1a - PowerPoint Presentation Workshop #5

Study Workshops are designed to be both educational and to seek broad direction from the Board

Workshop #1 Financial Forecast & Cost of Service•Water, recycled water, & sewer services

• Revenue requirement• Cost of service

Workshop #1 Financial Forecast & Cost of Service•Water, recycled water, & sewer services

• Revenue requirement• Cost of service

Workshop #2 & 3 Customer Data Analysis & Rate Design Alternatives• Customer data analysis & forecasted trends

• Rate design alternatives

Workshop #2 & 3 Customer Data Analysis & Rate Design Alternatives• Customer data analysis & forecasted trends

• Rate design alternatives

Workshop #4 & 5 Resulting Rates & Customer Impacts• Calculated rates based on Workshops #1 & 2

• Customer Impacts

Workshop #6 Review & Public Comment• Address any feedback from Workshop #4

• Overview of previous presentations

Workshop #6 Review & Public Comment• Address any feedback from Workshop #4

• Overview of previous presentations

The Board provided general direction on the following items:

• Rates to be increased gradually rather than “just in time”• Greater recovery of fixed expenditures• General Rate Structure Revisions

– Simplify existing structure– Stabilize revenues & cost recovery– Updates based on Cost of Service

At Workshop #3, the Board provided specific direction on the following items:

• Sewer Rate Considerations– SFR: Fixed structure with 3 volumetric blocks– SFR: Sewer usage proxy based on Winter Quarter Average (industry standard)

– Commercial: Simplify 20 classes to 3 categories (low, med, high)

• Water Demand Charge – Calculate charge to provide increased fixed cost recovery, while still linked to demands

• Water Rate Structure Alternatives– SFR: Revise structure to 3 tiers (from 5) and uniform rate MFR– Create separate class with uniform rate for remaining classes

At Workshop #4, the Board provided the following feedback:

• Groundwater Recovery Facility – Allocated to Base & Peak• Review impact of adjusting Debt Service Coverage Ratio (DSCR) from 1.50x to 1.35x (policy target)

• Affirmed outlined Fixed & Demand Charge methodology– Realignment of meter ratios to AWWA Standards

• Preference to maintain existing SFR Tier 1 usage at 1‐5 CCF– Eliminated uniform rate structure alternative (SFR)

• Recycled Water – One Water Methodology – Fixed + Variable structure with no demand charge– Same Fixed Charge as potable customers, unique variable charge

• Commercial, Potable Irrigation, and Multi‐Family Residential (MFR) – Uniform rate structure– Review potential tiered rates for MFR

We are asking for Board input on conceptual rate design and preliminary results

• Confirmation of the Sewer Rate Design– Review of Sewer Design and Rates

• Revenue Requirement Scenarios1. Operation & Maintenance (O&M) and

Repair & Replacement (R&R)2. O&M, R&R, and Tunnel Project Only3. O&M, R&R, Tunnel, and Desal Projects

• Review of Water Design and Rates

All rates and values shown are preliminary and designed to provide a framework for discussion. All values will continue to be refined based on Board input and continued analysis.

Sewer Rate Design

Sewer: Existing sewer rates are comprised of two components and vary by customer class

Fixed ChargeCustomer Type

Existing Equivalents

Existing Annual Cost

SFR 1.00 $446.46 Duplex 0.66 296.53 Triplex 0.69 309.89 Fourplex 0.70 314.19 MFR 0.52 231.91

Variable Charge• Residential (SFR & MFR)

– $1.20 per CCF

• Non Residential– 20 separate classes with 14

unique rates– Rates vary by strength– Minimum charge of 1 EDU

Sewer: Assumptions can be made to better estimate sewer flows and to improve financial stability

13

12 13

12

11

8

7 7

8

9

8

9 9 9 9

AVERAGE CONSUMPTION PER SFR ¾” ACCOUNT

Dec – Feb could be used as Winter Quarter Average (WQA) Baseline to define sewer demand

WQA distribution analysis reveals forecasted sewer demands vary within SFR

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100

200

300

400

500

600

700

800

900

1,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Accoun

ts

WQA Demand (CCF)

Accounts by WQA Demands

*20 includes all accounts greater than or equal to 20 CCF** Only includes accounts with calculable WQA

Sewer: Proposed sewer rate methodology refine existing approach to provided increased stability and clarity

Single Family

WQAAllocation

ModeledAnnualCost

% of Accounts

Block 1 0 – 5 CCF $550 28%Block 2 6 – 10 $600 49%Block 3 11+ $660 22%

Note: 1) Block 2 is account default. 2)No Rate per CCF – 100% fixed

Multi Family & Commercial• Multi Family

– $350 per dwelling unit– $1.25 per ccf

• Commercial– Simplified structure– Low Strength: $5.75/ccf– Medium Strength: $6.50/ccf– High Strength: $8.25/ccf

Carollo still confirming foundation for allocation to Biochemical Oxygen Demand and Total Suspended Solids components

