june 26, 2014
DESCRIPTION
AHFC Meeting No. 13. June 26, 2014. Where we are today…. Today’s Agenda. Recap of Meeting No. 12 Overview of Preliminary Rate Analysis Cost Allocation Inputs Cost of Service Analysis Next Steps. Recap of Meeting No. 12. - PowerPoint PPT PresentationTRANSCRIPT
1
June 26, 2014
AHFC Meeting No. 13
2
Nov-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
Regular Monthly Meeting (RMM) RMM RMM RMM
RMM & Cost Recovery Workshop
RMM & Board Presentation RMM RMM RMM RMM & Board
Presentation RMM RMM & Board Presentation RMM
Primary Topic Rate Overview Revenue
RequirementsCustomer Analysis
Rate Design/ Cost Recovery
Rate Design/ Cost Recovery
Revenue Requirements
Cost Allocation
Rate Design/ Cost Recovery Draft Report Draft Report Final
Report … …
Secondary Topic
System & 2010 Review Cost Allocation Cost Analysis Customer
ImpactsCustomer Impacts Cost Allocation Cost Analysis Customer Impacts Proposition
218 Final Report … … …
AHFC Decision
Recommend Cost Recovery
Altern.
Review Draft Report
Board Decision
Cost Recovery Workshop
Review Draft Report
Board Approval
Prop. 218 Process
Rate Setting Process
Data Acquisition/
Analysis
Revenue Requirements /
Identify Cost Components
Customer Analysis
Finalize Revenue
RequirementsCost & Functional
AllocationFinal Rate
DevelopmentPreparation of Draft Report
Finalize Report
Prop. 218 Initiation
DeliverablesRevised BMP
Cashflow Model
Tiered Rate Builder
Draft Cost Recovery TM Draft Report Final Report
Phase II - Calculation & Implementation
Identify Cost Recovery Alternatives
Phase I - Rate Setting Methodology & Development
No D
ecem
ber M
eetin
g He
ld
Where we are today…
3
Today’s Agenda
• Recap of Meeting No. 12• Overview of Preliminary Rate Analysis• Cost Allocation Inputs• Cost of Service Analysis• Next Steps
4
Recap of Meeting No. 12
5
Rate Setting Process is for 5-yr period, but longer-term outlook is meant to smooth future rate increases
FY 2015/16
FY 2016/17
FY 2017/18
FY 2018/19
FY 2019/20
FY 2020/21
FY 2021/22
FY 2022/23
FY 2023/24
FY 2024/25
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
Salaries & Benefits O&M Expenditures Existing Debt Service Debt - RW StorageDebt - Harkins Slough Debt - College Lake Debt - Watsonville Slough Design & Planning Cost
6
Revenue Requirements to be initially based on 51,700 AF (Groundwater)
CY1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
Total of Water Usage (AF)
51,700 AF is the 5-yr rolling average and consistent with
existing rate/budget assumptions
7
Rate smoothing is preferred by AHFC, rather than larger initial increasesLarger, Initial
Increases Rate-Smoothing
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
Salaries & Benefits O&M Expenditures Existing Debt ServiceDebt - RW Storage Debt - Harkins Slough Debt - College LakeDebt - Watsonville Slough Design & Planning Cost Proposed Rate RevenueUnrestricted Reserves
$0
$2,000,000
$4,000,000
$6,000,000
$8,000,000
$10,000,000
$12,000,000
$14,000,000
$16,000,000
$18,000,000
$20,000,000
8
Overview of PreliminaryRate Analysis
9
Provisional assumptions were utilized to develop preliminary rates• Revenue Requirements Assumptions:
– Rate Smoothing– BMP Funding (no other capital projects)
• Financing Assumptions:– 1999 COP and 2007 COW debt refinancing
• 2007 refinancing includes use of $12M in awarded Title XVI
– $900,000 in grants• Demand Assumptions:
– Groundwater demand of 51,700 AF• Conservation 500 AF per year until target is met
