% WBMWD Water Costs


BLACK & VEATCH CORPORATION | Introduction

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2 Introduction This study (Study) takes a medium-range planning approach to establishing water service

charges and fees. A detailed discussion of the plan and recommended water rate adjustments are

included in the following sections of this report. The analyses contained herein include operation

and maintenance (O&M) costs, debt service, reserve levels, and identified and prioritized capital

improvement projects (CIP). To that end, the study examines the revenues generated by the City’s

Water Enterprise Fund (Water Fund) and makes recommendations for revenue adjustments, as

needed.

The City has conducted water rate analyses on a regular basis since 2005. A financial plan

was developed in 2008 to support the Cypress Street Reservoir Certificates of Participation (COP)

issuance. Since the 2008 plan and the 2012 rate update, there have been several changes and

pressures to the cost of doing business as a water system, such as:

Rising costs of imported water occurring simultaneously with greater reliance on local source

water at a cheaper per acre foot cost basis.

Increasing capital replacement needs and costs.

Continuing debt service requirements of the COP.

Increasing awareness of the need for sufficient reserve fund balances to cover unplanned cash

flow interruptions and capital replacement emergencies and needs.

This report develops a rate structure and rate levels that will help address these challenges.

2.1 BACKGROUND The City of Lomita, California was founded in 1907 and is located approximately 26 miles

south of downtown Los Angeles. It was incorporated in 1964. In 1990, the City assumed

responsibility for Water District 13 from the County of Los Angeles and has operated it as an

enterprise since that time. Currently, the City provides water services to approximately 3,800

residential customers and 450 other customers.

The City's Water System performs all activities related to the distribution of water including

production, purchase and delivery of water, and maintenance of the water system. In the past, its

primary source of water is the West Basin Municipal Water District (WBMWD) that is a wholesaler

of water from the Metropolitan Water District of Southern California (MWD). The City's

transmission system consists of water mains ranging from 2" to 16" in diameter and constructed

between 1928 and the present. Many of these assets will need to be replaced in the next 10 to 20

years.

In 2008, the City prepared a financing plan to fund the construction of the 5.2 million gallon

Cypress Street Reservoir. Construction of the new reservoir with a storage capacity of 5.0 million

gallons (MG) has increased the Water System’s reliability and provision for blending of the

groundwater from Well No. 5 with imported water. Equally important, the new reservoir gives the

City the ability to reduce its reliance on imported water thus reducing its overall water cost

structure. The financing plan for the COPs was predicated in part on this benefit which translated

into lower overall rate increases in the near future.


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2.2 SCOPE OF WORK The City retained Black & Veatch in 2014 to complete a water rate update. Presented herein

are the results of a study of the Water Fund’s projected revenues, revenue requirements, cost of

service, and rates for service.

For purposes of this report, the Water Fund’s current and projected budgets are for the fiscal

years beginning July 1, 2014 and ending June 30, 2020. Rate updates and proposed rate increases

are presented in fiscal years, with the first proposed rate increase taking effect July 1, 2015 and the

final proposed rate increase (as recommended by this study) taking effect July 1, 2019.

The financial plan for the Water Fund uses study period revenue and expense projections

based on a review of historical factors and the Water Fund’s operating and capital budgets and

financial policies. The study of revenue requirements recognizes projected operation and

maintenance expenses, establishment and maintenance of reserve funds, and capital financing

requirements. Capital financing requirements include capital improvement expenditures met from

annual revenues and available reserve funds.

The Water Fund’s costs of service were allocated to customer classes utilizing a cost causative

approach endorsed by the American Water Works Association (AWWA) rate setting manual M1

Principles of Water Rates, Fees and Charges. The allocation methodology produced updated cost of

service allocations recognizing the projected customer service requirements for the Water Fund.

The update of proposed rates is in accordance with allocated cost of service and local policy

considerations, such as reserve funding levels and projected capital needs. Additionally, this study

evaluates the extent to which the existing rate structure recovers revenues from customer classes

in accordance with cost of service allocations.

2.3 OVERVIEW OF LEGAL AND INDUSTRY BEST PRACTICES FOR COST-OF-SERVICE STUDIES Rate-setting procedures in California require that agencies responsible for imposing

property-related charges must demonstrate a nexus between the cost of providing services and the

services or benefits received. The State of California considers water services as property-related

and, as such, subject to state constitutional and statutory requirements. Presented in the next few

sections are brief summaries of the relevant laws governing water rate analyses in California.

2.3.1 Proposition 13

Government Code Section §50076, adopted in 1979 provides that “special taxes shall not

include any fee which does not exceed the reasonable cost of providing the service or regulatory

activity for which the fee is charged.”


California voters approved Proposition 218 in November 1996. This voter-approved

initiative added Articles XIIIC and D to the California Constitution. Article XIID Section 2(e), is a

definition of a “fee”. Essentially, as defined by Proposition 218, a fee is “any levy other than an ad

valorem tax, a special tax, or an assessment, imposed by an agency upon a parcel or upon a person

as an incident of property ownership, including a user fee or charge for a property related service”.

Until 2006, sewer charges were considered property related services while water charge were not

defined as property-related until the 2006 California Supreme Court decision in Bighorn-Desert


BLACK & VEATCH CORPORATION | Introduction

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View Water Agency v. Verjil. After this decision, water charges are now considered as property-

related fees and any new or increased water charges must comply with the substantive and

procedural requirements of Proposition 218. The substantive requirements include:

Revenues derived from the fee or charge cannot exceed the funds required to provide the

property related service.

Revenues derived from the fee or charge cannot be used for any other purpose other than for

which the fee or charge was imposed for.

A property-related fee or charge cannot exceed the proportional cost of service attributable to

the parcel.

2.3.3 Assembly Bill 2882

The California legislature passed Assembly Bill (AB) 2882 in 2008 which amended the

California Water Code (Sections 370 – 374) to provide criteria for establishing traditional inclining

block and allocation-based conservation water pricing in support of California Constitution Article

X, Section 2. Article X, Section 2 states that waste or unreasonable use of water shall be prevented.

Rate structures that employ increasing blocks (or tiers) and allocation-based conservation water

pricing send a signal to wasteful or excessive users to change this behavior and reduce such use.

Under AB 2882, tiered rates can be employed if they meet the following criteria:

Conservation best management practices, conservation education, irrigation controls and other

conservation devices, and other demand management measures.

Water system retrofitting, dual plumbing and facilities for production, distribution, and all uses

of recycled water and other alternative water supplies.

Projects and programs for prevention, control, or treatment of the runoff of water from

irrigation and other outdoor water uses. Incremental costs shall not include the costs of

stormwater management systems and programs.

Securing dry-year water supply arrangements.

Procuring water supplies to satisfy increments of water use in excess of the basic use

allocations for the customers of the public entity, including supply or capacity contracts for

water supply rights or entitlements and related energy costs for water delivery.


California voters approved Proposition 26 in November 2010. Included in the language of

proposition, which amended California Constitution Article XIII C, Section 1, is a definition of “tax”.

Essentially, as defined by Proposition 26, a tax is any “levy, charge, or exaction of any kind imposed

by a local government” with specifically outlined exceptions. These exceptions are:

A charge imposed for a specific benefit conferred or a privilege granted directly to the payor

that is not provided to those not charged, and which does not exceed the reasonable costs to the

local government of conferring the benefit or granting the privilege, and

A charge imposed for a specific government service or product provided directly to the payor

that is not provided to those not charged, and which does not exceed the reasonable costs to the

local government of providing the service or product.


