2020-02-18 CC Agenda Packet - ITEM #D17 - PRESENTATION - Water-Wastewater Study'l, Segundo
Water and Wastewater Rate Study
City Council Workshop: February 18, 2020
RAFTELIS
Agenda
Objectives of the Study
Steps to Conduct a Rate Study
Legal Environment of Rate Making
Financial Policies and Financial Plan Discussion
Rate Structure Framework Discussion
Schedule
Study Objectives
Develop sustainable financial plans for the water and wastewater
enterprises to fund O&M costs, Capital Improvement Program
(CIP), and prudent cash reserves
Excel -based models for forward-looking scenarios
Conduct cost -of -service analyses and design equitable and
defensible rates for water, recycled water, and wastewater service
Implement five years of rates (Fiscal Years 2020-2024)
Rate Study at a Glance
Financial Plan
• Evaluation of CIP and
financing options
• Cash flow analysis
for financial
sufficiency
Rate Setting
Framework
• Financial goals and
policies
• Pricing objectives
Cost of Service
& Rate Design
• Cost allocations
• Rate design
— Rate calculations
— Customer impact
analyses
Final Rate
Adoption
• Report
• Public Hearing
Legal Environment of Rate Making
Cost of Service Requirements
Proposition 218 and Proposition 26 (Article XIIIC and
XIIID of California Constitution)
Pass-through Provision
AB 3030 — Section 53756 of the Government Code
Water Conservation
Article X of California Constitution — prohibits water
waste
EO B-37-16 — Each water agency will have a target based
on indoor and outdoor water budgets
Proposition 218 Requirements
(Post- Capistrano Decision)
SUPPLY DELIVERY EXTRA CONSERVATION
Water supply Delivery rate CAPACITY Conservation program
rate ($ /HCF) ($ /HCF) (Peaking Costs) rate ($ /HCF)
Peaking rate
($ /HCF)
TOTAL
VOLUMETRIC
RATE FOR
EACH TIER
($ /HCF)
Agencies must develop a nexus between their tiered
rates and their costs to serve those tiers and document
their methodology in a report
We develop a nexus between rates and cost of service
by adding a unit rate for each cost component
City of
Long Beach
Residential
Tier 1 $1.055 $0.579 $0.361 $0.000 -$0.074 $1.921
Tier II $2.645 $0.579 $0.454 $0.000 $0.000 $3.678
Tier III $2.907 $0.579 $0.651 $1.229 $0.000 $5.366
City of
Thousand Oaks
r Water jr Delivery Conservation Proposi;
Supply Im IFY 201
Residential
Tier 1 $3.11 $0.83 $0.16 $0.03 $0.11 $4.24
Tier II $3.11 $0.83 $0.47 $0.03 $0.11 $4.55
Tier 111 $3.11 $0.83 $0.86 $0.03 $0.11 $4.83
Financial Policies &
Financial Plan
Discussion
:z a
Financial Challenges of Managing
a Water / Wastewater System
Properties of Utility System
• Capital intensive
• Highly fluctuating capital cost
• Unknown liability
• Increasing regulatory demand
Political Acceptance on Rates
• Rate stability
• Affordability
• Equity
• Environmental stewardship
Overview of Financial Policies
Goals of Financia-IlReserve Policies:
To mitigate financial risk
- - Rate / revenue instability
— Emergency with asset failure
Volatility in working capital
To achieve/maintain a certain credit rating
To determine most opportune time to
issue debt
Overview of Financial Policies
Importance- of Financial Policies:
To maintain financial solvency
Provide a basis for coping with fiscal emergencies (revenue
short -falls, asset failure, emergency, etc)
To provide guidelines for sound financial management
with an overall long-range perspective
To enhance financial management transparency
Improve public's confidence and elected officials' credibility
Financial Policies
Reserve Categories
Operating Reserve — results from positive cash flow
CIP Reserves — Can award contracts quickly and speed up projects if
necessary
Rate Stabilization —funds used during periods of revenue shortages
Such as a drought
Can use probability analysis to determine reserve levels
Emergency — funds available in case of asset failure
Critical asset replacement analysis used to set reserve level
Debt Coverage Ratio
Exceed Official Statement requirements
Achieve / Maintain good credit ratings
If there is no debt, what is your debt capacity?
How much debt are you able to issue with your current rates?