– Delivered Water demand of 5,500 AF• 2010 Cost Allocation Methodology Foundation
10
Cost Allocation Inputs
11
Draft 2015 Cost allocation methodology remains consistent
with the 2010 rate setting process and the findings of Pendry-Griffith
12
Augmentation Charge - Outside
DWZ
Augmentation Charge - Inside
DWZ
Augmentation Charge - Rural Residential*
Delivered Water Charge
$-
$50
$100
$150
$200
$250
$300
$350
$400
$17
9 $21
5
$17
2
$33
8
$18
6 $22
9
$18
1
$33
9
$20
0 $24
6
$19
3
$34
3
$21
0 $25
8
$20
1
$34
4
$22
0 $27
1
$20
9
$35
8
$23
1 $28
4
$21
7
$37
2
Current (14/15) FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
Initial Five Year Rate Impact under proposed increases (5% annual revenue increases)
Inside DWZ vs. outside DWZ, avg difference is
$47/af Outside DWZ vs. rural residential,
diff is $9/af
Inside DWZ vs. delivered water charge, difference is
$97/af
*Rural Residential users charged 60% of an AF
13
Two critical guiding definitions to the Cost Allocation Analysis1. Cost Allocations must be based on a
quantifiable benefit, supported by system attributes and costs
2. Single Basin = Shared Challenges = Shared Solution• “All persons extracting water and paying the
charge will benefit in the continued availability of usable groundwater.” - Pendry-Griffith Decision
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Revenue NeedsAdministration
Facility OperationsHarkins SloughCoastal DistributionSupplemental WellsRecycled Water FacilityMetering Program
Basin Management
Capital Planning
Debt Service PaymentsSWRCB Note#1SWRCB Note#2DWR (Prop. 13)1999 COPCity of Watsonville
Future Debt Service
Augmentation Charge
(Aug)
Inside DWZ Surcharge (+DWZ)
Rural Residential
(Rural)
Delivered Water
Service(DWS)
Cost of Service Analysis used to allocate Revenue Requirements to rate categories
Cost of Services Analysis
15
Changes to budget and water demands cause minor shifts from 2010 analysis
Augmen
tation
Cha
rge
Inside
DW
Z Surch
arge
Rural
Reside
ntial
Delive
red W
ater S
ervic
e
82.1%
1.8% 2.1%14.0%
80.2%
2.3% 1.7%15.8%
Allocation of Revenue Requirements2010 Allocation 2015 Allocation
16
Various allocation bases used to distribute revenue requirements between functions
Expenditures Allocation Basis
AugAug
Inside Rural DWS
Administration82% 82% + 3% 4% 11%
Estimated percent of time the position spent on that function
Facility OperationsHarkins Slough, CDS, Supplemental Wells, Recycled Water Facility
71% 71%+ 0% 2% 27%Cost to pump at pressure allocated to Delivered Water Users
Remaining operating costs allocated on the ratio of the groundwater and delivered water consumption to total consumption
Metering Program89% 89%+ 0% 0% 11%
Allocated directly to Metering
17
Various allocation bases used to distribute revenue requirements between functions
Expenditures Allocation Basis
AugAug
Inside Rural DWS
Basin Management PlanningModeling & Monitoring, Basin Management, & Basin Funding
87% 87% + 0% 2% 11%Ratio of the groundwater and delivered water consumption to total consumption
Debt Service PaymentsSWRCB Note #1, SWRCB Note #2, & 1999 COP, Coastal Distribution System, City of Watsonville – Recycled Water Facility
82% 82% + 3% 2% 13%Ratio of consumption and available capacity.The amount of available (or standby) Delivered Water Service capacity is directly allocated to Inside DWZ users
18
Augmentation Charge - Outside
DWZ
Augmentation Charge - Inside
DWZ
Augmentation Charge - Rural Residential*