Board Direction Needed:1. Variable Block Structure2. Low, Medium, High

Revenue RequirementsAnalysis

As no debt is being issued, there is no concern with meeting DSCR

Scenario #1: Annual O&M and R&R OnlyFuture R&R average of $10.8M exceeds recent historical average of $5.5M

$‐

$100

Millions Total Reserve Analysis

Targets based on Existing Board Policies

Cash on Hand ‐ Total Reserves Fund Target Max Fund Target Min

$0

$20

$40

$60

$80

FYE2015

FYE2016

FYE2017

FYE2018

FYE2019

FYE2020

FYE2021

FYE2022

FYE2023

FYE2024

FYE2025

Millions

Preliminary Results: 7% revenue increases through 2021, 3% thereafterOperating Expenditures Capital (Rate Funded & Reserve Funded)Non‐Operating Expenditures Capital (Annual Debt Service)Total Revenues

Scenario #2: Annual O&M, R&R, & Tunnel Project OnlyAlthough Tunnel is included, issuing debt enables incurred costs to be deferred and amortized over 30 years

Debt Coverage ratio is lowest in FYE 2022 (2.09x), following the inclusion of the first Debt Service payment

Scenario #3: Annual O&M, R&R, Tunnel, & Desal ProjectsDesal’s timing (2020) and additional debt service burden requires greater increases

With proposed revenue increases, DSCR decreases to 1.30x in FYE 2022. Below District Debt Policy Target

(1.50x), but above Legal obligation of 1.25x

Revenue Requirement Summary

• Forecasted CIP (Repair & Replacement) drives needs for immediate rate increases

– CIP was reviewed with staff to determine reasonableness of program and ability to defer projects

• Initial increases provide natural rate smoothing for forecasted Tunnel and Desal Project funding

– DSCR only material in Scenario 3• Reserves, in the near term, are drawn down to fund capital projects

Board Direction Needed:1. Proceed with Scenario 1, 2, or 32. Direction for use of reserves

3. Direction for DSCR to fall below existing District Debt Policy

Water Rate Design

Water: Based on previous workshops, modeled water rate design responds to the Board’s request

Existing Rate Design• Two Components

– Fixed + Variable Charge

• SFR – 5 Tiers

• MFR – Uniform

• Commercial – Uniform

• Potable Irrigation – Tiered Allocation

• Recycled Water – 90% of Commercial Rate

Modeled Rate Design• Three Components (Potable)

– Fixed + Demand + Variable

• Class specific variable design– SFR – 3 Tiers – MFR – Uniform & Tiered– Commercial – Uniform– Potable Irrigation – Uniform

• Recycled Water– Fixed + Variable

Water: Rate design philosophy is founded on cost of service principles and SCWD’s system & utilization

Three rate components designed to reflect Cost of Service (pertains to all potable water classes):1. Fixed Charge

– Recovers fixed costs based on provided capacity– Collected on the tax roll

2. Demand Charge– Recovers fixed costs based on utilized capacity– Collected on the tax roll

3. Variable Charge– Volumetric based charge, per CCF, based on variable costs– Billed monthly

Shown at Workshop #4

Water: Proposed Fixed Service Charges are set to recover half of fixed costs

FY ‘17 Fixed Charge CalculationWater Revenue Requirement $19.2 Million

Fixed Allocation $11.0 Million

Allocated to Fixed Charge $5.5 Million

¾” Meter Equivalents 20,565

Annual Rate per ME $267.65

FY ‘17 Modeled RateMeter Size

CurrentRate

Proposed Ratios**

July 2016(Rate * Ratio)

3/4" $294.20 30/30 = 1.00 $267.65

1" 529.56 50/30 = 1.67 446.05

1.5" 1,182.69 100/30 = 3.33 892.10

2" 2,100.60 160/30 = 5.33 1,427.40

3" 4,727.83 350/30 = 11.67 3,122.35

4" 8,399.48 630/30 = 21.00 5,620.20

6" 18,896.62 1300/30 = 43.33 11,597.25


** Ratios based on gallon per minute (gpm) flows relative to a ¾” meter. For example, a 1” meter with a flow of 50 gpm is divided by the ¾” flow of 30 gpm to achieve a 1.67 ratio

Water: Remaining fixed costs to be recovered through the new Demand Charge

FY ‘17 Demand Charge Calculation FY ‘17 Methodology

• Blue area represents underutilized fixed costs (capital and distribution)

• Based on 2nd highest month– Minimizes adjustments

• Individualized per account

• Encourages Conservation

Water Revenue Requirement $19.2 Million

Fixed Expenditures $11.0 Million

Allocated to Demand Charge $5.5 Million

Account’s Peak Month Demand (CCF) 314,000

Annual Rate per CCF of Peak Month Consumption $17.55


Water: Tiered rates are sized and designed to reflect SFR demand patterns and trends

0%

20%

40%

60%

80%

100%

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200

400

600

800

1,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49

Cumulative % of A

ccou

nts

Accoun

ts

Cumulativey Demand (CCF)