Reserve Policy Discussion
Current Reserve policy only applies to General Reserve
Proposed Reserve Policy combined O&M and CIP
Reserves:
Water: $12.3M = $9.1M O&M + $3.2M CIP (10 -yr avg)
Wastewater: $2.1M = $1.4M O&M + 0.7M CIP (10 -yr avg)
Reserves Proposed Target
Capital Reserve 1 year
Rate Stabilization Reserve N/A
Emergency Reserve N/A
Current Rate Structure
Bi -monthly billing
Same tier thresholds for all customer classes
Monthly fixed charges
All customer classes are billed the same monthly fee
based on meter size
There is a private fire protection connection charge
based on connection size
Volumetric rates
Rates for SFR are different from MFR and non-residential
customer classes
Monthly fixed charges
EL SE GLNDO XI L,_ % � .c, uY C .FACIrY CII�RCES AND FIRE SERVICE Ca-kRGES
AI,onthk- Cap3d fy Charge
Meter Size C urr ent Ext a New Rate Fi m S en-i,c t C h&rga
EtivaM lr lipEtiv a?: lr0 1
5:'8x5:4atid54
51138
511-95
5�8 a Y4 mid 3.4 Life�
$5.69
$5.98
1 "
x_81
527-10
F L fal ne
$12
S13 -55
1
$82-32
35.94
$134.86
$141_61
X59.'.9
5 1.2.5
16"
$447-37
$469.74
M
S4_28
$825.49
ION
$j:227.00
$1 A8.35
I Y.
$1,71- 66.72
$1, 85.05
W:
$3:137.10
$3:2%93.96
2V
x.899.61
$5.144.59
518.80
599.75
$120.71
$182..61
$252.89
$3x.44
Volumetric rates
Tier 1 0-10 hcf $2.8200 $3.4328
Tier 1 Lifeline 0-10 hcf $1.4100
Tier 2 10-20 hcf $5.1900
Tier 3 20-50 hcf $5.8952
Tier 4 Over 50 hcf $5.1900
N/A
$4.1935
$4.4366
$4.6571
Water Rate Structure
Framework
Discussion
17
wf�
win
Revenue Stability
Financial Stability
Administrative Ease
Defensibility
Affordability
Conservation
Equity
Customer
Understanding
Water Rate Structure Evolution
lu Ju
Quantity
Flat Rate: $xx / month regardless of usage
Pros: Revenue stability, easy to understand
Cons: Inequitable, no conservation signal,
not affordable for essential use
Water Rate Structure Evolution --
Flat Rate
Uniform Rate: $xx / hcf
Pros: Revenue stability, administrative ease,
easy to understand
Cons: Weak conservation, not affordable for
essential use
Uniform
Rate
Uniform Rate: $xx / hcf
Pros: Revenue stability, administrative ease,
easy to understand
Cons: Weak conservation, not affordable for
essential use
Water Rate Structure Evolution
prM I
Flat Rate
Seasonal Rate: $ xxx / hcf in Summer,
$ x/hcf in Winter
Pros: Promote water conservation in the
summer, easy to administer
Cons: Revenue instability, not affordable for
essential use
Uniform
Rate
Seasonal Rate: $ xxx / hcf in Summer,
$ x/hcf in Winter
Pros: Promote water conservation in the
summer, easy to administer
Cons: Revenue instability, not affordable for
essential use
Seasonal
Rate
Seasonal Rate: $ xxx / hcf in Summer,
$ x/hcf in Winter
Pros: Promote water conservation in the
summer, easy to administer
Cons: Revenue instability, not affordable for
essential use
Water Rate Structure Evolution
prM I
Flat Rate
Inclining Tiered Rate:
Pros: Promote conservation, affordable for
essential use, easy to administer, easy to
understand
Cons: Target large users
Uniform
Rate
Seasonal
Rate
Inclining Tiered
Rate
Inclining Tiered Rate:
Pros: Promote conservation, affordable for
essential use, easy to administer, easy to
understand
Cons: Target large users
Water Rate Structure Evolution
PrM I
Flat Rate
Excess Use Rate
20 30
Quantity
Excess Use Rate:
Pros: Promote conservation, affordable for
essential use, fair among diversified customers
Cons: Perceived opportunity for gaming,
harder to understand
Uniform
Rate
Seasonal
Rate
Inclining
Tiered
Rate
Excess Use Rate
20 30
Quantity
Excess Use Rate:
Pros: Promote conservation, affordable for
essential use, fair among diversified customers
