Finance Committee Meeting
Water Rate Study Update
Habib Isaac – Principal
Gregg Tobler – Task Manager
August 13, 2012
Water Rate Study Timeline
• Willdan assisted District with 5yr/10yr financial plan (revenue
requirements) as part of District’s FY 2012-13 budgetary process
– Account for District’s operation and maintenance costs
– Incorporate new reserve policies and capital improvement plan
– Ensure sufficient coverage on debt in compliance with bond covenants
• Multiple Financial Plans presented to District Board for consideration
• District created Community Advisory Committee for public input
• First CAC meeting held on Tuesday, August 7
– Meeting included Willdan and District Staff
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Community Advisory Meeting Discussion
• CAC involvement
• Financial plan
– Revenue adjustments
– Debt restructuring
• How revenue is collected
– Fixed versus Variable
• Existing rate structure
– 2007 Study
• Options available for updating rate structure
– Fixed / Variable split
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CAC Involvement in Water Rate Study
Update Board –
Select Financial Plan
Engage CAC
Revenue
Requirements Analysis
Cost of Service
Analysis
• Determine revenue
needed to meet
utility costs
• Project O&M,
capital and debt
expenses
• Analyzes reserves
Developed Financial
Plan Scenarios
Rate Design Analysis
• Allocate utility
costs by function
and customer
demand
• Assign revenue
required to each
customer class in a
proportionate
manner
• Develop rate
structure for each
customer class to
collect appropriate
level of revenues
• Encourage water
conservation
CAC Feedback
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Financial Plan
• Revenue Requirements
–
–
–
–
–
Revenue adjustments commencing in January 2013
Revenue adjustments commencing in July 2013
Revenue adjustments deferred for four years
Debt restructuring options
Reserves and future CIP reinvestment
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How is revenue recovered?
• Revenue broken out into two components
– Fixed revenue (monthly meter charge)
– Variable revenue (charge based on water consumption)
• Fixed revenue
– Costs are either apportioned evenly over all accounts or meter equivalency
– Meter Equivalency – size of meter (flow capacity) determines charge
• Larger meters pay more
– Both criteria are used ; selection depends on type of expenditure
• Variable revenue
– Based on water consumption
– Variable costs are allocated between customer classes based on usage
• Variable characteristics include: total water used and peaking
• Peaking – Increase in demand at a specific point in time
– After variable cost are allocated to customer classes, rate design determines
most appropriate method to collect revenue
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Existing Rate Structure
• 2007 Water Rate Analysis
– One rate structure applied to all accounts
– Last 5 years of revenue adjustments: 32%, 20%, 15%, 3%, 3%
– 3 years of 3% revenue adjustments were deferred by District
• Actual revenue adjustments implemented : 32%, 20%, 12%, 0%, 0%
• Slow economy in recent years
• Healthy reserves and cost cutting measures utilized to defer adjustments
– Fixed charge – 60% of revenue
– Variable charge (two tiered structure) – 40% of revenue
• Tier 1 – 30 HCF = $1.46
• Tier 2 – >30 HCF = $1.80
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Fixed / Variable Revenue Split
• What % of District revenue should come from each component?
– Actual split is ~65% fixed / 35% variable based on existing consumption
– Percentage split based on District objectives and industry standards
• Revenue stability, debt service coverage; conservation objectives
– Certain costs are strictly designated
• i.e. customer service – fixed; treatment – variable
• Proposed scenarios distribute cost as follows:
– Fixed / Variable: 60% / 40%
50% / 50%
40% / 60%
– If revenue shifts from fixed to variable the following occurs:
•
•
•
•
•
Lower monthly fixed charge
Per unit cost of water increases
Customers gain greater control over monthly bill by adjusting consumption
Decreases revenue stability to District
One way to assist District in meeting the State’s Goal of (20 x 2020)
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Community Advisory Meeting Feedback
• Financial plan
– January implementation will provide customers time each year to adjust to
new rates prior to peak summer season
• Debt restructuring
– Leveling debt service should be considered if sufficient savings are achieved
• Options available for updating rate structure
– CAC would like to see all three options modeled when calculating rates to
compare and understand differences
• Next CAC meeting will be scheduled in next couple of weeks
– Review rates and impact on customers
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Next Steps - Tiering Analysis
• Option 1
– 60% fixed / 40% variable
• Option 22 Tier Rate Structure (All Classes)
%
Usage
% 0f
0f Total
Total
Usage Based
Based on
on
Tier
(HCF)
Usage
Current
Consuption
Tier (HCF) Usage
Current Consuption
30
70%
30Rate Structure
70% (Residential) 1,127,297
1,127,297
3 Tier
30.01+
30%
480,703
30.01+
30%
480,703
% 0f Total
Usage Based on
Tier (HCF) Usage
Current Consuption
15
68%
1,088,680
14
20%
4 Tier Rate Structure (Residential) 322,116
29.01+
12%
197,204
% 0f Total
Usage Based on
Tier (HCF) Usage
Current Consuption
10
53%
844,245
10
25%
405,174
9
11%
172,763
29.01+
12%
185,818
– 50% fixed / 50% variable
• Option 3
– 40% fixed / 60% variable
Consumption Data
Rateper
perhcf
hcf
Rate
1.51
1.51
2.73
2.73
Rate per hcf
1.59
1.94
3.33
Rate per hcf
1.42
1.74
2.37
3.81
Revenueinineach
eachTier
Tier
Revenue
1,703,333
1,703,333
1,314,667
1,314,667
3,018,000
3,018,000
Revenue in each Tier
1,734,928
626,257
656,815
3,018,000
Revenue in each Tier
1,195,665
705,810
408,608
707,917
3,018,000
0fVariable
Variable
%%0f
Revenue
Revenue
56%
56%
44%
44%
% 0f100%
Variable
100%
Revenue
57%
21%
22%
% 0f Variable
100%
Revenue
40%
23%
14%
23%
100%
Revenue Analysis
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Tiering Analysis Considerations
• 40% fixed / 60% variable
4 Tier Rate Structure (Residential)
% 0f%Total
Based
on on
%
0f Total Usage
Usage
Based
% 0f
0f Variable
Variable
TierTier
(HCF)
Consuption
RateRate
per per
hcf hcf Revenue
in each
TierTier
% 0f Variable
Revenue
Revenue
in each
Revenue
(HCF)Usage
Usage Expected
Current
Consuption
10 10
54%53%
844,245
Tier 1 Revenue
Tier
54%
844,245
1,195,665
40%1 %
844,245 0% 0% TBD 1.42
10 10
25%25%
397,070
Tier 2 Revenue
Tier
397,070
691,693
23%2 %
405,174-2%-2% TBD 1.74
705,810
9 9
10%11%
164,125
-5%
TBD
Tier
3
Revenue
Tier
-5%
10%
164,125
388,178
13%
172,763
2.37
408,608
14%3 %
29.01+
157,946
-15%
Tier 4 Revenue
Tier
-15% TBD 3.81
10%
157,946
601,729
20%
29.01+ 10%12%
185,818
707,917
23%4 %
2,877,266
95%
3,018,000
100%
3,018,000
100%
Rates Recalibrated
Primary Drivers
Reducedto
Consumption
ensure revenue sufficiency
Lost Revenue
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Policy Considerations
• Revenue sufficiency
• Financial health of utility in short and long-term
– Reserve funding
• Conservation objectives
– 20% by 2020
• Customer impact
– Monthly meter charge
– Tier structure
• Prop. 218 compliance
– Rates based upon cost of providing service
– Achieve equity across/within customer classes
• CAC feedback
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