SFR Monthly Demand Patterns

Sep‐15 Jan‐15 % of Accounts ‐ Sept % of Accounts ‐ Jan

Alt 1Tiers % Share

Alt 2Tiers % Share

Alt 3Tiers % Share

Tier 1 1 – 9 CCF 73% 1 – 7 CCF 63% 1 – 5 CCF 49%Tier 2 10 – 18 20% 8 – 18 30% 6 – 18 44%Tier 3 19+ 7% 19+ 7% 19+ 7%

Water: Single Family variable rates revised to reflect updated Cost of Service results

• Notional Rates 2016/17 under Scenario #3• Water Supply Cost (MWDOC) = $923.50/AF => $2.12/CCF

Alt 1Tiers % Share $/CCF



Tier 1 1 – 9 CCF 73% $2.28 1 – 7 CCF 63% $2.24 1 – 5 CCF 49% $2.19 Tier 2 10 – 18 20% $2.78 8 – 18 30% $2.73 6 – 18 44% $2.65 Tier 3 19+ 7% $3.62 19+ 7% $3.54 19+ 7% $3.43

Board Direction Needed:1. Tier 1 size (5, 7, or 9)

Water: Multi Family class and rate created to reflect distinct uses and updated Cost of Service results

MFR Variable Rate• Separate rate better reflects MFR user characteristics

• Uniform rate provides simplicity, ease of understanding, and ease of application

FY ‘17 Modeled Rate

MFR Variable Allocation $0.56 MillionMFR Water Demand

(Annual CCF) 224,000

Rate per CCF $2.54

Existing Rate per CCF $4.13


Water: Commercial class and rate created to reflect distinct uses and updated Cost of Service results

Commercial Variable Rate• Best reflects class’ heterogeneous needs


FY ‘17 Modeled Rate

Higher Commercial uniform rate (relative to MFR) reflects commercial’s higher peaking

Comm. Variable Allocation $2.58 MillionCommercial Demand

(Annual CCF) 935,000

Rate per CCF $2.77

Existing Rate per CCF $4.13


Water: Impact to the 5 largest Commercial users based on May 2015

Existing Rates – 6% Fixed

$24,794 $27,623

$25,042

$17,459

$9,753

$‐ $5,000

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000

Existing Fixed Existing Variable

Modeled FY ‘17 Rates – 44% Fixed

$28,821 $30,498 $27,573

$19,038

$11,106

$‐ $5,000

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000

Modeled Fixed Modeled Demand Modeled Variable

Proposed rate structure stabilizes revenue volatilityShown at Workshop #4

Water: Potable Irrigation class and rate created to reflect distinct uses and updated Cost of Service results

Potable Irrigation Variable Rate• Existing Tiered Allocation structure is complex and creates greater revenue volatility


Modeled FY ‘17 Rate

Higher uniform rate (relative to MFR) reflects higher peaking

Potable IrrigationVariable Allocation $0.86 Million

Potable Irrigation Demand(Annual CCF) 270,000

Rate per CCF $3.18

Tier 1 Existing Rate per CCF $4.18

Tier 2 Existing Rate per CCF 6.27

Tier 3 Existing Rate per CCF 8.36


Recycled Water Rate Design

Recycled Water: Two cost of service methodology alternatives are available

Alternative #1 – Independent Alternative #2 – One Water• Views Recycled Water as a component of Water

• Recycled Water is a water supply, just like any other– Use of RW reduces potable

purchases or capital needs

• Views Recycled Water as a self‐sufficient enterprise

• Recycled Water users fully fund all expenditures– ACWRF– Capital– G&A

Board provided general direction to pursue One

Water approach

Recycled Water: Under the One Water approach, costs are blended throughout the water system

One Water Concept One Water: Fixed + Variable• Same Fixed Rate as potable customers

• No Demand Charge– Demand Charge allocation

built into Variable rate

• Recycled water costs are treated similar to Groundwater Recovery Facility

• Recycled Water is simply another customer class

Recycled Water Allocation $1.1 Million

RW Demand Charge Allocation $0.25 Million

Recycled Water Demand (CCF) 390,000

Annual Cost per CCF $3.57

Higher uniform rate (relative to potable irrigation) reflects demand charge costs.

Next Steps

• Finalize Revenue Requirements Analysis– Based on recommended Scenario– Final review of reserves (updated balances)– Final review of CIP & forecasted timing– Revenue Sensitivity Analysis (based on demand bookends)

• Confirm Demands (Water & Sewer)– Accounts, meter counts, and demands

• Rate Design (based on Board direction)• Proposed 5 year rate schedule to Board• Drafting of Administrative Record (report)• QA/QC Process

Future workshops will continue to refine the overall cost of service process and address next steps

Workshop #6 (New)Proposed February 4th 1:00 – 4:00 PMReview & Public Comment• Further refinements to methodology and calculations•Overview of previous presentations

Workshop #6 (New)Proposed February 4th 1:00 – 4:00 PMReview & Public Comment• Further refinements to methodology and calculations•Overview of previous presentations

Next Steps•Review & Public Comment•Prepare Draft Cost of Service Report•Outline Schedule for Proposition 218 Process

Next Steps•Review & Public Comment•Prepare Draft Cost of Service Report•Outline Schedule for Proposition 218 Process

1a - PowerPoint Presentation Workshop #5

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