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| DECEMBER 22, 2014

Proposition 26 establishes that the “…local government bears the burden of proving by a

preponderance of the evidence that a levy, charge, or other exaction is not a tax, that the amount is

no more than necessary to cover the reasonable costs of the governmental activity, and that the

manner in which those costs are allocated to a payor bear a fair or reasonable relationship to the

payor’s burdens on, or benefits received from, the governmental activity.”

2.3.5 Government Code Section §54999.7

Under this section, rate-setting activities by public agencies are directed to follow cost-of-

service principles and states that fees for “…for public utility service, other than electricity or gas,

shall not exceed the reasonable cost of providing the utility service.” It also provides that these fees

will be “established in consideration of service characteristics, demand patterns, and other relevant

factors.”

2.3.6 Generally Accepted Rate-Setting Standards

The American Water Works Association (AWWA) is the industry organization tasked with

providing guidance on the operation and management of water utilities. AWWA has established a

general set of principles used to guide the development of water rates. These principles were

developed to provide a consistent approach and minimum standards to rate-setting procedures. It

is important to note that AWWA observes that there is no prescribed single approach for

establishing cost-based rates. Rather, agencies must exercise judgment to align rates and charges

with local conditions and requirements, as well as applicable state law.

Black & Veatch has used the guidelines contained in the AWWA documentation and followed

the applicable State law, including Propositions 218 and 26, to conduct the analysis contained

herein.

2.4 DISCLAIMER In conducting the Study, Black & Veatch reviewed the books, records, agreements, capital

improvement programs, customer sales and financial projections of the City, as we deemed

necessary to express our opinion of the operating results and projections. While Black & Veatch

considers such books, records, documents, and projections to be reliable, Black & Veatch has not

verified the accuracy of these documents.

The projections set forth in this report are intended as “forward-looking statements”. In

formulating these projections, Black & Veatch has made certain assumptions with respect to

conditions, events, and circumstances that may occur in the future. The methodology utilized in

performing the analyses follows generally accepted practices for such projections. Such

assumptions and methodologies are reasonable and appropriate for the purpose for which they are

used. While Black & Veatch believes the assumptions are reasonable and the projection

methodology valid, actual results may differ materially from those projected, as influenced by the

conditions, events, and circumstances that actually occur. Such factors that may affect the City’s

ability to manage the system and meet regulatory or environmental requirements include the

following: the County’s ability to execute the capital improvement program as scheduled and within

budget; and adverse legislative, regulatory or legal decisions (including environmental laws and

regulations).


BLACK & VEATCH CORPORATION | Water Rate Update

11

3 Water Rate Update The rate study/cost of service process followed by Black & Veatch in this Study consists of

three parts, with each part answering a specific question:

Revenue Requirements – This section develops the Water Fund’s Financial Plan and answers

the question “How much money is needed to operate the utility and fund capital

improvements?”

Cost of Service – This section allocates the different costs for providing water service to

customers. The question addressed in this part of the process is “From whom should the money

be collected?”

Rate Design – This last part of the process examines different possible rate structures to

answer the question “How should the Water Fund’s services be priced?”

The subsequent sections of this Study present the three parts of the analysis conducted by

Black & Veatch for the City.

3.1 REVENUE REQUIREMENTS To meet the costs associated with providing water service to its customers, the Water Fund

derives revenue from a variety of sources including water user charges, water leases, connection

fees, and other miscellaneous revenues. Black & Veatch used a combination of an analysis of

historical and future system growth in terms of number of accounts and water consumption to

project the level of future revenue generated in the study.

With revenue derived from the various sources, the Water Fund meets the cash requirements

of operation and maintenance (O&M); principal and interest payments on COP indebtedness; and

recurring annual capital expenditures for replacements and system betterments not debt financed.

Operation and maintenance expenses are those expenditures necessary to maintain the system in

good working order. Routine annual capital expenditures, which include equipment replacements,

consist of recurring annual replacements, minor extensions, and betterments, which are normally

revenue financed. Other capital costs include COP covenant-required payments and cash financed

capital improvements.

3.1.1 Customer and Water Usage Projections

To forecast revenue, customer bills and billed water sales volume need to be determined

within the service area. Recent historical trends demonstrate little to no growth in water

connections over the past few years. This situation is largely due to development build out within

the Water Fund’s service area. To be conservative for this rate case, Black & Veatch has assumed a

range of 0.25 to 0.40 percent annual water connection growth for residential and commercial

customers during the study period. Table 3-1 illustrates the historical customer accounts and

anticipated customers for the next five fiscal years.

Projected water sales volumes use projected number of customers, customer bills and

historical water usage patterns per customer class. Table 3-2 illustrates the historical and projected

water billed volume in hundred cubic feet (HCF), which is equal to 748 gallons. Black & Veatch

obtained several years of detailed consumption data and thus historical patterns of customer water

usage were determined. Using historical water usage as a benchmark, the projected water sales


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| DECEMBER 22, 2014

volumes decrease slightly over the study period to account for project reduced consumption as a

result of greater public awareness of water resource scarcity in Southern California and increasing

customer rates.

Table 3-1 Projected Water Connections

Table 3-2 Projected Billed Water Usage

3.1.2 Revenue Projections

The Water Fund generates revenue primarily from water sales. Since revenue generated

outside of water sales are not subject to rate increases, we have excluded them from this portion of

the analysis. The cash flow portion of this report incorporates these additional revenue sources.

User-charge sales are composed of two parts, a monthly service charge and a commodity

charge. The monthly service charge is an amount based on meter size designed to recover fixed

costs, which do not vary with the volume of water used by a customer such as meter reading,

customer billing, and debt service. The commodity charge is an amount based on units of

consumption measured by the number of HCF of water consumed during the billing cycle. As

Forecasted Forecasted Forecasted Forecasted Forecasted

FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

(accounts) (accounts) (accounts) (accounts) (accounts)

Customer Class

1 Residential 3,963 3,979 3,988 3,998 4,008

2 City 15 15 15 15 15

3 Church 35 35 35 35 35

4 Commercial 245 245 245 245 245

5 Government 11 11 11 11 11

6 Schools 19 19 19 19 19

Fire Service

7 Private 30 30 30 30 30

8 Total Accounts 4,318 4,334 4,343 4,353 4,363

Line

No. Description

Fiscal Year Ending June 30,


FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

(HCF) (HCF) (HCF) (HCF) (HCF)

Customer Class

1 Residential 802,781 804,788 806,799 808,816 810,837

2 City 9,251 9,251 9,251 9,251 9,251

3 Church 9,391 9,391 9,391 9,391 9,391

4 Commercial 105,296 105,559 105,823 106,088 106,353

5 Government 51,096 51,096 51,096 51,096 51,096

6 Schools 17,177 17,177 17,177 17,177 17,177

7 Total Water Usage (HCF) 994,992 997,262 999,537 1,001,819 1,004,105

8 Total Water Usage (AF) 2,284 2,289 2,295 2,300 2,305

9 Total Water Usage (gpcd) 101 102 103 104 104

Line

No. Description




13

mentioned earlier, a HCF unit of water is approximately 748 gallons. Included in the commodity

charge are the costs associated with water purchases. Table 3-3 summarizes the City’s current

water rates for all customer classes.

Table 3-3 Existing Lomita Water Rates

Table 3-4 demonstrates projected customer rate revenue during the study period assuming

existing rates. Slight increases in rate revenue are due to projected customer growth.