Delivered Water Charge
$-
$50
$100
$150
$200
$250
$300
$350
$400
$17
9 $21
5
$17
2
$33
8
$18
6 $22
9
$18
1
$33
9
$20
0 $24
6
$19
3
$34
3
$21
0 $25
8
$20
1
$34
4
$22
0 $27
1
$20
9
$35
8
$23
1 $28
4
$21
7
$37
2
Current (14/15) FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
Initial Five Year Rate Impact under proposed increases (5% annual revenue increases)
Inside DWZ vs. outside DWZ, avg difference is
$47/af Outside DWZ vs. rural residential,
diff is $9/af
Inside DWZ vs. delivered water charge, difference is
$97/af
*Rural Residential users charged 60% of an AF
19
Next Steps
20
Nov-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
Regular Monthly Meeting (RMM) RMM RMM RMM
RMM & Cost Recovery Workshop
RMM & Board Presentation RMM RMM RMM RMM & Board
Presentation RMM RMM & Board Presentation RMM
Primary Topic Rate Overview Revenue
RequirementsCustomer Analysis
Rate Design/ Cost Recovery
Rate Design/ Cost Recovery
Revenue Requirements
Cost Allocation
Rate Design/ Cost Recovery Draft Report Draft Report Final
Report … …
Secondary Topic
System & 2010 Review Cost Allocation Cost Analysis Customer
ImpactsCustomer Impacts Cost Allocation Cost Analysis Customer Impacts Proposition
218 Final Report … … …
AHFC Decision
Recommend Cost Recovery
Altern.
Review Draft Report
Board Decision
Cost Recovery Workshop
Review Draft Report
Board Approval
Prop. 218 Process
Rate Setting Process
Data Acquisition/
Analysis
Revenue Requirements /
Identify Cost Components
Customer Analysis
Finalize Revenue
RequirementsCost & Functional
AllocationFinal Rate
DevelopmentPreparation of Draft Report
Finalize Report
Prop. 218 Initiation
DeliverablesRevised BMP
Cashflow Model
Tiered Rate Builder
Draft Cost Recovery TM Draft Report Final Report
Phase II - Calculation & Implementation
Identify Cost Recovery Alternatives
Phase I - Rate Setting Methodology & Development
No D
ecem
ber M
eetin
g He
ld
Where are we going…
21
Next Steps
– Rate Design & Development (July)– Finalize revenue requirements based on
ongoing refinements to financial assumptions• Potential clarity of grant and financial
assumptions– Discussion of Proposition 218 Process (August)
22
Questions?
23
Extra Slides
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Initial Five Year Rate Impact under proposed increases (5% annual increases)Unit Cost Per User Class 5-yr
Impact Augmentation Charge - Outside DWZ 29% Augmentation Charge - Inside DWZ 32% Augmentation Charge - Rural Residential 26% Delivered Water Charge 10%
Augmentation Charge - Outside
DWZ
Augmentation Charge - Inside
DWZ
Augmentation Charge - Rural Residential*
Delivered Water Charge
$-
$50
$100
$150
$200
$250
$300
$350
$400
$17
9 $21
5
$17
2
$33
8
$18
6 $22
9
$18
1
$33
9
$20
0 $24
6
$19
3
$34
3
$21
0 $25
8
$20
1
$34
4
$22
0 $27
1
$20
9
$35
8
$23
1 $28
4
$21
7
$37
2
Current (14/15) FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
25
Summary of Cost of Service Analysis Augmentati
on ChargeInside DWZ
Rural Residenti
alDelivered
WaterAdministration 82% 3% 4% 11%
Facility Operations Harkins Slough 60% 0% 2% 38%Coastal Distribution 74% 0% 2% 24%Supplemental Wells 87% 0% 2% 11%Recycled Water Facility 70% 0% 2% 28%Metering Program 89% 0% 0% 11%
Basin Planning 87% 0% 2% 11%
Capital Planning 82% 3% 2% 13%
Debt Service Payments SWRCB Note#1 82% 3% 2% 13%SWRCB Note#2 82% 3% 2% 13%DWR (Prop. 13) 82% 3% 2% 13%1999 COP 82% 3% 2% 13%City of Watsonville 82% 3% 2% 13%
Future Debt Service 82% 3% 2% 13%