Cons: Perceived opportunity for gaming,
harder to understand
Water Rate Structure Evolution
prm
Flat Rate
Excess Use Rate
Water Resource Water Budget Rate
Management
Water Budget Tiered Rate:
Pros: Promote water efficiency, equitable,
affordable for essential use, drought
allocation tool, revenue stability
Cons: High administrative cost, harder to
understand
Uniform
Rate
Seasonal
Rate
Inclining
Tiered
Rate
Excess Use Rate
Water Resource Water Budget Rate
Management
Water Budget Tiered Rate:
Pros: Promote water efficiency, equitable,
affordable for essential use, drought
allocation tool, revenue stability
Cons: High administrative cost, harder to
understand
Goals and objectives
for water rate
structure
Pricing Objectives
Based on Discussion with Staff
Revenue Stability
Perceived Equity/Fairness
Affordability
Conservation
Administration
Simplicity
Wastewater Rate
Discussion
27
Wastewater Rate Structure
There are three different fees:
1. Volumetric sewer fee - per hcf of potable water usage
Monthly treatment fee — based on meter size
Monthly wastewater service fee — based on meter size
Different for Commercial and Industrial customers from
West and East city regions
East City region is serviced by LA County Sanitation
District's Treatment Plant in the City of Carson
West City region is serviced by City of LA's Hyperion
Treatment Plant
Sewer Rates
Sewer Fee per hcf of potable water 1 $0.73
1
Sewer Treatment Fees (Monthly)
3/4"
$16.63
$27.28 $8.32
$19.62
$16.27
$15.38
1"
$21.15
$38.50 $10.58
$48.97
$21.99
$24.35
1 1/2"
$22.87
$58.74
$90.18
$63.55
$37.06
2"
$24.29
$131.73
$237.73
$193.99
$56.19
T
$447.75
$440.61
$486.29
$139.34
4" - 6"
$616.10
$1,882.76
$690.89
$165.00
Wastewater Service Fees (Monthly)
3/4"
$6.60
$10.56 $3.31
$6.60
1"
$7.92
$14.85 $3.31
$9.24
1 1/2"
$8.58
$22.44
$13.86
2"
$9.24
$49.50
$19.81
3"
$132.00
$171.62
$52.81
4" - 6"
$184.81
$231.02
$66.00
3/4"
$7.26
$6.60
$7.26
1"
$18.81
$7.26
$7.92
$18.15
1 1/2"
$33.00
$46.21
$24.42
$33.00
2"
$85.81
$132.00
$72.60
$72.60
3"
$184.81
$184.81
$184.81
$297.02
4" - 6"
$693.05
$297.02
$264.02
$462.03
6"
$759.05
$1.254.10
Policy Discussion
The Lifeline Program will be maintained in the proposed
rate structure:
Identification of a funding mechanism for this program
Given Prop 218, must be from non -rate revenue
Where should the discount occur?
We recommend lowering the fixed charge
Maintain current program requirements
Policy Discussion
Incorporation of pass-throug
wastewater enterprises, with
on respective cost increase
h rates for water and
ability to increase based
i.e. Costs from West Basin MWD, Hyperion Treatment
Plant, etc.
Recycled water to mirror West Basin MWD costs
Policy Discussion
Pro: Assist with revenue stability and minimize financial
risk for the City
Con: Customers will not know the final rates until the
wholesale rates are determine
Lack of transparency?
Project Schedule
Staff Kick-off Workshop, Data Collection & Project 1 June 25, 2019
Management
Policy Framework Workshops with City Council 1 Feb 18, 2020
Long Range Financial Plan Development for Water & 1 May 19, 2020
Wastewater Services
Cost of Service for Water & Wastewater Services
Water & Wastewater Rates Development
Water & Wastewater Rate Workshops 1 June 16, 2020
Administrative Report Development for Proposed Water 1 August 4, 2020
and Wastewater Rates
Public Outreach July to Oct
Proposition 218 Notice Preparation and Public Hearing 1 Oct 6, 2020
Next Steps
Financial Plan Completion and Discussion with City staff
Cost of Service and Rate Design
City Council Workshops
Thank you !
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