Table 3-4 Rate Revenue under Existing Rates

3.1.3 Operation and Maintenance Projections

Summarized in Table 3-5 are the Water Fund’s

projected O&M expenditures. These expenditures include

costs related to personnel, water purchases, operating

supplies, utilities, and general and administrative. The

forecasted expenditures are based on Black & Veatch and

City staff’s expertise and knowledge. The figure box to the

right summarizes key assumptions for inflation rates used

in the O&M expense projections and applied to FY 16

costs. The rate analysis assumes that the City hires an

Service Charge ($/month) Commodity Charge ($/HCF)

Meter Charge Class Charge

5/8" x 3/4" $41.93 Residential

3/4" $41.93 Tier 1 $3.22

3/4" x 1" $55.91 Tier 2 $3.29

1" $69.89 Tier 3 $3.69

1 1/2" $139.78 Non-Residential $3.39

2" $223.64

3" $419.33

4" $698.88

6" $1,397.77

8" $2,236.43

10" $3,012.62


FY 16 FY 17 FY 18 FY 19 FY 20

($) ($) ($) ($) ($)

Customer Class

1 Residential 3,812,368 3,823,661 3,832,540 3,841,672 3,850,817

2 City 39,358 39,358 39,358 39,358 39,358

3 Church 51,134 51,134 51,134 51,134 51,134

4 Commercial 431,358 432,149 432,944 433,742 434,539

5 Government 186,220 186,220 186,220 186,220 186,220

6 Schools 75,823 75,823 75,823 75,823 75,823

Fire Service

7 Private 46,234 46,234 46,234 46,234 46,234

8 Total Revenue $4,642,494 $4,654,579 $4,664,252 $4,674,182 $4,684,125

Line

No.


Description

Personnel Services: 2%

Operating Supplies: 2%

Water Purchases: 5%

Other Expenses: 2%

Additional Water Treatment

Operator Position?: Yes

Water Source (MWD/Local):

60%/40%


14

| DECEMBER 22, 2014

additional water treatment operator per the recommendations of the recent Water Fund staffing

analysis provided to the City.

Purchased water increases reflect estimated projections from WBMWD. The levels of

adjustment illustrated above are consistent with recent increases seen throughout the area. The

blending ratio of water purchased through WBMWD and local water is set at 60 percent to 40

percent, respectively.

Table 3-5 Projected Operations and Maintenance Expenses

3.1.4 Capital Improvement Program

While O&M expenses cover day-to-day operations, the Water Fund incurs additional capital

expenditures to repair and replace existing water assets. As a result, the City has developed a long-

term Capital Improvement Program (CIP) that identifies future water facility needs. The CIP shown

in Table 3-6 is for FY 16 through FY 20 and summarizes the capital improvement projects by

category during the study period.

The CIP is a constantly evolving program and City staff reviews all projects on an annual

basis. Consequently, projects may shift out in time or drop off the CIP if they become unnecessary.

Conversely, the City may add projects as the need arises. Black & Veatch suggests that the reader

not construe the projects listed in Table 3-6 as “set in stone”, but rather as indicative of the nature

of projects planned for execution over the study period.


FY 16 FY 17 FY 18 FY 19 FY 20

($) ($) ($) ($) ($)

General Admin

1 City Council 3,200 3,200 3,200 3,200 3,200

2 City Attorney 64,500 65,800 67,100 68,400 69,800

3 City Administration 97,000 99,100 101,200 103,300 105,500

Admin Services

4 Water Office 398,500 406,500 414,600 422,900 431,400

5 Human Resources 25,300 25,700 26,100 26,500 26,900

6 Community Services 26,000 26,500 27,000 27,500 28,100

7 Community Development 93,500 95,400 97,300 99,200 101,100

8 Information Technology 87,500 89,100 90,700 92,400 94,200

Public Works

9 Water Maintenance 1,917,800 1,956,200 1,995,300 2,035,200 2,075,800

10 Water Supply 1,968,800 2,039,900 2,131,800 2,228,100 2,329,400

11 Safety Compliance 2,900 2,900 2,900 2,900 2,900

12 Total O&M Expenses $4,685,000 $4,810,300 $4,957,200 $5,109,600 $5,268,300

Line

No. Description




15

Table 3-6 Projected CIP

3.1.5 Debt Service Requirements

Table 3-7 represents the Water Fund’s existing debt service obligations related to the Cypress

Street Reservoir Series 2008 Certificates of Participation (COPs). This table shows the total

principal interest requirements on the existing debt over the Study Period. Based on the COPs loan

agreement requirements, the minimum debt service coverage ratio is set at 1.25x net revenues for

the Water Fund. If the proposed rate increases are adopted by the City, the Water Fund’s coverage

ratio figure will be higher than this required amount.

Table 3-7 Debt Service – Cypress Street Reservoir COPs

3.1.6 Reserves

Currently, the Water Fund has a targeted fiscal policy with respect to operating reserves,

however no similar policy related to capital reserves. The Water Fund transfers excess operating

funds to an unrestricted net asset balance with a target of 90-days of operating expenses to meet

unexpected cash flow interruptions or emergency O&M expense items. A 90-day operating reserve

target for the Water Fund requires an average target level of $1.1 million to $1.3 million during the

Study Period.

The Water Fund does not have a stated policy with respect to the capital reserves. We

recommend that the City consider implementing a policy that states that the Water Fund will strive

to maintain a minimum capital reserve balance equal to an industry standard benchmark such as a

percentage of Water Fund asset values or an amount equivalent to a large capital project

expenditure. For this analysis, we recommend that the City raise additional funds through customer

rates to help the City cash finance future CIP projects thus reducing reliance on future debt or to act

as a contingency in the case of an unexpected failure in a water system asset that requires


FY 16 FY 17 FY 18 FY 19 FY 20

($) ($) ($) ($) ($)

1 Supply 632,500 0 0 0 0

2 Pump Station 0 0 0 0 0

3 Treatment 0 1,209,000 457,000 735,000 1,158,000

4 T&D 700,000 0 480,000 0 0

5 Meters 0 0 0 0 0

6 Fire Hydrants 95,700 0 78,600 0 0

7 General 1,428,200 1,209,000 1,015,600 735,000 1,158,000

8 Total CIP $1,428,200 $1,209,000 $1,015,600 $735,000 $1,158,000

Line

No. Description



FY 16 FY 17 FY 18 FY 19 FY 20

($) ($) ($) ($) ($)

Certificates of Participation

1 Series 2008 502,113 500,313 498,313 500,888 497,813

2 Total Debt Service $502,113 $500,313 $498,313 $500,888 $497,813

Line

No. Description



16

| DECEMBER 22, 2014

immediate funding. For this analysis, the assumed capital contribution is $100,000 starting in FY 16

to $600,000 in FY 20.

3.2 OPERATING AND CAPITAL FUNDING AND CASH FLOW ANALYSES To maintain financial viability as an enterprise fund, the Water Fund’s annual revenues must

be sufficient to satisfy three elements:

1 Adequate cash flow to cover O&M, capital and debt obligations

2 Meet debt service coverage (DSC) covenants

3 Maintain reserve funds

Long-term financial viability requires meeting all three elements. The need for revenue

adjustments is either “cash flow” driven or “debt service coverage” driven depending on which of

the first two elements creates the larger adjustment.

Based on the revenue and expenditures analysis above, the following tables (Tables 3-8 and

3-9) present the projected cash flow and funding scenarios. The rate revenue increases that are

presented in the operating cash flow table are recommended in order to meet these three stated

elements of a sound financial plan. Following both tables, four figures are presented (Figures 3-1

through 3-4) that illustrate the projected financial results of implementing the proposed rate

revenue increases. The figures not only show the study period projections but include historical

results and projected results beyond the 5-year study period.