26
Cost of Service Analysis is the method by which revenue requirements are allocated to each customer class
Functional Allocation
• Separates expenditures into functional categories
Cost Allocation
• Assigns costs to customer classes in proportion to the respective demands
27
Revenue requirements are allocated to five unique service functions provided by the Agency (Functional Allocation)
Functional Category Water Users Receiving ServiceSupplemental Water Service for Groundwater Users
Property Owners with Metered and Unmetered Wells
Delivered Water Service Delivered Water Users
Billing Water Users on a Quarterly Cycle and Unmetered Users billed Annually
MeteringAll Water Users Except for Property Owners with Unmetered Wells
Higher Level of Service for Metered Water Users DWZ
GW Users Within the DWZ with Ability to Immediately Connect to the CDS
28
Alternative Cost Allocation
29
Initial Five Year Rate Impact under proposed increases (5% annual revenue increases)
Augmentation Charge - Outside
DWZ
Augmentation Charge - Inside
DWZ
Augmentation Charge - Rural
Residential
Delivered Water Charge
$-
$50
$100
$150
$200
$250
$300
$350
$400
$17
9 $21
5
$17
2
$33
8
$18
3 $22
6
$17
8
$35
3
$19
7 $24
3
$19
0
$35
7
$20
6 $25
5
$19
8
$35
9
$21
6 $26
7
$20
5
$37
3
$22
7 $28
0
$21
3
$38
8
Current (14/15) FY 2015/16 FY 2016/17 FY 2017/18 FY 2018/19 FY 2019/20
Inside DWZ vs. outside DWZ, avg difference is
about $45/afOutside DWZ vs. rural residential,
difference is about $10/af
Inside DWZ vs. delivered water charge, difference is
about $115/af
*Rural Residential users charged 60% of an AF
30
Various allocation bases used to distribute revenue requirements between functions
Expenditures Allocation BasisAug +DWZ Rural DWS
Administration82% 0% 4% 14%
Estimated percent of time the position spent on that function
Facility OperationsHarkins Slough, CDS, Supplemental Wells, Recycled Water Facility
71% 0% 2% 27%Cost to pump at pressure allocated to Delivered Water Users
Remaining operating costs allocated on the ratio of the groundwater and delivered water consumption to total consumption
Metering Program79% 0% 0% 21%
Allocated directly to Metering
31
Various allocation bases used to distribute revenue requirements between functions
Expenditures Allocation BasisAug +DWZ Rural DWS
Basin Management PlanningModeling & Monitoring, Basin Management, & Basin Funding
87% 0% 2% 11%Ratio of the groundwater and delivered water consumption to total consumption
Debt Service PaymentsSWRCB Note #1, SWRCB Note #2, & 1999 COP
87% 0% 2% 11%Ratio of the groundwater and delivered water consumption to total consumption
Debt Service PaymentsCoastal Distribution System
0% 53% 0% 47%Ratio of delivered water and metered water user consumption in the DWZ
Debt Service Payments (modified)City of Watsonville – Recycled Water Facility
79% 5% 2% 14%
Ratio of existing debt service payments
32
Summary of Cost of Service Analysis Augmentati
on ChargeInside DWZ
Rural Residenti
alDelivered
WaterAdministration 82% 0% 4% 14%
Facility Operations Harkins Slough 60% 0% 2% 38%Coastal Distribution 74% 0% 2% 24%Supplemental Wells 87% 0% 2% 11%Recycled Water Facility 70% 0% 2% 28%Metering Program 79% 0% 0% 21%
Basin Planning 87% 0% 2% 11%
Capital Planning 79% 5% 2% 14%
Debt Service Payments SWRCB Note#1 87% 0% 2% 11%SWRCB Note#2 87% 0% 2% 11%DWR (Prop. 13) 0% 53% 0% 47%1999 COP 87% 0% 2% 11%City of Watsonville 79% 5% 2% 14%
Future Debt Service 86% 0% 2% 11%