June 26, 2014

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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


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

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ber M

eetin

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Where we are today…

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Today’s Agenda

• Recap of Meeting No. 12• Overview of Preliminary Rate Analysis• Cost Allocation Inputs• Cost of Service Analysis• Next Steps

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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

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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

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Cost Allocation Inputs

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Draft 2015 Cost allocation methodology remains consistent

with the 2010 rate setting process and the findings of Pendry-Griffith

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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

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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

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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

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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

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DWZ


DWZ



$-

$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




$47/af Outside DWZ vs. rural residential,

diff is $9/af


$97/af


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Next Steps

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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



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…

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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)

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Questions?

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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%


DWZ


DWZ



$-

$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


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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%

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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

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Alternative Cost Allocation

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DWZ


DWZ

Augmentation Charge - Rural

Residential


$-

$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



about $45/afOutside DWZ vs. rural residential,

difference is about $10/af


about $115/af


30


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


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%

June 26, 2014

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