(This section blank intentionally)



17

Table 3-8 Operating Cash Flow with Projected Rate Revenue Increases

Forecasted Forecasted Forecasted Forecasted Forecasted Forecasted

FY 15 FY 16 FY 17 FY 18 FY 19 FY 20

($) ($) ($) ($) ($) ($)

Revenue

Rate Revenue

1 Projected Revenue from Existing Rates 4,630,400 4,642,500 4,654,600 4,664,300 4,674,200 4,684,100

Year

Months

Effective

Revenue

Adjustment

2 FY 15 12 0.00% 0 0 0 0 0 0

3 FY 16 12 10.00% 464,300 465,500 466,400 467,400 468,400

4 FY 17 12 8.00% 409,600 410,500 411,300 412,200

5 FY 18 12 8.00% 443,300 444,200 445,200

6 FY 19 12 8.00% 479,800 480,800

7 FY 20 12 8.00% 519,300

8 Increased Revenue Due to Adjustments 0 464,300 875,100 1,320,200 1,802,700 2,325,900

9 Subtotal Rate Revenue $4,630,400 $5,106,800 $5,529,700 $5,984,500 $6,476,900 $7,010,000

Other Operating Revenue

10 Connection Fees 3,000 3,000 3,000 3,000 3,000 3,000

11 Fire Flow Fees 3,000 3,000 3,000 3,000 3,000 3,000

12 Late Fees 26,100 26,100 26,100 26,100 26,100 26,100

13 Miscellaneous Revenues 10,000 10,000 10,000 10,000 10,000 10,000

14 Water Leases 0 0 0 0 0 0

15 Interest Earnings 2,900 1,500 3,100 5,800 9,800 15,400

16 $45,000 $43,600 $45,200 $47,900 $51,900 $57,500

Transfers

17 From Stabilization Fund (Fund 530) 0 0 0 0 0 0

18 $0 $0 $0 $0 $0 $0

19 $4,675,400 $5,150,400 $5,574,900 $6,032,400 $6,528,800 $7,067,500

Revenue Requirements

Operating & Maintenance

20 O&M Expenses 2,662,900 2,716,200 2,770,400 2,825,400 2,881,500 2,938,900

21 Water Supply Costs 1,964,700 1,968,800 2,039,900 2,131,800 2,228,100 2,329,400

22 Subtotal O&M $4,627,600 $4,685,000 $4,810,300 $4,957,200 $5,109,600 $5,268,300

Debt Service

23 Existing Revenue Bonds 498,500 502,100 500,300 498,300 500,900 497,800

24 Proposed Revenue Bonds 0 0 0 0 0 0

25 $498,500 $502,100 $500,300 $498,300 $500,900 $497,800

Transfers

26 To Capital Fund (Fund 520) 0 100,000 100,000 200,000 500,000 600,000

27 To Stabilization Fund (Fund 530) 0 0 0 0 0 0

28 Subtotal Transfers 0 100,000 100,000 200,000 500,000 600,000

29 $5,126,100 $5,287,100 $5,410,600 $5,655,500 $6,110,500 $6,366,100

30 (450,700) (136,700) 164,300 376,900 418,300 701,400

31 812,400 361,700 225,000 389,300 766,200 1,184,500

32 $361,700 $225,000 $389,300 $766,200 $1,184,500 $1,885,900


Line

No. Description

Beginning Fund Balance

Net Annual Cash Balance

Subtotal Other Operating Revenue

Total Revenue

Net Cumulative Fund Balance

Total Revenue Requirements

Subtotal Debt Service

Subtotal Transfers


18

| DECEMBER 22, 2014

Table 3-9 Capital Funding Plan

Figure 3-1 Historical and Projected Revenue Requirements

Forecasted Forecasted Forecasted Forecasted Forecasted Forecasted

FY 15 FY 16 FY 17 FY 18 FY 19 FY 20

($) ($) ($) ($) ($) ($)

Source of Funds

1 From Operating Fund (Fund 510) 0 100,000 100,000 200,000 500,000 600,000

2 From Stabilization Fund (Fund 530) 0 0 0 0 0 0

3 COP Bond Proceeds 0 0 0 0 0 0

4 Waterworks District Prop Tax 550,000 550,000 550,000 550,000 550,000 550,000

5 Water Facilities Fees 20,000 20,000 20,000 20,000 20,000 20,000

6 Grants 0 0 0 0 0 0

7 Investment Income 15,100 14,700 23,100 19,400 20,000 22,000

8 $585,100 $684,700 $693,100 $789,400 $1,090,000 $1,192,000

Use of Funds

9 Capital Improvements 0 1,428,200 1,209,000 1,015,600 735,000 1,158,000

10 Debt Issuance Expense 0 0 0 0 0 0

11 Reserve Requirement 0 0 0 0 0 0

12 0 1,428,200 1,209,000 1,015,600 735,000 1,158,000

13 Net Annual Cash Balance $585,100 ($743,500) ($515,900) ($226,200) $355,000 $34,000

14 Beginning Unrestricted Cash Balance 2,723,900 3,309,000 2,565,500 2,049,600 1,823,400 2,178,400

15 Net Cumulative Fund Balance $3,309,000 $2,565,500 $2,049,600 $1,823,400 $2,178,400 $2,212,400

Total Uses

Line

No. Description

Total Sources


$0

$1,000,000

$2,000,000

$3,000,000

$4,000,000

$5,000,000

$6,000,000

$7,000,000

$8,000,000




Transfers Revenue



19

Figure 3-2 Historical and Projected Capital Projects and Funding

Figure 3-3 Historical and Projected COP Debt Coverage

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000


Capital Improvements

Capital Projects Capital Cash Balance

0.0

1.0

2.0

3.0

4.0

5.0

6.0


Debt Service Coverage

DS Coverage DS Coverage - Target


20

| DECEMBER 22, 2014

Figure 3-4 Historical and Projected Reserves

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000





BLACK & VEATCH CORPORATION | Cost of Service Allocation

21

4 Cost of Service Allocation The revenue requirements to be derived from rates and charges for water service are

summarized in Table 4-1. In analyzing the Water Fund’s cost of service for allocation to customer

classes, the projected annual revenue requirements for 2016 are selected as the Test Year (TY)

requirements to demonstrate the development of cost of service water rates. In determining the

costs of service met by charges for water service, we use the figures presented earlier in this report

and deduct income received from other sources that are not subject to rate adjustments from the

total revenue requirements. As a result, the total cost of service to be recovered from rates is shown

on Line 14 in Table 4-1.

Table 4-1 Total Costs to be Recovered from Rates – Test Year 2016

4.1 FUNCTIONAL COST COMPONENTS In developing an equitable rate structure, we allocate revenue requirements to the various

customer classifications according to the cost of service rendered. Allocations of these

requirements to customer classes of the Water Fund should take into account water flow, the

number of customers, and other relevant factors.

Customer classification occurs to reflect groups of customers with similar service

requirements for whom a utility can serve at a similar cost. Each class represents a particular type

of service requirement. For the purposes of the cost of service analysis, the customer classifications

in this study include residential, commercial, church, schools, City, and government.

Figure 4-1 illustrates the general process for allocating costs of service to customer classes.

This figure is a general representation of the process and the factors that could be utilized during

the process. The cost-of-service methodology first allocates costs to functional cost components,

then to cost categories, and subsequently distributes the costs to customer classes. In this analysis,

Line

No. Description

Operating

Expense

Capital

Expenditure Total Cost

($) ($) ($)

Revenue Requirements

1 O&M Expenses 2,716,200 0 2,716,200

2 Water Supply Costs 1,968,800 0 1,968,800

3 Debt Service 0 502,100 502,100

4 Transfers to Capital Fund 0 100,000 100,000

5 Transfers to Stabilization Fund 0 0 0

6 Transfer to Capital Reserve Fund 0 0 0

7 Subtotal $4,685,000 $602,100 $5,287,100

8 Other Operating Revenue 43,600 0 43,600

9 Transfers from Stabilization Fund 0 0 0

10 Subtotal $43,600 $0 $43,600

Adjustments

11 Change in Operating Reserves (Inc)/Dec 136,700 0 136,700

12 Adjustment to Annualize Rate Increase 0 0 0

13 Subtotal $136,700 $0 $136,700

14 Cost of Service to be Recovered from Rates $4,504,700 $602,100 $5,106,800

Less Revenue Requirements Met from Other Sources


22

| DECEMBER 22, 2014

there are six primary cost categories: (1) base flow, or volume costs, (2) maximum day cost, (3)

peak hour costs, (4) meter services, (5) customer and billing costs, and (6) fire protection.

Figure 4-1 Cost of Service Allocation Methodology

4.2 ALLOCATION TO COST COMPONENTS In this report, Black & Veatch analyzes the cost of providing water service by system function

in order to properly allocate the costs to the various classes of customers and subsequently design

rates. As a basis for allocating costs of service among customer classes, we have separated costs

into the following four basic functional cost components: (1) “Base”; (2) “Extra Capacity”; (3)

“Customer”; and (4) “Direct Assignment.” In order to provide service to its customers at all times,

the City must be capable of not only providing the total amount of water used, but also meet peak or

maximum rates of demand.

Base costs include the purchase of water, regulatory fees, debt service costs, water treatment,

energy, administration, and operating and maintenance costs of the water system associated

with service to customers to the extent required for a constant, or average annual rate of use.

Extra Capacity costs represent those operating costs incurred in meeting demands in excess of

average, and capital related costs for additional plant and system capacity beyond that required

for the average rate of use.

Customer costs are those elements that tend to vary in proportion to the number of customers

connected to the system. These include meter reading, billing, collecting and accounting, and

maintenance and capital costs associated with meters and services.

Directly assigned costs are costs specifically identified as, those incurred to serve a specific

customer group(s). The separation of costs of service into these principal categories facilitates

Distribute Costs to Customer Classes

Residential Non-Residential Irrigation Private Fire

Separate O&M and Capital Costs into Cost Causative Parameters

Average Day

(Base Costs)

Max Day

(Extra Capacity)

Max Hour

(Extra Capacity)

Billing

(Customer Costs)

Fire

(Direct Costs)

Allocate O&M and Capital Costs to Functional Cost Components

Source of Supply Pump Stations TreatmentTransmission &

DistributionFire Protection



23

allocating such costs to the various customer classes based on the respective service

requirements of each class.

Similar to past rate studies for Lomita, this rate case also uses the base-extra capacity

allocation method. Figure 4-2 illustrates some of the base-extra capacity concepts for water

systems.

Figure 4-2 Water Cost of Service Concepts

Black & Veatch has allocated each element of cost to

functional cost components using the parameter or

parameters having the most significant influence on the

magnitude of that element of cost. We allocate O&M and

general and administrative (G&A) expense items directly to

appropriate cost components, while the allocation of

capital and replacement costs uses a detailed allocation of

related capital investment. The separation of costs into

functional components provides a means for distributing

such costs to the various classes of customers based on

their respective responsibilities for each particular type of

service.

For volume-related cost allocations, the first step in

determining the allocation percentages is to assign system

peaking factors. The peaking factors utilized in this

analysis are based on factors found in the City’s 2004

Water Master Plan. The Base element is equal to the average daily demand (ADD) and assigned a

value of 1.0. The City’s water system maximum day (Max Day) demand is estimated to be 1.65 times

the ADD. Thus, the Max Day is assigned a value of 1.65. The maximum instantaneous usage is

approximated by the maximum hourly (Max Hour) usage and is estimated to be 2.80 times the ADD.

Thus, Max Hour is assigned a value of 2.80.

Cost components that are solely Base-related, are allocated 100 percent to Base. Cost

components that are designed to meet Max Day requirements, such as pump stations, are allocated

to Base and Max Day factors as follows:

Base = (1.0/1.65) x 100 = 60.6%

Max Day = (1.65 – 1.0)/1.65 x 100 = 39.4%

Annual Average Day

Max DayExtra Capacity

Treatment Plant

Base

Max DayExtra Capacity

Max HourExtra Capacity

Water Mains


24

| DECEMBER 22, 2014

Cost components that are designed to meet Max Hour design requirements, such as

Distribution, are allocated in a similar fashion, as follows:

Base = (1.0/2.80) x 100 = 35.7%

Max Day = (1.65 – 1.0)/2.80 x 100 = 23.2%

Max Hour = (2.80 – 1.65)/2.80 x 100 = 41.1%

4.2.1 Fire Protection

A direct cost to the water system is fire protection. Fire protection consists of those costs

associated with having the capability to provide public (municipal fire hydrants) and private

(individual fire sprinklers) fire suppression services. While a small amount of water is actually

consumed for fire suppression and fire training, the water system is still designed to accommodate

relatively large flows of water for short durations at suitable pressure. Therefore, when allocating

O&M and capital expenses to the four basic functional costs factors, a pro rata share of O&M and

capital expenses is directly assigned to the fire protection category.

4.2.2 Allocation of Operation and Maintenance Expenses

Table 4-2 summarizes the allocation percentages used in Table 4-3. Table 4-3 shows the

allocation of O&M expense to cost functions. Where possible, percentage allocations use data

gathered from employee time cards. O&M costs such as general and administrative expenses (G&A)

are distributed to functional cost components based on the average of the other line item costs. The

total Test Year expense less funds available from other sources equal the net O&M expense

recovered from rates.

Table 4-2 O&M Allocation Percentage – TY 16

Common to All Customers

Base Extra Capacity Customer

Base Max. Day Max. Hour Meters Cust/Bill.

(%) (%) (%) (%) (%) (%)

Operating Expenses

1 Source of Supply 100.0% 0.0% 0.0% 0.0% 0.0% 0.0%

2 Pumping 60.6% 39.4% 0.0% 0.0% 0.0% 0.0%

3 Treatment 60.6% 39.4% 0.0% 0.0% 0.0% 0.0%

4 T&D 35.7% 23.2% 41.1% 0.0% 0.0% 0.0%

5 Meters 0.0% 0.0% 0.0% 100.0% 0.0% 0.0%

6 Bill ing/Customer Service 0.0% 0.0% 0.0% 0.0% 100.0% 0.0%

7 Hydrants 0.0% 0.0% 0.0% 0.0% 0.0% 100.0%

8 Misc General Costs 0.0% 0.0% 0.0% 50.0% 50.0% 0.0%

9 Allocated Indirect Costs 68.9% 6.1% 4.8% 5.9% 13.5% 0.7%

Line

No. Description

Fire

Protection



25

Table 4-3 Allocation of O&M Expenses to Functional Cost Components

4.2.3 Allocation of Capital Costs

The estimated investment in water system facilities serves as a proxy for the further

distribution of capital-related costs to the various customer classes. Table 4-4 illustrates the

allocation of estimated plant investment serving water customers for the Test Year. The total plant

investment of just over $20 million shown on Line 8 represents the estimated Test Year original

cost less accumulated depreciation of plant in service.

The allocation of specific items of investment to identified cost categories uses the basis

previously described. For example, source of supply items correspond to flow (volume cost

component) and then further delineated by whether the asset is common-to-all or primarily serves

specific customers. Water treatment designs rely on treatment plant flow and are assigned to the

volume cost function. Elements such as storage facilities serve to address system peaking needs,

and as such have a peak hour cost component.

Table 4-4 Allocation of Net Capital Costs to Functional Cost Components




($) ($) ($) ($) ($) ($) ($)

Operating Expenses

1 Source of Supply 2,551,200 2,551,200 0 0 0 0 0

2 Pumping 77,000 46,700 30,300 0 0 0 0

3 Treatment 297,400 180,200 117,200 0 0 0 0

4 T&D 498,100 177,900 115,600 204,600 0 0 0

5 Meters 77,500 0 0 0 77,500 0 0

6 Bill ing/Customer Service 404,700 0 0 0 0 404,700 0

7 Hydrants 30,800 0 0 0 0 0 30,800

8 Misc General Costs 351,300 (100) 0 0 175,700 175,700 0

9 Allocated Indirect Costs 397,000 273,700 24,400 18,900 23,400 53,700 2,900

10 Subtotal $4,685,000 $3,229,600 $287,500 $223,500 $276,600 $634,100 $33,700

Other Operating Expenses

11 Transfers Out 100,000 69,000 6,100 4,800 5,900 13,500 700

12 Subtotal $100,000 $69,000 $6,100 $4,800 $5,900 $13,500 $700

Less Other Revenue

13 Miscellaneous Revenues 43,600 30,000 2,700 2,100 2,600 5,900 300

14 Other Adjustments 136,700 94,200 8,400 6,500 8,100 18,500 1,000

15 Subtotal $180,300 $124,200 $11,100 $8,600 $10,700 $24,400 $1,300

16 Net Operating Expenses $4,604,700 $3,174,400 $282,500 $219,700 $271,800 $623,200 $33,100

Line

No. Description Total Costs

Fire

Protection




($) ($) ($) ($) ($) ($) ($)

Plant Assets

1 Source of Supply 13,430,700 13,430,700 0 0 0 0 0

2 Pumping 185,600 112,500 73,100 0 0 0 0

3 T&D 7,102,800 2,300,000 1,412,100 2,680,500 355,100 0 355,100

4 Hydrants 21,900 0 0 0 0 0 21,900

5 Sutotal $20,741,000 $15,843,200 $1,485,200 $2,680,500 $355,100 $0 $377,000

Less Contributed Plant

6 Contributed Plant 0 0 0 0 0 0 0

7 Subtotal $0 $0 $0 $0 $0 $0 $0

8 Net Capital Expenses $20,741,000 $15,843,200 $1,485,200 $2,680,500 $355,100 $0 $377,000

Fire Protection

Line



26

| DECEMBER 22, 2014

4.2.4 Units of Service

To establish the total cost responsibility of each class of service, Black & Veatch developed the

unit costs of service for each cost function and assigned those costs to the customer classes based

on the respective service requirements of each. Each customer class receives its share of base,

maximum day and peak hour costs. The number of units of service required by each customer class

provides a means for the proportionate distribution of costs previously allocated to respective cost

categories. Table 4-5 summarizes the estimated units of service for the various customer classes.

The cost of service responsibility for base costs varies with the volume of water requirements

and may be distributed to customer classes on that basis. Extra-capacity costs are those costs

associated with meeting peak rates of water use, and are distributed to customer classes based on

their respective system capacity requirements in excess of average requirement rates. Customer

costs, which consist of meter related costs, billing, collection and accounting costs, are allocated

based on the number of equivalent meters and bills. Fire protection costs are allocated based on

equivalent fire hydrants.

Table 4-5 (on the next page) shows the estimated units of service for the various customer

classifications. Estimates of test year annual water consumption, shown in Column 1, are based on

the projections of total water sales. Average daily use of all water sales, which is simply Column 1

divided by 365 days, is presented in Column 2. Columns 3 through 8 represent the estimated

maximum day and peak hour capacity factors for each customer class.

In the overall rate-setting process, there is a need to establish a base level of cost for which

the cost of all customers can be measured. Customer-related meter and service costs are allocated

based on the number of equivalent ⅝” and ¾” meters because these meter sizes are the most

prevalent meter sizes found in many water utilities. Included in the development of meter cost

ratios is the direct cost of the various categories of labor involved in the installation, fringe benefit

related overheads and other appropriate administrative overheads applicable to the labor costs, all

direct materials and supplies costs, and the cost of equipment used in the installation.

Generally, equivalent meter cost ratios should be used when assigning elements of costs

specifically related to meters among the various sizes of meters used by the customer in the system.

PUD’s most prevalent meter size is ¾” and therefore is considered equal to one-meter equivalent.

All larger meters are given a meter equivalent ratio based on hydraulic capacity, as illustrated in the

box to the right. Thus, a 6-inch meter is the equivalent of thirty-three ¾” meters based on hydraulic

capacity. The equivalent number of meters and services shown in Column 9 of Table 4-5 were

estimated using AWWA standard meter flow rate equivalencies as adjusted to set ⅝” and ¾”

meters to an equivalency of 1.0. The equivalent number of private fire connections shown in the

last column of Table 4-5 was estimated using AWWA standard meter flow rate equivalencies with

6” fire protection connections assigned an equivalency of 1.0. All public fire hydrants are assumed

to be a 6” connection.

Customer billing and accounting costs are distributed to classes based on number of bills for

each customer class. The final column presents direct charges for fire protection and these costs are

allocated using equivalent hydrant ratios summarized in the box above.



27

Table 4-5 Units of Service for TY 16

Consumption Maximum Day Maximum Hour

Annual Avg. Day Factor Total Extra Factor Total Extra

Column Reference (1) (2) = (1)/365 (3) (4) = (3) x (2) (5) = (4) - (2) (6) (7) = (6) X (2) (8) = (7) - (4)

Units of Measure (HCF) (HCF/day) (HCF/day) (HCF/day) (HCF/day) (HCF/day)

Customer Class

1 Residential 802,781 2,199 230% 5,059 2,859 380% 8,358 3,299

2 City 9,251 25 230% 58 33 380% 96 38

3 Church 9,391 26 165% 42 17 275% 71 28

4 Commercial 105,296 288 190% 548 260 320% 923 375

5 Government 51,096 140 230% 322 182 380% 532 210

6 Schools 17,177 47 230% 108 61 380% 179 71

7 Subtotal 173,569 476 6,138 3,412 10,159 4,021

Fire Service

8 Public Fire 0 0 596 596 4,769 4,173

9 Private Fire 0 0 34 34 271 237

10 Subtotal 0 0 630 630 5,040 4,410

11 Total Water System 173,569 476 6,768 4,042 15,199 8,431

Line

No. Description

Column Reference (9) (10) (11)

Units of Measure (EMs) (Bills) (EHs)

Customer Class

1 Residential 5,400 23,778

2 City 49 90

3 Church 97 210

4 Commercial 487 1,470

5 Government 138 66

6 Schools 103 114

7 Subtotal 6,274 25,728

Fire Service

8 Public Fire 0 53,429

9 Private Fire 180 3,040

10 Subtotal 180 56,469

11 Total Water System 6,274 25,908 56,469

Line

No. Description

Fire

ProtectionMeters Cust/Bills


28

| DECEMBER 22, 2014

4.2.5 Cost of Service Allocations

Costs of service are allocated to the customer classes by application of unit costs of service to

respective service requirements. Unit costs of service are based upon the total costs previously

allocated to functional components and the total number of applicable units of service. Dividing the

costs allocated to functional cost components by the respective total units of service requirements

develops unit costs of operation and maintenance expense, and net capital costs.

4.2.5.1 Unit Costs of Service

Table 4-6 presents total Test Year O&M expense and net capital costs allocated to functional

cost components.

Table 4-6 Unit Costs of Service for TY 16

4.2.5.2 Distribution of Costs of Service to Customer Classes

The customer class responsibility for service is obtained by applying the unit costs of service

to the number of units for which the customer class is responsible. Table 4-7 (on next page)

illustrates this process, in which the unit costs of service are applied to the customer class units of

service.

4.2.5.3 Adequacy of Existing Rates to Meet Costs of Service

Presented in Table 4-8 (following Table 4-7) is a comparison of the allocated costs of service

and revenues under existing rates for the system in total. For the Water Fund, public fire protection

provides a general benefit to all customers, and thus, is allocated to all customers. The last column

in the table indicates the approximate adjustment to customer class rate levels necessary to recover

100 percent of the allocated costs of service.




($) ($) ($) ($) ($) ($) ($)

Unit Cost of Service

1 Net Operating Expense 4,504,700 3,074,400 282,500 219,700 271,800 623,200 33,100

2 Capital Costs 602,100 460,000 43,100 77,800 10,300 0 10,900

3 Total Cost of Service $5,106,800 $3,534,400 $325,600 $297,500 $282,100 $623,200 $44,000

4 Units of Service (Total) 994,992 4,042 8,431 7,171 25,908 56,469

5 Cost per Unit $3.55 $80.56 $35.29 $39.34 $24.05 $0.78

6 per Unit per HCF per HCF/day per HCF/day per Eq. Meter per Bill per Eq. Hydrant

Line


Fire

Protection



29

Table 4-7 Allocation of COS to Customer Classes

Table 4-8 Comparison of Adjusted COS with Revenues under Existing Rates


Base Extra Capacity Customer Fire

Base Max. Day Max. Hour Meters Cust/Bill. Protection

($) ($) ($) ($) ($) ($) ($)

per 1,000 Gal per 1,000 gpd per 1,000 gpd per Eq. Meter per Bill per Eq. Hydrant

1 Cost per Unit $3.55 $80.56 $35.29 $39.34 $24.05 $0.78

Customer Class

Residential

2 Units 0 802,781 2,859 3,299 5,400 23,778 0

3 Allocation of costs of service 3,982,800 2,851,600 230,400 116,500 212,400 571,900 0

City

4 Units 0 9,251 33 38 49 90 0

5 Allocation of costs of service 41,000 32,900 2,700 1,300 1,900 2,200 0

Church

6 Units 0 9,391 17 28 97 210 0


Commercial

8 Units 0 105,296 260 375 487 1,470 0


Government

10 Units 0 51,096 182 210 138 66 0


Schools

12 Units 0 17,177 61 71 103 114 0


Fire Service

Public Fire

14 Units 0 0 596 4,173 0 0 53,429

15 Allocation of costs of service 236,800 0 48,000 147,200 0 0 41,600

Private Fire

16 Units 0 0 34 237 897 180 3,040

17 Allocation of costs of service 53,100 0 2,700 8,400 35,300 4,300 2,400

18 TOTAL COSTS OF SERVICE $5,106,800 $3,534,400 $325,600 $297,500 $282,100 $623,200 $44,000

Line


Allocated Beneficial Use Adjusted Revenue Indicated

COS Allocation COS Existing Rates Adjustment

($) ($) ($) ($) (%)

Customer Class

1 Residential 3,982,800 195,800 4,178,600 3,812,368 9.6%

2 City 41,000 2,000 43,000 39,358 9.3%

3 Church 44,600 2,200 46,800 51,134 -8.5%

4 Commercial 462,700 22,700 485,400 431,358 12.5%

5 Government 210,600 10,400 221,000 186,220 18.7%

6 Schools 75,200 3,700 78,900 75,823 4.1%

7 Subtotal $4,816,900 $236,800 $5,053,700 $4,596,260 10.0%

Fire Service

8 Public Fire 236,800 (236,800) 0 0 0.0%

9 Private Fire 53,100 0 53,100 46,234 14.9%

10 Subtotal $289,900 ($236,800) $53,100 $46,234 14.9%

11 Total Water System $5,106,800 $0 $5,106,800 $4,642,494 10.0%

Line

No. Description


30

| DECEMBER 22, 2014

5 Proposed Rate Adjustments The final step of the rate study is the update of the water rates to collect the desired level of

revenue determined in the revenue requirement analysis. When the City adopted its current water

allocation budget rate structure, it considered several factors that should be part of the rate

structure. The following principles were considered:

Clear and understandable rates

Easily administered

Conservation measures

Revenue stability (month to month and year to year)

Efficient allocation of resources

Fair and equitable (cost-based) rates

Every consideration has merit and plays an important role in a comprehensive rate study.

When developing the City’s proposed rates all of the aforementioned criteria were taken into

consideration. Determining the appropriate balance is crucial, as some of the criteria sometime

conflict with one another, i.e. a customer’s ability to pay and cost-based. In designing rates, there

will always be concessions between the various objectives; however, the City attempted to ensure

the rates met the leading objectives of the City.

As an added layer of complexity, water rate setting in California faces more stringent

requirements than do agencies in other states. In 2007, the California Supreme Court (in Bighorn-

Desert View Water Agency v. Verjil) held water agency’s rates were subject to repeal by initiative

pursuant to Section 3 of Article XIIIC of the California Constitution. In addition, because of the

Bighorn decision, water rates in California are now considered property-related fees. Therefore, the

substantive and procedural requirements of California Constitution Articles XIIIC and XIIID

(Proposition 218) apply to water rate setting. Specifically, water rate setting must include a

proportionate cost of service analysis. Section 6 of Article XIIID states:

The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership

shall not exceed the proportional cost of the service attributable to the parcel.

5.1 EXISTING AND PROPOSED METER CHARGES In the overall rate setting process, there is often the need to establish a minimum threshold

or base level of cost or demand for service, against which the costs or demands of a larger customer

base can be measured. A convenient means to measure this demand is by using the size of the

customer's water meter. The base level of service is attributed to the smaller meter sizes available

in the City which are the billing groups A1, A2 and A3 (5/8 inch meter, ¾ inch meter and ¾ by 1

inch meter, respectively). Single-family residential customers most typically use these sizes of

meters. Some single-family residential customers utilize a 1 inch meter. In these cases, the ability to

draw much more water than smaller meters correlates with a larger bi-monthly meter charge.

These sizes of meters are considered as the base level of cost or demand for water service.

The baseline is then used to compare all other meter sizes and to determine the cost or demand for

service on each of the meter sizes. As the size of a meter increases, so does the burden that the


BLACK & VEATCH CORPORATION | Proposed Rate Adjustments

31

meter places on the water system. As meter sizes increase, the burden or demand placed on the

system increases exponentially; in other words, it is greater than a "one for one" relationship. In

order to measure this relationship, it is common practice to use a meter equivalent ratio index. This

index reflects the level of service to each customer class based on their potential commodity

demand. Meter size ratios are determined by the ratio of average flow rates through each meter to

the baseline meters in the A1, A2 and A3 billing groups. Table 5-1 presents the meter equivalencies

for each meter size billed by the City. The equivalency figures are used in this analysis to fairly

allocate customer related costs of the water system.

Table 5-1 Meter Equivalencies

Based on the cost of service allocation and the meter equivalency factors derived in this

analysis, Table 5-2 presents the existing meter charges and the proposed meter charges for FY 16

through FY 20.

Table 5-2 Existing and Proposed Meter Charges

5.2 COMMODITY RATES - INCLINING TIER METHOD Like most California agencies, the City of Lomita encourages water conservation among its

customers. Furthermore, State legislation mandates that California water agencies reduce their

total water demand by 20 percent by the year 2020 (per Senate Bill x7-7). An inclining tier method

Meter Equivalency

5/8" x 3/4" 1.00

3/4" 1.00

3/4" x 1" 1.33

1" 1.67

1 1/2" 3.33

2" 5.33

3" 10.00

4" 16.67

6" 33.33

8" 53.33

10" 76.93

Meter Current Eff. March 2015 FY 17 Charge FY 18 Charge FY 19 Charge FY 20 Charge

5/8" x 3/4" $41.93 $36.90 $39.73 $42.90 $46.78 $50.31

3/4" $41.93 $36.90 $39.73 $42.90 $46.78 $50.31

3/4" x 1" $55.91 $49.20 $52.97 $57.20 $62.38 $67.08

1" $69.89 $61.50 $66.21 $71.51 $77.97 $83.85

1 1/2" $139.78 $123.00 $132.42 $143.01 $155.95 $167.71

2" $223.64 $196.81 $211.88 $228.82 $249.52 $268.33

3" $419.33 $369.01 $397.27 $429.03 $467.85 $503.13

4" $698.88 $615.02 $662.11 $715.05 $779.74 $838.54

6" $1,397.77 $1,230.05 $1,324.23 $1,430.11 $1,559.49 $1,677.09

8" $2,236.43 $1,968.07 $2,118.76 $2,288.17 $2,495.18 $2,683.34

10" $2,807.21 $2,838.82 $3,056.18 $3,300.55 $3,599.14 $3,870.55

Fire Service

4" $201.84 $164.44 $176.82 $191.69 $211.51 $227.61

6" $273.92 $328.87 $353.65 $383.38 $423.01 $455.22

8" $344.16 $526.20 $565.84 $613.40 $676.82 $728.35

Current & Proposed Service Charge ($/month)


32

| DECEMBER 22, 2014

is an effective rate structure to achieve this goal. With this approach, the unit price of water

increases with each successive tier, resulting in an increase in the incremental and the average cost

of water with increased water use. To date, the City has experienced reductions in overall

consumption amounts since the last rate structure adopted in 2005 utilizing an inclining tier

approach.

For inclining tier rate structures, the tier or quantity shift points are generally based upon the

unique demand characteristics of a user class and are focused on high system demand points to

enhance water usage awareness. For this approach, the City utilizes a three-tier rate structure for

all residential classes. To define consumption tiers for residential customers, the City utilizes the

factors derived in the 2005 study. The threshold between Tier 1 and Tier 2 is based on typical

indoor water usage assuming 4 persons per household—the typical density per dwelling unit. This

amount is estimated to be at 20 hcf per bi-monthly billing period. The Tier 2/Tier 3 threshold is 35

hcf, a figure based on average bi-monthly use among Lomita residential customers.

For non-residential accounts, the City utilizes a uniform rate structure. For this customer

group, water use is varied for each type of non-residential use. As a result, it becomes challenging to

assign one threshold breakpoint that would treat all non-residential customers fairly and

proportionate to cost of service. Therefore a uniform rate approach would most closely

approximate proportionate cost of service for Lomita non-residential customers.

Table 5-3 presents the existing and proposed commodity rates for the study period.

Table 5-3 Existing and Proposed Commodity Rates

5.3 TYPICAL CUSTOMER BILLS UNDER RECOMMENDED RATE STRUCTURE Table 5-4 presents sample residential bills using the current and proposed rate structures for

each fiscal year presented in this study. This table shows the residential bi-monthly water bill (with

¾ inch meter) under the proposed water rate structure format for the following types of water use:

Single-Family Residential customer within Tier 1 usage (20 hcf use per billing period), Low-Use

Residential customer (10 hcf use per billing period), and High-Use Residential customer (40 hcf use

per billing period).

Tier Current Eff. March 2015 FY 17 Rate FY 18 Rate FY 19 Rate FY 20 Rate

Residential

Tier 1 (0-20 HCF) $3.22 $3.53 $3.81 $4.12 $4.43 $4.79

Tier 2 (21-35 HCF) $3.29 $3.63 $3.93 $4.24 $4.56 $4.94

Tier 3 (> 35HCF) $3.69 $4.13 $4.46 $4.82 $5.18 $5.61

Non-Resid'l $3.39 $3.63 $3.93 $4.24 $4.56 $4.94

Current & Proposed Commodity Charge ($/HCF)



33

Table 5-4 Existing and Proposed Residential Bill Comparison

Figure 5-1 illustrates a comparison of moderate use Lomita residential customer water bills

on a monthly basis to other neighboring agency customer bills. The customer types are single-

family residential utilizing a ¾ inch meter and 10 units (hcf) of water per month.

Figure 5-1 Monthly Residential Bill Comparison – ¾ Inch Meter with 10 hcf Water Consumption

5.4 WATER PURCHASE INCREASES AND CUSTOMER BILLS ASSUMING CITY 100% RELIANT ON PURCHASED WATER (WBMWD) City water customers have and will continue to benefit from the operation of the Cypress

Water Production Facility. The Facility has given the City greater supply reliability and lessened the

cost impact of water supply purchases. This benefit has in turn meant lower water rates for Lomita


Low Use Residential

Bil l - 10 Units $74.13 $72.18 $77.87 $84.10 $91.10 $98.24

Bill Difference ($) ($1.95) $5.69 $6.22 $7.00 $7.15

Bill Difference (%) -3% 8% 8% 8% 8%

Typical Use


Units $106.33 $107.46 $116.02 $125.29 $135.41 $146.18

Bill Difference ($) $1.13 $8.56 $9.27 $10.12 $10.76


High Use


Units $190.58 $200.77 $216.92 $234.25 $252.63 $272.96

Bill Difference ($) $10.19 $16.15 $17.33 $18.38 $20.33




34

| DECEMBER 22, 2014

customers now and projected well into the future. Table 5-5 illustrates the historical and projected

water purchase rates from West Basin Municipal Water District on a per acre foot basis. In addition,

this table shows the historical and projected rates for Water Replenishment District water.

Table 5-5 Historical and Projected Water Supply Rates

Due to the operation of the production facility, water supply costs start decreasing as the City

decreases its reliance on imported water from WBMWD. Figure 5-2 demonstrates the projected

water supply cost savings over the study period due to the current supply blending arrangement.

For each year, this graph shows the projected water supply costs assuming 100 percent reliance on

water from WBMWD and the projected water supply costs under the current situation of blending

local and imported water due to the operation of the production facility.

Figure 5-2 Differences in Projected Water Supply Costs

Finally, Table 5-6 shows the projected customer bills under the assumption that the City was

still 100 percent reliant on WBMWD water. This scenario was derived using the same reserve

balance projections utilized throughout this study and maintaining at least a 1.25x debt coverage

ratio on the COPs to show an “apples to apples” comparison between the rate study-recommended

rates and the hypothetical rates generated by 100 percent reliance on imported water.

Description FY 11 FY 12 FY 13 FY 14 FY 15 Proj FY 16 Proj

WBMWD Rates Jul - Dec $861 $964 $1,036 $1,106 $1,171 $1,230

WBMWD Rates Jan - Jun $935 $1,024 $1,089 $1,157 $1,206 $1,266

Water Replenishment Rates $205 $244 $244 $268 $268 $268

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

FY 16FY 17

FY 18FY 19

FY 20

Blended Water Costs - 60% Import/ 40% Local 100% WBMWD Water Costs



35

Table 5-6 Hypothetical Water Rates Assuming 100% Reliance on WBMWD Water Costs (compare to Table 5-4)


Low Use Residential

Bil l - 10 Units $74.13 $74.15 $86.18 $94.48 $102.85 $109.56

Bill Difference ($) $0.02 $12.03 $8.30 $8.37 $6.71

Bill Difference (%) 0% 16% 10% 9% 7%

Typical Use


Units $106.33 $113.83 $132.46 $145.43 $158.22 $168.93

Bill Difference ($) $7.50 $18.63 $12.97 $12.79 $10.71

Bill Difference (%) 7% 16% 10% 9% 7%

High Use


Units $190.58 $218.78 $254.88 $280.19 $304.67 $325.97

Bill Difference ($) $28.20 $36.10 $25.31 $24.48 $21.30

Bill Difference (%) 15% 16% 10% 9% 7%


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